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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 9, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BR HOLDING, INC.
(Exact name of registrant as specified in its charter)
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GEORGIA 6719 58-2458679
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Code Identification No.)
Number)
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4370 PEACHTREE ROAD, N.E. ROBERT S. PRATHER, JR.
ATLANTA, GEORGIA 30319 4370 PEACHTREE ROAD, NE
(404) 266-8333 ATLANTA, GEORGIA 30319
(404) 266-8333
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of registrant's telephone number, including area code, of
principal executive offices) agent for service)
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COPY TO:
HENRY O. SMITH III, ESQ.
PROSKAUER ROSE LLP
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 969-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective and the
effective time of the proposed mergers of wholly owned subsidiaries of BR
Holding, Inc. into each of Capital Sports Properties, Inc., Host Communications,
Inc. and Universal Sports America, Inc., as described in the Restated Agreement
and Plan of Merger attached as Appendix A to the proxy statement/prospectus
forming a part of this registration statement.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
registration statement for the same offering. [ ]
If this form is post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PER UNIT PRICE(1)(2) REGISTRATION FEE(2)
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Common Stock, par value $.01 per
share......................... 11,327,000 -- $48,945,407 $13,606(3)
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(1) Estimated solely for purposes of calculation of the registration fee.
(2) Calculated pursuant to Rule 457(f)(2).
(3) The registrant has previously paid a registration fee of $6,217 in
connection with the filing of its preliminary proxy materials contained in
this Registration Statement.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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BULL RUN CORPORATION
4370 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30319
YOUR VOTE IS VERY IMPORTANT
The board of directors of Bull Corporation has approved an agreement and
plan of merger that provides for the acquisition by Bull Run of Capital Sports
Properties, Inc., Host Communications, Inc. and Universal Sports America, Inc.
Capital is a holding company which currently owns a substantial interest in
Host, Host is a sports marketing and association management company and
Universal is a sports marketing company. If the acquisition is completed,
Capital, Host and Universal will become wholly owned subsidiaries of Bull Run.
At a special stockholders meeting of Bull Run, stockholders will be asked to
vote to approve a number of proposals relating to this proposed acquisition as
well as other matters.
This proxy statement/prospectus provides stockholders of Bull Run with
detailed information about the matters to be considered at the special meeting.
Stockholders are encouraged to read this entire document carefully.
THE BOARD OF DIRECTORS OF BULL RUN BELIEVES THAT THE ACQUISITION OF
CAPITAL, HOST AND UNIVERSAL AND THE OTHER MATTERS TO BE PRESENTED AT THE SPECIAL
MEETING ARE IN THE BEST INTERESTS OF BULL RUN AND ITS STOCKHOLDERS. THEREFORE,
THE BOARD OF DIRECTORS URGES STOCKHOLDERS TO VOTE IN FAVOR OF EACH OF THE
PROPOSALS TO BE PRESENTED AT THE SPECIAL MEETING.
Robert S. Prather, Jr.
President and Chief Executive Officer
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 12 OF THIS
PROXY STATEMENT/PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS
PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROXY STATEMENT/PROSPECTUS DATED AUGUST 11, 1999, AND FIRST MAILED TO
STOCKHOLDERS ON AUGUST 13, 1999.
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BULL RUN CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Time: 10:00 a.m., local time
Date: September 14, 1999
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Place: Bull Run Corporation
4370 Peachtree Rd., N.E.
Atlanta, Georgia 30319
Purpose: Each of the following three proposals is conditioned upon the other,
so that all three of these proposals must be approved by
stockholders or, if one or more of these proposals are not so
approved, none of these proposals will be approved.
- Creation of a Holding Company Structure. Vote to approve the
proposed creation of a holding company structure for Bull Run
whereby a subsidiary of BR Holding, a newly formed Georgia
corporation, will be merged into Bull Run, and each outstanding
share of Bull Run common stock will be converted automatically
into one share of BR Holding common stock. As a result, BR
Holding, which will then be a publicly held Georgia corporation,
will be owned by the stockholders of Bull Run immediately prior to
the merger, and Bull Run and its subsidiaries will become
subsidiaries of BR Holding. BR Holding will then change its name
to Bull Run Corporation.
- Acquisition of Capital, Host and Universal. Vote to approve the
issuance of shares of BR Holding common stock to stockholders of
Capital, Host and Universal pursuant to an agreement and plan of
merger.
- Amendment of 1994 Long-Term Incentive Plan. Vote to approve the
amendment of the 1994 Long-Term Incentive Plan to increase the
number of shares issuable thereunder.
Stockholders will also be asked at the special meeting to:
- Elect directors.
- Vote to confirm the appointment of Ernst & Young LLP as the
independent auditors.
- Conduct other business if properly raised.
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND, IN ORDER
TO ENSURE THAT YOUR INTERESTS ARE REPRESENTED, PLEASE SIGN, DATE AND MAIL
PROMPTLY THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
Robert S. Prather, Jr.
President and Chief Executive Officer
Atlanta, Georgia
August 11, 1999
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TABLE OF CONTENTS
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Questions and Answers About the Mergers..................... 1
Summary..................................................... 3
The Bull Run Stockholders' Meeting........................ 3
Recommendation to Stockholders............................ 3
Required Votes............................................ 3
The Reorganization of Bull Run............................ 4
Acquisition of Capital, Host and Universal................ 4
Organizational Charts..................................... 10
Risk Factors................................................ 12
Risks Relating to Bull Run's Current Businesses........... 12
Risks Relating to Host and Universal...................... 14
Risks Relating to the Combined Company.................... 15
The Bull Run Meeting........................................ 17
Purpose of the Meeting.................................... 17
Votes Required............................................ 17
Record Date and Voting Rights............................. 17
Voting and Revocation of Proxies.......................... 18
Proposal 1: Approval of the Creation of a Holding Company
Structure................................................. 19
Recommendation of the Bull Run Board of Directors and
Reasons for the Recommendation......................... 19
Material Federal Income Tax Consequences.................. 20
No Appraisal Rights Available to Bull Run Stockholders.... 20
Comparison of the Stockholders' Rights, Articles of
Incorporation and Bylaws of Bull Run and BR Holding....... 21
Proposal 2: Approval of the Issuance of BR Holding Shares in
the Mergers............................................... 22
Recommendation of the Bull Run Board of Directors and
Reasons for the Recommendation......................... 22
Reasons of Capital, Host and Universal for the Mergers.... 22
Background of the Mergers................................. 23
The Merger Agreement...................................... 26
Material Federal Income Tax Consequences.................. 33
Accounting Treatment...................................... 35
Operations of Host and Universal After the Mergers........ 35
Regulatory Matters........................................ 35
Financing of the Mergers.................................. 35
Resale of BR Holding Common Stock Following the Mergers... 37
Stockholders' Agreement................................... 37
Capital Written Consent................................... 37
Host Voting Agreement..................................... 37
Universal Voting Agreement................................ 38
Interests of Certain Persons in the Mergers............... 38
No Appraisal Rights Available to Bull Run Stockholders.... 40
Selected Financial Information of Bull Run.................. 41
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Bull Run..................... 43
Overview.................................................. 43
Results of Operations..................................... 43
Liquidity and Capital Resources........................... 47
Interest Rate Risk Management............................. 50
Recently-Issued Accounting Standard....................... 51
Impact of Year 2000....................................... 51
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Selected Financial Information of Capital................... 53
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Capital...................... 54
Overview.................................................. 54
Results of Operations..................................... 54
Liquidity and Capital Resources........................... 55
Impact of Year 2000....................................... 55
Selected Financial Information of Host...................... 56
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Host......................... 58
Overview.................................................. 58
Results of Operations..................................... 58
Liquidity and Capital Resources........................... 60
Interest Rate Risks....................................... 61
Impact of Year 2000....................................... 61
Selected Financial Information of Universal................. 63
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Universal.................... 65
Overview.................................................. 65
Results of Operations..................................... 65
Liquidity and Capital Resources........................... 67
Year 2000 Compliance...................................... 68
Interest Rate Risk........................................ 69
Unaudited Pro Forma Financial Data.......................... 70
Business of Bull Run........................................ 78
Business of Host............................................ 85
Business of Universal....................................... 88
Market Prices and Related Matters........................... 91
Bull Run.................................................. 91
Capital, Host and Universal............................... 92
Principal Stockholders...................................... 93
Bull Run.................................................. 93
Capital................................................... 95
Host...................................................... 95
Universal................................................. 96
Certain Transactions........................................ 97
Comparison of the Stockholders' Rights, Articles of
Incorporation and Bylaws of BR Holding, Capital, Host and
Universal................................................. 97
General................................................... 97
Authorized Capital Stock.................................. 97
Directors................................................. 98
Removal of Directors...................................... 99
Special Meetings of Stockholders.......................... 99
Amendment of Bylaws....................................... 99
Amendments to the Articles of Incorporation............... 100
Dividends, Redemptions and Repurchases.................... 100
Transactions with Interested Directors.................... 101
Indemnification........................................... 102
Appraisal Rights.......................................... 102
Proposal 3: Amendment of Bull Run 1994 Long-Term Incentive
Plan...................................................... 103
Vote Required and Board Recommendation.................... 107
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Proposal 4: Election of Directors............................................................... 108
Nominees...................................................................................... 108
Compliance with Section 16(a) of the Securities Exchange Act of 1934.......................... 111
Additional Appointees to the Board of Directors of Bull Run................................... 111
Stockholders' Agreement....................................................................... 111
Board Committees and Membership............................................................... 112
Compensation.................................................................................. 112
Compensation Committee Interlocks and Insider Participation................................... 113
Employment Agreements......................................................................... 113
Stock Options................................................................................. 113
Report of the Compensation and Stock Option Committee......................................... 114
Members of the Management Compensation and Stock Option Committee............................. 116
Certain Transactions.......................................................................... 116
Performance Graph............................................................................. 117
Proposal 5: Confirmation of Appointment of Auditors............................................. 118
Experts......................................................................................... 119
Legal Matters................................................................................... 120
Relationship with Independent Auditors.......................................................... 120
Stockholder Proposals........................................................................... 120
Where Stockholders Can Find More Information.................................................... 121
Forward-Looking Statements...................................................................... 122
Index to Financial Statements................................................................... F-1
Appendix A -- Agreement and Plan of Merger among BR Holding, Bull Run and a wholly owned
subsidiary of BR Holding
Appendix B -- Amended and Restated Agreement and Plan of Merger among BR Holding, Bull Run,
Capital, Host, Universal and three wholly owned subsidiaries of BR Holding
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE MERGERS
Q. WHY IS BULL RUN REORGANIZING ITSELF INTO A HOLDING COMPANY STRUCTURE?
A. We believe that the reorganization of Bull Run and the creation of a
holding company structure will improve and streamline the administrative
functions of its various businesses, offer opportunities to increase
efficiencies and reduce costs, and may facilitate Bull Run's ability to
obtain financing in connection with its business and any future
acquisitions.
Q. WHY ARE BULL RUN, CAPITAL, HOST AND UNIVERSAL PROPOSING TO MERGE?
A. We believe that the mergers of Capital, Host and Universal will create a
stronger, unified company and will diversify the service and product ranges
of the individual companies.
Q. WHEN DO YOU EXPECT THAT THE HOLDING COMPANY REORGANIZATION AND THE
MERGERS WILL BE COMPLETED?
A. We hope to complete these transactions shortly after the special meeting
of Bull Run stockholders.
Q. WHY IS AN AMENDMENT TO THE 1994 LONG-TERM INCENTIVE PLAN BEING
PROPOSED?
A. An amendment to the 1994 Long-Term Incentive Plan will enable BR
Holding to assume the currently outstanding Host and Universal stock
options if the mergers are completed and to assume the currently
outstanding Bull Run stock options if the holding company reorganization is
completed. In addition, the new plan will enable BR Holding to grant
options and other incentives in the future to attract and retain key
personnel.
Q. WHAT IS THE RELATIONSHIP AMONG THE PROPOSALS TO APPROVE THE HOLDING
COMPANY REORGANIZATION, THE MERGERS AND THE AMENDMENT TO THE 1994 LONG-TERM
INCENTIVE PLAN?
A. Each of these steps is conditioned on the occurrence of the other steps, so
that all of them must be approved to accomplish the acquisition by Bull Run
of Capital, Host and Universal.
Q. WHAT DO I NEED TO DO NOW?
A. After carefully reading and considering this document and its appendices,
indicate on your proxy card how you want to vote, and sign and mail the
proxy card in the enclosed return envelope as soon as possible, so that
your shares will be represented at the meeting. If you sign and send in
your proxy card and do not indicate how you want to vote, we will count
your proxy card as a vote in favor of the proposals to be voted upon at the
meeting. If you do not vote or you abstain, it will have the effect of a
vote against the proposals presented at the meeting. The board of directors
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recommends voting in favor of the proposals and the election of directors
described in this proxy statement/prospectus.
Q. IF MY BROKER HOLDS MY SHARES IN "STREET NAME," WILL MY BROKER VOTE MY
SHARES FOR ME?
A. You should instruct your broker to vote your shares according to your
directions. Without instructions, your broker will not vote your shares,
with certain exceptions.
Q. IF I AM NOT GOING TO ATTEND THE STOCKHOLDERS' MEETING, SHOULD I RETURN MY
PROXY CARD INSTEAD?
A. Yes. Please fill out your proxy card and mail it to us in the enclosed
return envelope as soon as possible. Returning your proxy card ensures that
your shares will be represented at the stockholders' meeting.
Q. WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A. You should send in a later-dated, signed proxy card to Bull Run's
corporate secretary before the meeting or you should attend the meeting and
vote in person.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. If you would like additional copies of this proxy statement/prospectus or
if you have questions, you can contact us at Bull Run Corporation, 4370
Peachtree Road, N.E., Atlanta, Georgia 30319, Attention: Investor Relations
or you can call MacKenzie Partners, Inc., which has been retained to assist
in the solicitation of proxies at (212) 929-5500.
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SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to stockholders. To understand better the holding company
reorganization, the mergers and related transactions and for a more complete
description of the legal terms of such transactions, stockholders should read
carefully this entire document and the documents to which stockholders are
referred. See "Where Stockholders Can Find More Information" on page 121. Bull
Run has included page references parenthetically to direct stockholders to a
more complete description of the topics presented in this Summary.
THE BULL RUN STOCKHOLDERS' MEETING (PAGE 17)
At the special meeting of Bull Run stockholders, holders of Bull Run common
stock will consider and vote upon:
- a proposal to create a holding company structure for Bull Run, whereby a
subsidiary of BH Holding, a newly formed Georgia corporation, will be
merged into Bull Run and each outstanding share of Bull Run common stock
will be converted automatically into one share of common stock of BR
Holding, Inc., as a result of which, BR Holding will be owned by the
stockholders of Bull Run immediately prior to the merger (see page 19);
- a proposal to approve the issuance of shares of BR Holding common stock
in accordance with the merger agreement among BR Holding, Bull Run,
Capital Sports Properties, Inc., Host Communications, Inc., Universal
Sports America, Inc. and three wholly owned subsidiaries of BR Holding
(see page 22);
- a proposal to amend the 1994 Long-Term Incentive Plan to increase the
number of shares issuable thereunder (see page 103);
- the election of directors (see page 108);
- a proposal to confirm the appointment of Ernst & Young LLP as the
independent auditors (see page 118); and
- any other matters that may properly come before the meeting.
RECOMMENDATION TO STOCKHOLDERS
The Bull Run board of directors believes that (1) the reorganization of
Bull Run into a holding company structure, (2) the issuance of shares of BR
Holding common stock in the mergers, (3) the amendment of the 1994 Long-Term
Incentive Plan, (4) the election of the directors described in this proxy
statement/prospectus and (5) the confirmation of Ernst & Young LLP as the
independent auditors are in the best interests of its stockholders and
recommends that stockholders vote "for" each of the foregoing proposals.
REQUIRED VOTES
Approval of the reorganization of Bull Run into a holding company structure
requires the affirmative vote of the holders of a majority of the outstanding
shares of Bull Run common stock entitled to vote on the proposal.
Approval of each of the issuance of shares of BR Holding common stock in
the Capital, Host and Universal mergers, the confirmation of Ernst & Young LLP
as the
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independent auditors and the amendment of the 1994 Long-Term Incentive Plan
requires the affirmative vote of the holders of a majority of the shares of Bull
Run common stock present in person or represented by proxy at the meeting and
entitled to vote on the proposal.
Election of directors is by a plurality of votes cast.
THE REORGANIZATION OF BULL RUN (PAGE 19)
If the proposal is adopted by stockholders, a holding company structure for
Bull Run will be created and each outstanding share of Bull Run common stock
will automatically be converted into one share of common stock of BR Holding. It
will not be necessary for Bull Run stockholders to exchange their certificates
representing Bull Run common stock for certificates representing BR Holding
common stock. As a result of the reorganization, BR Holding will be a public
company owned by the current stockholders of Bull Run and Bull Run and its
subsidiaries will become subsidiaries of BR Holding. BR Holding will then change
its name to Bull Run Corporation.
ACQUISITION OF CAPITAL, HOST AND UNIVERSAL
THE MERGER AGREEMENT (PAGE 26)
The merger agreement governs the terms of the proposed acquisition by Bull
Run of Capital, Host and Universal. Under the merger agreement, a separate
wholly owned subsidiary of BR Holding will merge with and into each of Capital,
Host and Universal and the stockholders of Capital, Host and Universal will
receive cash and BR Holding common stock in exchange for their shares. As a
result of the mergers, Capital, Host and Universal will become wholly owned
subsidiaries of BR Holding.
THE PARTIES TO THE MERGER AGREEMENT (PAGES 78, 85 AND 88)
Bull Run Corporation
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
(404) 266-8333
Bull Run is currently engaged in manufacturing and marketing heavy-duty dot
matrix and thermal printers for industrial applications through Datasouth
Computer Corporation, Bull Run's wholly owned subsidiary. Bull Run also owns,
directly and/or indirectly, interests in Gray Communications Systems, Inc., an
owner and operator of television stations and newspapers, Rawlings Sporting
Goods Company, Inc., a manufacturer of sports marketing services and team sports
equipment, Sarkes Tarzian, Inc., an owner and operator of television and radio
stations, Total Sports, Inc., a sports content Internet company, as well as
Capital, Host and Universal.
Capital Sports Properties, Inc.
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
(404) 266-8333
Capital is a holding company which currently owns approximately 48% of the
outstanding common stock and all of the outstanding preferred stock of Host.
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Host Communications, Inc.
546 East Main Street
Lexington, Kentucky 40508
(606) 226-4678
Host is a sports marketing and association management company that is the
primary marketer for the National Collegiate Athletic Association. Host also has
national marketing relationships with the National Association of Collegiate
Directors of Athletics, the National Basketball Coaches Association, the Women's
Basketball Coaches Association, the American Football Coaches Association, NCAA
Football USA, Inc., and the National Football Foundation and College Football
Hall of Fame, Inc. Host manages the operations of various trade associations
such as the National Tour Association, the National Limousine Association, the
International Spa and Fitness Association and QUEST. Host also has significant
printing, publishing, broadcast and Internet operating divisions which support
Host's Sports marketing and trade association management businesses.
Universal Sports America, Inc.
4006 Beltline Road, Suite 230
Dallas, Texas 75244
(972) 392-5700
Universal is a sports marketing company that specializes in developing
integrated marketing programs and events on the professional, collegiate and
high school levels. In 1998, Universal oversaw the management and production of
more than 270 events in conjunction with NBC Sports, the National Basketball
Association, the National Football League, the National Hockey League, Major
League Baseball and the Professional Golfers' Association Tour. Universal also
is a marketing and broadcast partner for many leading schools and conference
athletic programs.
WHAT CAPITAL, HOST AND UNIVERSAL STOCKHOLDERS AND OPTION HOLDERS WILL RECEIVE
(PAGE 26)
Upon completion of the mergers, Capital, Host and Universal stockholders
will receive the following:
- for each share of Capital common stock: (1) $194,085.24 in cash, plus an
amount in cash equal to 1% of the dividends on the Host Communications
preferred stock owned by Capital accrued and unpaid to the closing date
and (2) 40,640.57 shares of BR Holding common stock;
- for each share of Host common stock: (1) $35.02 in cash and (2) 9.0925
shares of BR Holding common stock; and
- for each share of Universal common stock and preferred stock: (1)
$27,477.28 in cash and (2) 4,187.5 shares of BR Holding common stock.
The merger agreement also provides that Host and Universal will amend all
outstanding unexercised options to purchase shares of Host and Universal common
stock granted under their respective companies' plans to provide that, upon
consummation of the mergers, for each share of Host or Universal common stock
for which such options were formerly exercisable, each such option will entitle
its holder to receive cash and/or shares of BR Holding common stock as follows:
- for each Host Class A option: (1) $35.02 in cash and (2) an option to
purchase 9.0925 shares of BR Holding common stock;
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- for each Host Class B option: an option to purchase 9.0925 shares of BR
Holding common stock;
- for each Universal Class A option: (1) $27,477.28 in cash and (2) an
option to purchase 4,187.5 shares of BR Holding common stock; and
- for each Universal Class B option: 4,187.5 shares of BR Holding common
stock.
The amounts payable in respect of the shares of Capital, Host and Universal
and Host and Universal options were determined after negotiations between Bull
Run and such companies and were based on qualitative and quantitative factors
relating to their respective businesses, operating results and prospects, as
considered by their respective boards of directors. See "Proposal 2: Approval of
the Issuance of BR Holding Shares in the Mergers -- Background of the Mergers."
FACTORS UPON WHICH THE PARTIES' OBLIGATIONS DEPEND (PAGE 28)
The obligation of each party to complete the mergers depends upon the
satisfaction or waiver of the following conditions:
- the adoption by the stockholders of Bull Run, Capital, Host and Universal
of the merger agreement;
- the approval of the holding company reorganization by Bull Run
stockholders and the completion of such reorganization;
- the approval by the stockholders of Bull Run of the proposal to amend the
1994 Long-Term Incentive Plan to increase the number of shares issuable
thereunder;
- the procurement of sufficient financing to fund the cash portion of the
merger consideration;
- that the holders of not more than seven percent of the outstanding shares
of Capital, Host or Universal exercise their appraisal rights under
applicable law;
- the termination of agreements relating to voting, repurchase and
registration of Host and Universal securities and related matters; and
- the absence of any injunction or other court order that would prohibit or
prevent the mergers.
CIRCUMSTANCES UNDER WHICH THE MERGERS MAY BE ABANDONED (PAGE 31)
The merger agreement provides that it may be terminated and the mergers may
be abandoned at any time before the effective time of the Capital merger, even
if all requisite stockholders have approved the mergers:
- by mutual written consent of the parties;
- by any of the parties not in material breach of the merger agreement (1)
if the mergers have not been completed on or before September 30, 1999,
provided, however, that in certain circumstances any party may extend
such date to a date not after October 31, 1999, or (2) if any
governmental entity has issued an order prohibiting the mergers;
- by BR Holding and Bull Run (1) if any of Capital, Host or Universal has
materially breached any representation or covenant and has not cured such
breach within 15 days, (2) if the requisite approval of Host stockholders
is not obtained or
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(3) if the requisite approvals of Capital or Universal stockholders have
not been obtained by September 30, 1999; or
- by Capital, Host or Universal if BR Holding or Bull Run has materially
breached any representation or covenant and has not cured such breach
within 15 days.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE HOLDING COMPANY REORGANIZATION
AND MERGERS (PAGE 33)
Bull Run stockholders will not recognize gain or loss upon the holding
company reorganization or the mergers. Capital, Host and Universal stockholders
who receive cash and BR Holding common stock in exchange for their stock will
recognize gain, but not loss, in connection with the mergers.
NO APPRAISAL RIGHTS AVAILABLE TO BULL RUN STOCKHOLDERS (PAGE 40)
Under Georgia law, Bull Run stockholders who object to the proposal to
approve the issuance of shares of BR Holding common stock in the mergers in
accordance with the merger agreement will not be afforded statutory appraisal
rights.
HART-SCOTT-RODINO REGULATORY APPROVAL HAS BEEN OBTAINED (PAGE 35)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 prohibits parties
to a transaction that is reportable under the Act, as this one was, from
completing the transaction until after the expiration of a statutory waiting
period. The parties filed the required documents, the waiting period has
expired, and the transaction may be completed.
MARKET PRICE INFORMATION
Bull Run common stock is traded in the over-the-counter market and listed
on the Nasdaq Stock Market. On February 12, 1999, the last trading day before
Bull Run, Capital, Host and Universal publicly announced the execution of the
merger agreement, the last reported sales price per share of Bull Run common
stock was $4 1/8. On August 10, 1999, the last trading day before the printing
of this proxy statement/prospectus, the last reported sales price per share of
Bull Run common stock was $[ ]. Since the securities of Capital,
Host and Universal are not publicly traded, they have no readily ascertainable
market value.
UNAUDITED COMPARATIVE PER SHARE DATA
The following summary presents per share information for Bull Run, Capital,
Host and Universal on a historical, pro forma combined and pro forma diluted
equivalent basis for the periods and as of the dates indicated below. The pro
forma information gives effect to the mergers accounted for using the purchase
method of accounting. This information should be read in conjunction with the
companies' historical financial statements and related notes and pro forma
combined condensed financial data included elsewhere herein. The pro forma
information should not be relied upon as being indicative of the historical
results the companies would have had if the mergers had occurred before such
periods or the future results that the companies will experience after the
mergers.
The pro forma combined income per diluted share has been computed based on
the diluted average number of outstanding shares and common equivalent shares of
Bull Run, adjusted for the common shares and common share equivalents to be
issued in connection with the acquisition of Capital, Host and Universal. The
merger equivalent income per
7
<PAGE> 14
diluted share of Capital, Host and Universal is based on the number of shares of
BR Holding common stock into which each share of Capital, Host and Universal
common stock will be converted in the mergers as follows, Capital: 36,124.95
shares; Host: 8.0822 shares; and Universal: 3,722.22 shares. The foregoing
assumes that the shares of Bull Run common stock to be issued will have a value
of $4.00 per share, which approximates the current market value of Bull Run
common stock and is the minimum value of the range of values provided in the
merger agreement.
Capital stockholders (other than Bull Run) will receive in the mergers cash
in the amount of $9,413,134 plus accrued and unpaid dividends on Host preferred
stock (totaling $718,885 through March 31, 1999), and 1,971,068 shares of BR
Holding common stock having an aggregate value of $7,884,270. Host stockholders
and optionholders (other than Bull Run and Capital) will receive in the mergers
cash in the amount of $22,458,361 and 3,271,569 shares of BR Holding common
stock having an aggregate value of $14,886,277 and options to purchase 2,454,975
shares of BR Holding common stock. Universal stockholders and optionholders
(other than Bull Run and Host) will receive in the mergers cash in the amount of
$40,267,954 and 5,634,281 shares of BR Holding common stock having an aggregate
value of $22,537,125 and options to purchase 703,500 shares of BR Holding common
stock. The total value ascribed to Host and Universal optionholders for their
options to purchase shares of BR Holding common stock is approximately
$9,500,000.
The pro forma combined book value per share is based upon the pro forma
combined equity of Bull Run, divided by the pro forma number of outstanding
shares of the combined companies as of March 31, 1999. The merger equivalent
book value per share of Capital, Host and Universal are based on the number of
shares of BR Holding common stock into which each share of Capital, Host and
Universal common stock will be converted in the merger, as follows, Capital:
36,124.95 shares; Host: 8.0822 shares; and Universal: 3,722.22 shares. The
foregoing assumes that the shares of Bull Run common stock to be issued will
have a value of $4.00 per share, which approximates the current market value of
Bull Run common stock, and is the minimum value of the range of values provided
in the merger agreement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Statement of Operations Data:
Income (loss) per diluted share:
Bull Run............................... $ (.05) $ .10
Capital................................ 23,100.00 7,490.00
Host................................... 7.11 1.28
Universal.............................. 18,036.61 461.86
Bull Run pro forma..................... .98 .00
Capital merger equivalent.............. 35,515.34 28.46
Host merger equivalent................. 7.95 .01
Universal merger equivalent............ 3,659.41 2.93
</TABLE>
8
<PAGE> 15
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
--------------
<S> <C>
Balance Sheet Data:
Net book value per share:
Bull Run............................................... $ 1.29
Capital................................................ 85,560.00
Host................................................... 15.24
Universal.............................................. 28,657.12
Bull Run pro forma..................................... 2.49
Capital merger equivalent.............................. 89,857.53
Host merger equivalent................................. 20.10
Universal merger equivalent............................ 9,258.68
</TABLE>
No dividends were declared or paid on the capital stock of Bull Run,
Capital, Host or Universal during the year ended December 31, 1998 or the three
months ended March 31, 1999.
9
<PAGE> 16
ORGANIZATIONAL CHARTS
Set forth below are charts showing the ownership structure of Bull Run
before and after the completion of the holding company reorganization and the
mergers. Percentage ownership may not equal 100% due to beneficial ownership of
shares being attributed to more than one individual or entity. See "Principal
Stockholders" on page 93. Ownership percentages of Host Communications, Inc. and
Universal Sports America, Inc. do not include preferred stock.
(COPY EDGAR PCN 899)
10
<PAGE> 17
STRUCTURE AFTER THE HOLDING COMPANY REORGANIZATION AND THE MERGERS
BR HOLDING, INC.
(WHICH WILL CHANGE ITS
NAME TO BULL RUN
CORPORATION)
|
|
|
100%
|
|
|
|
|
BULL RUN CORPORATION
(WHICH WILL CHANGE ITS
NAME TO BR HOLDING, INC.)
|
|
|
100%
|
|
|
|
CAPITAL SPORTS
PROPERTIES, INC.
|
|
|
100%
|
|
|
|
HOST
COMMUNICATIONS,
INC.
|
|
|
100%
|
|
UNIVERSAL SPORTS
AMERICA, INC.
11
<PAGE> 18
RISK FACTORS
In addition to the other information contained in this proxy
statement/prospectus, Bull Run stockholders should consider the following risk
factors before they decide whether or not to vote in favor of the proposals
described in this proxy statement/prospectus.
RISKS RELATING TO BULL RUN'S CURRENT BUSINESSES
THE FCC'S SUSPENSION OF OR FAILURE TO RENEW GRAY'S TELEVISION STATION
LICENSES WOULD IMPAIR GRAY'S ABILITY TO CONDUCT ITS BUSINESS. Bull Run owns
approximately 17% of the outstanding common stock of Gray, which owns and
operates television stations. The operation of television stations is subject to
regulation by the Federal Communications Commission, which has the power to
suspend, or refuse to renew, television stations' licenses. The FCC's suspension
of, or failure to renew, Gray's licenses would impair Gray's ability to conduct
its business and therefore would decrease the value of Bull Run's investment in
Gray.
BULL RUN'S AND GRAY'S LEVERAGE MAY ADVERSELY AFFECT THEIR ABILITY TO OBTAIN
FINANCING, THEREBY IMPAIRING THEIR ABILITY TO EXPAND OR WITHSTAND ECONOMIC
DOWNTURNS OR COMPETITIVE PRESSURES. Bull Run and Gray have substantial
indebtedness and, upon the completion of the mergers, Bull Run's indebtedness
will increase. Bull Run and Gray may incur substantial indebtedness in the
future, including acquisition-related indebtedness. The degree to which Bull Run
and Gray will be leveraged may have important consequences to holders of Bull
Run stock, including the following:
- Bull Run's and Gray's ability to obtain financing in the future for
working capital, capital expenditures and general corporate purposes may
be impaired;
- a substantial portion of each of Bull Run's and Gray's cash flow must be
dedicated to the payment of principal and interest on its indebtedness
and, in the case of Gray, the payment of cash dividends on its common and
preferred stock;
- a high degree of leverage may limit Bull Run's or Gray's ability to react
to changes in its industry, making each of them more vulnerable to
economic downturns and limiting its ability to withstand competitive
pressures; and
- the inability of Gray to pay dividends on its stock would significantly
impair Bull Run's cash flow. During the year ended December 31, 1998,
Bull Run received $985,136 in dividends on Gray stock owned by Bull Run
(and accrued an additional $208,000). In addition, Gray paid Bull Run
$1,980,000 in fees for services provided by Bull Run to Gray in
connection with an acquisition and a disposition by Gray.
BECAUSE GRAY'S BUSINESS RELIES ON ADVERTISING REVENUES, WHICH MAY BE
AFFECTED BY RECESSIONARY LOCAL AND REGIONAL MARKET CONDITIONS, GRAY'S TELEVISION
AND NEWSPAPER BUSINESS IS CYCLICAL IN NATURE AND IS AFFECTED BY PREVAILING
ECONOMIC CONDITIONS. Since Gray relies on sales of advertising time at its
television stations and in its publications for substantially all of its
revenues, Gray's operating results are sensitive to general economic conditions
and regional conditions in each of the local markets served by its television
stations and publications. In addition, most of Gray's stations and publications
are located in the Southeast and most of them derive a substantial portion of
their revenues from local advertisers. As a result, Gray's results of operations
and therefore the value of Bull Run's investment in Gray may be adversely
affected by national, regional or local recessionary economic conditions.
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<PAGE> 19
GRAY'S BUSINESS DEPENDS ON ITS RELATIONSHIPS WITH, AND THE SUCCESS OF, ITS
NATIONAL NETWORK AFFILIATES. All of Gray's television stations are affiliated
with national networks. The television viewership levels for each of Gray's
stations are materially dependent upon programming provided by the network with
which each station is affiliated. The lack of success of any network with which
Gray's stations are affiliated would adversely affect Gray's business and
therefore the value of Bull Run's investment in Gray.
DATASOUTH'S LACK OF PATENT OR OTHER PROPRIETARY PROTECTION MAY ALLOW OTHER
COMPANIES TO DEVELOP THE SAME TECHNOLOGY, THEREBY INCREASING COMPETITION AND
DECREASING THE DEMAND FOR DATASOUTH'S PRODUCTS. Datasouth, Bull Run's wholly
owned subsidiary which manufactures and markets computer printers, possesses
certain proprietary information which it uses in the development and manufacture
of its products. Because Datasouth does not possess any patents or other
proprietary protection for such information, other companies may develop the
same or similar technology or otherwise obtain access to Datasouth's
information. These companies could develop products similar to Datasouth's
products, which may decrease the demand for Datasouth's products and therefore,
decrease the value of Bull Run's investment in Datasouth.
ADVERSE EVENTS IN THE BASEBALL INDUSTRY, SUCH AS NEGATIVE PUBLICITY OR
STRIKES, MAY DECREASE RAWLINGS' REVENUE. Bull Run owns approximately 11% of the
outstanding common stock of Rawlings, which supplies team sports equipment in
North America. Sales of baseball-related products constituted approximately 55%
of the total net revenues of Rawlings in the year ended August 31, 1998.
Negative publicity or news coverage regarding professional or amateur baseball
or strikes or other stoppages in play by athletes or umpires may decrease
Rawlings' revenue and therefore decrease the value of Bull Run's investment in
Rawlings.
BECAUSE RAWLINGS' BUSINESS DEPENDS SUBSTANTIALLY ON FOREIGN MANUFACTURING,
IT IS SUBJECT TO THE RISKS OF DOING BUSINESS ABROAD. A significant portion of
Rawlings' revenue is derived from the sale of products manufactured in Rawlings'
plants outside the United States and products manufactured by third parties in
Asia and Latin America. Therefore, a large part of Rawlings' business is subject
to the risks of doing business abroad, such as changes in import duties, trade
restrictions, work stoppages, labor laws, political instability, foreign
currency fluctuations and other factors that may not affect competitors which do
not depend upon foreign manufacturing.
BECAUSE RAWLINGS' BUSINESS DEPENDS LARGELY ON BASEBALL, ITS BUSINESS IS
SEASONAL. Customers generally place orders with Rawlings for baseball-related
products beginning in August for shipment beginning in November. Because
Rawlings' sales of baseball-related products exceed those of its other products,
Rawlings' business is seasonal, with its highest net revenues and profitability
recognized between November 1 and March 31, although this may shift in the
future.
RAWLINGS' BUSINESS RELIES ON CERTAIN MAJOR CUSTOMERS WITH WHICH IT HAS
SHORT-TERM CONTRACTS AND THE FAILURE TO RENEW OR EXTEND THESE CONTRACTS COULD
ADVERSELY AFFECT RAWLINGS' BUSINESS. Sales to the 10 largest customers of
Rawlings constituted approximately 32% of the total net revenues of Rawlings in
the year ended August 31, 1998, including one customer, Wal-Mart, which
accounted for approximately 12% of 1998 net revenues. Rawlings does not have
long-term supply contracts with these customers. The inability of Rawlings' to
renew or extend these contracts would have a material adverse effect on
Rawlings' business and therefore on Bull Run's investment in Rawlings.
13
<PAGE> 20
BULL RUN'S BUSINESSES ARE VERY COMPETITIVE AND SOME OF ITS COMPETITORS HAVE
GREATER FINANCIAL AND OTHER RESOURCES. The businesses engaged in by Bull Run
and by companies in which Bull Run has significant investments are highly
competitive. Competitors include companies with considerably greater financial,
technical and marketing resources. These larger competitors may be able to make
acquisitions or otherwise increase their market share in such a way as to affect
Bull Run's business adversely.
IT IS UNLIKELY THAT BULL RUN WILL PAY DIVIDENDS IN THE FUTURE. Bull Run
has never declared or paid cash dividends on its common stock. Bull Run expects
that, following the mergers, it will not pay cash dividends on its common stock
for the foreseeable future.
RISKS RELATING TO HOST AND UNIVERSAL
HOST'S AND UNIVERSAL'S BUSINESSES DEPEND UPON SHORT-TERM SPONSORSHIP
CONTRACTS AND THE INABILITY OF HOST OR UNIVERSAL TO RENEW OR EXTEND THESE
CONTRACTS MAY ADVERSELY AFFECT THEIR REVENUES. Each of Host and Universal
derives a significant portion of its revenues from short-term sponsorship
contracts and advertising sales which in turn depend on national and local
economic conditions, the relative popularity of the events, demographic
characteristics of each company's markets and other factors which are outside of
Host's and Universal's control. After the mergers, Host or Universal may not be
successful in obtaining contract renewals or attracting new sponsors. Host's and
Universal's revenues would be adversely affected by the nonrenewal of a
significant number of sponsorship contracts, the inability of Host or Universal
to attract additional sponsors or the loss or reduction of revenues from one or
more of Host's or Universal's major clients.
HOST'S AND UNIVERSAL'S BUSINESSES RELY ON CONTRACTS WITH THE NCAA,
UNIVERSITIES AND ATHLETIC CONFERENCES AND THE INABILITY OF HOST OR UNIVERSAL TO
RENEW OR EXTEND THESE MAJOR CONTRACTS MAY ADVERSELY AFFECT THEIR REVENUES. Host
derives a significant portion of its revenues from a contract with the NCAA,
which will expire on August 31, 2002. Similarly, Universal derives a significant
portion of its revenues from marketing services agreements with universities and
athletic conferences. A number of these agreements are with public universities,
which are required by law to solicit public bids for these agreements and the
renewals of these agreements. After the mergers, Host or Universal may not be
successful in obtaining contract renewals or securing additional marketing
services agreements with the NCAA, universities or athletic conferences. Host's
and Universal's revenues would be adversely affected by the nonrenewal of the
NCAA contract or a significant number of university or athletic conference
contracts.
HOST AND UNIVERSAL MAY LOSE MONEY ON SOME OF THEIR CONTRACTS BECAUSE THEY
GUARANTEE PAYMENTS TO OTHER PARTIES. Host's agreement with the NCAA requires
that Host guarantee the NCAA a royalty for Host's right to provide marketing and
production services. A significant number of Universal's agreements with
universities and athletic conferences require Universal to guarantee the other
party a fee for Universal's right to provide marketing and production services.
Universal's ability to generate revenues depends, in part, on the performance of
the collegiate teams that participate in the events for which they provide
sponsorship opportunities. Significant shortfalls in revenues under these
agreements without a corresponding reduction in expenses could affect Host's and
Universal's profitability and therefore adversely affect Bull Run's results of
operations after the mergers.
14
<PAGE> 21
POTENTIAL LIABILITIES ASSOCIATED WITH SPORTS EVENTS MANAGED BY UNIVERSAL
MAY AFFECT UNIVERSAL'S REPUTATION AND MAKE IT MORE DIFFICULT TO OBTAIN CLIENTS
IN THE FUTURE. A significant portion of Universal's revenue is derived from its
management of sporting events. During or following events, some participants
report various medical complaints, including injuries, heat exhaustion and heart
attacks. Further, large numbers of participants and spectators attend
Universal's events. From time to time, hostile exchanges between participants or
spectators have led to physical confrontations and other unruly behavior. A
determination of liability of Universal in a material amount for injury to
persons or damage to property resulting from unruly crowd behavior or damage to
Universal's reputation from such problems could decrease Universal's
profitability.
UNIVERSAL'S FAILURE TO MAINTAIN CONTINUING RELATIONSHIPS WITH PROFESSIONAL
SPORTS LEAGUES MAY DIMINISH ITS REVENUES AFTER THE MERGERS. Universal's
business is dependent in part on its relationships with various professional
sports leagues in securing sponsors and attracting participants for its grass
roots events. The termination of any of these relationships could diminish
Universal's revenue.
UNIVERSAL'S INABILITY TO OBTAIN VOLUNTEERS AND INDEPENDENT CONTRACTORS FOR
ITS EVENTS MAY INCREASE ITS LABOR COSTS AND THEREFORE DIMINISH ITS
PROFITABILITY. Universal utilizes the services of a significant number of
volunteers and independent contractors in connection with its events. The
inability of Universal to obtain a sufficient number of volunteers or the
requisite number of independent contractors to supply services to Universal's
events would increase the labor costs associated with the production of these
events and reduce its profitability.
THE SEASONAL NATURE OF HOST'S AND UNIVERSAL'S BUSINESSES COULD ADVERSELY
AFFECT THEIR QUARTERLY RESULTS. Each of Host and Universal experiences
quarterly variations in revenues and operating income as a result of many
factors, including the seasonal nature of sporting events, the timing of
clients' marketing campaigns and the implementation of new products or services.
Host's revenues typically decline during certain periods of each year as a
result of the college basketball and football off-seasons. Each of Host's and
Universal's quarterly results of operations also may fluctuate based upon the
number and timing of managed events, the performance level of new and existing
managed events or marketing contracts, competitive factors and general economic
conditions. In connection with certain contracts, each of Host and Universal
could incur costs in periods prior to recognizing revenues under those
contracts. In addition, each of Host and Universal must plan its operating
expenditures based on forecasts of revenues, and a shortfall in revenues below
such forecast in any quarter would be likely to affect adversely Bull Run for
that quarter.
HOST'S AND UNIVERSAL'S BUSINESSES ARE VERY COMPETITIVE AND SOME OF THEIR
COMPETITORS HAVE GREATER FINANCIAL AND OTHER RESOURCES. As a provider of
marketing services, each of Host and Universal competes with suppliers of
traditional advertising in broadcast and print media as well as with other
marketing service providers and internal marketing department programs. This
competition is very intense and highly fragmented, and some competitors of Host
and Universal have capabilities and resources comparable to, and greater than,
those of Host and Universal. As a result, the financial strength of these
competitors may prevent Host and Universal from capturing these markets and
expanding our command of the markets Host and Universal already hold.
RISKS RELATING TO THE COMBINED COMPANY
IF BULL RUN CANNOT SUCCESSFULLY INTEGRATE THESE ACQUISITIONS, BULL RUN'S
BUSINESS COULD BE ADVERSELY AFFECTED. To combine Bull Run, Capital, Host and
Universal, we will need to
15
<PAGE> 22
integrate and coordinate the management and administrative functions, product
and service offerings and sales, marketing, and research and development efforts
of each company. Combining these companies will present a number of challenges,
including the management of businesses with different customer bases and
different approaches to manufacturing, sales and service, and the integration of
a number of geographically separated facilities. Management will be occupied
with integrating these companies' operations following the mergers and this may
temporarily distract management from our its day-to-day business. As a result,
Bull Run may not be able to operate these businesses efficiently and
effectively.
THE FAILURE TO ATTRACT, OR THE LOSS OF, SENIOR MANAGEMENT PERSONNEL COULD
ADVERSELY AFFECT BULL RUN'S ABILITY TO CONDUCT ITS BUSINESSES SUCCESSFULLY. The
success of the combined company will depend to a significant extent on the
efforts of senior management. The loss of one or more of these individuals could
adversely affect Bull Run's ability to operate its businesses efficiently after
the mergers. Bull Run's continued success will depend on its ability to retain
existing, and attract additional, qualified senior management personnel. Bull
Run may not be successful in accomplishing this goal.
16
<PAGE> 23
THE BULL RUN MEETING
This proxy statement/prospectus is being furnished to the holders of Bull
Run common stock in connection with the solicitation of proxies by the Bull Run
board of directors for use at a special meeting of stockholders to be held at
10:00 a.m., local time, on September 14, 1999, at Bull Run's corporate offices,
4370 Peachtree Rd., N.E., Atlanta, Georgia 30319, or any adjournment or
postponement thereof.
This proxy statement/prospectus is first being mailed to stockholders of
Bull Run on or about August 13, 1999.
PURPOSE OF THE MEETING
The meeting has been called to consider and vote upon:
- a proposal to create a holding company structure for Bull Run, pursuant
to a merger agreement by and among BR Holding, Bull Run and a wholly
owned subsidiary of BR Holding, whereby each outstanding share of Bull
Run common stock will be converted automatically into one share of common
stock of BR Holding, as a result of which BR Holding will be owned by the
stockholders of Bull Run immediately prior to the merger;
- a proposal to approve the issuance of shares of BR Holding common stock
in accordance with a merger agreement among Bull Run, BR Holding,
Capital, Host, Universal and three wholly owned subsidiaries of BR
Holding;
- a proposal to amend the 1994 Long-Term Incentive Plan to increase the
number of shares issuable thereunder;
- the election of directors;
- a proposal to confirm the appointment of Ernst & Young LLP as the
independent auditors; and
- any other matters that may properly come before the meeting.
VOTES REQUIRED
Approval of the creation of a holding company structure for Bull Run
requires the affirmative vote of the holders of a majority of the outstanding
shares of Bull Run common stock entitled to vote on the proposal.
Approval of each of the issuance of shares of BR Holding common stock in
the Capital, Host and Universal mergers, the confirmation of Ernst & Young LLP
as the independent auditors and the amendment of the 1994 Long-Term Incentive
Plan requires the affirmative vote of the holders of a majority of the shares of
Bull Run common stock present in person or represented by proxy at the meeting
and entitled to vote on the proposal.
Election of directors is by a plurality of votes cast.
RECORD DATE AND VOTING RIGHTS
The Bull Run board of directors has fixed the close of business on August
10, 1999 as the record date for determining holders of Bull Run common stock
entitled to notice of, and to vote at, the meeting. Only holders of record of
Bull Run common stock on that date will be entitled to notice of, and to vote
at, the meeting. On the record date,
17
<PAGE> 24
22,441,267 shares of Bull Run common stock were outstanding and entitled to
vote. Each record holder of Bull Run common stock on the record date is entitled
to cast one vote per share, exercisable in person or by properly executed proxy,
on each matter properly submitted for the vote of the stockholders at the
meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Bull Run common stock entitled to vote at
the meeting is necessary to constitute a quorum and transact business at the
meeting. Abstentions will be counted for purposes of determining a quorum, but
will have the effect of a vote against the matters being voted upon. If a broker
holding shares in street name returns an executed proxy that indicates that the
broker does not have discretionary authority to vote certain shares on one or
more matters, those shares will count towards determining a quorum, but will
have the effect of a vote against the matters being voted upon.
On the record date, August 10, 1999, Bull Run's directors, executive
officers and affiliates, beneficially owned in the aggregate 9,832,752 shares,
or approximately 42.7% of the outstanding shares, of Bull Run common stock.
Except for stockholders identified under "The Companies -- Principal
Stockholders -- Bull Run," to the knowledge of Bull Run, no other person
beneficially owned more than five percent of the outstanding Bull Run common
stock as of the record date.
VOTING AND REVOCATION OF PROXIES
All shares of Bull Run common stock that are entitled to vote and are
represented at the meeting by properly executed proxies received before or at
the meeting, and not duly and timely revoked, will be voted at the meeting in
accordance with the instructions indicated on the proxies. If no instructions
are indicated, the proxies will be voted "for" approval of the creation of a
holding company structure for Bull Run, the issuance of shares of BR Holding
common stock in the mergers, the amendment of the 1994 Long-Term Incentive Plan,
the election of directors specified on page 108 of this proxy
statement/prospectus and the confirmation of Ernst & Young LLP as the
independent auditors of Bull Run. If any other matters are properly presented
for consideration at the meeting, including consideration of a motion to adjourn
or postpone the meeting to another time or place, the persons named in the
enclosed form of proxy will have discretion to vote on those matters in
accordance with their best judgment.
A Bull Run stockholder may revoke his, her or its proxy at any time before
its use by delivering to the Secretary of Bull Run, a signed notice of
revocation or a later, dated, signed proxy or by attending the meeting and
voting in person. Attendance at the meeting will not, in itself, constitute the
revocation of a proxy. All written notices of revocation and other
communications with respect to revocation of proxies should be sent to: Bull Run
Corporation, 4370 Peachtree Road, N.E., Atlanta, Georgia 30319, Attention:
Corporate Secretary.
The cost of solicitation of proxies will be paid by Bull Run. In addition
to solicitation by mail, proxies may be solicited in person by directors,
officers and employees of Bull Run, without additional compensation, and by
telephone, telegram, facsimile or similar method. Arrangements will be made with
brokerage houses and other custodians, nominees and fiduciaries to send proxy
material to beneficial owners. Bull Run will, upon request, reimburse them for
their reasonable expenses in doing so. Bull Run has retained Mackenzie Partners,
Inc. to assist in the solicitation of proxies in person and by telephone,
telegram, facsimile or similar method. The fee for such services will be
approximately $4,000, plus reimbursement of out-of-pocket expenses.
18
<PAGE> 25
PROPOSAL 1:
APPROVAL OF THE CREATION OF A
HOLDING COMPANY STRUCTURE
RECOMMENDATION OF THE BULL RUN BOARD OF DIRECTORS AND REASONS FOR THE
RECOMMENDATION
Immediately prior to the completion of the Capital, Host and Universal
mergers and as a condition to the occurrence of these mergers, the merger
agreement contemplates that a wholly owned subsidiary of BR Holding will merge
with and into Bull Run. At the effective time of that merger, each outstanding
share of Bull Run common stock will be converted automatically into one share of
BR Holding common stock. It will not be necessary for holders of Bull Run common
stock to exchange their certificates representing Bull Run common stock for
certificates representing BR Holding common stock. As a result of that merger,
BR Holding will be a publicly held company owned by the stockholders of Bull Run
immediately prior to the merger, and Bull Run and its subsidiaries will become
wholly owned subsidiaries of BR Holding. BR Holding will then change its name to
Bull Run Corporation.
The Bull Run board of directors has approved and declared advisable the
creation of such a holding company structure and determined that such merger was
fair to and in the best interest of the stockholders. Therefore, the Bull Run
board of directors recommends that its stockholders vote in favor of the
proposal to approve the creation of a holding company structure.
In reaching its decision to approve the creation of a holding company
structure, the Bull Run board considered a number of material factors,
including:
- the formation of a holding company structure whereby Bull Run and its
subsidiaries will allow Bull Run to improve and streamline the
administrative functions of its various businesses, including cash
management, risk management and financial and tax planning, reporting and
compliance;
- the formation of a holding company structure will offer the potential to
increase efficiencies and reduce costs through consolidation of certain
services, including those related to employee benefits, legal and
financial matters and procurement activities;
- the formation of a holding company structure reorganization will
facilitate Bull Run's ability to obtain financing in connection with its
business and any future acquisitions; and
- Bull Run believes that the advantages of forming a holding company
structure outweigh the extra cost relating to the formation and
maintenance of another corporate entity.
The foregoing discussion of the factors considered by the Bull Run board is
not intended to be exhaustive. In view of the variety of factors considered in
connection with its evaluation of the mergers and the reorganization, the Bull
Run board did not find it practicable to, and did not, quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Bull Run board may have
given different weight to different factors.
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<PAGE> 26
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
If the holding company reorganization is approved and effected, a holder of
Bull Run common stock whose shares are converted into shares of BR Holding will
not recognize gain or loss. The aggregate tax basis of a stockholder's shares of
BR Holding common stock will equal the aggregate tax basis of the Bull Run
shares so converted, and the holding period of the BR Holding common stock will
include the holding period of the Bull Run shares so converted. Each Bull Run
stockholder whose shares are converted into shares of BR Holding common stock in
the holding company reorganization will be required to retain records and file
with such holder's federal income tax return a statement setting forth certain
facts relating to the holding company reorganization.
Proskauer Rose LLP, counsel to BR Holding and Bull Run, is of the opinion
that the foregoing accurately sets forth the material federal income tax
consequences of the holding company reorganization. Counsel's opinion is based
upon current provisions of the Internal Revenue Code, Treasury Regulations,
judicial decisions and administrative rulings and a representation letter
provided by BR Holding, containing customary statements relating to technical
requirements that must be satisfied for the tax consequences of the holding
company reorganization and mergers to be governed by Section 351 of the Internal
Revenue Code. Future changes in applicable law may adversely affect the tax
consequences described in this proxy statement/prospectus.
This federal income tax discussion is for general information only.
Stockholders are urged to consult their own tax advisors as to the specific tax
consequences of the holding company reorganization.
NO APPRAISAL RIGHTS AVAILABLE TO BULL RUN STOCKHOLDERS
Under Georgia law, stockholders of Bull Run who object to the proposal to
create a holding company structure as described in this proposal will not be
afforded statutory appraisal rights.
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COMPARISON OF THE STOCKHOLDERS' RIGHTS, ARTICLES OF INCORPORATION AND BYLAWS OF
BULL RUN AND BR HOLDING
If the creation of a holding company structure is completed through the
merger of Bull Run with a subsidiary of BR Holding, stockholders of Bull Run
will become stockholders of BR Holding. Their rights as stockholders will
continue to be governed by the laws of Georgia, which is the jurisdiction of
incorporation of both Bull Run and BR Holding. Their rights as stockholders will
be governed by the articles of incorporation and bylaws of BR Holding which are
substantially identical to the articles of incorporation and bylaws of Bull Run,
except for the authorized capitalization of the companies as described below.
For information as to how the articles of incorporation and bylaws of Bull Run
and BR Holding may be obtained, see "Where Stockholders Can Find More
Information" on page 121.
BULL RUN. The authorized capital stock of Bull Run is 100,000,000 shares
of common stock, par value $.01 per share. Each holder of Bull Run common stock
is entitled to one vote per share held of record on all matters to be voted upon
by stockholders. Holders do not have cumulative voting rights. Each share of
Bull Run common stock has an equal and ratable right to receive dividends when,
if and as declared from time to time by the Board of Directors out of funds
legally available therefor. Bull Run's current credit agreement restricts the
payment of dividends. In the event of the liquidation, dissolution or winding up
of Bull Run, holders of Bull Run common stock are entitled to share ratably in
all assets remaining after payments to creditors. Holders of Bull Run common
stock do not have preemptive rights.
BR HOLDING. The authorized capital stock of BR Holding is 105,000,000
shares, consisting of 100,000,000 shares of common stock, par value $.01 per
share, and 5,000,000 shares of preferred stock, par value $.01 per share. The
board of directors of BR Holding has the authority to issue, at any time or from
time to time, without further stockholder approval, up to 5,000,000 shares of
preferred stock and to determine the powers, rights, privileges and preferences
of those shares, which may be senior to the rights of holders of BR Holding
common stock. Such issuance could adversely affect the holders of BR Holding
common stock and could have the effect of making more difficult the acquisition
of control of BR Holding by means of a hostile tender offer, open market
purchases, a proxy contest or otherwise. There are no present plans or
intentions to issue shares of preferred stock. Under Georgia law, stockholders
have no preemptive rights unless these rights are provided for in the
corporation's articles of incorporation or in certain other limited
circumstances. Each holder of BR Holding common stock is entitled to one vote
per share held of record on all matters to be voted upon by stockholders.
Holders of BR Holding common stock do not have cumulative voting rights. Subject
to the preferential rights of any BR Holding preferred stock that may be
outstanding, each share of BR Holding common stock has an equal and ratable
right to receive dividends when, if and as declared from time to time by the
Board of Directors out of funds legally available therefor. BR's credit
agreement will restrict the payment of dividends. In the event of the
liquidation, dissolution or winding up of Bull Run, holders of Bull Run common
stock are entitled to share ratably in all assets remaining after payments to
creditors and after the satisfaction of the liquidation preference, if any, of
any BR Holding preferred stock that may be outstanding. Holders of BR Holding
common stock do not have preemptive rights.
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PROPOSAL 2:
APPROVAL OF THE ISSUANCE OF
BR HOLDING SHARES IN THE MERGERS
RECOMMENDATION OF THE BULL RUN BOARD OF DIRECTORS AND REASONS FOR
THE RECOMMENDATION
The Bull Run board of directors has approved and declared advisable the
issuance of shares of BR Holding common stock in the mergers and determined that
the terms of the issuance of such shares were fair to and in the best interests
of the stockholders. Therefore, the Bull Run board recommends that its
stockholders vote in favor of the proposal to approve the issuance of such
shares.
In reaching its decision to approve the issuance of shares of BR Holding
common stock, the Bull Run board considered the following material factors:
- the mergers will create a stronger, unified company and will diversify
the range of services and products provided by the individual companies;
- because of Bull Run's familiarity with the operations of each company and
the principal managers of each company, including their management
philosophy, integrity and strategic outlook, the board believed that the
acquisition of the remainder of the companies was in Bull Run's best
interests;
- the mergers provide Bull Run access to additional operating cash flow for
the purposes of funding debt service, as well as future acquisitions and
investments; and
- the mergers simplify Bull Run's organizational structure for the
investing public as a result of consolidating the operating results, cash
flows and financial position of Capital, Host and Universal into Bull
Run's financial statements, instead of reporting only Bull Run's
investment and equity in earnings of Capital, Host and Universal in the
Bull Run financial statements.
The foregoing discussion of the factors considered by the Bull Run board is
not intended to be exhaustive. In view of the variety of factors considered in
connection with its evaluation of the mergers and the reorganization, the Bull
Run board did not find it practicable to, and did not, quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Bull Run board may have
given different weight to different factors.
REASONS OF CAPITAL, HOST AND UNIVERSAL FOR THE MERGERS
In evaluating the mergers, the Capital, Host and Universal boards
considered the following material factors:
- the mergers provide Host and Universal with improved access to capital to
finance future growth opportunities;
- stockholders' liquidity will be improved by the receipt of cash and
shares in BR Holding, which will trade on the Nasdaq Stock Market and
which will have a readily determinable value;
- Host's and Universal's experience with Bull Run as a principal
stockholder of Host and Universal and with Mr. Prather as a board member
of Host and Universal the similarity of their business philosophies and
the ability of the companies and their managements to work together;
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- the cash merger consideration to be paid by Bull Run was greater than in
the recently terminated transaction with Southwest Sports Group, Inc.
described below;
- the belief by the boards that Host and Universal would be significant
assets of Bull Run after the mergers and their growth would be a priority
of Bull Run;
- the mergers provide access to individuals experienced in mergers and
acquisitions activities, having knowledge and experience in the sports
and media industries;
- the mergers result in a more direct relationship with Gray Communication
Systems, Inc., a media company in which Bull Run has a significant stake,
which has television stations in many of the same cities as Host and
Universal have, or desire to have, contracts with major universities;
- the combined company could have significant growth potential and,
therefore, the shares of BR Holding common stock could increase in value
in the future;
- the fact that all of the Universal stockholders and the Host stockholders
who hold approximately 72% of the outstanding Host common stock and all
of the outstanding Host preferred stock entitled to vote in respect of
the mergers have agreed to vote in favor of the merger agreement and the
mergers pursuant to certain voting agreements;
- the fact that all of the Capital stockholders entitled to vote in respect
of the mergers have already adopted the merger agreement and approved the
mergers; and
- the belief that the stockholders will receive an attractive value for
their shares while being given the opportunity to participate in the
future growth of Host, Universal and the other Bull Run businesses
through the receipt of BR Holding common stock.
The foregoing discussion of the factors considered by the Capital, Host and
Universal boards is not intended to be exhaustive. In view of the variety of
factors considered in connection with their respective evaluation of the
mergers, the Capital, Host and Universal boards did not find it practicable to,
and did not, quantify or otherwise assign relative weights to the specific
factors considered in reaching their respective determinations. In addition,
individual members of the Capital, Host and Universal boards may have given
different weight to different factors.
BACKGROUND OF THE MERGERS
Founded in 1972, Host developed a limited service relationship with the
National Tour Association, a package travel association, into a comprehensive
sports marketing and association management company with over $46 million in
annual revenues for the year ended June 30, 1998. As Host grew in size and
complexity, management sought additional capital and professional management
support. In 1992, Capital made an investment in Host and currently holds
approximately 48% of Host's outstanding common stock and 100% of Host's
preferred stock. As part of this investment, Capital named three directors to
Host's board of directors. In 1995, Bull Run became a significant stockholder of
Capital and Capital designated Bull Run's president and chief executive officer,
Robert S. Prather, Jr., as a member of the Host board. Since 1995, Bull Run has
purchased shares of Host common stock and, as of the date hereof, Bull Run
directly owns 7.7% of the outstanding shares of Host common stock and 52% of the
outstanding shares of Capital, so that its combined interest in Host is 32.5% of
the outstanding common stock. Mr. Prather
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continues to serve as a director of Host and chairs the Audit and Compensation
Committees.
Universal is the successor to a number of businesses formed to operate and
market grass roots participatory sports events. Host's 34% interest in Universal
resulted from its contribution in 1995 of its university and collegiate
marketing assets to a partnership subsequently acquired by Universal. As part of
this transaction, Bull Run purchased approximately 13% of Universal's preferred
stock and Mr. Prather was elected to Universal's board of directors, together
with W. James Host, chairman of the board and chief executive officer of Host,
and Charles L. Jarvie, president and chief operating officer of Host.
In addition to the transactions described above, in order to further their
long-term growth objectives and develop their assets, Host and Universal
continued to seek additional capital and alliances. In 1997, Universal pursued
an initial public offering of its common stock, which ultimately was not
effected. In 1997, potential strategic investors expressed interest in Host and
Host began exploring the possibility of raising additional capital with these
investors. However, these discussions terminated without any investments being
made, since such investments would involve aligning Host and Universal with a
single national television network. Host's board believed these investments
would potentially restrict and harm Host's and Universal's relationships with
other networks, with many of which Host and Universal have ongoing
relationships.
In early 1998, another strategic investor, Thomas Hicks of Dallas, Texas,
approached Host and Universal and expressed interest in acquiring Host and
Universal in connection with the formation of a privately held regional sports
and media company. After a series of negotiations among Host, Universal and Mr.
Hicks, the parties agreed on a transaction that would involve the acquisition of
Host and Universal in exchange for cash and stock of Southwest Sports Group,
Inc., an entity controlled by Mr. Hicks. Because of the business, stockholder
and director interrelationships between Host and Universal, the boards of
directors of Host and Universal together determined the allocation of the merger
consideration between the companies. Based upon quantitative and qualitative
factors, the boards determined that 45% of such merger consideration was
allocable to Host and 55% of such merger consideration was allocable to
Universal, excluding the value of Universal's investment in broadcast.com inc.,
which was allocable only to Universal. The factors considered by the boards
included the actual and projected results of operations of each of the
companies, the future growth potential of each of the companies and the
dependence of Host upon its contract with the NCAA for a substantial portion of
its revenues and the scheduled expiration of such contract in 2002. In June
1998, each of the boards of Host and Universal approved a merger agreement with
Southwest Sports Group. In the course of reaching its decision to approve this
merger, each of the boards considered the following material factors:
- the board's belief that the combined company could have significant
growth potential, and, therefore, the stock of the resulting company
could increase in value in the future;
- the board's belief that the size and diversity of assets and businesses
in the resulting company provided a possibility for a higher valuation in
the event of a public offering; and
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- the acquisition by Southwest Sports Group would not involve Host's or
Universal's alignment with a single television network which could
potentially restrict Host's or Universal's other business relationships.
Subsequent to the execution of the merger agreement with Southwest Sports
Group, there occurred additional discussions among Southwest Sports Group, Host
and Universal with respect to the integration of their respective businesses and
planning and development of the combined companies. In the course of these
discussions, which continued over several months, it became apparent that the
business strategies and objectives of the parties were fundamentally different
and that the growth of Host's and Universal's assets might not be a priority of
Southwest Sports Group. As a result, in November 1998, the parties mutually
agreed to terminate the merger agreement. No party has paid, or is obligated to
pay, any termination or similar fees as a result of the termination of the
transaction.
In December 1998 subsequent to the termination of the merger agreement with
Southwest Sports Group, Bull Run expressed an interest in acquiring Host and
Universal and on December 15, 1998, Bull Run made a presentation to the board of
each of Host and Universal, describing Bull Run's proposal to acquire Host and
Universal for a combination of cash and Bull Run common stock. This proposal was
based on the terminated transaction with Southwest Sports Group and was intended
to approximate the total consideration offered in that transaction and similarly
contemplated the acquisition of Host and Universal for a combination of stock
and cash having an aggregate value of approximately $158 million. Each of the
boards discussed the terms of Bull Run's proposal and authorized their
respective managements to negotiate a definitive merger agreement with Bull Run.
In determining that 45% of the merger consideration was allocable to Host and
55% of such merger consideration was allocable to Universal (excluding the value
of Universal's investment in broadcast.com inc., which was allocable solely to
Universal and the value of Host's investment in Total Sports which was allocable
solely to Host), the boards of Host and Universal used the same qualitative and
quantitative factors that they had used in connection with their consideration
of the recently terminated agreement with Southwest Sports Group.
Following the negotiation of a definitive merger agreement, a Host board
meeting was held on February 5, 1999 and a Universal board meeting was held on
February 9, 1999. Each board reviewed the terms of the merger and consulted with
outside legal counsel and their respective financial and accounting officers.
The board of directors of Host and Universal did not seek fairness opinions
with respect to the mergers. The merger consideration proposed by Bull Run for
each of Host and Universal was greater and more liquid than the merger
consideration proposed in the transaction with Southwest Sports Group. Moreover,
an analysis of the proposed merger consideration prepared by the internal
financial staffs of each company was presented to and reviewed by each board. In
the case of Host, members of the board represent 72% of the outstanding shares
of Host and 100% of the shareholders of Capital. In the case of Universal,
members of the board represent 100% of the shareholders of Universal. Based on
the foregoing, the boards did not believe that it was necessary to bear the
expense of obtaining a fairness opinion.
Each board approved the merger agreement, determined that it was in the
best interests of its stockholders and recommended that its stockholders approve
the merger agreement. Thereafter, negotiations continued concerning various
terms of the merger agreement and, on February 15, 1999, all parties executed
the merger agreement. The
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parties subsequently executed amendments to the merger agreement in order to
extend the termination date of the merger and make other technical changes. The
description of the merger agreement in this proxy statement/prospectus and the
merger agreement attached hereto as Appendix B give effect to such amendments.
THE MERGER AGREEMENT
Set forth below is a summary of the material terms and provisions of the
merger agreement, which is attached as Appendix A to this proxy
statement/prospectus. Bull Run stockholders are urged to read the merger
agreement in its entirety for a more complete description of the mergers.
THE CAPITAL, HOST AND UNIVERSAL MERGERS. Immediately after the completion
of the Bull Run holding company reorganization and on the terms and subject to
the conditions of the merger agreement:
- a wholly owned subsidiary of BR Holding will merge with and into Capital;
- a wholly owned subsidiary of BR Holding will merge with and into Host;
and
- a wholly owned subsidiary of BR Holding will merge with and into
Universal.
As a result of the mergers, Capital, Host and Universal will become wholly
owned subsidiaries of BR Holding. In the mergers, Capital, Host and Universal
stockholders will receive a combination of cash and shares of BR Holding common
stock in exchange for their shares.
EFFECTIVE TIME. The Capital, Host and Universal mergers will become
effective upon the filing of certificates of merger and articles of merger with
the Secretaries of State of the States of Delaware and Kentucky. These filings
are anticipated to take place as soon as practicable after the receipt of Bull
Run, Capital, Host and Universal stockholder approvals and all required
regulatory approvals and the satisfaction or waiver of the other conditions to
the mergers. It is currently anticipated that the effective time of the mergers
will occur as soon as practicable after the special meeting of Bull Run
stockholders.
MERGER CONSIDERATION FOR CAPITAL, HOST AND UNIVERSAL STOCKHOLDERS. Upon
completion of the mergers, Capital, Host and Universal stockholders other than
dissenting stockholders will receive the following:
- holders of Capital common stock will receive, in exchange for each share
they hold, (1) $194,085.24 in cash, plus an amount in cash equal to 1% of
the dividends on Host preferred stock accrued and unpaid to the closing
date and (2) 40,640.57 shares of BR Holding common stock;
- holders of Host common stock and preferred stock will receive, in
exchange for each share they hold, (1) $35.02 in cash and (2) 9.0925
shares of BR Holding common stock;
- holders of Universal common stock and preferred stock will receive, in
exchange for each share they hold, (1) $27,477.28 in cash and (2) 4,187.5
shares of BR Holding common stock.
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TREATMENT OF STOCK OPTIONS AND BENEFIT PLANS. The merger agreement
provides that Host and Universal will amend all outstanding unexercised options
to purchase shares of Host and Universal common stock granted under their
respective companies' plans to provide that, upon consummation of the mergers,
for each share of Host or Universal common stock for which such options were
formerly exercisable, each such option will entitle its holder to receive cash
and/or shares of BR Holding common stock as follows:
- holders of Host Class A options will receive, in exchange for each option
they hold, (1) $35.02 in cash and (2) an option to purchase 9.0925 shares
of BR Holding common stock;
- holders of Host Class B options will receive, in exchange for each option
they hold, an option to purchase 9.0925 shares of BR Holding common
stock;
- holders of Universal Class A options will receive, in exchange for each
option they hold, (1) $27,477.28 in cash and (2) an option to purchase
4,187.5 shares of BR Holding common stock; and
- holders of Universal Class B options will receive, in exchange for each
option they hold, an option to purchase 4,187.5 number of shares of BR
Holding common stock.
The merger agreement also provides that the new options to purchase shares
of BR Holding common stock received in the mergers will have an exercise price
per share of BR Holding common stock equal to the amount determined by dividing
(x) the aggregate exercise price for shares of Host or Universal common stock
with respect to which the corresponding option was exercisable immediately prior
to the effective time of the mergers by (y) the number of shares of BR Holding
common stock for which such new option is exercisable. Any repurchase rights in
favor of the optionholder under any option will be eliminated and all unvested
options will vest immediately prior to the effective time of the mergers. The
duration and other terms of each new option will be the same as the
corresponding Host or Universal options, as the case may be, that were in effect
immediately before the effective time of the mergers, unless otherwise agreed by
the holder of such new option.
PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES. As soon as
practicable after the effective time of the mergers, BR Holding will cause to be
sent to each stockholder of record of Capital, Host and Universal as of the
effective time of the mergers transmittal materials for use in exchanging
certificates of Capital, Host and Universal common stock for the merger
consideration to which such stockholder is entitled in the mergers. The
transmittal materials will contain information and instructions on how to
surrender Capital, Host and Universal stock certificates for the merger
consideration. Until a holder of Capital, Host or Universal stock surrenders his
certificates representing shares of Capital, Host or Universal stock, the
certificates will, after the effective time of the mergers, represent for all
purposes only the right to receive the merger consideration specified in the
merger agreement.
No fractional shares of BR Holding common stock will be issued to holders
of Capital, Host or Universal stock. Instead, the stockholders otherwise
entitled to a fractional share of BR Holding common stock will receive the cash
value of the fractional share.
OFFICERS AND DIRECTORS. The merger agreement provides that the directors
and officers of the wholly owned subsidiaries of BR Holding that merge with and
into Capital, Host and Universal will be the initial directors and officers of
Capital, Host and Universal, as applicable, as the surviving corporations.
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CONDITIONS TO THE MERGERS. Under the merger agreement, the respective
obligations of each party to effect the mergers are subject to the satisfaction
or waiver of each of a number of conditions, including the following:
(1) the representations and warranties of the other parties in the
merger agreement are true and correct as of the closing date in all
material respects and the other parties have performed in all material
respects their obligations required to be performed by them under the
merger agreement;
(2) there has not occurred any material adverse effect with respect to
the other parties;
(3) no stop order suspending the effectiveness of the registration
statement of which this proxy statement/prospectus is a part has been
issued by the Securities and Exchange Commission and no proceedings for
that purpose, and no similar proceeding in respect of this proxy
statement/prospectus, have been initiated or threatened by the Securities
and Exchange Commission;
(4) the merger agreement and the transactions contemplated by the
merger agreement have been approved and adopted by the requisite vote of
the stockholders of Bull Run, Capital, Host and Universal;
(5) no temporary restraining order, injunction or other order, binding
legal restraint or prohibition preventing the consummation of the mergers
is in effect; there has not been any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
mergers, that makes the completion of the mergers illegal;
(6) the receipt of legal opinions with respect to certain aspects of
the mergers;
(7) approval by the stockholders of Bull Run of the amendment of Bull
Run's 1994 Long-Term Incentive Plan to increase the number of shares
issuable thereunder;
(8) the reorganization of Bull Run into a holding company structure
has been approved by the stockholders of Bull Run and such reorganization
has been completed; and
(9) Charles L. Jarvie, Douglas L. Jarvie and W. James Host, principal
stockholders of Host, and the Robinson-Prather Partnership, a principal
stockholder of Bull Run, have entered into a stockholders agreement under
which they agree to voting arrangements relating to their shares of BR
Holding stock, including matters relating to the election of directors of
BR Holding.
In addition, the obligations of Host and Universal to effect the mergers
are subject to the following conditions:
(1) a legal opinion with respect to the tax consequences of the
mergers shall have been delivered; and
(2) Host and Universal shall have received the requisite approval of
the lenders under certain credit facilities or all outstanding amounts
under such facilities have been repaid or refinanced concurrently with the
completion of the mergers.
In addition, the obligations of BR Holding and Bull Run to effect the
mergers are subject to the following conditions:
(1) the legal opinions, consents, waivers, clearances and approvals
necessary to complete the mergers have been obtained;
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(2) Bull Run has obtained financing sufficient to fund the cash to be
paid as consideration in the mergers on terms and conditions satisfactory
to it in its sole discretion;
(3) holders of less than seven percent of the outstanding shares of
Capital stock, Host stock or Universal stock have exercised appraisal
rights with respect to their shares;
(4) certain Host and Universal employees have entered into employment
and non-competition agreements;
(5) all Host options and Universal options have been or will, at the
time of the mergers, be exercised, terminated or converted into an option
to purchase BR Holding common stock as contemplated by the merger
agreement; and
(6) Host and Universal have terminated agreements relating to voting,
the repurchase of securities, the registration of securities and related
matters among Capital, Host, Universal and their respective stockholders.
REPRESENTATIONS AND WARRANTIES. The merger agreement contains various
customary representations and warranties of the parties, including
representations and warranties made by each of the parties with respect to its:
- organization, standing and power
- capital structure
- financial statements
- absence of undisclosed liabilities
- absence of certain changes or events
- authority relative to the merger agreement
- consents and approvals
- absence of litigation
- compliance with law and permits
- employee benefit plans
- absence of brokers
- state takeover statutes
- certificate of incorporation and bylaws
In addition, each of Host and Universal made representations and warranties
with respect to its:
- subsidiaries
- contracts and commitments
- real property
- environmental, health and safety matters
- personnel information
- board recommendation concerning the mergers
- books of account
- title to and condition of assets
- intellectual property
- insurance
- taxes
- certain business practices and potential conflicts of interest
In addition, Bull Run made a representation and warranty with respect to
the accuracy and completeness of its filings with the Securities and Exchange
Commission.
COVENANTS. The merger agreement contains a number of covenants concerning
the conduct of the parties including the following:
Non-Solicitation of Acquisition Proposals. The merger agreement
provides that Capital, Host and Universal may not, without the prior
written consent of BR Holding
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and Bull Run, solicit or take any other action to facilitate any proposal
or offer from any person for a merger, consolidation, dissolution or
similar transaction involving Capital, Host or Universal or any of their
respective subsidiaries, or any proposal to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets of,
Capital, Host or Universal or any of their respective subsidiaries. In
addition, the merger agreement provides that Capital, Host and Universal
may not enter into or participate in any discussions or negotiations
regarding any such acquisition proposal and that they will promptly notify
BR Holding of any such acquisition proposal.
BR Holding Will Assume Certain Existing Employment Agreements. The
merger agreement provides that the existing employment agreements between
Host or Universal and each of Charles L. Jarvie, Douglas L. Jarvie and W.
James Host will remain in full force and effect after the mergers. Prior to
the effective time of the mergers, the merger agreement provides that Host
and Universal will cause each such agreement to be amended to eliminate the
provisions which provide for the grant of stock options to these
individuals.
If Any Employee Benefits Plans Are Discontinued, BR Holding Will
Provide Substantially the Same Coverage Under Replacement Plans. The
merger agreement provides that, if BR Holding elects to discontinue any of
Capital's, Host's or Universal's employee benefit plans, BR Holding will
provide, or will cause its subsidiaries to provide, employees with coverage
under replacement or alternative benefit plans which is substantially the
same, in the aggregate, to the coverage provided under such discontinued
plans.
BR Holding Will Appoint Charles L. Jarvie and W. James Host As Members
of Its Board of Directors. At or prior to the effective time of the
Universal merger, BR Holding will increase the size of its board of
directors to seven members and each of Charles L. Jarvie and W. James Host
will be appointed to the BR Holding board of directors to serve as members
during any period that the Stockholders Agreement among Charles L. Jarvie,
Douglas L. Jarvie, Hilton H. Howell, Jr., W. James Host and
Robinson-Prather Partnership remains in effect.
Host Will Hold A Meeting of Its Stockholders To Approve the Merger
Agreement. The merger agreement provides that Host will call and hold a
meeting of its stockholders for the purpose of voting upon the merger
agreement and the Host merger and that Host's board of directors will
recommend that its stockholders approve the merger agreement.
Bull Run Will Hold A Stockholders Meeting To Approve Matters Related
To the Mergers. The merger agreement provides that Bull Run will call and
hold a meeting of its stockholders to authorize:
- the reorganization of Bull Run into a holding company structure;
- the issuance of shares of BR Holding common stock in the mergers;
and
- the amendment of the 1994 Long-Term Incentive Plan to increase
the authorized shares available for issuance thereunder.
The merger agreement provides that Bull Run's board of directors will
recommend that its stockholders approve the mergers and the holding company
reorganization and the transactions contemplated thereby.
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Host and Universal Will Terminate Certain Existing Agreements Prior to
the Mergers. The merger agreement provides that Host and Universal will
use their reasonable best efforts to terminate, prior to the effective time
of the mergers, specific agreements relating to voting, the repurchase of
securities, the registration of securities and related matters among
Capital, Host, Universal and their respective stockholders.
OTHER COVENANTS. The merger agreement contains other covenants relating
to:
- preparation and filing of proxy statements and information statements;
- access to information;
- notice of certain events;
- coordination and cooperation with respect to stockholders' meetings;
- preparing and filing of disclosure documents;
- actions and filings with governmental bodies, agencies, officials or
other authorities and third parties;
- public announcements;
- letters from persons deemed "affiliates" for purposes of Rule 145 under
the Securities Act of 1933;
- filing of a Form S-4 registration statement;
- government authorizations; and
- cooperation with respect to obtaining financing for the mergers.
FURTHER ACTION. The merger agreement provides that each of the parties to
the merger agreement will in good faith use all commercially reasonable efforts
to take all actions and to do all other things necessary, proper or advisable
to:
- consummate and make effective as promptly as practicable the transactions
contemplated by the merger agreement;
- obtain in a timely manner all necessary waivers, consents and approvals;
- effect all necessary registrations and filings; and
- otherwise satisfy or cause to be satisfied all conditions precedent to
its obligations under the merger agreement.
TERMINATION. The merger agreement provides that it may be terminated and
the mergers may be abandoned at any time before the effective time of the
Capital merger, even if all requisite stockholders have approved the mergers:
(1) by mutual written consent of the parties;
(2) by any of the parties not in material breach of the merger
agreement:
- if the mergers have not been completed on or before September 30,
1999, provided, however, that if conditions relating to the
expiration of the waiting period under the Hart-Scott-Rodino Act
and the effectiveness of the registration statement relating to
the exchange offer have not been satisfied or waived, or if the
meeting of Host stockholders to approve the mergers has not been
held, prior to September 30, 1999, either party may extend such
date by written notice to the others to such later date, but not
after October 31, 1999, as may be specified by such extending
party; or
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- if any governmental entity has issued an order or taken any other
action prohibiting the mergers and such order or other action has
become final and nonappealable;
(3) by BR Holding and Bull Run if not then in material breach of the
merger agreement:
- if any of Capital, Host or Universal has breached its agreement
not to solicit acquisition proposals or materially breached any
representation or other agreement and has not cured such breach
within 15 days after a notice of default is served by BR Holding
and Bull Run on such breaching party;
- if the requisite approval of Host stockholders is not obtained at
the meeting of Host stockholders; or
- if the requisite approvals of Capital or Universal stockholders
have not been obtained by September 30, 1999;
(4) by Capital, Host or Universal if not then in material breach of
the merger agreement:
- if BR Holding or Bull Run is in material breach of any
representation or agreement and has not cured such breach within
15 days after a notice of default is served by the terminating
party on such breaching party.
If the merger agreement is terminated, the merger agreement provides that
it will become void and there will be no liability on the part of any party
except that if BR Holding or Bull Run terminates the merger agreement because
the mergers have not been completed by October 31, 1999, the merger agreement
provides that Bull Run will reimburse Host and Universal for their out of pocket
expenses (including attorneys' fees, accountants' fees and filing fees) in
connection with the merger agreement.
AMENDMENT; WAIVER. The merger agreement may be amended in writing by the
parties at any time, except that no amendment may be made which reduces the
consideration payable in the mergers or adversely affects the rights of
Capital's, Host's or Universal's stockholders under the merger agreement without
the requisite approval of their respective stockholders. In addition, once any
of Capital's Host's or Universal's stockholders have approved the merger
agreement, no amendment that by applicable law requires further approval by such
stockholders may be made without such further approval.
At any time before the effective time of the mergers, a party may in
writing:
(1) extend the time for performance of any of the obligations or other
acts of the other parties;
(2) waive any inaccuracies in the representations and warranties of
the other parties contained in the merger agreement; or
(3) waive compliance, where permissible, with any of the agreements or
conditions contained in the merger agreement.
If a party waives the right to receive a legal opinion with respect to
certain tax consequences of the mergers and if the tax consequences of the
mergers are materially different from those described herein, Bull Run intends
to recirculate revised proxy material describing such different tax
consequences.
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<PAGE> 39
FEES AND EXPENSES. Whether or not the mergers are consummated, each party
will pay its own costs and expenses in connection with preparing for, entering
into and carrying out the merger agreement and related transactions, except that
if BR Holding or Bull Run terminates the merger agreement because the mergers
have not been completed by October 31, 1999, Bull Run will reimburse Host and
Universal for their out-of-pocket expenses.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following describes the material federal income tax consequences
applicable to:
(1) the Capital stockholders who will exchange Capital common stock
for cash and common stock of BR Holding pursuant to the merger agreement;
(2) the Host stockholders who will exchange Host common and preferred
stock, as the case may be, for cash and common stock of BR Holding pursuant
to the merger agreement; and
(3) the Universal stockholders who will exchange Universal common and
preferred stock, as the case may be, for cash and common stock of BR
Holding pursuant to the merger agreement.
Proskauer Rose LLP, counsel to BR Holding and Bull Run, is of the opinion
that the following accurately sets forth the material federal income tax
consequences of the Capital, Host and Universal mergers. Counsel's opinion is
based upon current provisions of the Internal Revenue Code of 1986, Treasury
Regulations, judicial decisions and administrative rulings and a representation
letter provided by BR Holding, containing customary statements relating to
technical requirements that must be satisfied for the tax consequences of the
Capital, Host and Universal mergers to be governed by Section 351 of the
Internal Revenue Code. Future changes in applicable law may adversely affect the
tax consequences described in this proxy statement/prospectus.
The following discussion does not address all aspects of federal income
taxation that may be relevant to particular holders in light of their personal
circumstances, or to taxpayers subject to special rules under the federal income
tax laws. For example, certain financial institutions, life insurance companies,
foreign purchasers, tax-exempt entities and the holders of options to acquire
stock in Capital, Host or Universal may be subject to special rules. This
discussion also does not address any aspect of state, local or foreign tax laws
or consequences. This discussion also assumes that the Capital, Host and
Universal shares exchanged, as the case may be, are held as capital assets as of
the date of the Capital, Host and Universal mergers.
Prior to the mergers, Bull Run and BR Holding will effect the holding
company reorganization. As a result of the holding company reorganization and
the mergers, each Bull Run stockholder will receive one share of BR Holding
common stock in exchange for each share of Bull Run common stock and each
stockholder of Capital, Host and Universal will receive cash and shares of BR
Holding common stock for the Capital, Host and Universal stock exchanged, each
in the ratios set forth in merger agreement. For federal income tax purposes,
the exchanges will be treated as transfers of property, the Bull Run, Capital,
Host and Universal stock, as the case may be, to BR Holding in exchange for BR
Holding common stock and, where applicable, cash in an exchange governed by
Section 351 of the Internal Revenue Code.
Cash received by a Universal stockholder to the extent attributable to the
proceeds of the broadcast.com stock sale, may be treated as a redemption in
payment of Universal
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<PAGE> 40
stock, resulting in capital gain or loss equal to the difference between the
amount of cash received and such stockholders' tax basis in the stock of
Universal exchanged therefor.
Universal stockholders who receive BR Holding stock and cash (to the extent
not attributable to the proceeds of the broadcast.com stock sale) and Capital
and Host stockholders will recognize gain, but not loss, equal to the lesser of
(1) the amount of cash received and (2) the amount of gain realized, measured by
(A) the excess of the sum of the cash and the fair market value of BR Holding
common stock received over (B) the tax basis of the Capital, Host or Universal
shares exchanged in the mergers. The tax basis of the BR Holding common stock
received in the mergers will be the same as the Capital, Host or Universal,
stock surrendered, decreased by the amount of cash received and increased by the
amount of any gain recognized. The holding period of the BR Holding common stock
will include the holding period of the shares surrendered.
A Capital or Host stockholder who receives only cash in the mergers, as a
result of exercising appraisal rights, will recognize gain or loss on the
exchange equal to the difference between the cash received and the tax basis of
shares exchanged.
Gain or loss, if any, that is required to be recognized on the exchange
will be capital gain or loss. Capital, Host or Universal stockholders who are
individuals and who have held their shares as a capital asset for more than 12
months at the time of the mergers are entitled to a preferential tax rate of 20%
on long-term capital gains. Any loss recognized by a Capital or Host stockholder
who exercises appraisal rights will be a capital loss. In general, capital
losses can only be applied to a limited extent to offset ordinary income for
federal income tax purposes.
A Capital, Host or Universal stockholder who receives cash in lieu of a
fractional share of stock, will be treated as having received such fractional
share and then having exchanged such share for cash in a redemption by BR
Holding. Any gain or loss attributable to fractional shares will generally be
capital gain or loss, in an amount equal to the difference between the cash
received and the tax basis of the fractional share exchanged.
Certain noncorporate Capital, Host or Universal stockholders may be subject
to backup withholding at a rate of 31% on cash payments made in the mergers.
Backup withholding will apply only if a stockholder:
- fails to furnish his or her Taxpayer Identification Number, which, in the
case of an individual, would be his or her Social Security number;
- furnishes an incorrect Taxpayer Identification Number;
- is notified by the IRS that it has failed to properly report payments of
interest and dividends; or
- has failed to certify, under penalty or perjury, that it has furnished a
correct Taxpayer Identification Number and has not been notified by the
IRS that it is subject to backup withholding. The amounts withheld under
the backup withholding rules are not an additional tax and may be
credited against United States federal income tax liability of the
individual or refunded, provided that the required information is
furnished to the IRS.
Each Bull Run, Capital, Host and Universal stockholder that receives BR
Holding common stock in the mergers will be required to retain records and file
with such holder's federal income tax return a statement setting forth specific
facts relating to the mergers.
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<PAGE> 41
This federal income tax discussion is for general information only and may
not apply to all holders of Capital, Host and Universal shares. Stockholders are
urged to consult their own tax advisors as to the specific tax consequences of
the mergers.
ACCOUNTING TREATMENT
The acquisitions of Capital, Host and Universal will be accounted for under
the purchase method of accounting. Generally, under the purchase method of
accounting, assets acquired and liabilities assumed are recorded at their fair
value. If the mergers are completed, it is anticipated that BR Holding will
adopt a fiscal year end of June 30. Bull Run's current fiscal year end is
December 31.
OPERATIONS OF HOST AND UNIVERSAL AFTER THE MERGERS
Bull Run does not currently intend to make any substantive changes in the
business, operations or personnel of Host or Universal after the mergers. On a
pro forma basis, after giving effect to the mergers, the revenues of Host and
Universal would have represented approximately 34% and 48%, respectively, of
Bull Run's consolidated revenues for the year ended December 31, 1998 and 50%
and 35%, respectively, for the quarter ended March 31, 1999. On a pro forma
basis, the total assets of Host and Universal would have accounted for 22% and
37%, respectively, of Bull Run's consolidated total assets as of March 31, 1999.
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
rules under that Act, the mergers may not be consummated unless notification has
been given and specified information has been furnished to the Antitrust
Division of the United State Department of Justice and the United States Federal
Trade Commission. Specified waiting period requirements must also be satisfied.
The required notification has been given, and the required information has been
furnished, to both the Antitrust Division and the Federal Trade Commission. The
required waiting period under the Hart-Scott-Rodino Act for the mergers expired
on May 14, 1999. At any time before or after the effective time of the mergers,
the Federal Trade Commission or the Antitrust Division could take any action
under the United States antitrust laws that it deems necessary or desirable in
the public interest. This could include seeking to enjoin the mergers or seeking
the divestiture of Capital, Host or Universal by Bull Run, in whole or in part,
or the divestiture or compulsory licensing of substantial assets of Bull Run,
Capital, Host or Universal or their respective subsidiaries. State attorneys
general and private parties may also bring legal actions under the federal or
state antitrust laws in some cases.
FINANCING OF THE MERGERS
The total amount of funds required by Bull Run to consummate the mergers
and pay related fees and expenses is estimated to be approximately $74 million.
Of such amount, Bull Run will use $35.5 million of Universal's cash on hand
subsequent to the merger, representing the net proceeds (after a provision for
taxes) from Universal's sale of its investment in broadcast.com inc. in January
1999. Bull Run expects to refinance all of its existing indebtedness, as well as
the existing bank indebtedness of Host. In the aggregate, Bull Run expects that
approximately $70 million of indebtedness of Bull Run and Host will be
refinanced. In order to obtain sufficient additional funds to complete the
mergers, refinance existing indebtedness of the companies and provide for the
combined companies' cash needs after the mergers, Bull Run expects to enter into
a new credit agreement. As of
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<PAGE> 42
the date of this proxy statement/prospectus, Bull Run has not yet entered into a
new credit agreement. Bull Run is currently negotiating certain specific terms
of its new credit agreement. In connection with Bull Run's current credit
agreement, J. Mack Robinson, Bull Run's Chairman of the Board, executed a put
agreement in favor of the bank (as described on page 116). In connection with
its new credit agreement, Bull Run is currently negotiating the following terms:
(1) the extent to which a similar put agreement will be necessary, (2) fees and
expenses to be paid to the lender or lenders and (3) the quantitative amounts of
the covenants; the general types of covenants having been agreed upon. Bull Run
expects that a term sheet will be executed upon completion of these
negotiations. The following summary of the material terms and conditions of the
new credit agreement does not purport to be complete and is subject to the
detailed provisions of the credit agreement and the various related documents to
be entered into in connection with the credit agreement.
The credit agreement is expected to provide for total borrowings of up to
$137 million, available under Facility A, Facility B and Facility C.
Approximately $38.6 million of borrowings will be used to consummate the merger
and to pay related fees and expenses. Approximately $80 million of additional
borrowings will be used to refinance Bull Run's and Host's indebtedness.
The credit agreement is expected to be comprised of a term loan and
revolving credit facility tranche (Facility A) and two tranches of term loans
(Facility B and Facility C). Interest on amounts outstanding under the
facilities will be based on the London Interbank Offered Rate (LIBOR) plus an
applicable margin not expected to exceed 2.5%. Facility A is expected to be
subject to a commitment fee of .375% on the unused portion of the revolving
credit facility.
It is expected that Facility A will consist of a $40 million revolving
credit facility and a $4.4 million term note. Borrowings under Facility A will
be limited to the sum of specified percentages of eligible accounts receivable
and inventories. The revolving credit facility will mature and all amounts
outstanding thereunder will be due and payable in full on the third anniversary
of the closing date of the credit agreement. The $4.4 million term note will be
amortized $220,000 per quarter until maturity in three years.
It is expected that Facility B will consist of a $32.6 million term loan to
be amortized in the amount of $1,000,000 per quarter beginning 21 months
following the closing date of the credit agreement, with all amounts outstanding
due and payable in full on the third anniversary of the closing date of the
credit agreement.
It is expected that Facility C will consist of a $60 million term note and
that the facility will mature and all amounts outstanding thereunder will be due
and payable in full on the third anniversary of the closing date of the credit
agreement, however, it is expected that Facilities B or C will be required to be
paid down a minimum of $20 million within 18 months after the closing date of
the credit agreement.
It is expected that the credit facilities will be collateralized by all
present and future assets of Bull Run and its subsidiaries, as well as with a
pledge of the shares in both public and private companies owned by Bull Run and
its subsidiaries. The credit facilities will require Bull Run to adhere to
normal and customary debt covenants on a quarterly basis, such as debt service
coverage ratios and minimum net worth requirements. The availability of funds
under the new credit agreement and the ability of Bull Run to declare dividends
on its common stock will also be subject to certain conditions, including the
maintenance by Bull Run of financial ratios consisting, but not limited to, of
debt service coverage ratios
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<PAGE> 43
and minimum net worth requirements. On a pro forma basis after giving effect to
the mergers and the related anticipated borrowings under the new credit
agreement, Bull Run's notes payable and long-term debt would have increased from
$67.4 million at March 31, 1999 to $108.2 million and, assuming the mergers had
occurred on January 1, 1998, Bull Run's annual debt service for the year ended
December 31, 1998 would have increased from $5.2 million to $11.8 million.
RESALE OF BR HOLDING COMMON STOCK FOLLOWING THE MERGERS
The shares of the Bull Run common stock issuable upon conversion of the
Capital, Host and Universal stock in the mergers will be freely transferable.
However, securities retained by any stockholder who is an "affiliate" of
Capital, Host or Universal for purposes of Rule 145 under the Securities Act of
1933 will not be transferable, except pursuant to an effective registration
statement or an exemption from the registration requirements of the Securities
Act of 1933. An affiliate, as defined under the Securities Act of 1933,
generally includes, without limitation, directors, certain executive officers
and beneficial owners of 10% or more of a class of capital stock.
STOCKHOLDERS' AGREEMENT
Charles L. Jarvie, Douglas L. Jarvie, W. James Host, principal stockholders
of Host, the Robinson-Prather Partnership, a principal stockholder of Bull Run,
and Hilton H. Howell, Jr., a director of Bull Run, have entered into a
stockholders' agreement under which they have agreed, for a period of seven
years, to vote all of their shares of BR Holding in favor of the election or
re-election of Robert S. Prather, Jr., J. Mack Robinson, Hilton H. Howell, Jr.,
Charles L. Jarvie, W. James Host and any designee of the Robinson-Prather
Partnership to the board of directors of BR Holding. If any of Messrs. Prather,
Robinson, Howell, C. Jarvie, D. Jarvie or Host ceases beneficially to own BR
Holding capital stock representing 50% or more of the total voting power of
capital stock of the BR Holding capital stock that was beneficially owned by him
immediately after giving effect to the mergers, he will cease to be entitled to
be elected a director, and will no longer have any rights, under the
stockholders' agreement. In addition, the stockholders agreement provides that,
during its term, Messrs. C. Jarvie, D. Jarvie and Host will vote all of their
shares of BR Holding in the manner designated by the Robinson-Prather
Partnership.
CAPITAL WRITTEN CONSENT
By written consent, all of the stockholders of Capital have approved the
merger agreement and the merger of a wholly owned subsidiary of BR Holding with
Capital.
HOST VOTING AGREEMENT
Pursuant to a Voting and Support Agreement with BR Holding and Bull Run,
holders of Host common stock representing approximately 72% of the outstanding
Host common stock and the holder of all of the outstanding Host preferred stock
have agreed to vote their shares in favor of the merger agreement and the merger
of a wholly owned subsidiary of BR Holding with Host and to take actions in
support of the transactions contemplated by the merger agreement including a
decision to vote against any action or agreement that would either breach any
agreement of Host or impede the merger.
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UNIVERSAL VOTING AGREEMENT
Pursuant to a Voting and Support Agreement with BR Holding and Bull Run,
all of the Universal stockholders have agreed to vote their shares of Universal
common stock and preferred stock in favor of approval and adoption of the merger
agreement and the merger of Universal with a wholly owned subsidiary of BR
Holding and to take actions in support of the transactions contemplated by the
merger agreement including a decision to vote against any action or agreement
that would either breach any agreement of Universal or impede the merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
In considering the recommendation of the Bull Run board of directors in
favor of the issuance of shares of Bull Run common stock in the mergers,
stockholders should be aware that executive officers and directors of Bull Run,
Capital, Host and Universal may be deemed to have interests in the mergers that
are in addition to or different from the interests of the stockholders of Bull
Run, including the ones referred to below. The board was aware of these
potential interests and considered them, among other matters, in approving the
issuance of shares.
Robert S. Prather, Jr., the President, Chief Executive Officer and a
director of Bull Run, is also a director of Capital, Host and Universal.
The merger agreement provides that, at or prior to the effective time of
the mergers, BR Holding will increase the size of its board of directors to
seven members and W. James Host, who is currently the chairman of the board of
directors and chief executive officer of Host, and Charles L. Jarvie, chairman
of the board of directors of Universal, will be appointed to the board of
directors of BR Holding to serve as a member thereof.
The merger agreement also provides that the employment agreements between
Host and each of W. James Host and Charles L. Jarvie, and between Universal and
Douglas L. Jarvie, will remain in full force and effect, and will be assumed at
the effective time of the mergers by BR Holding. However, such agreements will
be amended by Host and Universal prior to the effective time of the mergers to
eliminate provisions which provide for the grant of options to such individuals.
A summary of the material terms of these employment agreements is set forth
below.
W. JAMES HOST EMPLOYMENT AGREEMENT. Host entered into an employment
agreement with W. James Host dated March 1, 1994, as amended on January 1, 1997
and July 1, 1997. Mr. Host's employment agreement provides that Mr. Host will be
employed as Chief Executive Officer of Host until June 30, 2002 and is entitled
to receive:
- an annual base salary of not less than $260,000, subject to adjustments;
- an annual performance bonus based upon criteria established by the Host
board;
- annual contributions to his retirement plan in an amount of not less than
$40,000; and
- other customary perquisites.
Mr. Host's employment agreement generally requires Host to pay Mr. Host's
salary through June 30, 2002, unless Mr. Host voluntarily terminates his
employment prior to such date, dies, becomes disabled or is terminated by Host
for good cause.
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Mr. Host's employment agreement provides that he will not compete with Host
during his employment with Host and for eight years thereafter. During such
eight year period, Mr. Host is entitled to receive $200,000 per year and has
agreed to provide consulting services to Host not to exceed 200 hours per year.
CHARLES L. JARVIE EMPLOYMENT AGREEMENT. Host entered into an employment
agreement with Charles L. Jarvie on March 1, 1994, as amended on January 1, 1997
and July 1, 1997. Mr. Jarvie's employment agreement provides that Mr. Jarvie
will be employed as president and chief operating officer of Host until June 30,
2002 and is entitled to receive:
- an annual base salary of not less than $260,000, subject to adjustments;
- an annual performance bonus based upon criteria established by the Host
board;
- annual contributions to his retirement plan in an amount of not less
$40,000; and
- other customary perquisites.
Mr. Jarvie's employment agreement generally requires Host to pay Mr.
Jarvie's salary through June 30, 2002, unless Mr. Jarvie voluntarily terminates
his employment prior to such date, dies, becomes disabled or is terminated by
Host for good cause. In addition, if for any reason Mr. Host resigns or is
removed as chief executive officer and Host does not appoint Mr. Jarvie as chief
executive officer of Host within 30 days thereafter, Mr. Jarvie may terminate
his employment within 10 days after the end of such 30-day period and be
entitled to receive any salary earned to the date of termination, one year's
annual base compensation and the maximum bonus Mr. Jarvie could have earned for
the year in which his employment was terminated.
Mr. Jarvie's employment agreement provides that he will not compete with
Host during his employment with Host and for eight years thereafter. During such
eight-year period, Mr. Jarvie is entitled to receive $200,000 per year and has
agreed to provide consulting services to Host not to exceed 200 hours per year.
DOUGLAS L. JARVIE EMPLOYMENT AGREEMENT. Universal entered into an
employment agreement with Douglas L. Jarvie on May 1, 1998. The employment
agreement provides that Mr. Jarvie will be employed as president and chief
executive officer of Universal for an employment period ending on November 30,
2001 and is entitled to receive:
- (A) for the seven months ended November 30, 1998, a base salary equal to
$200,000 per annum, (B) for the 12 months ending November 30, 1999, an
annual base salary of $220,000 and (C) for each year beginning December
1, 1999, a base salary as determined by the compensation committee of
Universal;
- an annual performance bonus based upon criteria established by the board
of directors of Universal; and
- other customary perquisites. Mr. Jarvie's employment agreement generally
requires Universal to pay Mr. Jarvie's accrued but unpaid salary through
the date Mr. Jarvie's employment with Universal is terminated, unless Mr.
Jarvie is terminated by Universal in connection with a suspension or
discontinuance of Universal's operations, in which event Mr. Jarvie is
entitled to an amount equal to two months' base salary or Mr. Jarvie is
terminated without cause, in which event Mr. Jarvie is entitled to an
amount equal to two years' base salary.
Mr. Jarvie has agreed not to compete with Universal or any affiliated
company during his employment with Universal and for 18 months thereafter.
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NO APPRAISAL RIGHTS AVAILABLE TO BULL RUN STOCKHOLDERS
Under Georgia law, Bull Run stockholders who object to the proposal to
approve the issuance of shares of BR Holding common stock in the mergers in
accordance with the merger agreement will not be afforded statutory appraisal
rights. See "Comparison of the Stockholders' Rights, Certificates of
Incorporation and Bylaws of BR Holding for a discussion of appraisal rights
available to Host and Universal stockholders in the mergers.
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SELECTED FINANCIAL INFORMATION OF BULL RUN
The following table sets forth selected consolidated financial data of Bull
Run. The selected consolidated financial data as of and for each of the years in
the five-year period ended December 31, 1998 are derived from the audited
consolidated financial statements of Bull Run. The consolidated financial
statements as of December 31, 1998 and 1997 and for each of the years in the
three-year period ended December 31, 1998 have been audited by Ernst & Young
LLP, independent auditors, which financial statements and the auditors' report
thereon are included elsewhere in this proxy statement/prospectus. The selected
financial data as of March 31, 1999 and for the three-month periods ended March
31, 1999 and 1998 are derived from the unaudited condensed consolidated
financial statements of Bull Run included elsewhere in this proxy
statement/prospectus which, in the opinion of management of Bull Run, include
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the data for such periods. The results of operations for the
three months ended March 31, 1999 are not necessarily indicative of the results
to be expected for the year ending December 31, 1999.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, FISCAL YEAR ENDED DECEMBER 31,
------------------ ---------------------------------------------------
OPERATING RESULTS: 1999 1998 1998 1997 1996 1995 1994
- ------------------ -------- ------- -------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue from printer
operations.................... $ 7,533 $ 6,614 $ 29,848 $ 21,639 $ 23,810 $ 26,432 $ 2,751
Cost of goods sold.............. (5,375) (4,970) (22,103) (15,967) (17,170) (18,649) (1,853)
-------- ------- -------- -------- -------- -------- -------
Gross profit.................. 2,158 1,644 7,745 5,672 6,640 7,783 898
Other operating revenue......... 195 2 1,618 681 844 721 323
Operating expenses.............. (2,480) (2,128) (8,593) (6,852) (6,255) (6,764) (1,174)
-------- ------- -------- -------- -------- -------- -------
Income (loss) from
operations.................. (127) (482) 770 (499) 1,229 1,740 47
Equity in earnings (losses) of
affiliated companies.......... (470) (270) 6,734 (599) 1,731 107 266
Gain on issuance of shares by
affiliated company............ -- -- -- -- 8,179 -- --
Interest expense and other,
net........................... (981) (752) (3,290) (1,614) (1,250) (944) (11)
-------- ------- -------- -------- -------- -------- -------
Income (loss) before income
taxes, extraordinary item
and cumulative effect of
accounting change........... (1,578) (1,504) 4,214 (2,712) 9,889 903 302
Income tax benefit
(provision)................... 521 421 (1,854) 939 (4,012) (180) (86)
-------- ------- -------- -------- -------- -------- -------
Income (loss) before
extraordinary item and
cumulative effect of
accounting change............. (1,057) (1,083) 2,360 (1,773) 5,877 723 216
Extraordinary loss.............. -- -- -- -- (295) -- --
Cumulative effect of accounting
change........................ -- -- -- -- (274) -- --
-------- ------- -------- -------- -------- -------- -------
Net income (loss)............. $ (1,057) $(1,083) $ 2,360 $ (1,773) $ 5,308 $ 723 $ 216
======== ======= ======== ======== ======== ======== =======
Earnings (loss) per
share -- Basic:
Income (loss) before
extraordinary item and
cumulative effect of
accounting change........... $ (0.05) $ (0.05) $ 0.11 $ (0.08) $ 0.26 $ 0.03 $ 0.02
Net income (loss)............. $ (0.05) $ (0.05) $ 0.11 $ (0.08) $ 0.24 $ 0.03 $ 0.02
Weighted average shares
outstanding -- Basic.......... 22,264 22,029 22,189 21,302 22,013 22,127 13,350
Earnings (loss) per
share -- Diluted
Income (loss) before
extraordinary item and
cumulative effect of
accounting change........... $ (0.05) $ (0.05) $ 0.10 $ (0.08) $ 0.25 $ 0.03 $ 0.02
Net income (loss)............. $ (0.05) $ (0.05) $ 0.10 $ (0.08) $ 0.23 $ 0.03 $ 0.02
Weighted average shares
outstanding -- Diluted........ 22,264 22,029 23,182 21,302 22,945 23,236 13,534
</TABLE>
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<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
------------------ ---------------------------------------------------
FINANCIAL POSITION: 1999 1998 1998 1997 1996 1995 1994
- ------------------- -------- ------- -------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (deficiency).... $ (7,676) $ 3,312 $ 3,312 $ 2,513 $ 3,990 $ 3,739 $ 4,813
Investment in affiliated
companies..................... 84,254 73,346 73,346 61,551 53,752 29,246 15,709
Total assets.................... 105,746 95,172 95,172 76,832 67,851 44,300 30,756
Long-term obligations........... 53,378 51,848 51,848 41,998 31,364 14,896 2,775
Stockholders' equity............ 28,792 29,791 29,791 25,056 28,318 24,079 23,584
Current ratio................... 0.6 1.4 1.4 1.4 2.1 1.9 2.6
Book value per share............ $ 1.29 $ 1.35 $ 1.34 $ 1.18 $ 1.30 $ 1.09 $ 1.07
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BULL RUN
The following discussion should be read in conjunction with Bull Run's
financial statements and notes thereto attached to this proxy
statement/prospectus.
OVERVIEW
Bull Run, based in Atlanta, Georgia, sells computer printers and provides
service worldwide to distributors, value-added resellers and large volume end
users through its wholly owned subsidiary, Datasouth Computer Corporation. Bull
Run also makes significant investments in sports and media companies, including
Gray Communications Systems, Inc., the owner and operator of 10 television
stations and four daily newspapers; Host Communications, Inc., a sports
marketing and association management company; Rawlings Sporting Goods Company,
Inc., a supplier of team sports equipment in North America; Universal Sports
America, Inc., a sports marketing company; and Total Sports, Inc., a sports
content Internet company. In January 1999, Bull Run made an investment in Sarkes
Tarzian, Inc., the owner and operator of two television stations and four radio
stations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Total revenue for the three months ended March 31, 1999, primarily from the
printer manufacturing operations of Datasouth, was $7,728,000 compared to
$6,616,000 for the same period in 1998. Revenue from printer operations was
$7,533,000 for the three months ended March 31, 1999, representing a 14%
increase from such revenue for the same period in 1998. Short term revenue
trends in Bull Run's printer business fluctuate due to variable ordering
patterns of large customers. The increase in 1999 first quarter revenue compared
to 1998 was due in part to sales of an airline ticket/boarding pass printer, the
marketing rights for which were acquired in September 1998, and an increase in
consulting fee income in the first quarter of 1999 compared to 1998. Printer
sales to The Sabre Group, Inc., Bull Run's largest customer, were approximately
$1.9 million for the first quarter of 1999, compared to approximately $2.0
million for the first quarter of 1998.
Gross profit from printer operations of 28.6% for the first quarter of 1999
increased from the 24.9% realized for the same period in 1998, primarily due to:
a different mix of products sold and initial production costs associated with
the introduction of a new printer line in 1998, which collectively increased
gross profit 3.9% of revenue; costs incurred in the first quarter of 1998 by
Bull Run immediately following the acquisition of the CodeWriter product line
(acquired on January 2, 1998 as discussed in "Liquidity and Capital Resources"
and in note 3 to Bull Run's consolidated financial statements on page F-12),
prior to the integration of CodeWriter manufacturing operations into Bull Run's
existing product manufacturing facility in the second quarter of 1998,
representing 0.2% of the 3.7% increase in the gross profit percentage from the
first quarter of 1998. An increase in freight costs on inventory purchases
resulted in a 0.5% decrease in gross profit for the first quarter of 1999
compared to the same period in 1998.
A portion of the income from consulting fees for services provided to Gray
is deferred and recognized over 40 years as a result of Bull Run's equity
investment in Gray. As of March 31, 1999, consulting fees of $734,000 were
deferred for future revenue recognition. Consulting fee income of $195,000 was
recognized in the first quarter of 1999 compared to
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$2,000 in the same period in 1998, primarily due to fees attributable to Gray's
acquisition of a newspaper operation in March 1999. There can be no assurance
that Bull Run will earn any consulting fees in the future, other than
recognition of currently deferred fees.
Operating expenses of $2,480,000 for the three months ended March 31, 1999
represented a 17% increase from the same period in 1998, due primarily to: a
$151,000 increase in research and development costs attributable to software
development activities for the airline ticket/boarding pass printer (the
marketing rights for which were acquired in September 1998); a $76,000 increase
in advertising expense in the first quarter of 1999 compared to the same period
in 1998; and expenses of $138,000 associated with Bull Run's European sales
office established in October 1998. Operating expenses include non-cash goodwill
amortization expense of $132,000 for the three months ended March 31, 1999 and
$120,000 for the same period in 1998.
Equity in losses of affiliated companies, totaling $470,000 and $270,000
for the three months ended March 31, 1999 and 1998, respectively, included Bull
Run's proportionate share of the earnings or losses of Gray, Host, Capital and
Rawlings, net of goodwill amortization totaling $275,000 and $194,000,
respectively.
Interest and dividend income of $226,000 and $287,000 for the three months
ended March 31, 1999 and 1998, respectively, was primarily derived from
dividends accrued on Bull Run's investment in Gray's series A and series B
preferred stock. Interest expense, totaling $1,205,000 and $1,032,000 for the
three months ended March 31, 1999 and 1998, respectively, was incurred primarily
in connection with bank term loans and notes payable, the proceeds of which were
used to finance Bull Run's investments in Gray, Host, Capital, Universal and
Rawlings and the CodeWriter acquisition in January 1998; and for the three
months ended March 31, 1999, Bull Run's investments in Total Sports in August
1998 and January 1999 and Bull Run's investment in Sarkes Tarzian in January
1999.
Nondeductible goodwill amortization reduced Bull Run's tax benefit for the
three month periods ended March 31, 1999 and 1998, resulting in an effective tax
rate of 33.0% for the first quarter of 1999 and 28.0% for the same period in
1998.
1998 COMPARED TO 1997
Total revenue for 1998, primarily from the printer manufacturing operations
of Datasouth, was $31,466,000 compared to $22,320,000 in 1997. Revenue from
Datasouth's printer operations was $29,848,000 in 1998, representing a 38%
increase from such revenue in 1997 of $21,639,000. CodeWriter products
contributed revenue of approximately $4,400,000 in 1998. Printer sales to The
Sabre Group, Inc., Bull Run's largest customer, were approximately $9,200,000 in
1998 and $7,200,000 in 1997. Short term revenue trends in Bull Run's printer
business fluctuate due to variable ordering patterns of large customers. The
increase in 1998 revenue compared to 1997 was also due in part to a $931,000
increase in consulting fee income in 1998 compared to 1997.
Gross profit from printer operations of 25.9% for 1998 decreased slightly
from the 26.2% realized in 1997, primarily due to: a different mix of products
sold which increased gross profit 1.8% of revenue; less the impact of costs
incurred by Bull Run immediately following the CodeWriter acquisition, prior to
the integration of manufacturing operations into Bull Run's existing product
manufacturing facility which decreased gross profit 0.1% of revenue; and an
increase in freight costs and increases in inventory reserves, offset by some
manufacturing overhead efficiencies gained as a result of higher unit volumes
which collectively reduced gross profit by 2.3% of revenue.
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Operating expenses of $8,593,000 in 1998 represented a 25% increase from
1997, due primarily to expenses of $245,000 associated with an increase in sales
and marketing personnel attributable to Bull Run's expanded printer line;
expenses of $75,000 associated with Bull Run's European sales office opened in
October 1998; a $175,000 increase in advertising expenses primarily relating to
the introduction of new products in 1998; an increase in personnel and
administrative costs of $560,000 resulting from the CodeWriter acquisition; and
goodwill amortization expense and nonrecurring post-acquisition transition costs
of $225,000 in 1998 associated with the CodeWriter acquisition. Operating
expenses include non-cash goodwill amortization expense of $488,000 in 1998 and
$301,000 in 1997, associated with the acquisition of Datasouth and, in 1998
only, the CodeWriter acquisition.
Equity in earnings (losses) of affiliated companies, totaling $6,734,000 in
1998 and ($599,000) in 1997, includes Bull Run's proportionate share of the
earnings of Gray, Host, Capital and, in 1998 only, Rawlings, net of goodwill
amortization totaling $777,000 and $610,000, respectively. In 1998, Gray
disposed of WALB-TV, its NBC affiliate in Albany, Georgia, fulfilling a Federal
Communications Commission divestiture order. As a result of the gain on the
disposition of WALB-TV, Bull Run's equity in Gray's earnings was favorably
impacted by approximately $6,900,000 in 1998.
Interest and dividend income of $1,085,000 in 1998 and $1,102,000 in 1997
was primarily derived from dividends accrued on Bull Run's investment in Gray's
series A and series B preferred stock. Interest expense, totaling $4,247,000 in
1998 and $2,716,000 in 1997, was incurred primarily in connection with bank term
loans, the proceeds of which were used to finance Bull Run's investments in
Gray, Host, Capital and USA; Bull Run's investments in Rawlings from November
1997 through January 1998; the CodeWriter acquisition in January 1998; and Bull
Run's investment in Total Sports in August 1998.
As of December 31, 1998, Bull Run had a net operating loss carryforward for
tax purposes of approximately $1,500,000 to reduce Federal taxable income in the
future, an alternative minimum tax credit carryforward of approximately $500,000
and a business credit carryforward of approximately $115,000, to reduce regular
Federal tax liabilities in the future. Nondeductible goodwill amortization
increased Bull Run's tax provision in 1998 and reduced Bull Run's tax benefit in
1997, resulting in an effective tax rate of 44.0% in 1998 and 34.5% in 1997.
1997 COMPARED TO 1996
Total revenue for 1997, primarily from the printer manufacturing operations
of Datasouth, was $22,320,000 compared to $24,654,000 in 1996. Revenue from
Datasouth's printer operations of $21,639,000 in 1997 represented a 9% decrease
from such revenue in 1996 of $23,810,000. Printer sales to The Sabre Group,
Inc., Bull Run's largest customer, were approximately $7,200,000 in 1997 and
1996. Sales to two significant distributors were approximately $980,000 lower in
1997 than in 1996, and a product line generating sales of $1,230,000 of sales in
1996 was discontinued in 1997. Short term revenue trends in Bull Run's printer
business fluctuate due to variable ordering patterns of large customers.
Gross profit from printer operations of 26.2% for 1997 decreased from the
27.9% realized in 1996, primarily due to: a different mix of products sold and
initial production costs associated with the introduction of a new printer line,
which collectively reduced gross profit 0.5% of revenue; and greater
manufacturing overhead efficiencies gained in 1996 as a result of higher unit
volumes, representing 0.7% of the 1.7% decrease in the gross profit percentage
from 1996.
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Consulting fee income on services provided to Gray in connection with
Gray's acquisitions and dispositions was $681,000 in 1997, as compared to
$844,000 in 1996.
Operating expenses of $6,852,000 in 1997 represented a 10% increase from
1996, due primarily to an increase in research and development expenses of
$850,000 incurred primarily for the design of a new printer introduced in the
fourth quarter of 1997 and an increase in certain general and administrative
expenses, such as compensation costs and professional fees, of $130,000, offset
by a decrease in sales and marketing expense of $230,000. Operating expenses
included non-cash goodwill amortization associated with the acquisition of
Datasouth of $301,000 in 1997 and $292,000 in 1996.
Equity in earnings (losses) of affiliated companies totaled ($599,000) in
1997 and $1,731,000 in 1996, net of goodwill amortization totaling $610,000 and
$487,000, respectively. Approximately $975,000 of the decrease from 1996 to 1997
in equity in earnings of affiliated companies can be attributed to Gray's gain
on the sale of a television station and Host's gain on the sale of assets to
Universal in 1996. Additional decreases in Gray's earnings for 1997 compared to
1996 are attributable to increased interest expense and amortization of goodwill
associated with Gray's acquisitions.
In 1996, Gray consummated a public offering of 3.5 million shares of class
B common stock, resulting in net proceeds to Gray of $67,100,000. As a result of
this issuance, Bull Run's common equity ownership of Gray was reduced from 27.1%
to 15.2%, resulting in a pretax gain for Bull Run of approximately $8,200,000 or
$5,000,000 after tax. This offering also reduced Bull Run's common equity voting
power in Gray from 27.1% to 25.1%. There is no assurance that such sales or such
gains of a material nature will occur in the future.
Interest and dividend income in 1997 of $1,102,000 was primarily derived
from dividends accrued on Bull Run's investment in Gray's series A and series B
preferred stock. Interest expense, totaling $2,716,000 in 1997, was incurred
primarily in connection with bank term loans, the proceeds of which were used to
finance Bull Run's investments in Gray, Host, Capital and Universal and Bull
Run's investments in Rawlings beginning in November 1997.
Bull Run recognizes its equity in earnings of Host on a six month lag
basis, in order to align Host's fiscal year ending June 30 with Bull Run's
fiscal year. Effective July 1, 1995 (Host's 1996 fiscal year), Host adopted a
new accounting policy for the recognition of corporate sponsor license fee
revenue and guaranteed rights fee expenses, since the nature of Host's contracts
was changing to include revenue-sharing or net profit split arrangements, rather
than guaranteed rights fee payments. As a result, the rights fee expense
associated with this type of contract could not be accurately measured until the
expiration of each contract period when the revenue-sharing or net profit split
amount was determined. Under the new policy, license fee revenue and rights fee
expense are recognized on a straight-line basis over the life of the contract,
instead of recognizing revenue and expense in their entirety on the effective
date of the contract, thereby providing for the uniform matching of revenue and
expenses. As a result of the change in accounting policy, Host recognized a
$4,559,000 charge against its earnings, representing the after-tax cumulative
effect of the accounting change. Bull Run reported 9.1% of the charge, or
$415,000, less a $141,000 deferred tax benefit, as a charge against its 1996
earnings.
In 1996, Gray retired certain debt with the proceeds from its public
offerings of class B common stock and notes, and the sale of its series B
preferred stock. As a result, Gray incurred an after-tax extraordinary loss of
$3,159,000 related to costs associated with
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retired debt. Bull Run therefore recognized 15.2% of Gray's charge, or $480,000,
less a $185,000 deferred tax benefit, as an extraordinary loss.
As of December 31, 1997, Bull Run had an alternative minimum tax credit
carryforward of approximately $500,000 to reduce regular Federal tax liabilities
in the future. In part resulting from the carryback of the 1997 taxable loss to
1995, Bull Run had a business credit carryforward of approximately $115,000 to
reduce regular Federal tax liabilities in the future. Nondeductible goodwill
amortization reduced Bull Run's tax benefit in 1997 and increased Bull Run's tax
expense in 1996, thereby reducing Bull Run's effective tax rate to 34.5% in 1997
from 40.6% in 1996. The valuation allowance on deferred tax assets was reduced
in 1996, thereby reducing the 1996 income tax provision by approximately $47,000
and goodwill by approximately $131,000.
LIQUIDITY AND CAPITAL RESOURCES
Bull Run amended its long-term debt agreements with two banks in 1998 and
further amended the agreements in February, March and June 1999. Under an
agreement amended on March 20, 1998, and further amended February 24, 1999,
March 22, 1999 and March 24, 1999, Bull Run has outstanding four term notes
payable to a bank, requiring no principal payments prior to maturity on January
1, 2003, bearing interest at the London Interbank Offered Rate ("LIBOR") plus
1.75%, under which $43,488,744 was outstanding as of March 31, 1999; and a
revolving bank credit facility for borrowings of up to $3,500,000 expiring May
1, 2000, bearing interest at the bank's prime rate, under which $3,208,552 was
outstanding as of March 31, 1999. Under an agreement amended on March 5, 1999
and further amended June 30, 1999, Bull Run has outstanding a $4,000,000 term
note bearing interest at LIBOR plus 3%, payable in quarterly installments of
$250,000 through March 31, 2000, with the remainder due June 30, 2000, under
which $3,750,000 was outstanding on March 31, 1999; and a revolving bank credit
facility for borrowings of up to $5,000,000 until September 30, 1999, and
$4,000,000 thereafter until expiration on June 30, 2000, under which $4,930,000
was outstanding as of March 31, 1999.
Bull Run also has a bank note in the amount of $10,000,000 due August 26,
1999 with interest at the bank's prime rate, and a demand bank note due June 30,
1999 for borrowings of up to $2,000,000 bearing interest at the bank's prime
rate, under which $2,000,000 was outstanding as of March 31, 1999. The
$10,000,000 note was issued in connection with the Company's investment in
Sarkes Tarzian on January 28, 1999. The $2,000,000 demand note is expected to be
extended or refinanced under terms similar to the existing note.
Bull Run is a party to two interest rate swap agreements, effectively
modifying the interest characteristics of $24,000,000 of Bull Run's outstanding
long-term debt. The agreements involve the exchange of amounts based on a fixed
interest rate for amounts based on variable interest rates over the life of the
agreements, without an exchange of the notional amount upon which the payments
are based. The differential to be paid or received as interest rates change is
accrued and recognized as an adjustment of interest expense related to the debt.
Under the first agreement, $20,000,000 of long-term debt is subject to a
one-year forward swap agreement, whereby beginning January 1, 1999 and for the
following nine years, Bull Run will be subject to a fixed rate of 7.83%, instead
of LIBOR plus 1.75%, the rate in effect until then. Under the second agreement,
$4,000,000 of long-term debt is subject to a fixed rate of no more than 8.66%
beginning September 30, 1998 through December 31, 2004, instead of LIBOR plus
3%. In aggregate,
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the estimated cost of terminating the swap agreements, if Bull Run elected to do
so, was approximately $384,000 as of March 31, 1999.
Cash provided by operating activities was $197,000 for the three months
ended March 31, 1999, compared to cash used in operating activities of
$1,066,000 for the same period in 1998. In the first quarter of 1999,
receivables decreased $712,000, due in part to a reduction in the receivable
from Gray of $558,000; inventories increased by $290,000 due to an increase in
finished goods; and accounts payable and accrued expenses, increased $561,000,
due in part to accruals of deferred acquisition costs attributable to the
mergers and an increase in accrued interest. In the first quarter of 1998,
receivables decreased by $302,000 whereas inventories increased by $783,000 due
to the stocking of raw materials associated with a newly-introduced airline
ticket/boarding pass printer.
Cash used in investing activities was $11,739,000 for the three months
ended March 31, 1999, compared to $6,973,000 for the same period in 1998. In the
first quarter of 1999, Bull Run acquired shares of Total Sports series C1
preferred stock for $1,000,000 and acquired shares of the outstanding common
stock of Sarkes Tarzian from the estate of Mary Tarzian for $10,000,000. In the
first quarter of 1998, Bull Run acquired shares of Rawlings' common stock for
$4,953,000 and acquired a printer company for cash of $1,903,000, net of cash
acquired, and shares of Bull Run's common stock valued at $2,500,000.
The acquisition of Total Sports series C1 preferred shares increased Bull
Run's investment in Total Sports to 9.0% of Total Sports' total outstanding
capital stock. Like the shares of Total Sports series C preferred stock acquired
by Bull Run in August 1998, series C1 preferred shares are convertible into
Total Sports common stock. Bull Run will acquire Host's investment in an
additional 8.3% of Total Sports' total outstanding capital stock in connection
with the mergers.
The acquired Sarkes Tarzian shares represent 33.5% of the total outstanding
common stock of Sarkes Tarzian both in terms of the number of shares of common
stock outstanding and in terms of voting rights, but such investment represents
73% of the equity of Sarkes Tarzian for purposes of dividends, as well as
distributions in the event of any liquidation, dissolution or other termination
of Sarkes Tarzian. Sarkes Tarzian owns and operates two television stations and
four radio stations: WRCB-TV Channel 3 in Chattanooga, Tennessee, an NBC
affiliate; KTVN-TV Channel 2 in Reno, Nevada, a CBS affiliate; WGCL-AM and
WTTS-FM in Bloomington, Indiana; and WAJI-FM and WLDE-FM in Fort Wayne, Indiana.
On March 1, 1999, Bull Run executed an option agreement with Gray, whereby Gray
has the option until May 31, 1999 to acquire the Sarkes Tarzian investment from
Bull Run for $10,000,000 plus related costs. Gray has the ability to extend the
option period in 30 day increments at a fee of $66,700 per extension and has
extended this option through September 30, 1999. Bull Run received from Gray
warrants to acquire 100,000 shares of Gray's class B common stock at $13.625 per
share, in connection with the option agreement. The warrants will vest
immediately upon Gray's exercise of the option. The warrants expire 10 years
following the date on which Gray exercises its option.
Cash provided by financing activities was $11,587,000 and $8,183,000 for
the three months ended March 31, 1999 and 1998, respectively. In the first
quarter of 1999, Bull Run financed its investments in Total Sports and Sarkes
Tarzian with bank debt. In the first quarter of 1998, Bull Run financed its
investments in Rawlings and its acquisition of the printer company with bank
debt.
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Inventories increased to $5,167,000 as of December 31, 1998 from $3,757,000
at December 31, 1997, as a result of the CodeWriter acquisition, which added
inventories of $538,000 at the acquisition date; an increase in raw materials on
hand associated with Bull Run's new internally-developed Journey Automated
Ticket/Boarding Pass Version 2 airline ticket printer introduced in December
1997; and the purchase of assets, consisting primarily of inventories associated
with the Sigma-Data 7200 high-speed ATB2 printer, from a Japanese company in
September 1998, in a transaction valued at approximately $750,000. As of
December 31, 1998, Bull Run had open purchase commitments totaling approximately
$8,500,000, primarily for raw materials inventories.
Bull Run's total working capital increased to $3,312,000 as of December 31,
1998 from $2,513,000 as of December 31, 1997, primarily as a result of the
CodeWriter acquisition, which added $409,000 in working capital as of the
acquisition date; the increase in raw materials for Journey, discussed above;
the Sigma-Data 7200 purchase, which added approximately $750,000 in working
capital as of the acquisition date; and an increase of $1,100,000 in accounts
receivable due to the increase in product sales, net of an increase of $500,000
in the demand note payable; a $1,000,000 increase in the current portion of
long-term debt attributable to the CodeWriter acquisition financing, as
modified; and an increase of $319,000 in accounts payable attributable to an
increase in raw materials inventories.
During 1998, Bull Run repurchased 40,500 shares of its common stock for
$150,000 under a stock repurchase program authorized by its board of directors
for the repurchase of up to 2,000,000 shares. Of the 40,500 shares repurchased
in 1998, 40,000 shares were repurchased in a private transaction.
Effective January 2, 1998, Bull Run acquired all of the outstanding common
stock of CodeWriter Industries, Inc. and all of the outstanding membership
interests of CodeWriter's affiliate, CW Technologies, LLC, in a transaction
valued at approximately $6,200,000, of which $5,000,000 was paid at closing in
the form of $2,500,000 in cash and $2,500,000 in Bull Run's common stock. In
addition, Bull Run is obligated to pay quarterly to the sellers of CW
Technologies, a specified percentage of revenue generated by Bull Run from
CodeWriter's and CW Technologies' products and services during each calendar
quarter through December 31, 2001, but in no event will the aggregate payments
exceed $1,200,000.
In 1997, Bull Run entered into an investment purchase agreement with
Rawlings. Pursuant to this agreement, Bull Run acquired warrants to purchase
925,804 shares of Rawlings' common stock, and has the right, under certain
circumstances, to purchase additional warrants. Bull Run's total cost to
purchase the warrants pursuant to this agreement (excluding the additional
warrants) was $2,842,000. Fifty percent of the purchase price, or $1,421,000,
was paid to Rawlings in 1997. The remaining fifty percent of the purchase price,
plus interest at 7% per annum from November 21, 1997 until the date of payment,
will be due on the earlier of the date of exercise and the date of expiration of
the warrants. In the event of a partial exercise of the warrants, a pro rata
portion of the purchase price with interest accrued thereon will be payable. The
warrants have a four-year term and an exercise price of $12.00 per share, but
are exercisable only if Rawlings' common stock closes at or above $16.50 for
twenty consecutive trading days during the four-year term. In addition, under
the terms of the agreement, Bull Run purchased 10.4% of the outstanding shares
of Rawlings' common stock in the open market from November 1997 through January
1998.
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Dividends on the series B preferred stock of Gray owned by Bull Run are
payable in cash at an annual rate of $600 per share or, at Gray's option,
payable in additional shares of series B preferred stock. During 1998, Gray
redeemed 435.94 shares of its series B preferred stock owned by Bull Run,
including 110.94 shares previously issued in-kind as dividends on the series B
preferred stock, for a total of $3,805,000. Bull Run anticipates that dividends
on the series B preferred stock will be paid in cash for the foreseeable future.
In order to obtain sufficient additional funds to complete the mergers
(approximately $38.6 million), refinance existing indebtedness of Bull Run and
Host (approximately $70 million) and provide for the combined companies' cash
needs after the mergers, Bull Run expects to enter into a new credit agreement.
Although no new credit agreement has yet been executed, the credit agreement is
expected to provide for total borrowings of up to $137 million under three
facilities and an interest rate based upon either LIBOR plus an applicable
margin. The facilities will mature $220,000 per quarter for the first 18 months
following the closing date of the credit agreement, and $1,220,000 per quarter
until due and payable in full on the third anniversary of the closing date of
the credit agreement. In addition, it is expected that $20 million will be
required to be paid within 18 months after the closing date of the credit
agreement. Bull Run expects that to collateralize the facilities with all
present and future assets of Bull Run and its subsidiaries, as well as a pledge
of the shares in both public and private companies owned by Bull Run and its
subsidiaries. Bull Run also expects that the facilities will contain normal and
customary debt covenants, such as debt service coverage ratios and minimum net
worth requirements.
Bull Run's capital expenditures are expected to total approximately
$600,000 in 1999. Bull Run anticipates that its current working capital, funds
available under its revolving credit facilities, quarterly cash dividends on the
Gray preferred stock and Gray class A common stock, anticipated redemption of
some amount of Gray preferred stock, anticipated extension fees on the option
agreement with Gray, and cash flow from operations will be sufficient to fund
its debt service, working capital requirements and capital spending requirements
for at least the next twelve months. Any capital required for potential
additional business acquisitions would have to be funded by issuing additional
securities or by entering into other financial arrangements.
INTEREST RATE RISK MANAGEMENT
Bull Run is exposed to changes in interest rates due to Bull Run's
financing of its acquisitions, investments and operations. Interest rate risk is
present with both fixed and floating rate debt. Bull Run uses interest rate swap
agreements to manage its debt profile.
Interest rate swap agreements generally involve exchanges of underlying
face (notional) amounts of designated hedges. Bull Run continually evaluates the
credit quality of counterparties to interest rate swap agreements and does not
believe there is a significant risk of nonperformance by any of the
counterparties.
Based on Bull Run's debt profile at March 31, 1999 and 1998 and December
31, 1998 and 1997, a 1% increase in market interest rates would increase
interest expense and decrease the income before income taxes (or alternatively,
increase interest expense and increase the loss before income taxes) by $107,000
and $132,000 for the three months ended March 31, 1999 and 1998, respectively,
and by $517,000 in 1998 and $353,000 in 1997. These amounts were determined by
calculating the effect of the hypothetical interest rate on Bull Run's floating
rate debt, after giving consideration to Bull Run's interest rate swap
agreements. These amounts do not include the effects of increased interest
rates,
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such as a reduced level of overall economic activity or other actions management
may take to mitigate the risk. Furthermore, this sensitivity analysis does not
assume changes in Bull Run's financial structure that could occur if interest
rates were higher.
RECENTLY-ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities. Bull Run
expects to adopt this new Statement effective January 1, 2001. This Statement
will require Bull Run to recognize all derivatives on the balance sheet at fair
value. Bull Run does not anticipate that the adoption of this Statement will
have a significant effect on its results of operations or financial position.
IMPACT OF YEAR 2000
Some of Bull Run's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
During 1997, Bull Run completed an assessment and determined (a) that its
printer products did not contain time-sensitive software that make them
susceptible to the Year 2000 Issue; however, (b) there were portions of Bull
Run's internal systems software and some hardware that would have to be modified
or replaced so that its computer systems would function properly with respect to
dates in the year 2000 and thereafter. The most significant computer systems,
which pertain to Bull Run's manufacturing and financial accounting systems, were
upgraded in 1998 and are currently Year 2000 compliant. Expense incurred in 1998
related to Year 2000 upgrades and modifications was approximately $100,000,
including equipment lease rent expense. Future equipment rent expense will not
differ materially from depreciation expense attributed to the replaced
equipment. Although management expects to replace some personal computers and
other computer hardware during 1999 which are not Year 2000 compliant,
management does not expect the cost of these additional expenditures to exceed
$50,000, nor does it expect that any of the necessary modifications or
replacements will have a material impact on the results of any future financial
reporting period. The remaining modifications and replacements are expected to
be completed by mid-1999, prior to any anticipated impact on its operating
systems. Bull Run believes that with the completed and anticipated modifications
to existing software and conversions to new software, the Year 2000 Issue will
not pose significant operational problems for its computer systems.
Bull Run has had communications with most of its major vendors and sole
source suppliers to determine the extent to which Bull Run may be vulnerable to
those third parties' failure to remedy their own Year 2000 issues. These
communications include both oral communications, as well as the receipt of
written Year 2000 compliance statements, and focus on certain key vendors and
suppliers from whom Bull Run receives unique materials, products and services.
Bull Run expects to complete its assessment of its major vendors and sole source
suppliers by mid-1999. Most raw materials used in the manufacture of Bull Run's
computer printers are available from more than one supplier.
Bull Run also plans to assess Year 2000 readiness of alternative vendors
through written and oral communications, as part of management's contingency
planning for the assurance of inventory availability. In addition, Bull Run
plans to evaluate the need to
51
<PAGE> 58
increase inventories of raw materials and finished goods prior to December 31,
1999 to assure timely fulfillment of customer orders and decrease its reliance
on the availability of parts and products, particularly from sole source
suppliers. None of Bull Run's machinery used in the assembly of computer
printers has been found to contain time-sensitive software. However, Bull Run
plans to evaluate the need to increase its inventories of assemblies and
sub-assemblies used in its products. Likewise, Bull Run will assess the need to
have available back-up power sources, such as electricity generators, to
compensate for the risk of unavailable power. If, due to the Year 2000 issue,
certain sole source suppliers are unable to provide products, parts or vital
manufacturing supplies or if electricity is unavailable for more than a few
weeks, timely fulfillment of customer orders could be jeopardized and product
sales could be unfavorably impacted. Also, if customers are unable to remit
payments to Bull Run or if Bull Run can not generate customer invoices as a
result of the Year 2000 issue, Bull Run's operating cash flow could be
negatively impacted.
Bull Run anticipates that Host and Universal will continue to utilize their
existing computer systems and that no significant changes will be required to be
made to Bull Run's computer systems as a result of the acquisition of Capital,
Host and Universal for at least the next 12 months. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations of
Capital -- Impact of Year 2000" on page 55, "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Host -- Impact of
Year 2000" on page 61, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Universal -- Year 2000 Compliance" on
page 68.
The costs of the project and the date on which Bull Run believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the availability of
suitable replacement hardware, the ability to locate and correct all relevant
computer codes, and similar uncertainties. Furthermore, it is too early to
determine to what extent, if any, contingency plans will have to be implemented.
Although Bull Run expects to be Year 2000 compliant by mid-1999 and does not
expect to be materially impacted by the external environment, such future events
cannot be known with certainty.
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<PAGE> 59
SELECTED FINANCIAL INFORMATION OF CAPITAL
The following table sets forth certain selected financial data of Capital.
The selected financial data as of and for each of the years ended June 30, 1998
and 1997; as of and for the six month period ended June 30, 1996; and as of and
for each of the years ended December 31, 1995, 1994 and 1993, are derived from
the audited financial statements of Capital. The financial statements as of and
for the years ended June 30, 1998 and 1997 have been audited by Ernst & Young
LLP, independent auditors. The financial statements for the six months ended
June 30, 1996 and for the year ended December 31, 1995 have been audited by KPMG
LLP, independent auditors. The financial statements as of and for the years
ended June 30, 1998 and 1997, for the six months ended June 30, 1996 and for the
year ended December 31, 1995 and the auditors' reports thereon are included
elsewhere in this proxy statement/prospectus. The selected financial data as of
March 31, 1999 and for the nine-month periods ended March 31, 1999 and 1998 are
derived from the unaudited condensed financial statements of Capital included
elsewhere in this proxy statement/prospectus which, in the opinion of management
of Capital, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the data for such periods. The results
of operations for the nine months ended March 31, 1999 are not necessarily
indicative of the results to be expected for the year ending June 30, 1999.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED JUNE SIX MONTHS YEAR ENDED
MARCH 31, 30, ENDED DECEMBER 31,
---------------- ---------------- JUNE 30, ------------------------
1999 1998 1998 1997 1996 1995 1994 1993
------- ------ ------ ------- ---------- ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Dividend revenue.................... $ 225 $ 225 $ 300 $ 400 $ 200 $ 400 $ 400 $ 400
Equity in earnings (losses) of Host
Communications, Inc............... 3,200 705 869 624 -- -- -- --
Expenses............................ -- -- -- (4) (2) (3) -- --
------- ------ ------ ------- ------ ------ ------ ------
Income (loss) before income taxes... 3,425 930 1,169 1,020 198 397 400 400
Income taxes (benefit).............. (1,115) (267) (330) (231) (6) (27) (28) (28)
------- ------ ------ ------- ------ ------ ------ ------
Net income (loss)................... $ 2,310 $ 663 $ 839 $ 789 $ 192 $ 370 $ 372 $ 372
======= ====== ====== ======= ====== ====== ====== ======
Earnings (loss) per share --Basic... $23,100 $6,630 $8,390 $ 7,890 $1,920 $3,700 $3,720 $3,720
Weighted average shares
outstanding -- Basic.............. 100 100 100 100 100 100 100 100
Earnings (loss) per
share -- Diluted.................. $23,100 $6,630 $8,390 $ 7,890 $1,920 $3,700 $3,720 $3,720
Weighted average shares
outstanding -- Diluted............ 100 100 100 100 100 100 100 100
Cash dividends per share............ $ -- $ -- $ -- $17,040 $ -- $ -- $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF JUNE 30, AS OF DECEMBER 31,
MARCH 31, ------------------------ ------------------------
1999 1998 1997 1996 1995 1994 1993
------------ ------ ------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Total assets.................... $10,498 $7,088 $5,742 $6,418 $6,218 $5,818 $5,418
Total liabilities............... 1,942 842 335 96 88 58 30
Stockholders' equity............ 8,556 6,246 5,407 6,322 6,130 5,760 5,388
</TABLE>
53
<PAGE> 60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CAPITAL
The following discussion should be read in conjunction with Capital's
financial statements and notes thereto included in this proxy
statement/prospectus.
OVERVIEW
The sole business activity conducted by Capital Sports Properties, Inc., a
Delaware corporation, is the ownership of stock of Host. As of March 31, 1999,
Capital owned 447,002 shares of Host common stock and 37,500 shares of Host
series B cumulative preferred stock, representing approximately 48% of the Host
common stock and all of the Host series B cumulative preferred stock then
outstanding. Host, based in Lexington, Kentucky, and Host's 33.8%-owned
affiliate, Universal, provide media and marketing services to universities,
athletic conferences and various associations representing collegiate sports
and, in addition, market and operate amateur participatory sporting events.
When used in this section, "fiscal 1998" means the fiscal year ended June
30, 1998 and "fiscal 1997" means the fiscal year ended June 30, 1997.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO NINE MONTHS ENDED
MARCH 31, 1998
Total revenue for the nine months ended March 31, 1999 consisted of
dividends of $225,000 on Host preferred stock, and equity in earnings of Host in
the amount of $3,200,000, compared to dividends of $225,000 and equity in
earnings of Host in the amount of $705,000 for the nine months ended March 31,
1998. The increase in Capital's equity in earnings of Host was a result of an
increase in Host's income attributable to common stockholders for the nine
months ended March 31, 1999 compared to the nine months ended March 31, 1998.
Capital's effective tax rate increased to 32.6% for the nine months ended
March 31, 1999 from 28.7% for the nine months ended March 31, 1998 due to
dividend revenue not subject to tax having a greater impact on the prior year
effective tax rate.
YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997
Total revenue for fiscal 1998 consisted of dividends of $300,000 on Host
preferred stock and equity in the earnings of Host in the amount of $869,000
compared to dividends of $400,000 on Host preferred stock and equity in earnings
of Host of $624,000 for fiscal 1997. The decrease in dividend revenue was a
result of Host's redemption on June 30, 1997 of 12,500 shares of series B
cumulative preferred stock owned by Capital. The increase in equity in earnings
of Host was a result of an increase in Host's income attributable to common
stockholders for fiscal 1998 compared to fiscal 1997.
Capital's effective tax rate increased to 28.2% for fiscal 1998 from 22.6%
for fiscal 1997 due to a decrease in the amount of dividend revenue not subject
to tax.
YEAR ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Total revenue for fiscal 1997 consisted of dividends of $400,000 on Host
preferred stock and equity in the earnings of Host in the amount of $624,000,
compared to dividends of $200,000 on Host series B cumulative preferred stock
and no equity in earnings of Host
54
<PAGE> 61
for the six months ended June 30, 1997. The increase in dividend revenue was due
to the accrual of dividend income over a 12-month period in 1997 compared to the
six-month period in 1996. Prior to fiscal 1997, Capital's investment in Host was
accounted for under the cost method. Under the cost method, no equity in
earnings or losses of an investee are reported in the financial statements.
Capital's effective tax rate increased to 22.6% for fiscal 1997 from 3.0%
for the six months ended June 30, 1997. Capital excludes 80% of its dividend
income for income tax purposes. In accounting periods in which all of Capital's
income is derived from dividends, the effective tax rate will be low.
LIQUIDITY AND CAPITAL RESOURCES
Capital derives all of its cash for the payment of taxes and other expenses
from its stockholders, primarily General Electric Capital Corporation and Bull
Run. Amounts due stockholders are non-interest bearing and have no fixed
repayment date. Capital has no intention of making any capital expenditures for
the foreseeable future.
Capital paid no dividends to its stockholders during the nine months ended
March 31, 1999 or 1998. In fiscal 1997, Capital paid dividends to its
stockholders in the amount of $1,704,000, representing the proceeds from Host's
redemption of 12,500 shares of Host preferred stock for $1,250,000, plus accrued
and unpaid dividends on Host preferred stock of $454,000. Capital paid no
dividends during fiscal 1998 or during the six months ended June 30, 1996.
In fiscal 1997, Capital exercised warrants to purchase 447,002 shares of
Host common stock for $.01 per share.
There is no assurance that Host will pay any dividends on its preferred
stock or redeem any of its preferred stock prior to its mandatory redemption on
December 15, 1999. Any capital required in the future for the payment of taxes
and expenses, payment of dividends or to make additional investments, would
require additional funding by Capital's stockholders, sales of investments,
receipt of accrued dividends from Host, or the redemption of Host preferred
stock.
IMPACT OF YEAR 2000
Capital does not maintain computerized accounting records or any other
computerized data or information, therefore Capital has no computer programs
which have time-sensitive software that might recognize a date using "00" as the
year 1900 rather than the year 2000. Capital has no products, vendors, suppliers
or customers, therefore management does not believe that Capital currently has
any material risk in connection with the Year 2000. Although Capital does not
expect to be materially impacted by any Year 2000 problems, the impact on
Capital from external environment factors or future events cannot be known with
certainty.
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<PAGE> 62
SELECTED FINANCIAL INFORMATION OF HOST
The following table sets forth selected consolidated financial data of
Host. The selected consolidated financial data as of and for the end of each of
the years in the five-year period ended June 30, 1998 are derived from the
audited consolidated financial statements of Host. The consolidated financial
statements as of and for the years ended June 30, 1998 and 1997, have been
audited by Ernst & Young LLP, independent auditors. The consolidated financial
statements for the year ended June 30, 1996 have been audited by KPMG LLP,
independent auditors. The financial statements as of June 30, 1998 and 1997 and
for each of the years in the three-year period ended June 30, 1998 and the
auditors' reports thereon are included elsewhere in this proxy
statement/prospectus. The selected consolidated financial data as of March 31,
1999 and for the nine-month periods ended March 31, 1999 and 1998 are derived
from the unaudited condensed consolidated financial statements of Host included
elsewhere in the proxy statements/prospectus which, in the opinion of management
of Host, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the data for such periods. The results
of operations for the nine months ended March 31, 1999 are not necessarily
indicative of the results to be expected for the year ending June 30, 1999.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, DECEMBER 31, YEARS ENDED JUNE 30,
----------------- ----------------- -----------------------------------------------
1999 1998 1998 1997 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $42,467 $37,113 $19,651 $17,641 $46,337 $39,591 $40,129 $47,110 $48,727
Cost of revenues......... 30,087 24,194 13,418 10,491 27,801 23,702 23,855 28,997 30,703
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............. 12,380 12,919 6,233 7,150 18,536 15,889 16,274 18,113 18,024
Selling, general and
administrative
expenses............... 13,478 10,356 8,522 8,133 16,973 13,577 14,327 15,532 14,399
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss)................. (1,098) 2,563 (2,289) (983) 1,563 2,312 1,947 2,581 3,625
Interest expense......... (566) (531) (363) (297) (725) (417) (562) (546) (385)
Equity in earnings of
affiliates............. 13,654 567 55 245 459 677 678
Gain (loss) on sale of
businesses............. (271) (216) 2,567 6,726
Other, net 81 74 44
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes and
cumulative effect of
accounting change...... 12,071 2,402 (2,553) (1,251) 3,864 2,572 8,789 2,035 3,240
Income tax provision
(benefit).............. 5,151 1,033 (951) (429) 1,756 946 3,392 742 1,337
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
cumulative effect of
accounting change...... 6,920 1,369 (1,602) (822) 2,108 1,626 5,397 1,293 1,903
Cumulative effect of
accounting change...... (4,559)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)........ $ 6,920 $ 1,369 $(1,602) $ (822) $ 2,108 $ 1,626 $ 838 $ 1,293 $ 1,903
======= ======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
share -- Basic
Income (loss) before
cumulative effect of
accounting change,
net of preferred
dividends............ $ 7.25 $ 1.25 $ (1.89) $ (1.12) $ 1.98 $ 1.44 $ 11.54 $ 2.03 $ 3.38
Net income (loss), net
of preferred
dividends............ $ 7.25 $ 1.25 $ (1.89) $ (1.12) $ 1.98 $ 1.44 $ 1.01 $ 2.03 $ 3.38
Weighted average
shares -- Basic...... 924 912 926 911 913 849 433 439 445
Earnings (loss) per
share -- Diluted
Income (loss) before
cumulative effect of
accounting change,
net of preferred
dividends............ $ 6.08 $ 1.15 $ (1.89) $ (1.12) $ 1.77 $ 1.40 $ 11.54 $ 2.03 $ 3.38
Net income (loss), net
of preferred
dividends............ $ 6.08 $ 1.15 $ (1.89) $ (1.12) $ 1.77 $ 1.40 $ 1.01 $ 2.03 $ 3.38
Weighted average
shares -- Diluted.... 1,102 991 926 911 1,020 875 433 439 445
</TABLE>
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<PAGE> 63
FINANCIAL POSITION AS OF:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
--------- -----------------------------------------------
1999 1998 1997 1996 1995 1994
--------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficiency)..................... $(4,383) $(3,702) $(4,111) $(1,581) $ 1,873 $ 739
Property and equipment, net...................... 5,269 5,872 6,093 5,400 5,033 5,354
Investment in affiliates......................... 26,111 12,274 8,762 8,008 -- --
Total assets..................................... 56,225 32,536 25,707 26,259 27,101 29,216
Long-term obligations............................ 2,069 2,170 2,524 1,617 2,601 5,052
Cumulative redeemable preferred stock............ 5,598 5,333 4,980 6,046 5,646 5,246
Stockholders' equity............................. 14,142 6,125 2,712 1,540 1,107 572
</TABLE>
57
<PAGE> 64
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF HOST
The following should be read in conjunction with the financial statements
and notes thereto appearing elsewhere in this prospectus.
OVERVIEW
Host, together with its subsidiaries, all of which are wholly owned,
provides multimedia, promotional marketing, and event management services to
universities, athletic conferences and associations, the most prominent of which
is the NCAA. Host manages the production, sales and syndication of basketball
and football broadcasts on radio and television, as well as the publishing and
printing of sports publications for a number of client universities and
conferences. Through these activities, Host provides targeted marketing
opportunities to corporations to supplement their sales and marketing
activities, particularly in sports. Host also manages the affairs of significant
associations by providing services in the areas of marketing, publishing,
government affairs, business, education and membership growth.
When used in this section, "fiscal 1998" means the fiscal year ended June
30, 1998, "fiscal 1997" means the fiscal year ended June 30, 1997 and "fiscal
1996" means the fiscal year ended June 30, 1996.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO NINE MONTHS ENDED MARCH 31, 1998
Net revenues increased $5.3 million, or 14.4%, to $42.4 million for the
nine months ended March 31, 1999 compared to $37.1 million for the nine months
ended March 31, 1998. Approximately $4.3 million, or 12%, of the total increase
relates to advertising sales primarily related to increased corporate partner
sales. The remaining differences are due pay per view video revenues of $0.6
million associated with the production of two pay per view games and $0.4
million associated with other production revenues.
Cost of revenues increased $5.9 million, or 24.4%, to $30.1 million for the
nine months ended March 31, 1999 compared to $24.2 for the nine months ended
March 31, 1998. Approximately 2.5 million, or 10.3%, is associated with
contractual guaranteed rights fees associated with the NCAA corporate partner
program. Profit split expenses account for $0.6 million of the difference, or
2%. The remaining differences relate to unissued costs commensurate with growth
of this business.
Selling, general and administrative expenses increased $3.0 million, or
29%, to $13.4 million for the nine months ended March 31, 1999 compared to $10.4
million for the nine months ended March 31, 1998. Approximately $1.0 million, or
10%, of this difference is associated with increased compensation expense
associated with the issuance of stock options. Fulfillment cost associated with
increased sales accounted for $0.2 million, or 10.2%, of tax increase while
approximately $0.4 million, or 4%, was associated with increased employment
costs. Approximately $0.6 million, or 6%, of the increase represents additional
allowances associated with potential future losses associated with certain
contracts and receivables and $0.3 million, or 3%, related to a legal reserve.
The remaining difference is associated with the increased administrative costs
associated with the growth in the advertising sales.
The increase in equity in earnings of affiliates of $13.1 million is
attributed to the Company's investment in Universal, and specifically, the gain
on sale Universal recognized
58
<PAGE> 65
associated with its investment in broadcast.com, inc. The loss of sale of assets
of $0.3 million for the nine months ending March 31, 1998 related to the
Company's sale of specific assets associated with AdCraft. The provision for
income taxes expenses as a percentage of income before taxes was 43% for the
nine months ended March 31, 1999 and 1998.
FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997
Net revenues increased $6.7 million, or 17%, to $46.3 million in fiscal
1998 as compared to $39.6 million in fiscal 1997. This increase resulted
principally from higher advertising sales and licensing revenues associated with
Host's NCAA corporate partner program.
Cost of revenues increased $4.1 million, or 17%, to $27.8 million in fiscal
1998 as compared to $23.7 million in fiscal 1997. This increase was a result of
increased rights fees expenses associated with the NCAA corporate partner
program.
Selling, general and administrative expenses increased $3.4 million, or
25%, to $17.0 million in fiscal 1998 as compared to $13.6 in fiscal 1997. As a
percentage of net revenues, selling, general and administrative expenses
increased to 37% in fiscal 1998 from 34% in fiscal 1997. This percentage
increase was principally due to increased compensation expense associated with
stock options issued during fiscal 1998 as well as additional administrative
costs incurred to start up a new program (NCAA Football).
Interest expense increased $0.3 million, or 74%, to $0.7 million in fiscal
1998 as compared to $0.4 million in fiscal 1997. Interest was incurred primarily
in connection with Host's revolving line of credit, the borrowings under which
were used to finance working capital needs. Interest was also incurred in
connection with bank notes, the proceeds of which were used for equipment
purchases and indebtedness primarily associated with Host's acquisition of
AdCraft.
The provision for income taxes as a percentage of income before taxes was
46% in 1998 as compared to 37% in 1997. These rates differ from year to year and
the statutory rate primarily as a result of differences arising from the equity
in earnings of affiliates and state income taxes.
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996
Net revenues decreased $0.5 million, or 1.3%, to $39.6 million in fiscal
1997 as compared to $40.1 million in fiscal 1996. The fiscal 1996 results
included approximately $4.8 million in revenues associated with advertising and
sponsorship revenues from USA Collegiate, L.P., which was sold to Universal on
October 1, 1995. Excluding the decrease in revenues associated with the sale of
USA Collegiate, overall revenues increased in fiscal 1997 by approximately $4.3
million, or 12%, due primarily to increased revenues associated with higher
advertising sales and licensing revenues associated with Host's NCAA corporate
partner program, as well as incremental revenues associated with AdCraft, which
was acquired on August 1, 1996.
Cost of revenues decreased $0.2 million, to $23.7 million in fiscal 1997 as
compared to $23.9 million in fiscal 1996. The fiscal 1996 results included
approximately $3.4 million in costs associated with USA Collegiate. Excluding
the costs of USA Collegiate, cost of revenues in fiscal 1997 increased by
approximately $3.2 million, or 16%, due principally to additional costs
associated with AdCraft.
Selling, general and administrative expenses decreased $0.7 million, or 5%,
to $13.6 million in fiscal 1997 as compared to $14.3 million in fiscal 1996. The
fiscal 1996 results
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<PAGE> 66
included approximately $0.9 million in selling, general and administrative
expenses related to USA Collegiate. Excluding the costs relating to USA
Collegiate, selling, general and administrative expenses increased $0.2 million
in fiscal 1997 as compared to fiscal 1996. This increase related to
administrative costs associated primarily with Host's acquisition of AdCraft
offset by bonuses of approximately $1.8 million, which were paid in fiscal 1996
but not granted in fiscal 1997.
Interest expense decreased $0.2 million, or 33%, to $0.4 million in fiscal
1997 as compared to $0.6 million in fiscal 1996. Interest was incurred primarily
in connection with Host's revolving line of credit, the borrowings under which
were used to finance working capital needs. Interest was also incurred on bank
notes, the proceeds of which were used for equipment purchases. In fiscal 1997,
Host also recorded interest of $0.1 million related to certain indebtedness
primarily associated with Host's acquisition of AdCraft.
The provision for income taxes expressed as a percentage of income before
taxes was 37% in fiscal 1997 as compared to 39% in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations for the nine months ended March 31, 1999 was
$1.3 million. The cash used in operating activities during this period
principally resulted from a $9.7 million increase in accounts receivable offset
by a $5.7 million increase in accrued expense and accounts payable and $2.7
million increase in deferred income. The increases in accounts receivable,
accrued expenses, accounts payable and deferred income during this period
reflect normal seasonal fluctuation.
Net cash used in investing activities for the nine months ended March 31,
1999 was $0.8 million, reflecting $0.6 million in capital expenditures and $0.2
million associated with investments in new businesses.
Net cash provided by financing activities for the nine months ended March
31, 1999 reflected the Company's borrowings under its revolving line of credit
necessary to fund its working capital and investing activities.
During the nine months ended March 31, 1999, the Company granted stock
options which had a market volume in excess of the option price at the date of
grant. Compensation expense of $1.2 million was recorded associated with these
grants with a corresponding increase to the Company's stockholders' equity.
Net cash used in operations was $3.8 million in fiscal 1998. The cash used
in operations during this period principally resulted from a $3.0 million
increase in accounts receivable, a $3.0 million decrease in accounts payable and
accrued expenses, offset by operating income of $2.2 million.
Net cash used in investing activities was $1.4 million in fiscal 1998
compared to $1.2 million in fiscal 1997. The difference was primarily attributed
to a $0.4 million reduction in capital expenditures, offset by investments in
other businesses.
Net cash provided by financing activities was $5.2 million in fiscal 1998
as compared to $1.4 million net cash used in financing activities in fiscal
1997. The net cash provided by financing activities in fiscal 1998 was the
result of borrowings under the Company's revolving line of credit to fund
working capital and investment activities.
On June 25, 1998, Host amended its revolving line of credit agreement which
permits Host to borrow up to $10 million to fund its working capital needs. The
amended line of credit provides for borrowings at either a floating rate (prime)
or fixed rate financing at
60
<PAGE> 67
LIBOR plus 1.75%. LIBOR advances may be extended for a term of 30, 60 or 90 days
at which time the principal is payable. There were no advances under LIBOR at
June 30, 1998. Approximately $6.5 million was advanced under LIBOR at December
31, 1998. Principal balances on the floating rate advances may be repaid at any
time. Interest on both the floating advances and fixed rate advances are payable
monthly in arrears. The revolving line of credit agreement terminates and all
amounts outstanding thereunder and interest must be repaid on December 31, 1999.
Borrowing under the line of credit was $9.8 million at December 31, 1998, $6.8
million at June 30, 1998 and $1.2 million at June 30, 1997.
Other debt on June 30, 1998 of $2.7 million compared to $3.1 million at
June 30, 1997 consisted of bank notes secured by equipment and other obligations
primarily related to Host's acquisition of AdCraft. This decrease was primarily
a result of the amortization of the term loan obligations.
Capital expenditures for fiscal 1998 were approximately $1.1 million as
compared to $1.5 million in fiscal 1997. Host estimates that capital
expenditures in fiscal 1999 will approximate $1.2 million. Host anticipates
using cash from operations and its borrowings under its revolving line of credit
facility to fund these projects.
If the merger with Bull Run is not consummated, Host believes that it will
be able to extend its revolving line of credit facility and that borrowings
thereunder, together with its operating cash flow, will be sufficient to fund
its working capital, debt service and capital spending requirements for at least
the next 12 months.
INTEREST RATE RISKS
Host's revolving line of credit bears interest at variable rates and,
accordingly, will be affected by interest rate changes. At December 31, 1998,
Host had $9,769,000 of debt subject to variable interest rates under its
revolving line of credit. For illustration purposes, an increase of 1.0% in
interest rate payable with respect to Host's revolving line of credit during the
12 months ended December 31, 1998 would have increased interest expense for the
year by approximately $49,000.
At June 30, 1998, Host had $6,756,000 of debt subject to variable interest
rates. For illustration purposes, an increase of 1.0% in interest rate payable
with respect to Host's revolving line of credit during the fiscal year ended
June 30, 1998 would have increased interest expense for the year by
approximately $68,000.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather that the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, but not limited to, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
Host completed an assessment of its computer programs equipment and
determined that it would have to modify or replace portions of its hardware and
software so that those systems would function properly with respect to dates
beyond December 31, 1999. A significant portion of Host's software systems has
been upgraded to become Year 2000 compliant. Several remaining systems,
primarily associated with billing and manufacturing cost systems, are currently
being evaluated with specific plans to modify such systems to
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<PAGE> 68
become Year 2000 compliant. Current plans call for the modification of those
systems by no later than September 1999. Host believes that with the
modification to the existing software and conversion to new software, the Year
2000 issue will not pose significant operational problems for its computer
systems.
Host made inquiries of its important suppliers and subcontractors that do
not share information systems with Host. Host has received assurances from a
majority of these external agents that their major systems impacting Host will
be Year 2000 compliant. Based on these responses to date, Host is not aware of
any external agent Year 2000 issue that would materially impact Host's results
of operations, liquidity or capital resources. However, Host has no means of
ensuring that external agents will be Year 2000 ready if such assurances are not
received. Most inventory and supplies used in Host's business, primarily in the
printing operation, are available from more than one supplier and therefore,
management's contingency plans include, but are not limited to, evaluating
alternative vendors who are Year 2000 compliant, as well as evaluating supply
and inventory levels.
Host is utilizing both internal and external resources to reprogram,
replace, test and implement the software and hardware equipment for the Year
2000 modification. The total cost of the Year 2000 project is not expected to
exceed $500,000, of which $125,000 relates to a three year operating lease
associated with the installation of new computers. The costs associated with the
project are being funded through operating cash flows. To date, Host has
incurred approximately $275,000 in connection with its Year 2000 compliance
program, the majority of which has been capitalized as part of the software
modifications.
Host plans to complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of necessary resources
and other factors. Estimates on the status of completion and the expected
completion dates are based on costs incurred to date compared to total expected
costs. However, there can be no guarantee that these estimates will be achieved
and actual results could differ materially form those plans. Specific factors
that might cause such material differences include, but are no limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and similar uncertainties.
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<PAGE> 69
SELECTED FINANCIAL INFORMATION OF UNIVERSAL
The following table sets forth selected consolidated financial data of
Universal. The selected consolidated financial data as of and for each of the
years in the four-year period ended June 30, 1998 are derived from the audited
consolidated financial statements of Universal. The consolidated financial
statements as of and for the years ended June 30, 1998 and 1997 have been
audited by Ernst & Young LLP, independent auditors. The consolidated financial
statements for the years ended June 30, 1996 and 1995 have been audited by KPMG
LLP, independent auditors. The financial statements as of June 30, 1998 and 1997
and for each of the years in the three-year period ended June 30, 1998 and the
auditors' reports thereon are included elsewhere in this proxy
statement/prospectus. The selected consolidated statement of operations and
balance sheet data presented below as of and for the year ended December 31,
1994 have been derived from the unaudited financial statements of Universal's
predecessors. The selected consolidated financial data as of March 31, 1999 and
for the nine-month periods ended March 31, 1999 and 1998 are derived from the
unaudited condensed consolidated financial statements of Universal included
elsewhere in this proxy statement/prospectus which, in the opinion of management
of Universal, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the data for such periods. The results
of operations for the nine months ended March 31, 1999 are not necessarily
indicative of the results to be expected for the year ending June 30, 1999.
<TABLE>
<CAPTION>
NINE MONTHS FISCAL YEAR ENDED
ENDED MARCH 31, JUNE 30, FISCAL YEAR ENDED
----------------- ------------------------------------- DECEMBER 31,
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................. $58,703 $49,099 $62,939 $52,872 $37,079 $ 9,005 $9,051
Cost of revenues......... 41,979 34,077 38,536 35,204 24,418 4,638 5,266
------- ------- ------- ------- ------- ------- ------
Gross profit.... 16,724 15,022 24,403 17,668 12,661 4,367 3,785
Selling, general and
administrative
expenses............... 17,628 12,403 19,665 15,335 11,006 4,380 2,889
------- ------- ------- ------- ------- ------- ------
Operating income
(loss)................. (904) 2,619 4,738 2,333 1,655 (13) 896
Interest expense, net.... (63) (382) (572) (140) (172) (40) (16)
Equity in earnings (loss)
of affiliates.......... (33) 71 221 101 317 437 437
Gain on sale of
marketable
securities............. 61,471
Other income (expense),
net.................... 0 0 (382) 183 78 -- 14
------- ------- ------- ------- ------- ------- ------
Income before income
taxes.................. 60,471 2,308 4,005 2,477 1,878 384 1,331
Income tax provision..... 21,727 877 1,567 880 642 -- --
------- ------- ------- ------- ------- ------- ------
Net income............... $38,744 $ 1,431 $ 2,438 $ 1,597 $ 1,236 $ 384 $1,331
======= ======= ======= ======= ======= ======= ======
Basic earnings per common
share.................. $24,558 $ 872 $ 1,486 $ 973 $ 1,007 $ (a) $ (a)
======= ======= ======= ======= ======= ======= ======
Diluted earnings per
common share........... $18,910 $ 672 $ 1,145 $ 749 $ 776 $ (a) $ (a)
======= ======= ======= ======= ======= ======= ======
</TABLE>
63
<PAGE> 70
<TABLE>
<CAPTION>
AS OF
MARCH 31, AS OF JUNE 30, AS OF
--------- ------------------------------------- DECEMBER 31,
1999 1998 1997 1996 1995 1994
--------- ------- ------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................. $42,864 $10,586 $ 3,867 $ 653 $(1,078) $ 534
Total assets..................... 96,156 34,690 26,073 19,744 3,675 2,758
Long-term debt................... -- 7,245 3,020 -- -- --
Stockholders' equity............. 47,012 8,268 5,830 4,233 800 1,348
</TABLE>
- ---------------
(a) Earnings per common share for the years ended June 30, 1995 and 1994 are not
presented, because Universal's predecessors were composed principally of
partnerships.
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<PAGE> 71
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF UNIVERSAL
The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this document.
OVERVIEW
Universal is a provider of specialized marketing services to corporate
clients, with a focus on sports-related affinity groups. Universal produces and
manages grass roots participatory sporting events and provides professional
marketing and other management services to university athletic departments,
athletic conferences and high school associations, among others. Through these
activities, Universal provides targeted marketing opportunities to corporations
seeking to supplement their sales and marketing activities. Universal identifies
high-value consumer segments with attractive demographic characteristics, and
designs and implements marketing programs and sports-based events to reach these
specific affinity groups. Universal's corporate clients are primarily large
corporations with significant sales and marketing budgets that are facing
competitive pressures to retain or expand market share.
When used in this section, "fiscal 1998" means the fiscal year ended June
30, 1998, "fiscal 1997" means the fiscal year ended June 30, 1997 and "fiscal
1996" means the fiscal year ended June 30, 1996.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO NINE MONTHS ENDED MARCH 31, 1998
Net revenues increased $9.6 million, or 19.5%, to $58.7 million for the
nine months ended March 31, 1999 as compared to $49.1 million for the comparable
period in the prior year. This increase resulted from a $6.9 million increase in
revenues from Universal's growth in collegiate and high school marketing
programs. The remaining revenue growth was the result of increased sponsorship
revenue at existing events and higher participant entry fees and merchandising,
food and beverage sales.
Cost of revenues increased $7.8 million, or 22.8%, to $41.9 million for the
nine months ended March 31, 1999 from $34.1 million for the comparable period in
the prior fiscal year. This increase resulted from additional costs incurred to
support additional sports marketing activities at the collegiate and high school
level, along with additional production costs associated with new events and
sponsors. In addition, these costs of revenues included higher guaranteed rights
fees and profit splits under Universal's marketing agreements.
Selling, general and administrative expenses increased $3.7 million, or
29.8%, to $16.1 million for the nine months ended March 31, 1999 from $12.4
million for the comparable period in the prior fiscal year. As a percentage of
net revenues, selling, general and administrative expenses increased to 27.4%
for the nine months ended March 31, 1999 from 25.3% for the comparable period in
the prior fiscal year. This increase reflected planned increases in selling,
general and administrative cost, including a $1.3 million increase in salaries
to increase sales and marketing efforts along with resources required to support
Universal's higher sponsorship base.
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<PAGE> 72
Interest expense was $0.5 million for the nine months ended March 31, 1999
as compared to $0.4 million for the comparable period in the prior fiscal year.
This change was primarily the result of increased borrowings against Universal's
revolving line of credit.
The provision for income taxes for the nine months ended March 31, 1999 was
$21.7 million resulting in an effective tax rate of 35.0% compared to $0.9
million and an effective tax rate of 38.0% for the comparable period in the
prior fiscal year. This was primarily the result of tax on the gain of $61.5
million from the sale of marketable securities.
FISCAL 1998 COMPARED TO FISCAL 1997
Net revenues increased $10.0 million, or 19.0%, to $62.9 million in fiscal
1998 from $52.9 million in fiscal 1997. The increase resulted from additional
sponsorship revenues from new events and sponsors, increased sponsorship
revenues at existing events, and higher participant entry fees at existing grass
roots sporting events.
Cost of revenues increased $3.4 million, or 9.5%, to $38.5 million in
fiscal 1998 from $35.1 million in fiscal 1997. As a percentage of net revenues,
cost of revenues decreased to 61.2% in fiscal 1998 from 66.6% in fiscal 1997.
The increase in cost of revenues was primarily the result of higher guaranteed
rights fees and profit splits under Universal's marketing agreements along with
additional production expenses related to new events and sponsors.
Selling, general and administrative expenses increased $4.4 million, or
28.2%, to $19.7 million in fiscal 1998 from $15.3 million in fiscal 1997. The
primary reason for the increase was employment costs which accounted for $2.5
million of the increase. Another $0.3 million of the increase represented costs
associated with the consolidation of a subsidiary in fiscal 1998, that was not
consolidated in fiscal 1997, because of a change in ownership requiring
consolidation. The remaining increase of $1.6 million related to an increase in
the number of new projects or grass roots participatory events which yield
incremental growth in selling, general and administrative expenses commensurate
with revenue growth. As a percentage of net revenues, selling, general and
administrative expenses increased to 31.2% in fiscal 1998 from 29.0% in fiscal
1997.
Interest expense increased $0.4 million to $0.6 million in fiscal 1998 as
compared to $0.2 million in fiscal 1997. This increase was due to increased
borrowings by Universal under its revolving line of credit. Other expense of
$0.4 million in fiscal 1998 was a result of Universal's decision to write off
deferred costs relating to Universal's proposed public offering which was not
completed.
The provision for income taxes in fiscal 1998 was $1.6 million resulting in
an effective tax rate of 39.1% compared to $0.9 million and an effective tax
rate of 35.5% in fiscal 1997. The effective tax rate in fiscal 1997 was
favorably affected by the adjustment in the amount of deferred taxes in such
year.
FISCAL 1997 COMPARED TO FISCAL 1996
Net revenues increased $15.8 million, or 42.6%, to $52.9 million in fiscal
1997 from $37.1 million in fiscal 1996. Most of the increase resulted from
additional sponsorship revenues from new sponsors, increased revenues from
existing sponsors and the inclusion of a full year of sponsorship revenues from
USA Collegiate, which was acquired in fiscal 1996. The remainder of the increase
was attributable to higher participant entry fees, reflecting greater
participation in Universal's grass roots sporting events, and higher
66
<PAGE> 73
revenues as a result of additional management fees from more events and
increased merchandise sales in fiscal 1997.
Cost of revenues increased $10.8 million, or 44.2%, to $35.2 million in
fiscal 1997 from $24.4 million in fiscal 1996. As a percentage of net revenues,
cost of revenues increased to 66.6% in fiscal 1997 from 65.8% in fiscal 1996, as
a result of additional direct expenses associated with the production of grass
roots sporting events and costs incurred under Universal's contracts with
colleges. In general, collegiate contracts have higher levels of cost of
revenues as a percentage of revenues than grass roots sporting events, primarily
as a result of the inclusion of rights fees. Consequently, the fiscal 1997
increase in cost of revenues, in both dollar and percentage terms, largely
reflected a full year of USA Collegiate operations, as compared to only nine
months of USA Collegiate operations in fiscal 1996.
Selling, general and administrative expenses increased $4.3 million, or
39.3%, to $15.3 million in fiscal 1997 from $11.0 million in fiscal 1996. This
increase was largely attributable to a full year of administrative costs
associated with USA Collegiate. As a percentage of net revenues, selling,
general and administrative expenses decreased to 29.0% in fiscal 1997 from 29.7%
in fiscal 1996. In general, collegiate contracts have lower levels of selling,
general and administrative expenses than grass roots sporting events.
Equity in earnings of affiliates decreased $0.2 million to $0.1 million in
fiscal 1997 as compared to $0.3 million in fiscal 1996. The decrease reflected a
reduction in equity earnings from Street Hoops International.
The provision for income taxes increased $0.2 million to $0.9 million in
fiscal 1997 from $0.7 million in fiscal 1996. Universal's effective tax rates
were 35.5% and 34.2% in fiscal 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the nine months ended March 31, 1999
was $47.4 million. The cash provided by operating activities during this period
primarily resulted from income from operations, a gain on the sale of marketable
securities of $61.5 million, and an increase of accounts payable of $29.9
million offset by a $20.8 million increase in accounts receivable, and a $2.1
million increase in prepaid expenses. The increase in accounts payable is a
result of normal seasonal fluctuations and an income tax payable of $21.3
million resulting from the gain on the sale of marketable securities. The
increase in accounts receivable reflects normal seasonal fluctuations and an
$8.0 million note receivable from an affiliated party, which note is due to
Universal on demand.
Net cash used in investing activities for the nine months ended March 31,
1999 was $0.3 million, reflecting normal capital expenditures for purchases of
property and equipment.
Net cash used in financing activities for the nine months ended March 31,
1999 was $7.3 million as a result of payments against Universal's line of
credit.
As of March 31, 1999, Universal had repaid all borrowings on its revolving
line of credit agreement.
Net cash used in operations during fiscal 1998 was $2.8 million compared to
$1.7 million in fiscal 1997. The increase in cash used in operating activities
in fiscal 1998 primarily resulted from a $6.0 million increase in accounts
receivable, a $2.0 million increase in prepaid expenses and a $1.4 million
decrease in deferred revenue, partially
67
<PAGE> 74
offset by a $3.1 million increase in accounts payable and accrued expenses and
income from operations.
Net cash used in investing activities during fiscal 1998 was $0.5 million
compared to $1.2 million in fiscal 1997. The decrease in cash used in investing
activities in fiscal 1998 and fiscal 1997 was the result of a decrease in
purchases of property and equipment (primarily computer support systems in
fiscal 1997).
Net cash provided by financing activities during fiscal 1998 was $4.1
million compared to $2.4 million in fiscal 1997. The net cash provided by
financing activities in fiscal 1998 and fiscal 1997 was the result of borrowings
of long-term debt.
Universal expects to meet its future financial obligations by utilizing its
cash on hand, together with cash provided by operations. If the merger with Bull
Run is not consummated, Universal believes these funds will be sufficient to
funds its working capital and capital spending requirements for at least the
next 12 months.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, but not limited to, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Universal completed an assessment of its computer and other systems and
equipment and determined that it would have to modify or replace portions of its
hardware and software so that those systems would function properly with respect
to dates beyond December 31, 1999. A significant portion of our software systems
have been upgraded to become Year 2000 compliant. Several remaining systems
primarily associated with Universal's contract management and event systems are
currently being evaluated with specific plans to modify such systems to become
Year 2000 compliant. Current plans call for the modification of those systems no
later than July 1, 1999. Universal believes with modification to the existing
software and conversion to new software, the Year 2000 issue will not pose
significant operational problems for its computer systems.
Universal intends to make inquiries of its important suppliers and
subcontractors that do not share information systems with Universal (external
agents) as to their Year 2000 compliance. Universal expects to complete these
inquiries by September 30, 1999. Universal expects to receive assurances from
those external agents that their major systems impacting Universal will be Year
2000 compliant. Because of the service nature of Universal's business and the
fact that Universal's revenues are not dependent upon the receipt and sale of
inventory, Universal does not believe that the failure of a significant number
of its external agents to be Year 2000 compliant would materially impact
Universal's results of operations, liquidity or capital resources. Therefore,
management has not developed a contingency plan and does not believe such a plan
is necessary.
Universal will use both internal and external resources to reprogram,
replace, test and implement the software and hardware equipment for the Year
2000 modification. The total cost of Universal's Year 2000 project is not
expected to exceed $200,000. This cost will be funded through operating cash
flows. To date, Universal has incurred approximately $30,000, the majority of
which has been capitalized as part of the software modifications.
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<PAGE> 75
Universal plans to complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of necessary resources,
and other factors. Estimates on the status of completion and the expected
completion dates are based on costs incurred to date compared to total expected
cost. However, there can be no guarantee that these estimates will be achieved
and actual results could differ materially from those plans. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and similar uncertainties.
INTEREST RATE RISK
Universal maintains a portion of its cash and cash equivalents in
short-term financial instruments which are subject to interest rate risks and,
accordingly, will decline in value if interest rates decline. Due to the
relatively small investment in such instruments and the short duration of such
instruments, fluctuations in the interest rates with respect to such investments
would not materially affect Universal's financial condition.
Universal's outstanding debt bears interest at variable rates and
accordingly, will be affected by interest rate changes.
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<PAGE> 76
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined condensed financial statements
give effect to the merger and related financing by and among Bull Run, BR
Holding, Capital, Host and Universal as if such transactions had occurred as of
January 1, 1998 with respect to the statement of operations for the year ended
December 31, 1998, as if such transactions had occurred as of January 1, 1999
with respect to the statement of operations for the three months ended March 31,
1999, and as of March 31, 1999 with respect to the balance sheet data as of such
date.
The unaudited pro forma financial data reflect a purchase price of
$128,866,000, of which $72,858,000 is payable in cash, $45,308,000 is payable in
the form of BR Holding common stock (11,327,000 shares at an estimated value of
$4.00 per share), $9,500,000 represents the value of BR Holding stock options to
be issued in exchange for Host and Universal stock options, and $1,200,000
represents estimated expenses of the mergers.
The mergers are reflected using the purchase method of accounting for
business combinations. The pro forma financial information is provided for
comparative purposes only and does not purport to be indicative of the results
that actually would have been obtained if the events set forth above had been
effected on the dates indicated or of those results that may be obtained in the
future. The pro forma financial statements are based on preliminary estimates of
values and transaction costs. The actual recording of the transactions will be
based on final appraisals, values and transaction costs. Accordingly, the actual
recording of the transactions can be expected to differ from these pro forma
financial statements. If the mergers are completed, it is anticipated that BR
Holding will adopt a fiscal year end of June 30.
The historical statements of operations of Capital, Host and Universal for
the year ended December 31, 1998 include the financial results for Capital, Host
and Universal for the fiscal year ended June 30, 1998 with the addition of their
financial results for the six months ended December 31, 1998 and the deduction
of their financial results for the six months ended December 31, 1997.
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<PAGE> 77
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
BULL RUN CAPITAL HOST UNIVERSAL ADJUSTMENT PRO FORMA
-------- ------- ------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.......... $ 103 $ $ 45 $41,371 $(35,528)(c) $ 5,991
Accounts and notes receivable...... 5,268 19,401 34,231 (8,877)(a) 50,023
Inventories........................ 5,457 5,457
Prepaid project costs and
expenses......................... 1,511 9,480 10,991
Other current assets............... 180 162 109 517 968
-------- ------- ------- ------- -------- --------
Total current assets............. 11,008 162 21,066 85,599 (44,405) 73,430
Property and equipment, net........ 2,598 5,269 1,321 9,188
Investments in affiliated
companies........................ 84,254 10,336 26,111 640 (13,368)(c)
(33,393)(c) 74,580
Contract investment................ 5,267 (5,267)(c)
Goodwill........................... 7,501 1,537 3,099 (3,099)(c)
91,190(c) 100,228
Other assets....................... 384 2,242 230 2,856
-------- ------- ------- ------- -------- --------
Total assets..................... $105,745 $10,498 $56,225 $96,156 $ (8,342) $260,282
======== ======= ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current portion
of long-term debt................ $ 14,000 $ $ 9,465 $ $ (8,000)(a)
(14,585)(e) $ 880
Accounts payable................... 2,772 1,111 3,441 (552)(a) 6,772
Deferred income taxes.............. 2,619 2,619
Deferred income.................... 5,613 812 6,425
Accrued income taxes............... 21,301 21,301
Accrued and other current
liabilities...................... 1,912 334 9,260 14,562 (325)(a)
1,200(c) 26,943
-------- ------- ------- ------- -------- --------
Total current liabilities........ 18,684 334 25,449 42,735 (22,262) 64,940
Long-term debt..................... 53,377 2,069 51,915(e) 107,361
Deferred income taxes.............. 4,892 1,608 8,967 1,509 (10,359)(c)
(2,236)(c) 4,381
Convertible preferred stock........ 5,598 4,900 (10,498)(c)
Stockholders' equity, other........ 28,792 8,556 14,142 47,012 45,308(c)
9,500(c)
(69,710)(c) 83,600
-------- ------- ------- ------- -------- --------
Total liabilities and
stockholders' equity........... $105,745 $10,498 $56,225 96,156 $ (8,342) $260,282
======== ======= ======= ======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
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<PAGE> 78
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BULL RUN CAPITAL HOST UNIVERSAL ADJUSTMENT PRO FORMA
-------- ------- ------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenues.............. $31,466 $ $48,347 $68,929 $(4,639)(a) $144,103
Cost of revenues.......... 22,103 30,728 43,957 (4,639)(a) 92,149
------- ------- ------- ------- --------
Gross profit......... 9,363 17,619 24,972 -- 51,954
------- ------- ------- ------- --------
Operating expenses:
Research and
development.......... 2,323 2,323
Selling, general and
administrative....... 5,538 35 16,136 21,133 (2,656)(f) 40,186
Depreciation and
amortization......... 732 1,226 1,046 (403)(b)
4,535(d) 7,136
------- ------ ------- ------- ------- --------
8,593 35 17,362 22,179 1,476 49,645
------- ------ ------- ------- ------- --------
Operating income..... 770 (35) 257 2,793 (1,476) 2,309
Other income (expense):
Equity in earnings
(losses) of
affiliated
companies............ 6,734 752 269 113 (1,039)(b)
(371)(d) 6,458
Gain (loss) on sale of
assets, net.......... (128) 2,783 2,655
Interest and dividend
income............... 1,085 300 (300)(b) 1,085
Interest expense........ (4,247) (791) (742) (2,986)(e) (8,766)
Other expense........... 44 (412) (368)
------- ------ ------- ------- ------- --------
Income before income
taxes.............. 4,214 1,017 2,562 1,752 (6,173) 3,372
Income tax provision...... 1,854 268 1,234 768 (780)(g) 3,344
------- ------ ------- ------- ------- --------
Net income........... $ 2,360 $ 749 $ 1,328 $ 984 $(5,392) $ 29
======= ====== ======= ======= ======= ========
Earnings per share:
Basic................... $ 0.11 $7,490 $ 1.43 $599.82 $ 0.00
Diluted................. $ 0.10 $7,490 $ 1.28 $461.86 $ 0.00
Weighted average shares
outstanding:
Basic................... 22,189 .1 927 1.6 11,327(h) 33,516
Diluted................. 23,182 .1 1,035 2.1 13,627(h) 36,809
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
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<PAGE> 79
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BULL RUN CAPITAL HOST UNIVERSAL ADJUSTMENT PRO FORMA
-------- ------- ------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenues.................. $ 7,728 $ $22,816 $16,322 $ (788)(a) $46,078
Cost of revenues.............. 5,375 16,669 11,599 (788)(a) 32,855
------- ------- ------- -------- -------
Gross profit.............. 2,353 6,147 4,723 13,223
------- ------- ------- ------- -------- -------
Operating expenses:
Research and development.... 706 706
Selling, general and
administrative............ 1,573 4,662 6,379 12,614
Depreciation and
amortization.............. 201 294 282 (101)(b)
1,140(d) 1,816
------- ------- ------- ------- -------- -------
2,480 4,956 6,661 1,039 15,136
------- ------- ------- ------- -------- -------
Operating income (loss)... (127) 1,191 (1,938) (1,039) (1,913)
Other income (expense):
Equity in earnings (losses)
of affiliated companies... (470) 3,200 13,599 42 (17,156)(b)
326(d) (459)
Gain on sale of marketable
securities................ 61,471 61,471
Interest and dividend
income.................... 226 225 (75)(b) 376
Interest expense............ (1,205) (203) 351 (747)(e) (1,804)
Other income (expense)...... (2) 37 (38) (3)
------- ------- ------- ------- -------- -------
Income (loss) before
income taxes............ (1,578) 3,425 14,624 59,888 (18,690) 57,669
Income tax provision
(benefit)................... (521) 1,115 6,102 21,461 (6,725)(g) 21,432
------- ------- ------- ------- -------- -------
Net income (loss)......... $(1,057) $ 2,310 $ 8,522 $38,427 $(11,965) $36,237
======= ======= ======= ======= ======== =======
Earnings (loss) per share:
Basic....................... $ (0.05) $23,100 $ 9.19 $23,424 $ 1.08
Diluted..................... $ (0.05) $23,100 $ 7.11 $18,037 $ 0.98
Weighted average shares
outstanding:
Basic....................... 22,264 0.1 928 1.6 11,327(h) 33,591
Diluted..................... 23,232 0.1 1,198 2.1 13,627(h) 36,859
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
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<PAGE> 80
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA ADJUSTMENTS
(a) Adjusted to eliminate certain intercompany transactions and balances as
follows:
(1) revenues and costs of revenues of $4,639 for the year ended
December 31, 1998 and $788 for the three months ended March 31, 1999;
(2) accounts receivable of $877, accounts payable of $552 and accrued
expenses of $325 as of March 31, 1999 in connection with services provided
by Host to Universal, and services provided by Universal to Host; and
(3) notes receivable and notes payable of $8,000 as of March 31, 1999
in connection with a loan by Universal to Host following Universal's
receipt of proceeds on the sale of its investment in broadcast.com in
January 1999.
(b) Adjusted to eliminate the following income and expenses pertaining to
Capital's, Host's and Universal's investments in other members of the combined
group:
(1) Capital's equity in the earnings of Host and Host's equity in the
earnings of Universal of $1,039 for the year ended December 31, 1998 and
$17,156 for the three months ended March 31, 1999;
(2) Capital's dividend income on its investment in Host preferred
stock of $300 for the year ended December 31, 1998 and $75 for the three
months ended March 31, 1999; and
(3) Amortization of Universal's contract investment and goodwill
associated with its purchase of certain Host operations in 1996 of $403 for
the year ended December 31, 1998 and $101 for the three months ended March
31, 1999.
(c) Adjusted to account for Bull Run's acquisition of Capital, Host and
Universal under the purchase method of accounting, as follows:
<TABLE>
<S> <C>
Purchase price payable in cash, including $35,528 at March
31, 1999 representing the portion of the proceeds on
Universal's sale of its investment in broadcast.com;
remainder of the purchase price will be paid with
borrowings of $37,330 in connection with a new credit
facility as discussed in (e) below........................ $ 72,858
Purchase price payable in common stock; 11,327 shares
assumed to be issued at an estimated value of $4.00 per
share..................................................... 45,308
Estimated fair value of options for the purchase of shares
of BR Holding common stock for the Host and Universal
stock options to be assumed in the merger; estimated fair
value is determined using the Black-Scholes option pricing
model..................................................... 9,500
Estimated expenses of the merger............................ 1,200
Carrying value at March 31, 1999 for Bull Run's investments
in Capital, Host and Universal............................ 13,368
--------
Total cost of Capital, Host and Universal................... 142,234
Net assets of Capital, Host and Universal at March 31,
1999........................................................ (69,710)
Host's and Universal's convertible preferred stock.......... (10,498)
Capital's investment in Host and Host's investment in
Capital of $33,393, and deferred income taxes associated
with such investment of $10,359........................... 23,034
</TABLE>
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NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
Universal's contract investment of $5,267 and goodwill of
$3,099 associated with the purchase of Host operations in
1996 and $2,236 of deferred taxes attributable to such
amounts................................................... 6,130
--------
Excess of cost over net assets acquired, recognized as
goodwill.................................................... $ 91,190
========
</TABLE>
The calculation of the estimated fair value of options to purchase shares
of BR Holding common stock to be exchanged for Host and Universal stock options
assumes a risk-free interest rate ranging from 4.74% to 5.64%, a dividend yield
of 0.0%, a volatility factor of .407 and a weighted average expected life for
the options of two years. The options will be exchanged in accordance with the
terms set forth in "Treatment of Stock Options and Benefit Plans" on page 27.
The aggregate value attributable to the Host class A options, Host class B
options, Universal class A options and Universal class B options is
approximately $7,400, $1,140, $790 and $170, respectively.
Assuming the Host and Universal stock options will be exchanged for options
to purchase BR Holding common stock based on a per share value of $4.00 for Bull
Run common stock, the following table summarizes the terms of the options to be
issued in the mergers:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS EXERCISE PRICE EXPIRATION DATE
- ----------------- -------------- ---------------
<S> <C> <C>
1,513,901 $ .344 12/99 - 6/08
486,449 $ .687 9/04 - 6/08
345,515 $ .687 1/09
90,925 $1.237 9/04
402,000 $2.388 1/04
18,185 $2.420 9/04
301,500 $4.060 1/06
</TABLE>
(d) Adjusted to eliminate the following income and expenses pertaining to
Bull Run's investments in other members of the combined group:
(1) elimination of Bull Run's equity in the earnings (losses) of
Capital and Host of $371 for the year ended December 31, 1998 and $(326)
for the three months ended March 31, 1999; and
(2) amortization of $4,535 for the year ended December 31, 1998 and
$1,140 for the three months ended March 31, 1999 for Bull Run's goodwill
attributable to this merger over a 20-year period.
(e) Adjusted to give effect to Bull Run's proposed new credit facility, as
follows:
(1) increase of $37,330 in long term debt to reflect borrowing
necessary to fund cash consideration payable in connection with the mergers
and $12,465 to reflect anticipated refinancing of existing debt
arrangements as of March 31, 1999; and
(2) increase of interest expense by $2,986 for the year ended December
31, 1998 and $747 for the three months ended March 31, 1999 at an estimated
8% annual rate, based on the terms of Bull Run's proposed new credit
agreement and variable rates in effect during 1998. The new credit
agreement will add approximately $38,600 in new indebtedness, and refinance
approximately $80,000 in existing indebtedness of Bull Run and Host.
Although no new credit agreement has yet been executed, the new credit
agreement is expected to provide for total borrowings of up to $137,000
under three facilities and an interest rate based on LIBOR plus an
applicable margin. A 1% increase in the assumed interest rate would
increase pro forma interest expense, and
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NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
decrease pro forma income before income taxes by $373 for the year ended
December 31, 1998, and by $93 for the three months ended March 31, 1999.
(f) Adjusted to eliminate Host's compensation expense of $2,656 for the
year ended December 31, 1998 associated with nonqualified stock options issued
during the period, all of which will be exchanged for options to purchase BR
Holding common stock on the effective date of the merger. No such compensation
expense was incurred in the quarter ended March 31, 1999.
(g) Adjusted to recognize the tax effect of the pro forma adjustments.
(h) The calculation of pro forma basic earnings per share assumes that
11,327 shares will be issued in the merger. Diluted earnings per share adjust
such amount for the dilutive effect of stock options to be assumed in the
merger. Basic and diluted pro forma earnings per share for the year ended
December 31, 1998 would have been $.00, whether the per share value is $4.00
(the minimum market value which the merger agreement provides may be used to
determine the shares issuable in the mergers) or whether the per share value is
$5.00 (the maximum market value which the merger agreement provides may be used
to determine the shares issuable in the mergers.) Basic pro forma earnings per
share for the three months ended March 31, 1999 would have been $1.08, if the
per share value was $5.00 instead of $4.00. Diluted pro forma earnings per share
for the three months ended March 31, 1999 would have been $1.00, if the per
share value was $5.00, instead of $4.00.
A reconciliation between the number of shares used in the computation of
basic pro forma earnings per share and diluted pro forma earnings per share
follows:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1999 1998
--------------- ------------
<S> <C> <C>
Weighted average number of common shares outstanding
for basic earnings per share......................... 33,591 33,516
Effect of dilutive employee stock options.............. 3,268 3,293
------ ------
Adjusted weighted average number of common shares and
assumed conversions for diluted earnings per share... 36,859 36,809
====== ======
</TABLE>
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<PAGE> 83
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(i) A reconciliation of historical results for the year ended December 31,
1998 to audited financial statements for the year ended June 30, 1998 appearing
elsewhere in this proxy statement/prospectus is set forth below:
<TABLE>
<CAPTION>
ADD: DEDUCT:
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1998 1997 1998
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Capital Sports Properties, Inc.:
Dividend income..................... $ 300 $ 150 $ 150 $ 300
Equity in earnings (losses) of Host
Communications, Inc.............. 869 (455) (338) 752
Net income (loss)................... 839 (169) (79) 749
Host Communications, Inc.:
Net revenue......................... $46,337 $19,651 $17,641 $48,347
Operating income.................... 1,563 (2,289) (983) 257
Net income (loss)................... 2,108 (1,602) (822) 1,328
Universal Sports America, Inc.:
Net revenue......................... $62,939 $42,381 $36,391 $68,929
Operating income.................... 4,738 1,034 2,979 2,793
Net income (loss)................... 2,438 317 1,771 984
</TABLE>
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<PAGE> 84
BUSINESS OF BULL RUN
GENERAL
Bull Run, a Georgia corporation, was originally incorporated in 1983 under
the laws of the State of Washington.
In November 1994, Bull Run acquired by merger Datasouth Computer
Corporation. Datasouth, located in Charlotte, North Carolina, designs,
manufactures and markets heavy-duty dot matrix and thermal printers for vertical
markets including transportation, distribution, manufacturing and health care.
Datasouth sells its products worldwide through distributors and value-added
resellers, and directly to large volume major accounts. Since the merger,
Datasouth has operated as a wholly-owned subsidiary of Bull Run.
Bull Run, through Datasouth, owns approximately 17% of the total
outstanding common stock or 28% of the voting interest of Gray Communications
Systems, Inc. as of December 31, 1998. Bull Run also owns shares of series A and
series B preferred stock of Gray and warrants to purchase additional shares of
Gray's common stock. Parties affiliated with Bull Run, including officers and
directors of Bull Run and companies of which they are principal stockholders
and/or executive officers, owned approximately an additional 14% of Gray's
common stock or 22% of the voting interest in Gray as of December 31, 1998.
Gray is a communications company headquartered in Atlanta, Georgia which
currently operates:
- three NBC-affiliated television stations -- WEAU-TV in Eau Claire-La
Crosse, Wisconsin, which was acquired during 1998; WJHG-TV in Panama City,
Florida; and WITN-TV, in the Greenville-Washington-New Bern, North Carolina
market;
- seven CBS-affiliated television stations -- WCTV-TV in Tallahassee,
Florida; WVLT-TV in Knoxville, Tennessee; WKYT-TV in Lexington, Kentucky;
WYMT-TV in Hazard, Kentucky; WRDW-TV in Augusta, Georgia; and two stations
acquired during 1998, KOLN-TV in Lincoln, Nebraska and KGIN-TV in Grand Island,
Nebraska;
- four daily newspapers, The Albany Herald in Albany, Georgia; The Rockdale
Citizen in Conyers, Georgia; The Gwinnett Daily Post in Lawrenceville, Georgia;
and The Goshen News in Goshen, Indiana, acquired in March 1999;
- an advertising weekly shopper in southwest Georgia;
- Lynqx Communications, a satellite transmission and production services
business based in the southeastern United States; and
- PortaPhone Paging, a communications and paging business in the Southeast.
During 1998, Gray disposed of its NBC-affiliated television station in Albany,
Georgia, fulfilling a Federal Communications Commission divestiture order in
March 1997 following Gray's acquisition of WCTV-TV. J. Mack Robinson, Bull Run's
chairman of the board, Hilton H. Howell, Jr., Bull Run's vice president,
secretary and a director, and Mr. Prather are members of Gray's board of
directors. Mr. Robinson is president and the chief executive officer of Gray,
and Mr. Prather is executive vice president of Gray.
In November 1997, Bull Run entered into an Investment Purchase Agreement
with Rawlings Sporting Goods Company, Inc. Pursuant to this agreement, Bull Run
acquired warrants to purchase 925,804 shares of Rawlings' common stock, and has
the right, under certain circumstances, to purchase additional warrants. The
warrants have a four year term
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and an exercise price of $12.00 per share, but are exercisable only if Rawlings'
common stock closes at or above $16.50 for 20 consecutive trading days during
the four year term. In addition, under the terms of the agreement, Bull Run
purchased approximately 10% of the outstanding shares of Rawlings' common stock
in the open market from November 1997 through January 1998. Simultaneously with
the execution of the Investment Purchase Agreement, Rawlings and Host entered
into a five year strategic marketing alliance, under which Host and Rawlings
will jointly market and sell Rawlings' products primarily through corporate
promotions, local events and international programs. Bull Run and Rawlings are
parties to a standstill agreement, which restricts Bull Run from acquiring
additional shares of Rawlings' common stock or participating in corporate events
relating to Bull Run, including proxy contests and tender offers, subject to
specified exceptions. Rawlings, headquartered near St. Louis, Missouri is a
supplier of team sports equipment in North America, and operates eight
manufacturing facilities throughout the United States, Canada and Latin America,
as well as distribution centers in the United States and Canada.
In August 1998, Bull Run acquired series C preferred stock of Total Sports,
Inc. On January 15, 1999, Bull Run purchased additional shares of Total Sports,
Inc. series C1 preferred stock, increasing its investment in Total Sports to
approximately 9% of Total Sports' total outstanding capital stock. The shares,
like the shares of Total Sports' series C preferred stock acquired by Bull Run
in August 1998, are convertible into Total Sports' common stock. Bull Run will
acquire Host's investment in approximately an additional 8% of Total Sports'
total outstanding capital stock in connection with Bull Run's merger with Host.
Based in Raleigh, North Carolina, Total Sports is a sports content Internet
company, which owns and adds daily to its proprietary sports content on its web
site; powers America Online's Internet portal destination for sports news;
publishes, among other print and electronic publications, "Total Baseball,"
Total Football" and "Total Hockey," the official encyclopedias of Major League
Baseball, the National Football League and the National Hockey League,
respectively; and, in partnership with Associated Press, publishes the sports
section of the "Wall Street Journal Interactive Edition." In conjunction with
Host and the NCAA, Total Sports "TotalCasts" (real-time event coverage) on the
Internet many college sporting events including the "Final Four" college
basketball championship tournament, in addition to its TotalCast coverage of
Major League Baseball games.
Bull Run also owns, directly and indirectly, approximately 32.5% of the
outstanding common stock and approximately 51.5% of the outstanding preferred
stock of Host. Based in Lexington, Kentucky, Host is a well established sports
marketing and association management company and is the primary marketer for the
National Collegiate Athletic Association and has significant printing,
publishing, broadcast and Internet operating divisions. See "Business of Host"
on page 85 for more detailed information concerning Host.
Bull Run also owns approximately 3% of the outstanding capital stock of
Universal. Based in Dallas, Texas, Universal is a sports marketing company that
specializes in developing integrated marketing programs and events on the
professional, collegiate and high school level. See "Business of Universal" on
page 88 for more detailed information concerning Universal.
In January 1999, Bull Run acquired approximately 34% of the outstanding
common stock of Sarkes Tarzian, Inc., which owns and operates two television
stations and four radio stations: WRCB-TV in Chattanooga, Tennessee, an NBC
affiliate; KTVN-TV in Reno, Nevada, a CBS affiliate; WGCL-AM and WTTS-FM in
Bloomington, Indiana; and WAJI-FM and WLDE-FM in Fort Wayne, Indiana. In March
1999, Bull Run executed an
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<PAGE> 86
option agreement with Gray, whereby Gray was granted an option to purchase Bull
Run's investment in Sarkes Tarzian for an amount equal to Bull Run's purchase
price for the Sarkes Tarzian investment, plus related costs. In connection with
the option agreement, Gray granted to Bull Run warrants to purchase additional
shares of Gray's class B common stock.
As of December 31, 1998, Datasouth represented approximately 22% of Bull
Run's total assets; investments in Host, Capital and Universal, collectively,
represented approximately 14% of Bull Run's total assets; investments in Gray
represented approximately 49% of Bull Run's total assets; investments in
Rawlings represented approximately 12% of Bull Run's total assets; and the
investment in Total Sports represented approximately 3% of Bull Run's total
assets.
PRINCIPAL PRODUCTS AND MARKETS
Bull Run, through Datasouth, designs, manufactures and markets heavy-duty
dot matrix and thermal printers for industrial applications, generally selling
under the "Datasouth" name. It has historically targeted the heavy-duty,
multipart forms segment of the serial matrix impact printer market in industries
such as transportation/travel, healthcare and manufacturing/distribution.
Recently, Bull Run has been involved in the industrial thermal printer market
through the development and acquisition of Automated Ticket/Boarding Pass
version 2 printers for the travel industry, as well as through the acquisition
of portable and desktop thermal barcode label printer product lines. The printer
business is not seasonal to any significant degree. However, short term revenue
trends fluctuate due to variable ordering patterns of large customers.
Bull Run's impact printers compete in the medium and high speed (i.e., 300
to 600 characters per second) serial impact dot matrix printer markets.
Datasouth's dot matrix products distinguish themselves from many lower priced
printers in their ability to print forms and reports as thick as nine parts and
to withstand rugged duty cycles. These printers are used primarily for forms
such as invoices, purchase orders, bills of lading, customs documents, insurance
documents, travel documents and patient admission forms. Datasouth currently
manufactures two dot matrix product families: Documax and the XL line. A third
line, Performax, was discontinued in 1997. Documax, a heavy-duty dot matrix
printer designed to provide maximum forms printing capabilities in a minimum
amount of space, is a narrow carriage printer intended for printing on demand
industry specific documents such as hotel bills, patient admissions/discharge
forms, airline tickets, packing slips and invoices. A multipath printer for
multipart forms, Documax offers a dual-tractor feature which allows the operator
to switch automatically from one form to another. The original Documax versions
print at speeds up to 333 characters per second and generate bar codes, OCR and
industrial graphics as well. Bull Run also has a 600 cps version of Documax.
"Documax" is a registered trademark of Datasouth. The XL line is a family of
medium speed wide carriage serial impact dot matrix printers which operate at
speeds ranging from 300 to 400 characters per second.
Bull Run also has provided a line of portable and desktop thermal printers
for several years, including the 4-inch wide portable "FreeLiner", and desktop
version "FreeLiner DT", both of which take advantage of "liner-free" label
adaptations. "Liner-free" labels have no silicone coated liner, offering several
advantages over conventional liner-backed labels, including more printable
labels per roll, superior print image and durability, and elimination of label
liner waste, resulting in lower cost of use and greater efficiency. Bull Run has
filed a trademark application for "FreeLiner." In January 1998, Datasouth
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<PAGE> 87
acquired the CodeWriter product line of direct thermal and thermal transfer
desktop and portable bar code label printers. CodeWriter's product line includes
the 4500 Series of 4.25" print width desktop thermal/thermal transfer barcode
printers and a 4.1" print width portable thermal/thermal transfer barcode
printer. "CodeWriter" is a registered trademark of Bull Run.
Bull Run was awarded a contract by The Sabre Group, Inc. in February 1997
to develop and manufacture a new Automated Ticket/Boarding Pass airline ticket
printer. In December 1997, Bull Run began shipping to The Sabre Group, Inc. the
resulting product, "Journey", for which Bull Run has filed a trademark
application. This printer, which uses direct thermal printing technology, was
designed to be compact, easy to use and durable with features such as an easily
accessible jam-free paper path and a simpler method to load ticket stock. During
the second quarter of 1999, Bull Run plans to introduce the "Journey II" version
of the printer which adds features such as a second bin for invoice and receipt
printing. In September 1998, Bull Run purchased marketing rights for the
Sigma-Data 7200 high speed Automated Ticket/Boarding Pass printer. The SD7200
product line prints up to 24 coupons per minute and allows for either direct
thermal or thermal transfer printing.
COMPETITION
The computer printer industry is very competitive and some of Bull Run's
competitors have greater financial and other resources. As the printer market
continues to segment by speed, application and technology, Bull Run believes its
dot matrix products to be competitive in the medium and high speed serial impact
dot matrix printer markets for applications requiring high performance output of
text, graphics and bar codes, and believes its thermal printer products to be
competitive in the portable and desktop thermal printer markets and in the
airline ticket printer market. Bull Run believes that its products do not
generally compete in "mass market" dot matrix and thermal printer applications.
Bull Run's products are intended for use in industrial markets often avoided by
large Japanese and domestic printer manufacturers, which may not deem these
markets large enough to pursue.
MANUFACTURING AND QUALITY CONTROL
Bull Run believes that its printer manufacturing capabilities provide a
strategic advantage over most competitors. Focusing on customer response time
and high quality customer service, Bull Run's goal is to provide quick, on-time
product delivery while maintaining low finished goods inventories. Product
configurations are scheduled daily based on customer orders. Raw materials and
manufactured assemblies, including PC boards assembled by Bull Run, are
transferred to work-in-process as materials and assemblies are consumed in the
manufacturing process, thereby eliminating unnecessary inventories and
scheduling. After configuration, the units are burned-in and are available for
shipment within 24 hours. As a result, the product mix can be altered within
hours, allowing Bull Run to deliver its products more quickly than many of its
competitors.
Bull Run assembles products in accordance with Bull Run's designs and
specifications. Bull Run utilizes components and sub-assemblies procured from
outside suppliers, some of which produce parts from tooling designed and owned
by Bull Run. Most of the materials, components and subassemblies are available
from a variety of sources and are generally not subject to significant price
volatility. Although Bull Run has not experienced any
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significant problems in obtaining materials, components or subassemblies, future
shortages could result in production delays which would adversely affect its
business.
Product design reflects an awareness of the practical aspects of
manufacturing high quality products. Commonality of components and subassemblies
across product lines provides efficiencies in quality control, productivity,
material cost and inventory control. Bull Run utilizes automated component
insertion, wave soldering and automated test equipment to reduce labor costs
while maintaining high quality. Bull Run verifies the quality of its products by
thorough testing at various stages of the assembly process.
Bull Run, in the ordinary course of its business, is subject to various
state and federal laws and regulations relating to the protection of the
environment. Compliance with these laws and regulations has not been material to
Bull Run's business.
WARRANTY AND SERVICE
Bull Run warrants its printers against defects in workmanship generally for
one year, in addition to providing in-house depot repair service. Distributors
and national third party service organizations provide on-site repair under
service contracts. Bull Run has a technical support staff accessible to all
customers through a toll-free telephone number, as well as through Datasouth's
Internet web site.
SALES AND DISTRIBUTION
Printers, parts, accessories and consumables are sold through an
international network of approximately 60 independent distributors and directly
to large volume major accounts, which consist of end-users and original
equipment manufacturers. Distributors typically operate in nonexclusive
territories on a local, regional, national or international basis. The
distributors carry complementary lines of computers and peripheral products and
may carry products competitive with Bull Run's products. The distributors sell
principally to large industrial companies, hospitals, banks, government
agencies, educational institutions, airlines, rental car companies and travel
agencies.
Bull Run supplies Documax and Journey printers to The Sabre Group, Inc.
under contracts that are cancelable at any time by The Sabre Group, Inc.
Moreover, The Sabre Group, Inc. is under no contractual obligation to purchase
any minimum number of printers from Datasouth during the term of the contracts.
As the travel market embraces a number of new technologies, such as
Internet reservation booking and electronic ticketing, Bull Run believes that
travel agencies will require more cost-effective equipment, such as its
"Journey" products. Priced at less than $2,000, Journey products provide an
attractively priced alternative to traditional Automated Ticket/Boarding Pass
printers and will be affordable for even small travel agencies. The addition of
the SD7200 product line in 1998 strategically expands Bull Run's Automated
Ticket/Boarding Pass product line to offer a wide range of ticket printing
solutions for airlines, customer reservation systems and remote locations, such
as corporate offices and hotels/motels.
In 1998, Bull Run established a sales office and distribution point in the
United Kingdom following the acquisition of a sales organization that primarily
sold the Documax and SD7200 printers to airlines and customer reservation
systems in Europe, Asia and Africa. Bull Run intends to expand its sales to
customers in these areas of the world and continue to pursue new major account
business in 1999, while maintaining and strengthening relationships with
distributors.
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BACKLOG
Bull Run sells its products to its customers pursuant to cancelable
purchase orders and, accordingly, does not require firm quantity commitments.
Customers generally issue cancelable purchase orders with short delivery lead
times. The time lapse between receipt of a purchase order and shipment of
printers generally ranges from one to 90 days. For this reason, Bull Run's
production schedule is based substantially on anticipated releases, and
management does not regard the backlog of purchase orders at any one time to be
indicative of future trends in its revenue.
ADVERTISING AND PROMOTION
Bull Run participates in numerous regional, national and international
trade shows and actively promotes its products through direct mail,
telemarketing and cooperative advertising arrangements with distributors. It
also advertises its products in publications serving the industrial markets
targeted by its products.
RESEARCH AND DEVELOPMENT
Bull Run employs approximately 25 engineers, technicians and support
personnel to engage in basic and applied research. In 1998, Bull Run's
engineering team developed and released design enhancements to the CodeWriter
4500 series printer following the acquisition of the CodeWriter product line in
January 1998, and substantially completed the design of the "Journey II" product
currently expected to be released during the second quarter of 1999. In 1999,
Bull Run's primary product development focus will be on expanding the current
product lines with complementary products. In addition, engineering efforts are
focused on enhancement of existing products to expand market penetration and
customization of existing products to meet special printing applications for
specific customer needs.
Although Bull Run holds certain trademarks, patents and related contracts,
none is considered to be material to its business.
EMPLOYEES
As of December 31, 1998, Bull Run had 134 full-time employees, of which,
114 were located at Datasouth's administrative and manufacturing facility in
Charlotte, North Carolina. No employees are subject to collective bargaining
agreements, and there have been no work stoppages due to labor difficulties.
PROPERTIES
Bull Run's executive offices are located in Atlanta, Georgia in
approximately 2,000 square feet of office space leased from Delta Life Insurance
Company, an affiliate of J. Mack Robinson, Bull Run's chairman of the board. The
lease expires in December 2002, subject to several renewal options on the part
of Bull Run.
Datasouth's administrative offices and operations are located in Charlotte,
North Carolina in approximately 74,000 square feet of fully-utilized leased
facilities. Although present facilities are suitable and adequate for its
current needs, Datasouth owns approximately eight acres of land contiguous to
its Charlotte facility for future expansion, if necessary. Datasouth's main
administrative and manufacturing facility is leased through December 2001, and
additional office and warehousing space is leased through December 2000.
Datasouth's west coast service and distribution center in Vista, California
operates in
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a 6,781 square foot fully-utilized facility leased through April 2001.
Datasouth's 608 square foot sales office in Northhampton, England is leased
through September 2001.
LEGAL PROCEEDINGS
On February 12, 1999, Sarkes Tarzian, Inc., filed a complaint in the United
States District Court for the Southern District of Indiana against Bull Run and
U.S. Trust Company of Florida Savings Bank, as personal representative of the
estate of Mary Tarzian. On May 3, 1999, the action was dismissed without
prejudice against Bull Run, leaving the estate as the sole defendant. The suit
involves Bull Run's acquisition of 301,119 shares of Sarkes Tarzian common stock
from the estate for $10 million on January 28, 1999. Sarkes Tarzian claims that
it had a binding and enforceable contract to purchase the Sarkes Tarzian shares
from the estate prior to Bull Run's purchase of such shares and requests
judgment providing that the contract be enforced. Bull Run contends that a
binding contract between Sarkes Tarzian and the estate did not exist prior to
Bull Run's purchase of the Sarkes Tarzian shares from the estate. Bull Run does
not believe that a judgment in favor of Sarkes Tarzian in this litigation would
materially adversely affect Bull Run, since Bull Run's purchase agreement with
the estate provides that if a court of competent jurisdiction awards title to
the shares to a person or entity other than Bull Run, the purchase agreement
will be rescinded and the estate will be required to pay Bull Run the full $10
million purchase price, plus interest.
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BUSINESS OF HOST
GENERAL
Host provides specialized marketing and management services to corporate
clients focusing primarily on sports-related affinity groups. Host also provides
professional marketing and other management services to the NCAA and other
groups and associations such as the National Tour Association which is a premier
package travel association, Quest which is a J.D. Edwards user group association
and the International Spa and Fitness Association. Among other things, Host's
responsibilities under these relationships may include the sale of "official
sponsorship" rights to corporations, advertising space in game-day or other
programs and advertising in television and radio broadcasts of games. Host also
produces a broad array of electronic and print media through their broadcasting,
printing and publishing divisions and maintains minority investments in service
companies which provide marketing and production support to their corporate
clients and associations.
Host identifies and reaches consumer segments with attractive demographic
characteristics and designs and implements marketing programs and sports-based
events to target these specific affinity groups. Host's corporate clients
include large corporations with significant sales and marketing budgets that are
facing competitive pressure to retain or expand market share. Host has provided
marketing services to numerous corporate clients, including American Express,
Compaq, Gillette, General Motors, GTE, Hershey, Nabisco, Pepsi and Sears. Host
derives revenue primarily from the sale of advertising and sponsorship rights
and other sources, including management fees and merchandise sales.
NCAA MARKETING SERVICES
A significant portion of Host's revenue is derived from its relationship
with the NCAA. In 1997 and 1998, approximately 46% of Host's net revenues arose
from sub-licensing NCAA corporate sponsor rights to corporations. Host designed
and implemented and has primary responsibility for administering the NCAA's
corporate partner program pursuant to which Host provides marketing services for
the NCAA, including the exclusive licensing of the NCAA logo. Only 20
corporations are permitted to participate in the program each year, which
enhances the marketing position and brand recognition for the corporations
admitted to the program. Pursuant to its relationship with the NCAA, Host pays a
set fee and shares 70% of revenues in excess of benchmark revenue to the NCAA in
exchange for the right to market and sell "official corporate partnerships" of
the NCAA and sponsorships and advertising for many NCAA events including the
men's and women's Final Four basketball championships, the College World Series,
NCAA websites and radio shows for the foregoing championships, printed programs
and other specialty publications. In addition, Host also administers radio
network broadcasts of the Final Four, the College World Series and "Game of the
Week" NCAA football and basketball games in association with CBS Radio/Westwood
One.
A substantial portion of Host's accounts receivable is also derived from
its relationship with the NCAA. As of June 30, 1997 and 1998, accounts
receivables relating to NCAA corporate sponsors constituted approximately 26%
and 35%, respectively, of Host's total billed accounts receivable.
Host's current agreement with the NCAA is scheduled to expire on August 31,
2002.
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PUBLISHING, PRINTING AND ELECTRONIC MEDIA
Host produces more than 460 sports related publications annually for a
variety of clients including the NCAA, college athletic conferences,
universities, the Basketball Hall of Fame and other sports related entities.
Host's publications range from magazines with hundreds of pages to two-sided
schedule cards. Publications include game programs, media guides, posters and
marketing brochures, including programs for 21 NCAA championships such as the
men's and women's Final Four, the College World Series, conference championships
and college football bowl games. Host also provides high-quality printing
services for corporations and not-for-profit organizations nationwide as well as
to universities, conferences and other associations that Host represents.
Printing projects for Host's clientele include directories, annual reports,
brochures, posters, programs and catalogs.
Host produces television programs, videos, radio broadcasts, commercial
audio and Internet related services in the Electronic Media Division. The
Mainstreet Productions Division has digital recording studios in Lexington
capable of handling network quality soundtracks for radio, television and
multi-image presentations. Host contracts with advertising agencies, marketing
experts and independent producers as well as using these services to support
other Host marketing divisions. The Host Broadcast Center creates, produces,
syndicates and distributes large and small radio networks nationwide and across
the Internet.
MANAGEMENT SERVICES
Host provides management services to a number of associations including the
National Tour Association, Quest, the International Spa and Fitness Association,
the National Grocers Association and the Tour and Travel Research Association.
Host administers marketing, publishing, government lobbying, business,
education, events management and membership growth of these associations.
MINORITY INVESTMENTS
Host currently has minority investment interests including approximately 9%
of Total Sports, a sports data distribution company focusing primarily on the
Internet and 42.5% of Corporate Marketing Associates, a corporate marketing and
promotion agency.
CLIENTS
Host's clients include large corporations. Corporate sponsorship contracts
have historically been three years in length. Host has recently signed several
sponsors to five-year contracts and intends to continue to seek longer-term
sponsorship agreements. Host provides sponsorship opportunities to a variety of
corporate clients ranging from consumer products companies to financial services
companies and currently has sponsorship contracts with some of the largest
companies in the United States.
SALES AND MARKETING
Host employs a full-time national sales and marketing staff, and has
dedicated a senior group of sales and marketing executives to identify potential
client relationship opportunities and promote Host's expertise and range of
services. Host solicits prospective clients through its managers responsible for
business development and through personal contacts by members of Host's senior
management. When a new account is established, Host immediately assigns a sales
executive to the client to ensure that the client's needs
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are met and to seek out further opportunities to expand the relationship.
Generally, account managers are assigned several different clients.
COMPETITION
As a provider of marketing services, Host competes with suppliers of
traditional advertising in broadcast and print media as well as with other
marketing service producers and internal marketing programs. The competition for
brand marketing expenditures is very competitive and highly fragmented. Host
believes that competitors exist who may have capabilities and resources
comparable to and in several respects greater than those of Host. Host's success
will depend on its ability to create unique value-added marketing opportunities
that attract corporate sponsorship.
PROPERTIES
Host owns six acres in Lexington, Kentucky, that house its Printing and
Publishing Divisions. Buildings on this property contain approximately 25,000
square feet in production, office and storage space. Host also has approximately
50,000 square feet under lease in Lexington, 10,000 square feet under lease in
Dallas, Texas and 4,000 square feet under lease in East Rutherford, New Jersey.
EMPLOYEES
Host has approximately 255 employees. Host is not a party to any collective
bargaining agreements and believes good relations exist with its employees.
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BUSINESS OF UNIVERSAL
GENERAL
Universal is a leading provider of specialized marketing and management
services to corporate clients focusing primarily on sports-related affinity
groups. Universal also produces and manages grass roots participatory sporting
events and provides professional marketing and other management services to
university athletic departments, athletic conferences and high school
associations.
Universal identifies and reaches consumer segments with attractive
demographic characteristics and designs and implement marketing programs and
sports-based events to target these specific affinity groups. Universal's
corporate clients include large corporations with significant sales and
marketing budgets that are facing competitive pressure to retain or expand
market share. Universal has provided marketing services to numerous corporate
clients, including AT&T, Coca-Cola, Exxon, Gatorade, McDonald's, Nike, Procter &
Gamble, Southwest Airlines and Toyota. Universal derives revenue primarily from
the sale of advertising and sponsorship rights, participant entry fees and other
sources, including management fees and merchandise sales.
Universal has created unique marketing distribution channels that enable
corporate clients to target and reach sports-related affinity groups on a
national and international basis. Events produced and managed by Universal
include Hoop-It-Up 3-on-3 basketball tournaments, NFL Air-It-Out 4-on-4 football
tournaments, NHL Breakout 5-on-5 in-line street hockey tournaments, Golf Skills
Challenge tournaments and Spike-It-Up volleyball tournaments. Universal has
formed strategic alliances with the National Basketball Association, the
National Football League, the National Hockey League and Major League Baseball
to manage events promoting their respective sports. In addition, Universal
provides marketing services to universities, colleges, athletic conferences and
high school associations, including Florida State University, the University of
Tennessee, the University of Texas, the University of Kentucky, the Big 12
Conference and the Southeastern Conference. Universal's responsibilities under
these relationships may include the sale of "official sponsorship" rights to
corporations, advertising space in game-day or other programs, advertising in
television and radio broadcasts of games, arena signage rights, advertising
during "coaches shows," coaches' endorsements and pay-per-view telecasts.
GRASS ROOTS SPORTING EVENTS
Universal produces and manages large participatory sporting events
throughout the United States and internationally. The events are offered on a
seasonal touring basis and generally occur in a different city every weekend.
Prior to the event, promotional materials and entry forms are disseminated
throughout the market and mailed to participants in Universal's data base.
Participants in the event form teams and pay entry fees to participate. The
events generally last two days and are managed by Universal's personnel who are
assisted by independent contractors and local volunteers. Revenues are derived
primarily form national sponsorship contracts with major corporations, local
sponsorship contracts with regionally focused companies and, to a lesser extent,
event registration fees,
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management fees and merchandise sales. The following table summarizes
Universal's principal events in fiscal 1998:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER
EVENT DESCRIPTION OF PAID PARTICIPANTS
- ----- ----------- --------------------
<S> <C> <C>
Hoop-It-Up................ 59 3-on-3 basketball tournaments in 171,693
47 US cities, 6 Canadian cities and 4
Mexican cities
Street Hoops
International........... 39 NBA sponsored basketball events in 83,348
12 foreign countries
NFL Air-It-Out............ 22 NFL sponsored 4-on-4 football 52,415
tournaments in 20 US cities
NHL Breakout.............. 22 NHL sponsored in-line street 15,789
hockey tournament in 22 US cities
Golf Skills Challenge..... 25 golf skills tournaments in 25 US 19,012
cities
Spike-It-Up............... 10 2, 4 and 6 person volleyball 11,480
tournaments in 10 US cities
MLB Fan Fest.............. 6 MLB sponsored baseball fan 68,000
festivals in 3 foreign countries
</TABLE>
COLLEGIATE MARKETING SERVICES
Universal also provides sports marketing services for several NCAA Division
I universities. Universal's rights and responsibilities vary by contract but may
include the production of television and radio broadcasts of certain athletic
events and coaches' shows, the sale of "official sponsor" rights to
corporations, advertising space in game-day or other programs and advertising
during television and radio broadcasts. Often times, Universal secures
broadcast, publication and advertising sales services from Host relative to
these contracts. A significant number of the agreements between Universal and
the universities require Universal to guarantee the university a rights fee for
the right to provide marketing and production services. Most of the agreements
involve a sharing of revenues between Universal and the university. The
agreements are typically three to five years in length. Set forth below is a
list of the NCAA Division I universities to which Universal provided sports
marketing or publication services in fiscal 1998:
<TABLE>
<S> <C>
University of Notre Dame University of Texas
Florida State University University of Tennessee
University of Kentucky Mississippi State University
Southern Methodist University St. John's University
Texas Tech University University of South Carolina
Cornell University San Jose State University
Seton Hall University University of Georgia
</TABLE>
- -------------------------
Universal also has contracts with four athletic conferences: the
Southeastern Conference, the Big 12 Conference, the Western Athletic Conference
and Metro Atlantic Athletic Conference. Universal's activities under these
contracts include the management of marketing services for conference
championship games, the production of gameday programs for championship games,
and the granting of certain broadcasting, logo, product sampling and "official
sponsor" rights. Often times, Universal secures broadcast and
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publication services from Host. Many of these contracts require Universal to pay
the conference a rights fee for the right to provide marketing and production
services.
OTHER EVENT MANAGEMENT
Universal produces and manages a number of events for professional athletic
leagues such as the NFL Experience "On Tour" which is the National Football
League's interactive theme park, NFL Lineman Challenge which is a made for
television, National Football League Lineman skills event, Major League
Baseball's "Yard Ball" which is a four on four touring baseball competition, the
National Hockey League's "Cup Crazy" promotion which consist of interactive
hockey events during the NHL Stanley Cup Playoffs and Major League Baseball's
International FanFest which was produced in six foreign countries. Universal
also produces and manages events for corporate clients. These events have
included the NCAA Football Campus Tour which consist of NCAA Football
interactive events, G.A.M.E. which is a multi-sport interactive program for
middle school students for Champion Paper, the Southwestern Bell Football Fan
Festival which is a SBC interactive football event, ESPN Zone grand openings
which are multi-sport interactive events, Ocean Spray/Final Four promotions
which consist of basketball interactive and sampling programs at the NCAA Final
Four Tournament. In addition, Universal markets a number of annual collegiate
events including major football rivalry games such as the Red River Shootout
between the University of Texas and the University of Oklahoma and the Lone Star
Showdown between the University of Texas and Texas A & M University. Universal
also markets the Texas high school championship events such as the Texas Bowl
high school football championship. In connection with these events, Universal
typically receives either a predetermined management fee or shares in event
revenues or profits.
MINORITY INVESTMENTS
Universal sold its 2% interest in broadcast.com inc. in January 1999.
CLIENTS
Universal's clients also include large corporations. Corporate sponsorship
contracts have historically been three years in length. Universal intends to
continue to seek longer-term sponsorship agreements. Universal provides
sponsorship opportunities to a variety of corporate clients ranging from
consumer products companies to financial services companies and currently has
sponsorship contracts with some of the largest companies in the United States
and abroad.
SALES AND MARKETING
Universal employs a full-time national sales and marketing staff, and has
dedicated a senior group of sales and marketing executives to identify potential
client relationship opportunities and promote Universal's expertise and range of
services. Universal solicits prospective clients through its managers
responsible for business development and through personal contacts by members of
Universal's senior management. When a new account is established, Universal
immediately assigns a sales executive to the client to ensure that the client's
needs are met and to seek out further opportunities to expand the relationship.
Generally, account managers are assigned several different clients which may be
comprised of a number of businesses or divisions, departments or groups within
the same business. In addition, the personnel that staff Universal offices on
university campuses and at athletic conference locations are responsible for
soliciting local sponsors and advertisers.
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COMPETITION
As a provider of marketing services, Universal competes with suppliers of
traditional advertising in broadcast and print media as well as with other
marketing service producers and internal marketing programs. The competition for
brand marketing expenditures is very competitive and highly fragmented.
Universal believes that competitors may exist who have capabilities and
resources comparable to and in several respects greater than those of Universal.
Universal's success will depend on its ability to create unique value-added
marketing opportunities that attract corporate sponsorship.
PROPERTIES
Universal has approximately 30,000 square feet of office space and 34,000
square feet of warehouse space under lease in Dallas, Texas and approximately
4,000 square feet under lease in East Rutherford, New Jersey. Universal also has
small regional and local field offices primarily located close to the
universities and conferences with which it has contracts.
EMPLOYEES
Universal has approximately 270 employees. Universal is not a party to any
collective bargaining agreements and believes good relations exist with its
employees.
MARKET PRICES AND RELATED MATTERS
BULL RUN
Bull Run common stock, par value $.01 per share, trades on The Nasdaq Stock
Market under the symbol "BULL." The following table sets forth for each period
indicated the high and low sale prices for the common stock as reported by The
Nasdaq Stock Market.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1997
First Quarter............................................... $3.06 $2.00
Second Quarter.............................................. 2.75 2.13
Third Quarter............................................... 2.84 2.25
Fourth Quarter.............................................. 3.84 2.56
1998
First Quarter............................................... $4.25 $2.88
Second Quarter.............................................. 5.13 3.63
Third Quarter............................................... 5.00 3.44
Fourth Quarter.............................................. 3.81 2.88
1999
First Quarter............................................... $5.50 $3.25
Second Quarter.............................................. 3.50 4.63
Third Quarter (through August 10, 1999)..................... 4.19 3.50
</TABLE>
As of August 10, 1999, there were holders of record of Bull Run common
stock.
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It is the present policy of Bull Run's board of directors to retain all
earnings to finance the development and growth of the company's business. Bull
Run has never declared or paid a cash dividend on its common stock. Bull Run's
future dividend policy will depend upon its earnings, capital requirements,
financial condition and other relevant factors.
CAPITAL, HOST AND UNIVERSAL
The stock of Capital, Host and Universal has no readily ascertainable
market value.
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<PAGE> 99
PRINCIPAL STOCKHOLDERS
BULL RUN
As of June 30, 1999, Bull Run knew of no person, other than those set forth
below, who is the beneficial owner of more than 5% of Bull Run common stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------------ -------------------- ----------
<S> <C> <C>
Robert S. Prather, Jr......................... 3,010,598(1)(2) 13.3%
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
J. Mack Robinson.............................. 6,891,706(2)(3) 30.6%
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
Robinson-Prather Partnership.................. 2,660,598(2) 11.9%
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
Harriett J. Robinson.......................... 6,891,706(2)(3) 30.6%
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
Harriett J. Robinson, Trustee
Robin M. Robinson Trust..................... 3,085,598(2) 13.7%
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
Harriett J. Robinson, Trustee
Jill E. Robinson Trust...................... 3,168,598(2) 14.1%
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
Gulf Capital Services, Ltd.................... 2,660,598(2) 11.9%
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
James W. Busby(4)............................. 2,295,906(4) 10.2%
1936 London Lane
Wilmington, North Carolina 28405
Samuel R. Shapiro............................. 3,620,300(5) 16.1%
3060 Peachtree Road, N.W.
Atlanta, Georgia 30305
Shapiro Capital Management Company, Inc....... 3,535,300(5) 15.8%
3060 Peachtree Road, N.W.
Atlanta, Georgia 30305
Hilton H. Howell, Jr.......................... 1,916,050(6) 8.5%
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
</TABLE>
- -------------------------
(1) Includes 250,000 shares which Mr. Prather has the right to acquire through
the exercise of currently exercisable options.
(2) Includes 2,660,598 shares owned by Robinson-Prather Partnership, the general
partners of which are Robert S. Prather, Jr.; J. Mack Robinson; Harriett J.
Robinson;
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Harriett J. Robinson, as trustee for Robin M. Robinson Trust; Harriett J.
Robinson, as trustee for Jill E. Robinson Trust and Gulf Capital Services,
Ltd. Gulf Capital Services, Ltd. is controlled by Mr. Robinson. The
partnership agreement for Robinson-Prather Partnership provides that Messrs.
Prather and Robinson have the exclusive control of the day-to-day operations
of the partnership, including the power to vote or dispose of the shares
owned by Robinson-Prather Partnership. Each general partner disclaims
beneficial ownership of the shares owned by Robinson-Prather Partnership,
except to the extent of his pecuniary interest in such shares, which is less
than the amount disclosed.
(3) Includes as to each of J. Mack Robinson and his wife, Harriett J. Robinson:
1,146,358 shares owned directly by Mr. Robinson; 310,500 shares owned
directly by Mrs. Robinson; 50,000 shares which Mr. Robinson has the right to
acquire through the exercise of currently exercisable options; 425,000
shares owned directly by the Robin M. Robinson Trust and 507,500 shares
owned directly by the Jill E. Robinson Trust, of each of which Mrs. Robinson
is the trustee; and an aggregate of 1,791,050 shares owned by Delta Fire &
Casualty Insurance Co., Delta Life Insurance Company, Bankers Fidelity Life
Insurance Co. and Georgia Casualty & Surety Co. Georgia corporations of each
of which Mr. Robinson is chairman of the board, president and/or principal
stockholder (or the subsidiaries of the same). Each of Mr. and Mrs. Robinson
disclaims beneficial ownership of the shares owned by the Robin M. Robinson
Trust, the Jill E. Robinson Trust, Delta Fire & Casualty Insurance Co.,
Delta Life Insurance Company, Bankers Fidelity Life Insurance Co., Georgia
Casualty & Surety Co. and each other.
(4) Includes an aggregate of 62,044 shares owned by Mr. Busby's two children and
5,000 shares which Mr. Busby has the right to acquire through the exercise
of currently exercisable options.
(5) Mr. Shapiro is the president, a director and majority stockholder of Shapiro
Capital Management, Inc., an investment advisor, which has voting and
dispositive power for 3,013,800 shares. In addition, Mr. Shapiro has sole
voting and dispositive power for 521,500 shares owned by The Kaleidoscope
Fund, L.P., a Georgia limited partnership, and 85,000 shares owned by Mr.
Shapiro's wife. Mr. Shapiro disclaims beneficial ownership as to those
shares in which Shapiro Capital Management, Inc. has voting and dispositive
power.
(6) Includes 125,000 shares which Mr. Howell has the right to acquire through
the exercise of currently exercisable options; and an aggregate of 1,791,050
shares owned by Delta Fire & Casualty Insurance Co., Delta Life Insurance
Co., Bankers Fidelity Life Insurance Co. and Georgia Casualty & Surety Co.,
Georgia corporations of each of which Mr. Howell is Executive Vice
President. Mr. Howell is married to Robin R. Howell, Mr. Robinson's daughter
and a beneficiary of the Robin M. Robinson Trust, which is a general partner
of Robinson-Prather Partnership. Mr. Howell disclaims beneficial ownership
of the shares of common stock owned by Delta Fire & Casualty Insurance Co.,
Delta Life Insurance Company, Bankers Fidelity Life Insurance Co., Georgia
Casualty & Surety Co., Robinson-Prather Partnership and the Robin M.
Robinson Trust.
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<PAGE> 101
CAPITAL
As of June 30, 1999, management of Capital knew of no person, other than
those below, who is the beneficial owner of more than 5% of Capital common
stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------------ -------------------- ----------
<S> <C> <C>
Bull Run Corporation.............................. 51.5 52%
General Electric Capital Corporation.............. 45.5 46%
Charles L. Jarvie................................. 3 3%
</TABLE>
HOST
As of June 30, 1999, management of Host knew of no person, other than those
below, who is the beneficial owner of more than 5% of Host common stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------------ -------------------- ----------
<S> <C> <C>
Bull Run Corporation(1)............................ 71,480 8%
Capital Sports Properties, Inc. ................... 447,002 48%
W. James Host...................................... 194,482 19%
Atlantic Venture Partners(2)....................... 75,260 8%
Carolyn Host....................................... 66,994 7%
Charles L. Jarvie (in Trust)(3).................... 117,646 12%
</TABLE>
- -------------------------
(1) Bull Run, directly and indirectly through Capital, owns 32.5% of Host common
stock and 51.5% of Host preferred stock.
(2) Edward K. Crawford, the chairman and chief executive officer of the general
partner of Atlantic Venture Partners, has sole voting and dispositive power
for all of the shares owned by Atlantic Venture Partners.
(3) Charles L. Jarvie, directly and indirectly through Capital, owns 6.4% of
Host common stock and 3% of Host preferred stock.
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UNIVERSAL
As of June 30, 1999, management of Universal knew of no person, other than
those below, who is the beneficial owner of more than 5% of Universal common
stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------------ -------------------- ----------
<S> <C> <C>
Host Communications, Inc.(1) ...................... 720 44%
Hunt Capital Partners, L.P.(2)..................... 425 21%
NBC Sports Ventures Inc............................ 384 23%
Charles L. Jarvie.................................. 149 9%
Robert T. Murphy................................... 280 17%
Douglas L. Jarvie.................................. 107 7%
</TABLE>
- -------------------------
(1) Through its investment in Host, Bull Run indirectly owns 14.3% of
Universal's common stock, in addition to its direct beneficial ownership of
3.8% of Universal's common stock.
(2) James Holland, the president of Hunt Capital Partners, L.P., has sole voting
and dispositive power for the shares owned by Hunt Capital Partners, L.P.
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<PAGE> 103
CERTAIN TRANSACTIONS
During 1998, the Host board, in recognition of the services of W. James
Host and Charles L. Jarvie and their prior decisions to forego salary increases,
voted to accelerate the granting of options for an additional 36,000 shares of
Host common stock to each of Mr. Host and Mr. Jarvie. In addition, the Host
board of directors previously voted to extend the term of employment agreements
Mr. Host and Mr. Jarvie through June 30, 2002 and to provide for a payment of
$200,000 annually in consideration of a consulting and non-compete agreement in
the event Mr. Host or Mr. Jarvie is terminated subsequent to June 30, 2002 for
any reason other than good cause.
Mr. Host, who is Host's chief executive officer and who will be appointed
to the BR Holding board pursuant to the merger agreement, is a partner in a
partnership which leases a building in Lexington, Kentucky to Host at an annual
rental rate of $235,920 plus a percentage of operating expenses. After September
30, 1999 the annual rental rate will be $246,098 plus a percentage of operating
expenses. The term of the current lease expires on September 30, 2003.
Mr. Host, together with E.I. Scrivner, Jr. and Charles Moore as
tenants-in-common, also lease certain property to Host at an annual rental rate
of $254,492.
Mr. Host has executed a promissory note to Host in the face principal
amount of $385,000, which will be repaid in full at the closing of the merger.
Host and Bull Run have entered into an agreement providing that if the
merger agreement is terminated, Bull Run will buy all of the share of Total
Sports, Inc. held by Host for $3,976,000.
COMPARISON OF THE STOCKHOLDERS' RIGHTS,
ARTICLES OF INCORPORATION AND BYLAWS OF
BR HOLDING, CAPITAL, HOST AND UNIVERSAL
GENERAL
If the mergers are completed, stockholders of Capital, Host and Universal
will become stockholders of BR Holding, which will result in their rights as
stockholders being governed by the articles of incorporation and bylaws of BR
Holding. For stockholders of Capital, Host and Universal, this will result in
their rights as stockholders also being governed by the law of Georgia rather
than the law of Delaware, which governs the rights of stockholders of Capital
and Universal or the law of Kentucky, which governs the rights of stockholders
of Host. It is not practical to describe all the differences between Georgia law
and Kentucky or Delaware law and between the articles of incorporation and
bylaws of BR Holding and the certificate of incorporation and bylaws of each of
Capital, Host and Universal.
The following is a summary of certain differences which may affect the
rights of stockholders of Capital, Host and Universal. This summary is qualified
in its entirety by reference to the full text of such documents. For information
as to how such documents may be obtained, see "Where Stockholders Can Find More
Information" on page 121.
AUTHORIZED CAPITAL STOCK
BR HOLDING. The authorized capital stock of BR Holding is 105,000,000
shares, consisting of 100,000,000 shares of common stock, par value $.01 per
share, and 5,000,000
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shares of preferred stock, par value $.01 per share. The BR Holding board has
the authority to issue, at any time or from time to time, without further
stockholder approval, up to 5,000,000 shares of preferred stock and to determine
the powers, rights, privileges and preferences of those shares, which may be
senior to the rights of holders of BR Holding common stock. Such issuance could
adversely affect the holders of BR Holding common stock and could have the
effect of making more difficult the acquisition of control of BR Holding by
means of a hostile tender offer, open market purchases, a proxy contest or
otherwise. Under Georgia law, stockholders have no preemptive rights unless
these rights are provided for in the corporation's articles of incorporation or
in other limited circumstances. Holders of BR Holding common stock do not have
preemptive rights.
CAPITAL. The authorized capital stock of Capital consists of 200 shares of
common stock, par value $.01 per share. Under Delaware law and Capital's
certificate of incorporation, holders of Capital common stock do not have
preemptive rights.
HOST. The authorized capital stock of Host is 1,580,000 shares, consisting
of 1,500,000 shares of common stock, no par value, and 80,000 shares of
preferred stock, no par value. Under Kentucky law, stockholders have no
preemptive rights unless these rights are provided for in the corporation's
articles of incorporation. Holders of Host common stock do not have preemptive
rights.
UNIVERSAL. The authorized capital stock of Universal is 10,600 shares,
consisting of 10,000 shares of common stock, par value $1.00 per share, and 600
shares of preferred stock, par value $1.00 per share. Holders of Universal stock
do not have preemptive rights. However, holders of Universal common stock have
the right to vote on the issuance of additional shares of capital stock. No
additional shares of capital stock may be issued by Universal unless it has the
consent of 75% of all directors and the stockholders holding 75% of all
outstanding shares of common stock and all of the outstanding shares of
convertible preferred stock.
DIRECTORS
BR HOLDING. The bylaws of BR Holding provide that the BR Holding's board
shall consist of between three and seven directors. The BR Holding board of
directors is authorized to fix the number of members of the Board, within the
permitted range, but no decrease in size may shorten the term of any director. A
majority of directors constitutes a quorum for the transaction of business. The
bylaws of BR Holding provide that a vacancy among the directors may be filled
for the unexpired term by the vote of BR Holding's stockholders or by a majority
of the remaining directors in office.
CAPITAL. The bylaws of Capital provide that the number of directors may be
fixed from time to time by the Capital board of directors. A majority of the
total number of directors constitutes a quorum for the transaction of business.
The bylaws of Capital provide that a vacancy among the directors may be filled
by the directors then in office, although less than a quorum, by a majority
vote. Capital's stockholders may fill the vacancy if it is not filled by the
board of directors.
HOST. The bylaws of Host provide that the Host board shall consist of
seven directors. A majority of the total number of directors constitutes a
quorum for the transaction of business. The bylaws of Host provide that a
vacancy among the directors may be filled by the directors then in office,
although less than a quorum, by a majority vote.
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UNIVERSAL. The bylaws of Universal provide that the number of directors
may be fixed from time to time by the Universal board. Two-thirds of the total
number of directors constitutes a quorum for the transaction of business. The
bylaws of Universal provide that a vacancy among the directors may be filled by
a majority vote of the stockholders then entitled to vote on that directorship.
REMOVAL OF DIRECTORS
Under Georgia law, unless the articles of incorporation provide otherwise,
a corporation's stockholders may remove any director, with or without cause, by
the vote of the holders of a majority of the outstanding stock entitled to vote.
Under Delaware law, any director may be removed, with or without cause, by the
holders of a majority of shares entitled to vote for directors. The bylaws of
each of BR Holding, Capital and Universal provide that a director may be removed
by a vote of at least a majority of all outstanding shares entitled to vote at
any meeting thereof.
Under Kentucky law, the stockholders of a corporation may remove any
director, with or without cause unless the articles of incorporation of the
corporation provide that directors may be removed only for cause. A director may
be removed from office only at a meeting called for the purposes of removing him
and the meeting notice must state that the purpose of the meeting is removal of
the director. Host's articles of incorporation provide that a director may be
removed with or without cause by a majority of the outstanding shares entitled
to elect such director.
SPECIAL MEETINGS OF STOCKHOLDERS
BR HOLDING. The bylaws of BR Holding provide that special meetings of
stockholders may be called by the president, the chairman of the board, the
board or the holders of shares of capital stock entitled to cast not less than
25% of the votes at such meeting.
CAPITAL. The bylaws of Capital provide that special meetings of
stockholders for any purpose may be called by the President or by the board of
directors, and special meetings shall be called by the President or the
Secretary whenever stockholders owning a majority of the capital stock issued,
outstanding and entitled to vote so request in writing.
HOST. The bylaws of Host provide that special meetings of stockholders for
any purpose may be called by the Chief Executive Officer, by a majority of the
members of the board of directors or by holders of not less than one-third of
all the shares entitled to vote at the meeting.
UNIVERSAL. The bylaws of Universal provide that special meetings of
stockholders for any purpose may be called by the President and a majority of
the board of directors, and shall be called by the President or the Secretary at
the request in writing of a majority of the stockholders of record entitled to
vote.
AMENDMENT OF BYLAWS
Georgia law grants the power to amend, repeal, or adopt bylaws to the board
and stockholders, unless such power is reserved exclusively to the stockholders
by the articles of incorporation. BR Holding's articles of incorporation do not
reserve such powers to the stockholders. BR Holding's bylaws provide, however,
that the stockholders of Bull Run may provide that any bylaw or bylaws adopted
by them may not be altered, amended, or repealed by the board.
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Capital's certificate of incorporation confers upon the Capital board of
directors the power to amend, repeal or adopt bylaws. Bylaws adopted by the
Capital board of directors may be amended or repealed by the stockholders.
Universal's certificate of incorporation confers upon the Universal board
of directors the power to amend, repeal or adopt bylaws. Bylaws adopted by the
Universal board of directors may be amended or repealed by the stockholders.
Kentucky law grants to stockholders the power to amend or repeal bylaws.
Kentucky law also grants the board of directors the power to amend or repeal the
corporation's bylaws unless the articles of incorporation reserve this power
exclusively to the stockholders, or the stockholders in amending or repealing a
particular bylaw expressly provide that the board may not amend or repeal that
bylaw. Host's articles of incorporation do not reserve the power to amend or
repeal bylaws exclusively to the stockholders. Host's articles of incorporation
and bylaws grant the power to amend or repeal to both the Host board and the
stockholders. Any bylaws made by the Host board may be amended or repealed by a
vote of a majority of the shares of Host.
AMENDMENTS TO THE ARTICLES OF INCORPORATION
Under Georgia law, the board of directors may amend the articles of
incorporation without stockholder approval to delete the names and addresses of
the initial directors, initial registered agent or registered office; change
each issued and unissued authorized share of an outstanding class of stock into
a greater number of whole shares if the corporation has only shares of that
class outstanding; change the corporation's name; extend the corporation's
duration if it was incorporated at a time the law required limited duration; or
change or eliminate the par value of each issued and unissued share of an
outstanding class if the corporation has only shares of that class outstanding.
Other amendments must be approved by the board of directors and by the
stockholders by a majority of the outstanding stock entitled to vote thereon.
Under Delaware law and Kentucky law, amendments to a corporation's
certificate or articles of incorporation must be adopted by the board of
directors and approved by a majority of the stock entitled to vote thereon.
DIVIDENDS, REDEMPTIONS AND REPURCHASES
Georgia law prohibits a Georgia corporation, such as BR Holding, from
making a direct or indirect transfer of money or property, other than shares of
the corporation, whether in the form of a dividend, redemption, other
acquisition of shares, or otherwise if, after giving effect to the distribution,
the corporation would be insolvent.
Delaware law provides that Delaware corporations, such as Capital and
Universal, may declare and pay a dividend either out of its capital surplus or,
if there is no capital surplus, its net profits for the fiscal year in which the
dividend is declared and/or the preceding year. In general, Delaware law
prohibits a Delaware corporation from redeeming its shares if the redemption
would cause any impairment of the corporation's capital.
Kentucky law provides that Kentucky corporations may pay dividends to their
stockholders subject to restrictions contained in their articles of
incorporation. Dividends may not be paid if the corporation would not be able to
pay its debts in the usual course of business or if the corporation's assets
would be less than its liabilities.
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TRANSACTIONS WITH INTERESTED DIRECTORS
Under Georgia law, a transaction effected or proposed to be effected by a
corporation in which a director of the corporation has a conflicting interest
may not be enjoined, set aside or give rise to an award of damages or other
sanctions on the ground of the director's interest in the transaction, if:
- the transaction received the affirmative vote of a majority but not less
than two of the directors on the board or on a duly empowered committee,
following disclosure of such conflicting interest;
- the transaction received the affirmative vote of the holders of a
majority of shares of stock following notice to stockholders describing
the transaction and such conflicting interest; or
- the transaction, judged in the circumstances at the time of commitment,
is established to have been fair to the corporation.
Under Delaware law, a contract or transaction between a corporation and one
or more of its directors or officers, or an entity in which one or more of them
has a financial interest, is not void or voidable, even if the director or
officer is present and participates or votes at the meeting of the board or
committee that approved the contract or transaction, if:
- the material facts of the interest and the contract or transaction are
disclosed to or are known by the board or a committee, and a majority of
the disinterested members of the board or committee, even though less
than a quorum, authorizes the contract or transaction in good faith;
- the material facts of the interest and the contract or transaction are
disclosed to or are known to the stockholders entitled to vote thereon,
and the stockholders specifically approve the contract or transaction in
good faith; or
- the contract or transaction is fair to the corporation at the time it is
authorized, approved or ratified. There is no provision under Delaware
law, however, that absolutely precludes a claim by the corporation or its
stockholders against the interested director or officer for damages, if
any, even if the contract or transaction has been so authorized or
approved.
Under Kentucky law, a transaction with a corporation in which a director
has a direct or indirect interest is not voidable solely because of the
director's interest in the transaction if any one of the following are true:
- the material facts of the transaction and the director's interest were
disclosed to the board and the transaction was approved;
- the material facts of the transaction and the director's interest were
disclosed to the stockholders entitled to vote and the transaction was
approved; and
- the transaction was fair to the corporation. There is no provision under
Kentucky law, however, that absolutely precludes a claim by the
corporation or its stockholders against the interested director or
officer for damages, if any, even if the contract or transaction has been
so authorized or approved.
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INDEMNIFICATION
Georgia law, Delaware law and Kentucky law contain provisions setting forth
conditions under which a corporation may indemnify directors, officers and
others who act on behalf of the corporation. If such persons are successful in
defending a claim for which indemnification is permitted, Georgia, Delaware and
Kentucky require the corporation to provide indemnification of expenses incurred
in such defense. Georgia, Delaware and Kentucky law also permit a corporation to
advance expenses to such indemnified persons and to purchase insurance on behalf
of any such person against any liability asserted against and incurred by him or
her in such capacity, regardless of whether the corporation would be permitted
to indemnify against such liability. Georgia law requires the corporation to
provide notice to its stockholders before or with the notice of the next
stockholders' meeting, if indemnification has been paid in connection with any
proceeding by or in the right of the corporation.
The articles of incorporation and bylaws of BR Holding include provisions
that make indemnification mandatory to the fullest extent permitted by Georgia
law, even if the indemnified person is not successful in defending a claim for
which indemnification would be permitted by Georgia law.
Capital's and Universal's certificate of incorporation provide that Capital
and Universal will indemnify, to the fullest extent permitted by Delaware law,
any and all persons whom it shall have power to indemnify under Delaware law.
Host's articles of incorporation provide that Host may indemnify, to the
fullest extent permitted by Kentucky law, directors, officers, employees or
agents.
APPRAISAL RIGHTS
Georgia law provides that dissenting stockholders who follow prescribed
statutory procedures are entitled to appraisal rights in connection with any
plan of merger, any sale, lease, or exchange of all or substantially all the
assets for which stockholder approval is required; and select amendments to a
corporation's articles of incorporation. These rights are not available in cases
where the stockholders hold or will hold after a merger shares that are listed
on a national securities exchange or are held of record by more than 2,000
stockholders unless:
- the articles of incorporation or a resolution of the board of directors
approving the transaction provides otherwise; or
- in a plan of merger or share exchange, the holders of such shares are
required to accept anything other than shares of the surviving
corporation or another publicly held corporation listed on a national
securities exchange or held of record by more than 2,000 stockholders,
except for cash in lieu of fractional shares.
Under Delaware law, no appraisal rights are granted to stockholders who
dissent from a sale, lease or exchange of all or substantially all of the assets
of a corporation. Delaware law further provides that generally no appraisal
rights are granted to stockholders who dissent from a merger or consolidation
for which a stockholder vote is required if the shares of the class of stock
voting are listed on a national securities exchange or the Nasdaq National
Market System or are held of record by more than 2,000 stockholders. However,
stockholders who follow prescribed statutory procedures and who have not voted
in favor of the applicable transaction nor consented thereto in writing will
have appraisal
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rights if they are required in connection with the merger or consolidation to
accept for their stock anything other than:
- stock of the corporation surviving or resulting from the merger or
consolidation;
- stock of any other corporation listed on a national securities exchange
or the Nasdaq National Market System or held of record by more than 2,000
stockholders;
- cash in lieu of fractional shares; or
- any combination of the foregoing.
Under the Universal voting agreement, the stockholders of Universal have
waived their appraisal rights. The stockholders of Capital are entitled to
appraisal rights in this transaction.
Under Kentucky law (which governs Host), stockholders who follow prescribed
statutory procedures and who have not voted in favor of the applicable
transaction or consented thereto in writing will have appraisal rights in
connection with a merger or consolidation. Generally, dissenters' rights are a
stockholder's sole remedy for objecting to a merger or consolidation under
Kentucky law.
Under the Host voting agreement, the stockholders of Host who are parties
thereto have waived their appraisal rights. The other stockholders of Host are
entitled to appraisal rights in this transaction.
PROPOSAL 3:
AMENDMENT OF BULL RUN 1994 LONG-TERM INCENTIVE PLAN
At the meeting, the Bull Run stockholders will be asked to approve the
adoption of an amendment to the 1994 Long-Term Incentive Plan to provide that
the aggregate number of shares of Bull Run common stock subject to awards under
the 1994 Long-Term Incentive Plan be increased from 3,500,000 to 7,200,000. This
amendment will enable BR Holding to assume the currently outstanding Host and
Universal stock options if the mergers are completed and to assume the currently
outstanding Bull Run stock options if the holding company reorganization is
completed. This amendment will also enable BR Holding to grant options and other
incentives in the future to attract and retain key personnel. The board approved
the amendment to the 1994 Plan, subject to stockholder approval.
The following description of the 1994 Plan is a summary of the principal
provisions of the 1994 Plan. If the proposal to create a holding company
structure is approved, all references in the 1994 Plan to Bull Run common stock
will be deemed to refer to BR Holding common stock. To obtain a copy of the
Amended and Restated 1994 Plan, see "Where Stockholders Can Find More
Information" on page 121.
TYPES OF AWARDS. The Bull Run 1994 Long-Term Incentive Plan provides for
the granting of options, restricted stock awards and stock appreciation rights
("SARs") (collectively, the "Plan Awards") to directors, employees, consultants
and advisors of Bull Run and its subsidiaries to purchase shares of Bull Run
common stock.
PURPOSE. The 1994 Plan is designed to provide a means of giving existing
and potential employees, consultants and advisors an increased opportunity to
acquire a proprietary interest in Bull Run, thereby maintaining and
strengthening their desire to remain with or join Bull Run.
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ADMINISTRATION. The 1994 Plan is administered by the Compensation
Committee which consists of two or more persons appointed by Bull Run's board of
directors. Subject to any general guidelines established by the Bull Run board,
the Compensation Committee has full and final authority to determine the persons
to whom, and the time or times at which, Plan Awards are granted, the number of
shares subject to each Plan Award, the number of options which will be treated
as incentive stock options, the duration of each option, the specific
restrictions applicable to restricted stock awards and other Plan Awards, and
other terms and provisions of each Plan Award, provided that, in general,
options to purchase no more than 750,000 shares may be granted to an individual
in any year. The Compensation Committee also has the authority to accelerate the
vesting of a stock option or restricted stock award. In determining persons who
are to receive options, restricted stock awards or SARs and the number of shares
to be covered by each option and restricted stock award, the list of factors the
Compensation Committee considers, includes but is not limited to, among other
things, the person's position, responsibilities, service, accomplishments and
such person's present and future value to Bull Run.
STOCK OPTIONS. The term of options granted under the 1994 Plan is fixed by
the Compensation Committee. However, such term may not exceed 10 years from the
date of grant or five years from the date of grant in the case of incentive
stock options granted to any 100% or greater stockholder. The purchase price per
share of Bull Run common stock purchasable under any option is such price as is
fixed by the Compensation Committee; provided, however, that the purchase price
of shares of Bull Run common stock issued to participants, other than 10%
stockholders upon the exercise of incentive stock options, may not be less than
the fair market value of such shares, and in the case of a 10% stockholder may
not be less than 110% of such fair market value. The Compensation Committee may
provide that options will be exercisable in full at any time or from time to
time during the option term or provide for the exercise thereof in such
installments at such times as the Compensation Committee determines, subject to
the "Change in Control" provisions of the 1994 Plan. Options may be exercised by
payment in full of the purchase price, either in cash or, in whole or in part,
in Bull Run common stock having a fair market value on the date the option is
exercised equal to the option price. The Compensation Committee has the
authority to include within any option agreement a provision entitling the
optionee to a further option (a "Reload Option") if the optionee exercises the
option evidenced by the option agreement, in whole or in part, by surrendering
other shares of Bull Run common stock. Any such Reload Option will be for a
number of shares of Bull Run common stock equal to the number of surrendered
shares, will be exercisable at a price equal to the market value of the Bull Run
common stock on the date of exercise of such original option, will become
exercisable if the shares purchased by the optionee pursuant to the option
agreement are held for a minimum period of time established by the Compensation
Committee, and will be subject to such other terms and conditions as the
Compensation Committee may determine.
STOCK APPRECIATION RIGHTS. Upon the exercise of an SAR, the holder thereof
will be entitled to receive the excess of the fair market value as of the
exercise date of a specified number of shares over the exercise price of the
SAR. The exercise price of the SAR may not be less than the fair market value of
the shares on the date of grant. Such exercise price and other terms of the SAR
will be determined by the Compensation Committee. Payment by Bull Run upon
exercise of an SAR may be in cash, stock or other property, or any combination
thereof, as the Compensation Committee determines. Unless otherwise determined
by the Compensation Committee, any related stock option will no longer be
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exercisable to the extent that an SAR has been exercised, and the exercise or
termination of an option will cancel the related SAR.
RESTRICTED STOCK. Restricted stock awards may not be disposed of by the
recipient until the specified restrictions established by the Compensation
Committee lapse. In general, recipients will not be required to provide cash
consideration other than any minimum amount required by law. Recipients will
have all of the rights of a stockholder of Bull Run with respect to restricted
stock awards including the right to vote the shares and the right to receive any
cash dividends, unless the Compensation Committee determines otherwise. Upon
termination of employment during the restriction period, the restricted stock
award will be forfeited, in whole or in part, subject to such exceptions, if
any, as may be authorized by the Compensation Committee.
ADJUSTMENTS AND AMENDMENTS OF THE 1994 PLAN. Adjustments in the 1994 Plan
and in outstanding options will be made to reflect stock dividends,
recapitalizations and similar events. The board of directors has the right to
amend, suspend or terminate the 1994 Plan at any time; provided, however, that
unless first duly approved by the holders of Bull Run common stock entitled to
vote thereon, no amendment or change may be made in the 1994 Plan:
- increasing the total number of shares that may be issued under the 1994
Plan;
- changing the eligibility requirements; or
- extending the period during which Plan Awards may be granted or exercised
under the 1994 Plan.
The 1994 Plan is not subject to any of the requirements of the Employee
Retirement Income Security Act of 1974, as amended. The 1994 Plan is not, nor is
it intended to be, qualified under Section 401(a) of the Internal Revenue Code
of 1986, as amended.
EFFECTIVE DATE AND TERM OF THE 1994 PLAN. The 1994 Plan became effective
on August 30, 1994. No awards will be granted under the 1994 Plan after August
29, 2004, but unless otherwise expressly provided in the 1994 Plan or an award
agreement, a Plan Award may extend beyond such date.
CHANGE IN CONTROL. The 1994 Plan provides that an option or restricted
stock award will automatically be vested and immediately exercisable in full and
any restrictions contained in any restricted stock award will automatically
terminate upon the occurrence of any of the following events unless the Bull Run
board has resolved that options or restricted stock awards shall not
automatically vest and restrictions in restricted stock awards shall not
automatically terminate:
- any person becomes the beneficial owner of 30 percent or more of the
combined voting power of Bull Run's then outstanding voting securities,
unless such ownership by such person has been approved by the Bull Run
board;
- the first day on which shares of Bull Run common stock are purchased
pursuant to a tender offer or exchange offer, unless such offer is made
by Bull Run or unless such offer has been approved or not opposed by the
Bull Run board; or
- the stockholders of Bull Run have approved an agreement to merge or
consolidate with or into another corporation whereby Bull Run is not the
surviving corporation or an agreement to sell or otherwise dispose of all
or substantially all of Bull Run's assets, including a plan of
liquidation.
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NON-ASSIGNABILITY OF PLAN AWARDS. No Plan Award may be assigned or
transferred by the recipient, except by will or by the laws of descent and
distribution, provided that such restriction on the transfer or assignment of a
restricted stock award will expire upon the date of expiration of the related
restriction period. During the lifetime of a recipient, Plan Awards may be
exercised only by him or his personal representative or guardian. No Plan Award
or interest therein may be pledged, attached or otherwise encumbered other than
in favor of Bull Run.
FEDERAL INCOME TAX CONSEQUENCES. The rules concerning the Federal income
tax consequences with respect to stock options, SARS and restricted stock awards
granted pursuant to the 1994 Plan are quite technical. Moreover, the applicable
statutory provisions are subject to change, as are their interpretations and
applications which may vary in individual circumstances. Therefore, the
following discussion is designed to provide a general understanding of these tax
consequence thereof as of the date of this proxy statement. In addition to the
tax consequences described below, officers and directors of Bull Run subject to
Section 16(b) of the Securities Exchange Act of 1934, may be subject to special
rules regarding the income tax consequences concerning their incentive stock
options; nonqualified stock options and restricted shares. In addition, any
entitlement to a tax deduction on the part of Bull Run is subject to the
applicable Federal tax rules, including, those relating to the $1 million
limitation on deductible compensation.
INCENTIVE STOCK OPTIONS. Options granted or to be granted under the 1994
Plan will be incentive stock options as defined in the Internal Revenue Code,
provided that such options satisfy the requirements under the Internal Revenue
Code applicable to incentive stock options. In general, neither the grant nor
the exercise of an incentive stock option will result in taxable income to the
optionee or a deduction to Bull Run. The sale of Bull Run common stock received
upon the exercise of an option which satisfies all the requirements of an
incentive stock option, as well as the holding period requirement described
below, will result in a long-term capital gain or loss to the optionee equal to
the difference between the amount realized on the sale and the option price and
will not result in a tax deduction to Bull Run. The exercise of an incentive
stock option may have implications in the computation of the optionee's
alternative minimum tax. To receive capital gain or loss treatment upon the
disposition of Bull Run common stock acquired through exercise of an incentive
stock option, the optionee must not dispose of the Bull Run common stock
purchased pursuant to the exercise of an incentive stock option within two years
after the option is granted and must hold such Bull Run common stock for at
least one year after the transfer of such Bull Run common stock to the optionee.
If all requirements for incentive stock option treatment other than the
holding period rules are satisfied, the recognition of income by the optionee is
deferred until disposition of the Bull Run common stock, but, in general, any
gain in an amount equal to the lesser of (i) the fair market value of the Bull
Run common stock on the date of exercise minus the option price or (ii) the
amount realized on the disposition minus the option price is treated as ordinary
income. Any remaining gain is treated as long-term or short-term capital gain
depending on the optionee's holding period for the stock that has been sold.
Bull Run will generally be entitled to a deduction at that time equal to the
amount of ordinary income realized by the optionee.
The 1994 Plan provides that an optionee may pay for Bull Run common stock
received upon the exercise of any option with other shares of Bull Run common
stock. In general, an optionee's transfer of stock acquired pursuant to the
exercise of an incentive stock option to acquire other stock in connection with
the exercise of an incentive stock
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option may result in ordinary income if the transferred stock has not met the
minimum statutory holding period necessary for favorable tax treatment as an
incentive stock option. For example, if an optionee exercises an incentive stock
option and uses the stock so acquired to exercise another incentive stock option
within the two-year or one-year holding periods discussed above, the optionee
may realize ordinary income under the rules summarized above.
NONQUALIFIED STOCK OPTIONS. An optionee will realize no taxable income
upon the grant of a non-qualified stock option and Bull Run will not receive a
deduction at the time of such grant unless the option has a readily
ascertainable fair market value as determined under applicable tax law at the
time of grant. Upon exercise of a non-qualified stock option, the optionee
generally will realize ordinary income in an amount equal to the excess of the
fair market value of the Bull Run common stock on the date of exercise over the
exercise price. Upon a subsequent sale of the Bull Run common stock by the
optionee, the optionee will recognize short-term or long-term capital gain or
loss depending upon his or her holding period for the Bull Run common stock.
Bull Run will generally be allowed a deduction equal to the amount recognized by
the optionee as ordinary income.
SARS. Generally, no Federal income tax consequences are incurred by Bull
Run or the holder at the time an SAR is granted pursuant to the 1994 Plan.
However, upon the exercise of an SAR, the holder will generally realize ordinary
income for Federal income tax purposes equal to the amount of cash or the value
of property received by him or her. Bull Run generally will be entitled at such
time to a deduction for Federal income tax purposes in the same amount realized
as ordinary income. If a holder of an SAR receives Bull Run common stock upon
the exercise of such right and subsequently disposes of such Bull Run common
stock, any gain or loss realized upon the sale will be either long-term or
short-term capital gain or loss, depending on the holder's holding period for
the Bull Run common stock that has been sold.
RESTRICTED STOCK AWARDS. The Federal income tax consequences of a
restricted stock award granted under the 1994 Plan will depend, in large
measure, on the restrictions placed on the stock.
In general, if the stock is "not transferable" and subject to a
"substantial risk of forfeiture," as described above, then, unless the recipient
makes an 83(b) election, he or she will recognize ordinary income equal to the
fair market value of the stock in the year the stock is either transferable or
not subject to a substantial risk of forfeiture over the price, if any, paid for
the stock. If the recipient makes an 83(b) election, he or she will recognize
ordinary income equal to the fair market value of the stock at the time of the
award over the price, if any, paid for the stock. Any gain or loss on a
subsequent sale of the stock will be his or her long- or short-term capital gain
or loss depending on the recipient's holding period for the stock disposed. Bull
Run will generally be entitled to a deduction equal to the amount of ordinary
income recognized by the recipient.
VOTE REQUIRED AND BOARD RECOMMENDATION
Approval of the amendment to the 1994 Plan requires the affirmative vote of
the majority of the shares of Bull Run present in person or represented by proxy
at the Bull Run meeting and entitled to vote on the proposal, provided that the
total vote cast on such proposal represents over 50% in interest of all shares
entitled to vote on the proposal. The approval of the amendment is required in
order to effectuate the holding company reorganization and the acquisition by
Bull Run of Capital, Host and Universal. For this reason and because the board
believes that options are a key element of Bull Run's
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compensation policy, the board approved and declared advisable the amendment to
the 1994 Plan, believes that such amendment is in its stockholders' best
interest and recommends that stockholders of Bull Run vote their shares "for"
approval of the amendment to the 1994 Plan.
PROPOSAL 4:
ELECTION OF DIRECTORS
NOMINEES
At the Bull Run meeting, five directors are to be elected to hold office
(subject to Bull Run's bylaws) until the next annual meeting of stockholders and
until their successors have been elected and qualified. In case any nominee
listed in the table below should be unavailable for any reason, which management
has no reason to anticipate, the proxy will be voted for any substitute nominee
or nominees who may be selected by management prior to or at the meeting or, if
no substitute is selected by management prior to or at the meeting, for a motion
to reduce the membership of the board to the number of nominees available. If
the holding company reorganization and the mergers are completed the nominees
listed in the table below will thereupon become the directors of BR Holding and
will hold office until the next annual meeting of stockholders and until their
successors have been elected and qualified.
Set forth below is information concerning each of the nominees.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AMOUNT AND NATURE OF
DURING THE PAST-FIVE- BENEFICIAL OWNERSHIP
YEARS, ANY OFFICE HELD YEAR FIRST OF BULL RUN COMMON
WITH BULL RUN, AND OTHER ELECTED A STOCK AS OF PERCENTAGE
NAME AGE DIRECTORSHIPS DIRECTOR JUNE 30, 1999 OF-CLASS
- ---- --- ------------------------ ---------- -------------------- ----------
<S> <C> <C> <C> <C> <C>
J. Mack Robinson........ 76 Chairman of the Board 1992 6,891,706(1)(2)(3) 30.6%
since 1994 and Secretary
and Treasurer of Bull
Run in 1994; Chairman of
the Board and President
of Delta Life Insurance
Company since 1958;
President of Atlantic
American Corporation,
(an insurance holding
company) from 1988 to
1995, and Chairman of
the Board of Atlantic
American Corporation
since 1974; director of
Gray Communications
Systems, Inc., (a media
corporation); President
and Chief Executive
Officer of Gray
Communications Systems,
Inc. since 1996;
director emeritus of
Wachovia Corporation
</TABLE>
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<PAGE> 115
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AMOUNT AND NATURE OF
DURING THE PAST-FIVE- BENEFICIAL OWNERSHIP
YEARS, ANY OFFICE HELD YEAR FIRST OF BULL RUN COMMON
WITH BULL RUN, AND OTHER ELECTED A STOCK AS OF PERCENTAGE
NAME AGE DIRECTORSHIPS DIRECTOR JUNE 30, 1999 OF-CLASS
- ---- --- ------------------------ ---------- -------------------- ----------
<S> <C> <C> <C> <C> <C>
Gerald N. Agranoff...... 52 General counsel to and a 1990 90,000(1) less than
general 1990 partner of 1.0%
Plaza Securities Company
and Edelman Securities
Company, L.P.
(investment firms),
having been affiliated
with such companies
since 1982; Vice
President, General
Counsel and a director
of Datapoint Corporation
(a hardware and software
sales and services
company); director of
Canal Capital
Corporation, Atlantic
Gulf Communities
Corporation and American
Energy Group, Ltd.
James W. Busby.......... 45 Retired; President of 1994 2,295,906(1)(4) 10.2%
Datasouth Computer
Corporation, a
subsidiary of Bull Run,
from 1984 to 1997; one
of the founders of
Datasouth in 1977,
serving as Secretary
from 1977 until 1984
Hilton H. Howell, Jr.... 38 Vice President and 1994 1,916,050(1)(5) 8.5%
Secretary of Bull Run
since 1994; President
and Chief Executive
Officer of Atlantic
American Corporation (an
insurance holding
company) since 1995 and
Executive Vice President
from 1992 to 1995;
Executive Vice President
and General Counsel of
Delta Life Insurance
Company and Delta Fire &
Casualty Insurance Co.
since 1991; director of
Gray Communications
Systems, Inc.
</TABLE>
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<PAGE> 116
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AMOUNT AND NATURE OF
DURING THE PAST-FIVE- BENEFICIAL OWNERSHIP
YEARS, ANY OFFICE HELD YEAR FIRST OF BULL RUN COMMON
WITH BULL RUN, AND OTHER ELECTED A STOCK AS OF PERCENTAGE
NAME AGE DIRECTORSHIPS DIRECTOR JUNE 30, 1999 OF-CLASS
- ---- --- ------------------------ ---------- -------------------- ----------
<S> <C> <C> <C> <C> <C>
Robert S. Prather, 54 President and Chief 1992 3,010,598(1)(2) 13.3%
Jr.................... Executive Officer of
Bull Run since 1992;
director of Gray
Communications Systems,
Inc. since 1993 and
Executive Vice President
since 1996; director of
The Morgan Group, Inc.;
director of Rawlings
Sporting Goods Company,
Inc.
</TABLE>
- -------------------------
(1) Includes shares subject to currently exercisable options, as follows: Mr.
Agranoff -- 90,000 shares; Mr. Prather -- 250,000 shares; Mr.
Robinson -- 50,000 shares; Mr. Busby -- 5,000 shares; and Mr.
Howell -- 125,000 shares.
(2) Includes 2,660,598 shares owned by Robinson-Prather Partnership, the general
partners of which are Robert S. Prather, Jr., J. Mack Robinson, Harriett J.
Robinson (the wife of Mr. Robinson), Harriett J. Robinson, as trustee for
the Robin M. Robinson Trust, Harriett J. Robinson, as trustee for the Jill
E. Robinson Trust; and Gulf Capital Services, Ltd. The partnership agreement
for Robinson-Prather Partnership provides that Messrs. Prather and Robinson
have the exclusive control of the day-to-day operations of the partnership,
including the power to vote or dispose of the shares owned by
Robinson-Prather Partnership. Each of Messrs. Robinson and Prather disclaims
beneficial ownership of the shares owned by Robinson-Prather Partnership,
except to the extent of his pecuniary interest in such shares, which is less
than the amount disclosed.
(3) Includes: 1,146,358 shares owned directly by Mr. Robinson; 310,500 shares
owned directly by Harriett J. Robinson, Mr. Robinson's wife; 425,000 shares
owned directly by the Robin M. Robinson Trust and 507,500 shares owned
directly by the Jill E. Robinson Trust, of each of which Mrs. Robinson is
the trustee; and an aggregate of 1,791,050 shares owned by Delta Fire &
Casualty Insurance Co., Insurance Company, Delta Life Bankers Fidelity Life
Insurance Co. and Georgia Casualty and Surety Co., of each of which Mr.
Robinson is chairman of the board, president and/or principal stockholder
(or the subsidiaries of the same). Each of Mr. and Mrs. Robinson disclaims
beneficial ownership of the shares owned by the Robin M. Robinson Trust, the
Jill E. Robinson Trust, Delta Fire & Casualty Insurance Co., Delta Life
Insurance Company, Bankers Fidelity Life Insurance Co., Georgia Casualty &
Surety Co. and each other.
(4) Includes an aggregate of 62,044 shares owned by Mr. Busby's two children.
(5) Represents an aggregate of 1,791,050 shares owned by Delta Fire & Casualty
Insurance Co., Delta Life Insurance Co., Bankers Fidelity Life Insurance
Co., and Georgia Casualty & Surety Co., of each of which Mr. Howell is
Executive Vice President. Mr. Howell is married to Robin R. Howell, Mr.
Robinson's daughter and a beneficiary of the Robin M. Robinson Trust, which
is a general partner of Robinson-Prather Partnership. Mr. Howell disclaims
beneficial ownership of the shares of
110
<PAGE> 117
Common Stock owned by Delta Fire & Casualty Insurance Co., Delta Life Insurance
Company, Bankers Fidelity Life Insurance Co., Georgia Casualty & Surety Co.,
Robinson-Prather Partnership, and the Robin M. Robinson Trust.
Except as noted in the footnotes above, (i) none of such shares is known by
Bull Run to be shares with respect to which such beneficial owner has the right
to acquire such shares and (ii) Bull Run believes that the beneficial holders
listed above have sole voting and investment power regarding the shares shown as
being beneficially owned by them.
As of June 30, 1999, all directors and executive officers of Bull Run as a
group (six persons) owned 9,832,752 shares of Bull Run common stock,
representing 42.7% of the outstanding shares (including 592,000 shares
purchasable on or within 60 days from such date pursuant to the exercise of
stock options).
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires Bull Run's
directors and executive officers, and persons who own more than 10 percent of
the Bull Run common stock, to file with the Securities and Exchange Commission
initial reports of ownership (Form 3) and reports of changes in ownership (Forms
4 and 5) of Common Stock. To Bull Run knowledge, based solely on review of the
copies of such reports furnished to Bull Run and representations that no other
reports were required, during the year ended December 31, 1998 all Section 16(a)
filing requirements applicable to Bull Run's officers, directors and greater
than 10 percent beneficial owners were met.
ADDITIONAL APPOINTEES TO THE BOARD OF DIRECTORS OF BULL RUN
The merger agreement with Capital, Host and USA provides that, upon the
completion of the mergers, Charles L. Jarvie, the president and chief operating
officer of Host, and W. James Host, the chief executive officer of Host, will be
appointed to the BR Holding board. Set forth below is certain information
concerning each of such persons.
W. JAMES HOST, age 61. Mr. Host has been the Chief Executive Officer and a
director of Host since founding the company in 1972, and has been a director of
Universal since 1995.
CHARLES L. JARVIE, age 61. Mr. Jarvie has served as Chairman of the Board
of Universal since 1995, previously serving as Chief Executive Officer from 1995
to 1997, and has been President and Chief Operating Officer and a director of
Host since 1992. Mr. Jarvie is the father of Douglas L. Jarvie.
STOCKHOLDERS' AGREEMENT
Charles L. Jarvie, Douglas L. Jarvie, W. James Host, principal stockholders
of Host, the Robinson-Prather Partnership, a principal stockholder of Bull Run,
and Hilton H. Howell Jr., a director of Bull Run, have entered into a
stockholders agreement under which they have agreed, for a period of seven
years, to vote all of their shares of BR Holding in favor of the election or
re-election of Robert S. Prather, Jr., J. Mack Robinson, Hilton H. Howell, Jr.,
Charles L. Jarvie, W. James Host and any designee of the Robinson-Prather
Partnership to the board of directors of BR Holding. If any of Messrs. Prather,
Robinson, Howell, C. Jarvie, D. Jarvie or Host ceases beneficially to own BR
Holding capital stock representing 50% or more of the total voting power of
capital stock of the BR Holding capital stock that was beneficially owned by him
immediately after giving effect to the mergers, he will cease to be entitled to
be elected a director, and
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<PAGE> 118
will no longer have any rights, under the stockholders' agreement. In addition,
the stockholders agreement provides that, during its term, Messrs C. Jarvie, D.
Jarvie and Host will vote all of their shares of BR Holding in a manner
designated by the Robinson-Prather Partnership.
BOARD COMMITTEES AND MEMBERSHIP
The Bull Run board has an Audit Committee, the purpose of which is to
review and evaluate the results and scope of the audit and other services
provided by Bull Run's independent auditors, as well as Bull Run's accounting
principles and system of internal accounting controls, and to review and approve
any transactions between Bull Run and its directors, officers or significant
stockholders. The Audit Committee held one meeting during 1998. The members of
the Audit Committee are Messrs. Agranoff, Busby and Howell.
The Bull Run board has a Management Compensation and Stock Option
Committee, the purpose of which is to set the compensation of Bull Run's
President and Chief Executive Officer and other executive officers and to review
executive job performance, as well as the overall management compensation
program. The Compensation and Stock Option Committee held one meeting in 1998,
and its members are Messrs. Agranoff, Busby and Robinson.
Bull Run does not have a nominating committee. The Bull Run board held
three meetings during 1997. During 1997, each of the directors standing for
election attended at least 75% of the aggregate number of meetings of the board
and meetings of all committees of the board on which such directors served.
COMPENSATION
The following table contains information about the compensation earned by
Bull Run's President and Chief Executive Officer and the other executive
officers of Bull Run who earned more than $100,000 for the year ended December
31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
----------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS SARS(#) COMPENSATION
- --------------------------- ---- -------- -------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Prather, Jr., 1998 $339,580 $125,000 -- -- $9,600(1)
President and Chief 1997 $332,018 $100,000 -- 300,000 shares $9,500(1)
Executive Officer of Bull 1996 $299,240 $125,000 -- -- $9,000(1)
Run
Frederick J. Erickson, 1998 $122,962 $ 22,450 -- -- $9,600(1)
Vice President -- Finance 1997 $112,831 $ 12,626 -- -- $7,854(1)
of Bull Run and Executive 1996 $100,005 $ 30,063 -- -- $7,385(1)
Vice President of
Datasouth
</TABLE>
- -------------------------
(1) Consists of employer contributions to the defined contribution retirement
plan.
Robert S. Prather, Jr. a director who is also an employee of Bull Run,
receives no fees for his services as a director. Directors who are not employees
of Bull Run or its subsidiaries were paid a fee of $2,250 per quarter in 1998
for their services as directors and
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<PAGE> 119
are reimbursed for their expenses for each meeting attended. Directors who are
not employees of Bull Run or its subsidiaries are eligible to receive stock
options under Bull Run's Non-Employee Directors' 1994 Stock Option Plan. In
1998, each of Mr. Gerald N. Agranoff and Mr. James W. Busby, directors of Bull
Run, was granted an option to purchase up to 5,000 shares of Common Stock at an
exercise price of $4.38 per share (the market value of Bull Run common stock on
the date of grant) under the 1994 Non-Employee Directors' Plan. In 1997, each of
Mr. Alex C. Ritchie (a former director who resigned June 30, 1997) and Mr.
Agranoff was granted an option to purchase up to 5,000 shares of Bull Run common
stock at an exercise price of $2.38 per share (the market value of Bull Run
common stock on the date of grant) under the 1994 Non-Employee Directors' Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
J. Mack Robinson, Gerald N. Agranoff and James W. Busby are the members of
Bull Run's Compensation and Stock Option Committee. Mr. Robinson, Chairman of
the Company, is also President and Chief Executive Officer of Gray
Communications Systems, Inc., Bull Run's 16.9%-owned affiliate, and serves on
the Compensation Committee of Gray. Robert S. Prather, Jr., President, Chief
Executive Officer and a director of Bull Run, is also Executive Vice President
and a director of Gray. Hilton H. Howell, Jr., Vice President, Secretary and a
director of Bull Run, is also a director of Gray. Mr. Busby was President of
Datasouth Computer Corporation, Bull Run's wholly owned subsidiary, from 1984
until his retirement in 1997.
Bull Run provides consulting services to Gray from time to time in
connection with Gray's acquisitions, dispositions and acquisition financing.
During 1998, Bull Run charged Gray fees totaling $1,980,000 for such services.
EMPLOYMENT AGREEMENTS
Robert S. Prather, Jr. is a party to an employment agreement with Bull Run
expiring in December 1999. Mr. Prather's agreement provides that he will serve
as President and Chief Executive Officer of Bull Run at an annual salary of
$325,000, subject to increase at the discretion of the Bull Run board of
directors.
Datasouth, Bull Run's wholly-owned subsidiary, has entered into an
agreement dated March 31, 1997 with Frederick J. Erickson, Datasouth's Executive
Vice President -- Finance & Administration, Chief Financial Officer, Treasurer,
and Secretary. The agreement is for a term of three years and obligates
Datasouth to pay Mr. Erickson 100% of his annual base salary for a 12-month
period in the event employment is terminated within 12 months of a "Change of
Control" of Datasouth, as defined in the agreement. Furthermore, the agreement
obligates Datasouth to continue to provide medical and dental benefits and life
insurance coverage to Mr. Erickson for a period of one year following
termination.
STOCK OPTIONS
There were no grants of options by Bull Run to the named executive officers
set forth in the table above during the year ended December 31, 1998.
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<PAGE> 120
The following table sets forth information concerning outstanding and
unexercised options held by the named executive officers set forth in the table
above as of December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISABLE
CLOSING UNEXERCISABLE IN-THE-
EXERCISABLE UNEXERCISABLE EXERCISE PRICE@ IN-THE-MONEY MONEY
NAME OPTIONS OPTIONS PRICE 12/31/98 OPTIONS OPTIONS
- ---- ----------- ------------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Prather,
Jr. ............... 75,000 $0.75 $3.38 $ -- $196,875
75,000 $1.48 $3.38 -- 142,266
200,000 100,000 $2.68 $3.38 69,375 138,750
------- ------- ------- --------
350,000 100,000 $69,375 $477,891
Frederick J.
Erickson........... 72,000 $0.88 $3.38 $ -- $180,000
</TABLE>
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
Bull Run's executive compensation program is administered by the Management
Compensation and Stock Option Committee of the board of directors, a committee
currently composed of Gerald N. Agranoff, James W. Busby and J. Mack Robinson,
all of whom are non-employee directors. The Compensation Committee makes
recommendations to the board of directors concerning the overall philosophy of
Bull Run's executive compensation program, which consists of base salaries,
annual incentives and long-term incentives, and makes determinations with
respect to the grant of incentive awards, stock options and restricted stock
awards to the executive officers and employees of Bull Run and its subsidiaries.
EXECUTIVE COMPENSATION PHILOSOPHY. Bull Run's executive compensation
program is designed to attract, retain and motivate qualified executive
personnel by recognizing and rewarding their accomplishments in support of Bull
Run and its subsidiaries' businesses. The Compensation Committee's approach to
structuring the total compensation package emphasizes base salary and annual
incentive opportunities, along with significant long-term incentive
opportunities that strongly link executive rewards to long-term stockholder
value creation. Bull Run does not provide any significant executive perquisites
as part of this total compensation package.
COMPETITIVE MARKET REVIEWS. Each year the Compensation Committee reviews
Bull Run's executive compensation philosophy and the effectiveness and
competitiveness of key executive compensation programs. The Compensation
Committee determines what changes, if any, are appropriate in the compensation
programs for the following year. In conducting this annual review, the
Compensation Committee may use salary surveys, reports and other data prepared
by independent compensation consultants, although it did not do so in 1998.
COMPONENTS OF THE EXECUTIVE COMPENSATION PROGRAM. The Compensation
Committee's policy for determining an executive's base salary, annual incentive
award and long-term incentive compensation is based on the responsibility of
such executive, his impact on the operations and profitability of Bull Run or of
the business unit for which such executive has operating responsibility and the
knowledge and experience of such
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<PAGE> 121
executive. The following describes the various factors affecting the
Compensation Committee's decisions relating to each component of Bull Run's
executive compensation package:
Base Salary. Base salary is intended to provide compensation equal to
the average compensation levels at comparable companies for equivalent
positions. Although the Compensation comparable, as well believes that its
compensation structure is similar to that of other comparable companies, it
did not specifically compare such structure with that of other companies in
1998.
Annual Incentive Awards. Each executive officer is eligible to
receive an annual cash incentive award. The amount of the award, like the
base salary level, is set with reference to competitive conditions, as will
as to the individual's responsibility, knowledge, and experience, and his
contribution to Bull Run or to the business unit for which the individual
is responsible. Since these determinations are subjective in nature, the
Compensation Committee does not assign relative weights to the matters
considered. In 1998, the annual incentive award for Messrs. Prather
(President and Chief Executive Officer) and Erickson (Vice
President -- Finance) represented 36% and 17%, respectively, of their base
salaries. In settling the amount of these incentive awards, the Corporation
Committee considered a number of improvements in the Company's operations
and results in 1998 as compared to 1997, including the 38% increase in Bull
Run's revenue from printer operations and the 138% increase in Bull Run's
consulting fee income.
Long-Term Incentive Compensation. Bull Run's long-term incentive
compensation program is designed to provide equity awards, which are
intended to be directly related to the creation of value for Bull Run's
stockholders. Long-term incentive compensation consists principally of
stock options which generally vest over a period of three to five years.
The principal purpose of the long-term incentive compensation program is to
reward Bull Run's executives for enhancing the value of Bull Run and,
hence, the price of Bull Run common stock and, therefore, stockholders'
return. Additionally, this component of the compensation program (through
deferred vesting) is designed to create an incentive for the individual to
remain with Bull Run. During 1998, no options were granted to the executive
officers of Bull Run because such officers had received stock option grants
in previous years.
Benefits. Bull Run offers basic benefits, such as medical, life and
disability insurance, which Bull Run believes are comparable to those
provided by other companies similar to Bull Run. Bull Run does not have an
executive retirement plan nor does it provide other benefits, such as
country club memberships, financial counseling or supplemental medical
plans.
Chief Executive Officer. Mr. Prather's base salary for 1998 was set
in accordance with his employment agreement and the amount of his annual
incentive award for 1998 was based on the philosophy and programs described
above. The 1998 annual incentive award principally reflected the
achievement of many of Bull Run's 1998 business objectives and also
included the Compensation Committee's subjective evaluation of Mr.
Prather's performance during 1998.
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<PAGE> 122
MEMBERS OF THE MANAGEMENT COMPENSATION AND STOCK OPTION COMMITTEE
The members of the Management Compensation and Stock Option Committee are:
Gerald N. Agranoff
James W. Busby
J. Mack Robinson
CERTAIN TRANSACTIONS
Bull Run leases office space from Delta Life Insurance Company, a company
of which J. Mack Robinson is chairman of the board and principal stockholder.
Mr. Robinson is the chairman of the board of Bull Run. The term of the lease is
for 10 years beginning January 1, 1993 and requires total basic annual rent
payments of $164,976 over the 10-year term, plus a pro rata share of expenses.
In 1998, Bull Run purchased under its previously announced Stock Repurchase
Program, 40,000 shares of Bull Run common stock from Gerald N. Agranoff, a
director of Bull Run, for $3.69 per share, the market price of the Bull Run
common stock on the date of the purchase. Also in 1998, James W. Busby, a
director of Bull Run, exercised an option to purchase 225,000 shares of Bull Run
common stock at $.96 per share by exchanging 50,956 shares of Bull Run common
stock at its then current market price of $4.25 per share. In 1997, Bull Run
purchased under the Stock Repurchase Program, 500,000 shares of Bull Run common
stock from Mr. Busby for $2.50 per share, the market price of the Bull Run
common stock on the date of the purchase.
In connection with a commitment to lend up to $52.9 million to Bull Run,
Mr. Robinson, Bull Run's chairman of the board, executed a put agreement in
favor of the bank, for which he received no compensation. Such agreement
provides that if Bull Run defaults on its bank loan, Mr. Robinson will repay the
amount of such loan to the bank. If Mr. Robinson is obligated to pay such
amount, he would have the right to any or all of Bull Run's collateral under
such loan as would be necessary for him to recoup his obligation, with such
collateral including Bull Run's investments in Gray class A common stock,
warrants to purchase Gray class A common stock, and Gray series A and series B
preferred stocks, Host common stock, Capital common stock, Sarkes Tarzian common
stock, Total Sports preferred stock, common stock of Rawlings and warrants to
purchase Rawlings common stock. Mr. Robinson will be released from the put
agreement under certain conditions, which could include repayment of some or all
of the debt and/or appreciation in value of Gray and Rawlings common stocks,
which are publicly-traded securities, in order to achieve the bank's required
margin of loan balance to assigned collateral value.
On March 1, 1999, Bull Run executed an option agreement with Gray, whereby
Gray has the option until May 31, 1999 to acquire the Sarkes Tarzian investment
from Bull Run for $10 million plus related costs. Gray has the ability to extend
the option period in 30 day increments at a fee of $66,700 per extension, and
has extended this option through September 30, 1999. In connection with the
option agreement, Bull Run received from Gray warrants to acquire 100,000 shares
of Gray's class B common stock at $13.625 per share. The warrants will vest
immediately upon Gray's exercise of the option. The warrants expire 10 years
from the date on which Gray exercises its option.
Host and Bull Run have entered into an agreement providing that if the
merger agreement is terminated, Bull Run will buy all of the share of Total
Sports, Inc. held by Host for $3,976,000.
116
<PAGE> 123
PERFORMANCE GRAPH
The following graph compares the cumulative total return on Bull Run common
stock during the past five years with the cumulative total return during the
same period of the stocks which comprise the Nasdaq Stock Market (U.S.
companies), Nasdaq Computer and Office Equipment Index and NYSE Television
Broadcasting Stations Index.
The Nasdaq Stock Market (U.S. companies), the Nasdaq Computer and Office
Equipment Index and the NYSE Television Broadcasting Stations Index are weighted
by market capitalization. Bull Run has selected the NYSE Television Broadcasting
Stations Index as a result of its significant investment in Gray Communications
and the Nasdaq Computer and Office Equipment Index, which is the industry in
which Bull Run's wholly-owned subsidiary, Datasouth, operates.
The graph reflects the investment of $100 on December 31, 1993 in Bull Run
common stock, in the stocks in the Nasdaq Stock Market (U.S. companies), the
Nasdaq Computer and Office Equipment Index and the NYSE Television Broadcasting
Stations Index. Dividends are assumed to have been reinvested as paid.
117
<PAGE> 124
COMPARISON OF TOTAL CUMULATIVE RETURN AMONG BULL RUN CORPORATION,
NASDAQ STOCK MARKET INDEX (U.S. COMPANIES), NASDAQ COMPUTER
AND OFFICE EQUIPMENT INDEX
AND NYSE TELEVISION BROADCASTING STATIONS INDEX
[LINE GRAPH]
<TABLE>
<CAPTION>
Nasdaq Nasdaq NYSE
Stock Computer Television
Market and Office Broadcasting
Measurement Period (U.S. Equipment Stations Bull Run
(Fiscal Year Covered) Companies) Index Index Corporation
<S> <C> <C> <C> <C>
12/31/93 100.00 100.00 100.00 100.00
12/31/94 97.75 114.89 123.00 104.00
12/31/95 138.26 184.62 177.54 185.00
12/31/96 170.02 254.32 217.63 136.00
12/31/97 208.30 306.81 421.19 246.00
12/31/98 293.52 677.37 610.88 216.00
</TABLE>
- -------------------------
Nasdaq Computer and Office Equipment Index includes companies whose SIC
(Standard Industrial Classification) begins with 357.
NYSE Television Broadcasting Stations Index includes companies whose SIC
(Standard Industrial Classification) begins with 483.
PROPOSAL 5:
CONFIRMATION OF APPOINTMENT OF AUDITORS
The Bull Run board of directors recommends that the stockholders confirm
the appointment of Ernst & Young LLP to audit the books and accounts of Bull Run
and, subsequent to the holding company reorganization as contemplated by
Proposal 1, BR Holding for the year ending December 31, 1999.
Representatives of Ernst & Young LLP are expected to be available at the
meeting of stockholders to respond to appropriate questions and will be given
the opportunity to make a statement if they so desire.
118
<PAGE> 125
EXPERTS
The consolidated financial statements of Bull Run Corporation at December
31, 1998 and 1997, and for each of the three years in the period ended December
31, 1998, included in this proxy statement/prospectus, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Gray Communications Systems, Inc.
at December 31, 1998 and 1997, and for each of the three years in the period
ended December 31, 1998, included in this proxy statement/prospectus, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Rawlings Sporting Goods Company,
Inc. at August 31, 1998 and for the year then ended, not separately included in
this proxy statement/prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as set forth in their report appearing elsewhere
herein, and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements of Capital Sports Properties, Inc. at
June 30, 1998 and 1997, and for each of the years then ended, included in this
proxy statement/prospectus, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing. The consolidated financial statements of
Capital Sports Properties, Inc. for the six months ended June 30, 1996 and the
year ended December 31, 1995, included in this proxy statement/prospectus, have
been audited by KPMG LLP, independent auditors, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Host Communications, Inc. at June
30, 1998 and 1997, and for each of the years then ended included in this proxy
statement/prospectus, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing. The consolidated financial statements of
Host Communications, Inc. for the year ended June 30, 1996, included in this
proxy statement/prospectus, have been audited by KPMG LLP, independent auditors,
as set forth in their report appearing elsewhere herein, and are included in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Universal Sports America, Inc. at
June 30, 1998 and 1997, and for each of the years then ended included in this
proxy statement/prospectus, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing. The consolidated financial statements of
Universal Sports America, Inc. for the year ended June 30, 1996, included in
this proxy statement/prospectus, have been included in reliance upon the report
of KPMG LLP, independent certified public accountants, appearing
119
<PAGE> 126
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
LEGAL MATTERS
The legality of the shares of BR Holding common stock to be issued in
connection with the reorganization and the mergers have been passed upon for
Bull Run and BR Holding by Alston & Bird, LLP, Atlanta, Georgia.
RELATIONSHIP WITH INDEPENDENT AUDITORS
Representatives of Ernst & Young LLP will be present at the meeting and
will be available to respond to appropriate questions and have the opportunity
to make a statement if they desire.
STOCKHOLDER PROPOSALS
If a Bull Run stockholder notifies Bull Run after January 14, 2000 of an
intent to present a proposal at Bull Run's 2000 Annual Meeting, Bull Run will
have the right to exercise its discretionary voting authority with respect to
such proposal, if presented at the meeting, without including information
regarding such proposal in its proxy materials. Stockholder proposals to be
presented at the 2000 Annual Meeting must be received by Bull Run on or before
December 15, 1999 for inclusion in the proxy statement and proxy card relating
to that meeting. Such proposals must also meet the other requirements of the
rules of the Securities and Exchange Commission relating to stockholders'
proposals.
120
<PAGE> 127
WHERE STOCKHOLDERS CAN FIND MORE INFORMATION
Bull Run files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission under the
Securities Exchange Act of 1934. Stockholders may read and copy this information
at the following locations of the Securities and Exchange Commission:
<TABLE>
<S> <C>
Securities and Exchange Commission Securities and Exchange Commission
Judiciary Plaza, Room 1024 Citicorp Center
450 Fifth Street, N.W. 500 West Madison Street, Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
Securities and Exchange Commission
Seven World Trade Center,
Suite 1300
New York, New York 10048
</TABLE>
Stockholders can also obtain copies of this information by mail from the
Public Reference Section of the Securities and Exchange Commission, 450 Fifth
Street, N.W., Room 10024, Washington D.C. 20549, at prescribed rates.
The Securities and Exchange Commission also maintains an Internet world
wide web site that contains reports, proxy statements and other information
about issuers, like Bull Run, who file electronically with the Securities and
Exchange Commission. The address of that site is http://www.sec.gov.
No financial information has been provided for BR Holding since it is a
newly formed entity that has not, to date, conducted any activities other than
those incident to its formation and its execution and documents relating to the
reorganization and the mergers.
BR Holding has filed with the Securities and Exchange Commission a
registration statement on Form S-4 that registers the shares of BR Holding
common stock to be issued in exchange for shares of Capital, Host and Universal
stock upon completion of the mergers. That registration statement, including the
attached exhibits and schedules, contains additional relevant information about
Bull Run, BR Holding, and the BR Holding common stock. The rules and regulations
of the Securities and Exchange Commission allow us to omit certain information
included in the registration statement from this proxy statement/prospectus.
You can obtain any of the documents referred to in this proxy
statement/prospectus through Bull Run without charge, excluding any exhibits to
those documents unless the exhibit is specifically incorporated by reference as
an exhibit to this proxy statement/ prospectus. You can obtain documents
incorporated by reference in this proxy statement/ prospectus by requesting them
in writing or by telephone from Bull Run at the following address:
Bull Run Corporation
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
(404) 266-8333
Attention: Investor Relations
If you would like to request documents, please do so by September 3, 1999
to receive them before the Bull Run stockholders' meeting.
121
<PAGE> 128
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ABOUT THE MERGERS OR OUR COMPANY THAT IS DIFFERENT FROM, OR IN
ADDITION TO, THAT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS OR IN ANY OF THE
MATERIALS THAT WE HAVE INCORPORATED BY REFERENCE INTO THIS DOCUMENT. THEREFORE,
IF ANYONE DOES GIVE YOU INFORMATION OF THIS SORT, YOU SHOULD NOT RELY ON IT. IF
YOU ARE IN A JURISDICTION WHERE OFFERS TO EXCHANGE OR SELL, OR SOLICITATIONS OF
OFFERS TO EXCHANGE OR PURCHASE, THE SECURITIES OFFERED BY THIS DOCUMENT OR THE
SOLICITATION OF PROXIES IS UNLAWFUL, OR IF YOU ARE A PERSON TO WHOM IT IS
UNLAWFUL TO DIRECT THESE TYPES OF ACTIVITIES, THEN THE OFFER PRESENTED IN THIS
DOCUMENT DOES NOT EXTEND TO YOU. THE INFORMATION CONTAINED IN THIS DOCUMENT
SPEAKS ONLY AS OF THE DATE OF THIS DOCUMENT, UNLESS THE INFORMATION SPECIFICALLY
INDICATES THAT ANOTHER DATE APPLIES.
FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains forward-looking statements. These
statements relate to future events or the future financial performance of Bull
Run. In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of such terms
and other comparable terminology. These statements only reflect management's
expectations and estimates. Actual events or results may differ materially. In
evaluating these statements, you should specifically consider various factors,
including the risks outlined on pages 12 to 16 under "Risk Factors." These
factors may cause our actual results to differ materially from any
forward-looking statements. We are not undertaking any obligations to update any
forward-looking statements contained in this proxy statement/prospectus to
reflect any future events or developments.
122
<PAGE> 129
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Bull Run Corporation
Report of Independent Auditors............................ F-3
Report of Independent Public Accountants.................. F-4
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... F-5
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996....................... F-6
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996........... F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996....................... F-8
Notes to Consolidated Financial Statements................ F-10
Condensed Consolidated Balance Sheet as of March 31, 1999
(Unaudited)............................................... F-26
Condensed Consolidated Statements of Operations and Retained
Earnings for the three months ended March 31, 1999 and
1998 (Unaudited).......................................... F-27
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 and 1998 (Unaudited).... F-28
Notes to Condensed Consolidated Financial Statements........ F-29
Gray Communications Systems, Inc.
Report of Independent Auditors............................ F-32
Consolidated Balance Sheets as of December 31, 1998 and
1997................................................... F-34
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996....................... F-36
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996........... F-38
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996....................... F-41
Notes to Consolidated Financial Statements................ F-43
Condensed Consolidated Balance Sheet as of March 31, 1999
(Unaudited)............................................... F-67
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1999 and 1998 (Unaudited).... F-69
Condensed Consolidated Statement of Stockholders' Equity for
the three months ended March 31, 1999 (Unaudited)......... F-70
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 and 1998 (Unaudited).... F-71
Notes to Condensed Consolidated Financial Statements........ F-72
Capital Sports Properties, Inc.
Report of Independent Auditors............................ F-75
Independent Auditors' Report.............................. F-76
Balance Sheets as of June 30, 1998 and 1997............... F-77
Statements of Income and Retained Earnings for the years
ended June 30, 1998 and 1997, the six months ended June
30, 1996 and the year ended December 31, 1995.......... F-78
Statements of Cash Flows for the years ended June 30, 1998
and 1997, the six months ended June 30, 1996 and the
year ended December 31, 1995........................... F-79
Notes to Financial Statements............................. F-80
Condensed Balance Sheet as of March 31, 1999
(Unaudited)............................................ F-84
Condensed Statements of Income and Retained Earnings for
the nine months ended March 31, 1999 and 1998
(Unaudited)............................................ F-85
</TABLE>
F-1
<PAGE> 130
<TABLE>
<S> <C>
Condensed Statements of Cash Flows for the nine months
ended March 31, 1999 and 1998 (Unaudited).............. F-86
Notes to Condensed Financial Statements................... F-87
Host Communications, Inc.
Report of Independent Auditors............................ F-89
Independent Auditors' Report.............................. F-90
Consolidated Balance Sheets as of June 30, 1998 and
1997................................................... F-91
Consolidated Statements of Income for the years ended June
30, 1998, 1997 and 1996................................ F-92
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1998, 1997 and 1996............... F-93
Consolidated Statements of Cash Flows for the years ended
June 30, 1998, 1997 and 1996........................... F-94
Notes to Consolidated Financial Statements................ F-95
Condensed Consolidated Balance Sheet as of March 31, 1999
(Unaudited)............................................ F-108
Condensed Consolidated Statements of Operations for the
nine months ended March 31, 1999 and 1998
(Unaudited)............................................ F-109
Condensed Consolidated Statement of Stockholders' Equity
for the nine months ended March 31, 1999 (Unaudited)... F-110
Condensed Consolidated Statements of Cash Flows for the
nine months ended March 31, 1999 and 1998
(Unaudited)............................................ F-111
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................ F-112
Universal Sports America, Inc.
Report of Independent Auditors............................ F-114
Independent Auditors' Report.............................. F-115
Consolidated Balance Sheets as of June 30, 1998 and
1997................................................... F-116
Consolidated Statements of Income for the years ended June
30, 1998, 1997 and 1996................................ F-117
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1998, 1997 and 1996............... F-118
Consolidated Statements of Cash Flows for the years ended
June 30, 1998, 1997 and 1996........................... F-119
Notes to Consolidated Financial Statements................ F-120
Condensed Consolidated Balance Sheets as of March 31, 1999
(Unaudited)............................................ F-130
Condensed Consolidated Statements of Income for the nine
months ended March 31, 1999 and 1998 (Unaudited)....... F-131
Condensed Consolidated Statement of Stockholders' Equity
for the nine months ended March 31, 1999 (Unaudited)... F-132
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the nine months ended March 31, 1999
and 1998 (Unaudited)................................... F-133
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................ F-134
</TABLE>
F-2
<PAGE> 131
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders of Bull Run Corporation:
We have audited the accompanying consolidated balance sheets of Bull Run
Corporation as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. 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. The
financial statements of Rawlings Sporting Goods Company, Inc. ("Rawlings") as of
and for the year ended August 31, 1998, and the financial statements of Host
Communications, Inc. ("HCI") and Capital Sports Properties, Inc. ("CSP") as of
and for the year ended June 30, 1996 and for the six months ended June 30, 1996,
respectively, have been audited by other auditors whose reports have been
furnished to us; the report as to HCI included an explanatory paragraph relating
to an accounting change in the method of recognizing certain revenue and related
expenses. Our opinion, insofar as it relates to data included for Rawlings, HCI
and CSP for their respective periods in 1998 and 1996, is based solely on the
reports of the other auditors. In the consolidated financial statements, the
Company's investment in Rawlings is stated at $11,001,000 at December 31, 1998
and the Company's investment in HCI and CSP is stated at $11,854,000 at December
31, 1996; the Company's equity in the net income of Rawlings is stated at
$237,000 for the year ended December 31, 1998; and the Company's equity in the
net income of HCI and CSP is stated at $762,000 for the year ended December 31,
1996; and the Company's cumulative effect of accounting change recognized by HCI
is stated at $(274,000) for the year ended December 31, 1996.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and, for 1998 and 1996, the reports of
other auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Bull
Run Corporation at December 31, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
As discussed in Note 4 to the Consolidated Financial Statements, during
1996 HCI changed its method of recognizing certain revenue and related expenses.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
February 9, 1999, except as to Notes 4 and 7,
as to which the date is March 24, 1999
F-3
<PAGE> 132
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Stockholders of Rawlings Sporting Goods Company, Inc.:
We have audited the consolidated balance sheets of Rawlings Sporting Goods
Company, Inc. (a Delaware corporation) and subsidiaries (the Company) as of
August 31, 1998 and 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended August 31, 1998, not presented separately herein. These financial
statements are the responsibility of Rawlings' management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rawlings Sporting Goods
Company, Inc. and subsidiaries as of August 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended August 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri
October 7, 1998
F-4
<PAGE> 133
BULL RUN CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 58 $ 142
Accounts receivable (includes $880 and $850 due from Gray
Communications Systems, Inc. as of December 31, 1998
and 1997, respectively)................................ 5,980 4,600
Inventories............................................... 5,167 3,757
Other..................................................... 231 193
------- -------
Total current assets................................. 11,436 8,692
Property and equipment, net................................. 2,623 2,638
Investment in affiliated companies.......................... 73,346 61,551
Goodwill.................................................... 7,583 3,589
Other assets................................................ 184 362
------- -------
$95,172 $76,832
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable and current portion of long-term debt........ $ 4,000 $ 2,500
Accounts payable.......................................... 2,781 2,462
Accrued and other liabilities:
Employee compensation and related taxes................ 571 430
Interest............................................... 396 553
Other.................................................. 376 234
------- -------
Total current liabilities............................ 8,124 6,179
Long-term debt.............................................. 51,848 41,998
Deferred income taxes....................................... 5,409 3,599
Stockholders' equity:
Common stock, $.01 par value (authorized 100,000 shares;
issued 22,785 and 22,583 shares as of December 31, 1998
and 1997, respectively)................................ 228 226
Additional paid-in capital................................ 21,378 20,800
Treasury stock, at cost (542 and 1,287 shares as of
December 31, 1998 and 1997, respectively).............. (1,393) (3,188)
Retained earnings......................................... 9,578 7,218
------- -------
Total stockholders' equity........................... 29,791 25,056
------- -------
$95,172 $76,832
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 134
BULL RUN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Revenue from printer operations...................... $29,848 $21,639 $23,810
Cost of goods sold................................... 22,103 15,967 17,170
------- ------- -------
Gross profit.................................... 7,745 5,672 6,640
Consulting fee income................................ 1,618 681 844
Operating expenses:
Research and development........................... 2,323 2,418 1,568
Selling, general and administrative................ 6,270 4,434 4,687
------- ------- -------
8,593 6,852 6,255
------- ------- -------
Income (loss) from operations................... 770 (499) 1,229
Other income (expense):
Equity in earnings (losses) of affiliated
companies....................................... 6,734 (599) 1,731
Gain on issuance of common shares by affiliated
company......................................... 8,179
Interest and dividend income....................... 1,085 1,102 874
Interest expense................................... (4,247) (2,716) (2,124)
Other expense...................................... (128)
------- ------- -------
Income (loss) before income taxes, extraordinary
item and cumulative effect of accounting
change........................................ 4,214 (2,712) 9,889
Income tax benefit (provision)....................... (1,854) 939 (4,012)
------- ------- -------
Income (loss) before extraordinary item and
cumulative effect of accounting change........ 2,360 (1,773) 5,877
Extraordinary loss recognized by affiliated company
(net of $185 tax benefit).......................... (295)
Cumulative effect of accounting change recognized by
affiliate (net of $141 tax benefit)................ (274)
------- ------- -------
Net income (loss)............................... $ 2,360 $(1,773) $ 5,308
======= ======= =======
Earnings (loss) per share -- Basic:
Income (loss) before extraordinary item and
cumulative effect of accounting change.......... $ 0.11 $ (0.08) $ 0.26
Extraordinary loss................................. (0.01)
Cumulative effect of accounting change............. (0.01)
------- ------- -------
Net income (loss)............................... $ 0.11 $ (0.08) $ 0.24
======= ======= =======
Earnings (loss) per share -- Diluted:
Income (loss) before extraordinary item and
cumulative effect of accounting change.......... $ 0.10 $ (0.08) $ 0.25
Extraordinary loss................................. (0.01)
Cumulative effect of accounting change............. (0.01)
------- ------- -------
Net income (loss)............................... $ 0.10 $ (0.08) $ 0.23
======= ======= =======
Weighted average number of common shares outstanding:
Basic.............................................. 22,189 21,302 22,013
Diluted............................................ 23,182 21,302 22,945
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 135
BULL RUN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN TREASURY RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCK EARNINGS EQUITY
------ -------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31,
1995................. 22,280 $ 223 $20,503 $ (330) $ 3,683 $24,079
Purchase of treasury
stock............. (1,107) (1,107)
Exercise of stock
options........... 45 38 38
Net income........... 5,308 5,308
------ -------- ------- ------- ------- -------
BALANCES, DECEMBER 31,
1996................. 22,325 223 20,541 (1,437) 8,991 28,318
Purchase of treasury
stock............. (1,751) (1,751)
Exercise of stock
options........... 258 3 259 262
Net loss............. (1,773) (1,773)
------ -------- ------- ------- ------- -------
BALANCES, DECEMBER 31,
1997................. 22,583 226 20,800 (3,188) 7,218 25,056
Issuance of treasury
stock............. 555 1,945 2,500
Purchase of treasury
stock............. (150) (150)
Exercise of stock
options........... 202 2 23 25
Net income........... 2,360 2,360
------ -------- ------- ------- ------- -------
BALANCES, DECEMBER 31,
1998................. 22,785 $ 228 $21,378 $(1,393) $ 9,578 $29,791
====== ======== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 136
BULL RUN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $ 2,360 $(1,773) $ 5,308
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Cumulative effect of accounting change........... 415
Extraordinary loss............................... 480
Gain on issuance of common shares by affiliate... (8,179)
Provision for bad debts.......................... 22 27 1
Depreciation and amortization.................... 1,122 1,001 950
Equity in (earnings) losses of affiliated
companies..................................... (6,734) 599 (1,731)
Deferred income taxes............................ 1,837 (892) 3,553
Accrued preferred stock dividend income.......... (175) (300)
Loss on disposition of assets.................... 128
Change in operating assets and liabilities:
Accounts receivable........................... (1,100) (553) (166)
Inventories................................... (161) (442) 440
Other current assets.......................... 47 (6) 74
Accounts payable and accrued expenses......... 30 512 122
-------- ------- --------
Net cash provided by (used in) operating
activities............................ (2,624) (1,827) 1,267
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................... (352) (1,160) (366)
Investment in affiliated companies................. (8,812) (9,099) (5,566)
Acquisition of printer manufacturer and printer
product rights, net of cash acquired............. (2,916)
Note purchased from affiliated company............. (10,000)
Redemption of preferred stock investment........... 3,805
Dividends received from affiliated companies....... 121 1,002 73
-------- ------- --------
Net cash used in investing activities.... (8,154) (9,257) (15,859)
-------- ------- --------
</TABLE>
F-8
<PAGE> 137
BULL RUN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
-------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from notes payable...................... 1,200 1,500
Borrowings from revolving lines of credit.......... 17,598 15,232 11,339
Repayments on notes payable........................ (700)
Repayments on revolving lines of credit............ (18,718) (9,941) (10,656)
Proceeds from long-term debt....................... 12,975 5,843 15,000
Repayments on long-term debt....................... (1,536)
Loan commitment fees............................... (87)
Issuance of common stock........................... 25 262 38
Repurchase of common stock......................... (150) (1,751) (1,107)
-------- ------- --------
Net cash provided by financing
activities............................ 10,694 11,145 14,527
-------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... (84) 61 (65)
Cash and cash equivalents, beginning of year....... 142 81 146
-------- ------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR............. $ 58 $ 142 $ 81
======== ======= ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid...................................... $ 4,404 $ 2,460 $ 1,917
Income taxes paid (recovered), net................. (25) (58) 612
Treasury stock issued in connection with
acquisition of printer manufacturer, a noncash
investing and financing activity................. 2,500
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE> 138
BULL RUN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS
Bull Run Corporation ("Bull Run"), based in Atlanta, Georgia, sells
computer printers and provides service worldwide to distributors, value-added
resellers and large volume end users through its wholly-owned subsidiary,
Datasouth Computer Corporation ("Datasouth", and collectively, the "Company"),
and makes significant investments in sports and media companies, including Gray
Communications Systems, Inc. ("Gray"), an owner and operator of ten television
stations and four daily newspapers; Host Communications, Inc. ("HCI"), a sports
marketing and association management company; Rawlings Sporting Goods Company,
Inc. ("Rawlings"), a leading supplier of team sports equipment in North America;
Universal Sports America, Inc. ("USA"), a lifestyle and sports marketing
company; and Total Sports, Inc. ("TSI"), a sports content Internet company. In
January 1999, the Company made an investment in Sarkes Tarzian, Inc.
("Tarzian"), owner and operator of two television stations and four radio
stations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of Bull Run and its wholly-owned subsidiary,
Datasouth, after elimination of intercompany accounts and transactions.
USE OF ESTIMATES -- The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
REVENUE RECOGNITION -- Revenue from the sale of products, which include
printers, consumables, accessories and parts, is recognized when goods are
shipped to customers. Service repair revenue is recognized when the repaired
units are shipped to customers. Revenue from service contracts is recognized
monthly over the contract lives, which are generally one year. Sales returns and
allowances are reflected as a reduction in revenue from printer operations and
reflected in inventory at the lower of cost or expected net realizable value.
The Company generally charges a restocking fee for sales returns. Products that
are defective upon arrival are handled under the Company's warranty policy.
CASH AND CASH EQUIVALENTS -- Cash equivalents are composed of all highly
liquid investments with an original maturity of three months or less.
ACCOUNTS RECEIVABLE -- The Company performs ongoing credit evaluations of
its customers' financial condition and generally requires no collateral from its
customers. In addition, the Company receives consulting fees generally payable
in monthly installments from Gray, an investee, for the performance of services
in connection with Gray's acquisitions and dispositions. The allowance for
doubtful accounts was $82 as of December 31, 1998 and $55 as of December 31,
1997.
INVENTORIES -- Inventories are associated with the printer operations and
are stated at the lower of cost, determined on the first-in, first-out method,
or market.
PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost less
depreciation computed under the straight-line method over the estimated useful
life of the asset,
F-10
<PAGE> 139
BULL RUN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
generally from 3 to 7 years. When assets are disposed, the associated cost and
accumulated depreciation are eliminated from the respective accounts and any
resulting gain or loss is reflected in income. Expenditures for maintenance,
repairs and minor renewals are charged to expense. Depreciation expense was $592
in 1998, $614 in 1997 and $590 in 1996.
INVESTMENT IN AFFILIATED COMPANIES -- The Company has accounted for its
investments in Gray, HCI, Rawlings and Capital Sports Properties, Inc. ("CSP")
by the equity method, and its investments in USA and TSI by the cost method. The
excess of the Company's investment over the underlying equity of Gray, HCI and
Rawlings, totaling approximately $29,600 and $24,200 as of December 31, 1998 and
1997, respectively, is being amortized over 20 to 40 years, with such
amortization (totaling $777 in 1998, $610 in 1997 and $487 in 1996) reported as
a reduction in the Company's equity in earnings of affiliated companies. The
equity in earnings of HCI is recognized by the Company on a six month lag basis,
in order to align HCI's fiscal year ending each June 30 with the Company's
fiscal year. Effective January 15, 1998, the date on which a representative of
the Company was elected to Rawlings' Board of Directors, the Company has
accounted for its investment in Rawlings by the equity method on a one month lag
basis, in order to align Rawlings' fiscal quarters ending November 30, February
28, May 31 and August 31 with the Company's fiscal quarters.
GOODWILL AND OTHER LONG-LIVED ASSETS -- Goodwill associated with the
Company's acquisitions of printer manufacturing businesses is being amortized
over 15 to 20 years. The carrying value of goodwill, as well as other long-lived
assets, are reviewed if the facts and circumstances suggest that they may be
impaired. If an evaluation is required, the estimated future undiscounted cash
flows associated with these assets would be compared to their carrying amount to
determine if a write down to fair market value or discounted cash flow value is
required. Goodwill amortization was $488 in 1998, $301 in 1997 and $292 in 1996,
and accumulated amortization was $1,416 and $928 as of December 31, 1998 and
1997, respectively.
WARRANTY COSTS -- An estimated allowance for future warranty costs of the
printer operations, based on past experience, is recorded as a charge to cost of
goods sold. Accrued warranty costs were $85 and $60 as of December 31, 1998 and
1997, respectively.
RESEARCH AND DEVELOPMENT -- Research and development costs of the printer
operations, including the costs of software developed internally and costs for
development services performed by third parties, are expensed as incurred.
INCOME TAXES -- Income taxes are recognized in accordance with Statement of
Accounting Standards No. 109, "Accounting for Income Taxes," whereby deferred
income tax liabilities or assets at the end of each period are determined using
the tax rate expected to be in effect when the taxes are actually paid or
recovered. Accordingly, income tax expense will increase or decrease in the same
period in which a change in tax rates is enacted. A valuation allowance is
recognized on certain deferred tax assets if it is more likely than not that
some or all of these deferred tax assets will not be realized.
STOCK-BASED COMPENSATION -- The Company grants stock options for a fixed
number of shares to employees with an exercise price equal to the fair value of
the shares at the date of grant. In accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees", no compensation expense is
recognized for such grants.
F-11
<PAGE> 140
BULL RUN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS (LOSS) PER SHARE -- Basic and diluted earnings (loss) per share
are determined in accordance with Financial Accounting Standards Board Statement
No. 128, "Earnings Per Share", whereby basic earnings per share excludes any
dilutive effects of stock options. In periods where they are anti-dilutive,
dilutive effects of stock options are excluded from the calculation of dilutive
earnings (loss) per share.
RECENTLY-ISSUED ACCOUNTING STANDARD -- In June 1998, the Financial
Accounting Standards Board issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Company expects to adopt the new
Statement effective January 1, 2001. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. The Company does
not anticipate that the adoption of this Statement will have a significant
effect on its results of operations or financial position.
3. PENDING AND COMPLETED ACQUISITIONS
On February 15, 1999, the Company entered into an agreement to acquire the
stock of HCI, USA and CSP not currently owned, directly or indirectly, by the
Company, for approximately $95,000, net of cash acquired (the "HCI-USA
Acquisition"). Pursuant to the agreement, a new holding company for the Company
will be created immediately prior to the HCI-USA Acquisition whereby each
outstanding share of the Company's common stock will be converted into one share
of a newly formed company. The new holding company, which will be a publicly
held company, will be owned by the stockholders of the Company immediately prior
to such conversion and the Company and its subsidiaries will become subsidiaries
of such holding company. Approximately $37,000 of the HCI-USA Acquisition
purchase price is expected to be paid to HCI, USA and CSP stockholders in cash
and the remainder is expected to be paid in common stock of the new holding
company. The Company is currently HCI's largest stockholder, owning directly or
indirectly approximately 32.5% of HCI's outstanding common stock and 51.5% of
HCI's outstanding preferred stock. The Company's indirect ownership of HCI's
common stock and HCI's preferred stock is owned by CSP, in which the Company
owns 51.5% of the outstanding common stock. The Company and HCI together are the
largest stockholders of USA, with the Company owning approximately 3% of USA's
outstanding capital stock and HCI owning approximately 33% of USA's outstanding
capital stock. For their most recent fiscal year ended June 30, 1998, HCI and
USA together had revenues of approximately $109,000. This transaction is subject
to the terms and conditions of the merger agreement, including approval of the
stockholders of HCI, USA, CSP and the Company.
Effective January 2, 1998, the Company acquired all of the outstanding
common stock of CodeWriter Industries, Inc. and all of the outstanding
membership interests of its affiliate, CW Technologies, LLC (collectively
referred to as "CodeWriter"), in a transaction valued at approximately $6,200,
including the issuance of treasury stock valued at $2,500 and future
consideration of $1,200, payable quarterly through December 2001 based on the
greater of (a) a percentage of revenue generated by CodeWriter products, or (b)
$50, but in no event will the aggregate quarterly payments exceed $1,200. The
future consideration increases goodwill as incurred. CodeWriter designs and
manufactures a line of direct thermal and thermal transfer desktop and portable
bar code label printers. The acquisition has been accounted for under the
purchase method of accounting, whereby the
F-12
<PAGE> 141
BULL RUN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
results of operations of the acquired business are included in the accompanying
condensed consolidated financial statements as of its acquisition date. The
assets and liabilities of the acquired business are included based on an
allocation of the purchase price.
On September 25, 1998, the Company purchased the assets, consisting
primarily of inventories, associated with the Sigma-Data 7200 high speed
Automated Ticket/Boarding Pass Version 2 printer from a Japanese company, in a
transaction valued at approximately $750. Effective October 1, 1998, the Company
purchased a United Kingdom-based sales organization from its UK parent, for
future consideration. The UK organization, which has been selling the Company's
printer products and the Sigma-Data 7200 printer to computer reservation systems
and airlines throughout the world, serves as the Company's European sales office
and stocking facility. The future consideration is scheduled to be paid annually
in arrears through September 2003, at amounts determined as a percentage of
revenue generated by the Company's European sales office. This future
consideration is charged to Cost of Goods Sold as the associated revenue is
recognized.
4. INVESTMENT IN AFFILIATED COMPANIES
The Company's investment in affiliated companies is comprised of the
following:
<TABLE>
<CAPTION>
INVESTMENT AS OF DECEMBER 31,
------------------------------------
1998 1997
---------------- ---------------- EQUITY IN EARNINGS (LOSS)
VOTING VOTING --------------------------
AFFILIATE AMOUNT % AMOUNT % 1998 1997 1996
- --------- ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
HCI.................. $ 2,896 7.7% $ 1,509 5.0% $ 124 $ 25 $ 353
CSP.................. 10,148 48.5 9,901 48.5 246 220 409
USA.................. 650 3.0 650 3.0 n/a n/a n/a
Gray................. 46,151 27.4 43,688 27.6 6,127 (844) 969
Rawlings............. 11,001 10.3 5,803 5.0 237 n/a n/a
TSI.................. 2,500 7.7 n/a n/a n/a n/a n/a
------- ------- ------ ----- ------
Total.............. $73,346 $61,551 $6,734 $(599) $1,731
======= ======= ====== ===== ======
</TABLE>
INVESTMENTS IN HCI, CSP AND USA -- The Company acquired its initial
interests in the outstanding common stock of HCI and CSP in 1995. In 1996, CSP
exercised warrants to acquire HCI common shares. As a result of this exercise of
warrants and subsequent purchases of HCI common stock by the Company, the
Company's direct common equity ownership in HCI, plus the Company's indirect
common equity ownership in HCI through its investment in CSP, was increased to
32.5% as of December 31, 1998. Additionally, the Company owns indirectly,
through CSP, 51.5% of HCI's 8% series B preferred stock having a face value of
$3,750. Unless previously acquired by the Company as a result of the HCI-USA
Acquisition, outstanding shares of series B preferred stock, plus all
accumulated and unpaid dividends thereon, are scheduled to be redeemed and paid
in cash on December 15, 1999. HCI, based in Lexington, Kentucky, and HCI's
33.8%-owned affiliate, USA, provide media and marketing services to
universities, athletic conferences and various associations representing
collegiate sports and, in addition, market and operate amateur participatory
sporting events.
F-13
<PAGE> 142
BULL RUN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company recognizes its equity in earnings of HCI on a six month lag
basis, in order to align HCI's fiscal year ending June 30 with the Company's
fiscal year. Effective July 1, 1995 (the first day of HCI's 1996 fiscal year),
HCI adopted a new accounting policy for the recognition of corporate sponsor
license fee revenue and guaranteed rights fee expenses, since the nature of
HCI's contracts were changing to include revenue-sharing or net profit split
arrangements, rather than guaranteed rights fee payments. As a result, the
rights fee expense associated with this type of contract could not be accurately
measured until the expiration of each contract period when the revenue-sharing
or net profit split amount was determined. Under the new policy, license fee
revenue and rights fee expense are recognized on a straight-line basis over the
life of the contract, instead of recognizing revenue and expense in their
entirety on the effective date of the contract, thereby providing for the
uniform matching of revenue and expenses. As a result of such adoption, HCI
recognized a $4,559 charge against its earnings, representing the after-tax
cumulative effect of the accounting change. The Company reported 9.1% of such
charge, or $415, less a $141 deferred tax benefit, as a charge against its 1996
earnings.
During HCI's 1996 fiscal year, HCI sold certain operating assets to USA in
exchange for its 33.8% common equity position. The transaction resulted in a
gain, net of tax, of approximately $4,000 for HCI, the Company's share of which
amounted to $377, as reflected in the Company's 1996 equity in earnings of
affiliated companies. In 1995, the Company invested $650 in preferred stock of
USA, which is convertible to 3.0% of USA's total common shares, assuming
conversion of all USA preferred stock.
INVESTMENT IN GRAY AND GAIN ON ISSUANCE OF COMMON SHARES -- In 1996, Gray
consummated a public offering of 3.5 million shares of class B common stock,
resulting in net proceeds to Gray of $67,060. As a result of such issuance, the
Company's common equity ownership of Gray was reduced from 27.1% to 15.2%
(subsequently increasing to 16.9% as of December 31, 1998), resulting in a
pretax gain for the Company of $8,179 in 1996. This offering also reduced the
Company's common equity voting power in Gray from 27.1% to 25.1% (subsequently
increasing to 27.4% as of December 31, 1998). On July 31, 1998, Gray disposed of
a television station and recognized an after-tax gain of approximately $43
million in connection with the disposition. As a result, the Company's equity in
Gray's earnings was favorably impacted by approximately $4,000 in 1998. Gray is
a communications company, based in Atlanta, Georgia, that operates ten network
affiliated television stations (three of which were acquired in August 1998),
four daily newspapers (one of which was acquired in March 1999), an advertising
weekly shopper, a satellite broadcasting operation and a paging business. Gray's
class A and class B common stock is publicly traded on the New York Stock
Exchange (symbols: GCS and GCS.B, respectively).
The Company provides consulting services to Gray from time to time in
connection with Gray's acquisitions, dispositions and acquisition financing.
Income on a portion of such fees is deferred and recognized over forty years as
a result of the Company's equity investment position in Gray. Due to the
reduction in the Company's equity ownership of Gray as described above, $174 of
previously deferred consulting fees were recognized as consulting fee income in
1996. The Company recognized consulting fee income from Gray of $1,618, $681 and
$844 in 1998, 1997 and 1996, respectively, for services rendered in connection
with certain of Gray's acquisitions and dispositions. As of December 31, 1998
F-14
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BULL RUN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and 1997, income from additional consulting fees of $762 and $400, respectively,
has been deferred and will be recognized as Gray amortizes goodwill associated
with its acquisitions.
In January 1996, the Company purchased an 8% Subordinated Note (the "8%
Note") of Gray in the principal amount of $10,000, on which the Company received
interest income of $580 during 1996. In connection with the purchase of the 8%
Note, Gray issued to the Company warrants to purchase up to 731,250 shares of
Gray's class A common stock at $11.92 per share (as adjusted for a 3-for-2 stock
split announced by Gray effective September 30, 1998). In September 1996, the
Company exchanged the 8% Note for 1,000 shares of Gray's series A preferred
stock, which entitles the holder thereof to cash dividends at an annual rate of
$800 per share. At that same time, the Company purchased for $5,000, 500 shares
of Gray's series B preferred stock entitling the holder thereof to annual
dividends of $600 per share, which are cumulative. In connection with the
Company's acquisition of series B preferred stock, Gray issued to the Company
warrants to purchase up to 375,000 shares of Gray's class A common stock at
$16.00 per share (adjusted for the 3-for-2 stock split). Of the total warrants
owned by the Company to purchase 1,106,250 shares of Gray's class A common
stock, 847,500 are fully vested and exercisable as of December 31, 1998, with
the remaining warrants vesting periodically through 2001. The warrants expire in
2006. Dividends on the series B preferred stock are payable in cash or in
additional shares of series B preferred stock, at Gray's option. Total dividend
income of $1,072, $1,100 and $293 was recognized by the Company in 1998, 1997
and 1996, respectively, on Gray series A and B preferred stock. In 1998, Gray
redeemed $3,805 of the series B preferred stock held by the Company. As a
result, the Company held 175 shares of Gray's series B preferred stock as of
December 31, 1998.
In 1996, Gray retired certain of its debt, thereby incurring an after-tax
extraordinary loss of $3,159 related to costs associated with the retired debt.
As a result, the Company recognized 15.2% of Gray's charge, or $480, less a $185
deferred tax benefit, as an extraordinary loss in 1996.
The aggregate market value of Gray common stock owned by the Company on
December 31, 1998 and 1997 was $36,903 and $35,178, respectively.
INVESTMENT IN TARZIAN -- On January 28, 1999, the Company acquired shares
of the outstanding common stock of Tarzian from the Estate of Mary Tarzian (the
"Estate") for $10 million. The acquired shares (the "Tarzian Shares") represent
33.5% of the total outstanding common stock of Tarzian both in terms of the
number of shares of common stock outstanding and in terms of voting rights, but
such investment represents 73% of the equity of Tarzian for purposes of
dividends, as well as distributions in the event of any liquidation, dissolution
or other termination of Tarzian. Tarzian has filed a complaint with the United
States District Court, claiming that it had a binding contract with the Estate
to purchase the Tarzian Shares from the Estate prior to the Company's purchase
of the shares, and requests judgment providing that the Estate be required to
sell the Tarzian Shares to Tarzian. The Company believes that a binding contract
between Tarzian and the Estate did not exist prior to the Company's purchase of
the Tarzian Shares from the Estate, and in any case, the Company's purchase
agreement with the Estate provides that in the event that a court of competent
jurisdiction awards title to a person or entity other than the Company, the
purchase agreement is rescinded, and the Estate is required to pay the Company
the full $10 million purchase price, plus interest. Tarzian owns and operates
F-15
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BULL RUN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
two television stations and four radio stations: WRCB-TV Channel 3 in
Chattanooga, Tennessee, an NBC affiliate; KTVN-TV Channel 2 in Reno, Nevada, a
CBS affiliate; WGCL-AM and WTTS-FM in Bloomington, Indiana; and WAJI-FM and
WLDE-FM in Fort Wayne, Indiana. The Company's investment in Tarzian was financed
with a $10 million bank note payable with interest at the bank's prime rate,
expiring May 28, 1999.
On March 1, 1999, the Company executed an option agreement with Gray
Communications Systems, Inc. ("Gray"), the Company's 16.9%-owned affiliate,
whereby Gray has the option until May 31, 1999 to acquire the Tarzian investment
from the Company for $10 million plus related costs. Gray has the ability to
extend the option period in 30-day increments at a fee of $66,700 per extension.
In connection with the option agreement, the Company received from Gray warrants
to acquire up to 100,000 shares of Gray's class B common stock at $13.625 per
share. The warrants only vest upon Gray's exercise of the option. The warrants
expire 10 years after the date on which Gray exercises its option.
INVESTMENT IN RAWLINGS -- In November 1997, the Company entered into an
Investment Purchase Agreement with Rawlings, a supplier of team sports equipment
based near St. Louis, Missouri. Pursuant to this agreement, the Company acquired
warrants to purchase approximately 10% of Rawlings' common stock, and has the
right, under certain circumstances, to acquire additional warrants. The
Company's total cost to purchase the warrants pursuant to this agreement
(excluding the additional warrants) was $2,842. Fifty percent of the purchase
price, or $1,421, was paid to Rawlings upon execution of the agreement in
November 1997. The remaining fifty percent, plus interest at 7% per annum from
November 21, 1997 until the date of payment, will be due on the earlier of the
exercise date and the expiration date of the warrants. In the event of a partial
exercise of warrants, a pro rata portion of the purchase price with interest
accrued thereon will be payable.
The warrants have a four year term and an exercise price of $12.00 per
share, but are exercisable only if Rawlings' common stock closes at or above
$16.50 for twenty consecutive trading days during the four year term. In
addition, under the terms of the agreement, the Company purchased approximately
10.3% of Rawlings' outstanding common stock in the open market from November
1997 through January 1998. Rawlings' common stock is publicly traded on the
Nasdaq Stock Market (symbol: RAWL).
The Company and Rawlings also entered into a Standstill Agreement, which,
among other things, provides that, for a specified period, the Company will be
restricted in acquiring additional shares of Rawlings' common stock or
participating in certain types of corporate events relating to the Company,
including proxy contests and tender offers, subject to certain exceptions.
Pursuant to a Registration Rights Agreement, Rawlings has also granted the
Company rights to have shares issuable upon the exercise of the warrants (and
the additional warrants, if any) registered under the Securities Act of 1933
under certain circumstances.
The aggregate market value of Rawlings common stock owned by the Company on
December 31, 1998 and 1997 was $9,124 and $4,602, respectively.
INVESTMENT IN TSI -- In 1998, the Company acquired 351,815 shares of TSI
series C convertible preferred stock for $2,500. In January 1999, the Company
invested an
F-16
<PAGE> 145
BULL RUN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
additional $1,000 for 105,374 shares of series C1 convertible preferred stock.
TSI, based in Raleigh, North Carolina, is a website services provider for
amateur and professional sports organizations and conferences, college athletic
departments, and selected corporations. Assuming conversion of all TSI preferred
stock, the Company's investment equates to a 7.7% share of TSI's capital stock
as of December 31, 1998, increasing to 9.0% immediately following the additional
investment made by the Company in January 1999. Dividends on the series C and
series C1 convertible preferred stock are cumulative, and accrue at $.85 per
share per annum and $1.14 per share per annum, respectively, from the issue
date, and are payable quarterly at TSI's discretion. Any outstanding series C
and series C1 preferred stock, plus all accumulated and unpaid dividends
thereon, are scheduled to be redeemed and paid in cash on July 31, 2003. In
addition to the Company's direct investment in TSI, HCI owns approximately 8.3%
of TSI's common stock, assuming conversion of all TSI preferred stock. The
shares owned by HCI are expected to be acquired by the Company in connection
with the HCI-USA Acquisition.
SUMMARIZED AGGREGATE FINANCIAL INFORMATION -- The summarized aggregate
financial information of affiliated companies follows:
Aggregate financial position (reflecting Gray and CSP as of December 31,
1998 and 1997; combined with HCI as of June 30, 1998 and 1997; combined with
Rawlings as of November 30, 1998 and 1997):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Current assets............................................. $144,648 $126,302
Property and equipment..................................... 70,614 59,361
Total assets............................................... 644,568 503,667
Current liabilities........................................ 59,699 53,732
Long-term debt............................................. 339,677 288,144
Total liabilities.......................................... 462,833 362,892
Stockholders' equity....................................... 181,735 140,775
</TABLE>
Aggregate operating results (reflecting Gray and CSP for the years ended
December 31, 1998, 1997 and 1996; combined with HCI for the years ended June 30,
1998, 1997 and 1996; combined with Rawlings for the years ended November 30,
1998, 1997 and 1996):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating revenue................................. $347,850 $294,583 $263,302
Income from operations............................ 37,351 34,106 27,901
Net income........................................ 47,546 4,845 7,666
</TABLE>
Undistributed earnings of investments accounted for by the equity method
amount to approximately $3,950 as of December 31, 1998.
UNAUDITED PRO FORMA FINANCIAL INFORMATION -- Unaudited pro forma results
for the years ended 1998 and 1997, assuming the acquisition of CodeWriter and
the investment in Rawlings had occurred on January 1, 1997, are presented below.
This unaudited pro forma data does not purport to represent the Company's actual
results of operations had the CodeWriter acquisition and the Rawlings'
investment occurred on January 1, 1997, and should not serve as a forecast of
the Company's operating results for any future periods. The pro forma
adjustments, including (a) the elimination of certain expenses pertaining to
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<PAGE> 146
BULL RUN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the former owners and members of CodeWriter; (b) adjustments to the Company's
equity in earnings (losses) for the Company's proportionate share of Rawlings'
net income; (c) amortization of goodwill in connection with the CodeWriter
acquisition; (d) the increase in interest expense in connection with acquisition
debt incurred; (e) adjustments for the income tax effects of the pro forma
adjustments; and (f) the increase in the number of outstanding shares of the
Company's common stock to reflect the treasury shares issued to the former
shareholders and members of CodeWriter, are based solely upon certain
assumptions that management believes are reasonable under the circumstances at
this time.
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Revenue from printer operations............................. $29,848 $26,908
Consulting fee income....................................... 1,618 681
Net income (loss)........................................... 2,380 (2,340)
Net income (loss) per share:
Basic..................................................... $ 0.11 $ (0.11)
Diluted................................................... $ 0.10 $ (0.11)
</TABLE>
5. INVENTORIES
Inventories related to the Company's printer operations consist of the
following as of December 31:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Raw materials............................................... $3,200 $2,734
Work-in-process............................................. 729 711
Finished goods.............................................. 1,238 312
------ ------
$5,167 $3,757
====== ======
</TABLE>
6. PROPERTY AND EQUIPMENT
The Company's property and equipment consist of the following as of
December 31:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Land........................................................ $ 750 $ 750
Production equipment........................................ 2,993 2,797
Research and development equipment.......................... 638 534
Office furniture and equipment.............................. 666 568
------ ------
5,047 4,649
Accumulated depreciation and amortization................... 2,424 2,011
------ ------
$2,623 $2,638
====== ======
</TABLE>
Bull Run's executive offices are leased from a company affiliated with a
principal stockholder and director of the Company under an operating lease
expiring in 2002. Datasouth leases its main facility for printer operations
under an operating lease expiring in December 2000, having a renewal option for
an additional three year period, and leases its west coast repair and
distribution center under an operating lease expiring in April 2001. The
Company's total rental expense was $481, $328 and $309 in 1998, 1997 and 1996,
respectively. The minimum annual rental commitments under these and other leases
with
F-18
<PAGE> 147
BULL RUN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
an original lease term exceeding one year are approximately $433 for each of
1999 and 2000, $244 for 2001 and $17 for each of 2002 and 2003.
7. LONG-TERM DEBT AND NOTE PAYABLE
The Company amended its long-term debt agreements with two banks in 1998,
and further amended the agreements in February and March 1999. Under an
agreement amended March 20, 1998 and further amended February 24, 1999, March
22, 1999 and March 24, 1999 (the "March 1998 Agreement"), the Company has
outstanding (a) four term notes payable to a bank, bearing interest at the
London Interbank Offered Rate ("LIBOR") plus 1.75%, requiring no principal
payments prior to maturity on January 1, 2003, under which $42,312 and $34,343
was outstanding as of December 31, 1998 and 1997, respectively, and (b) a
revolving bank credit facility for borrowings of up to $3,500 expiring May 1,
2000, bearing interest at the bank's prime rate, under which $2,536 and $3,183
was outstanding as of December 31, 1998 and 1997, respectively.
Under an agreement amended February 20, 1998 (the "February 1998
Agreement"), the Company entered into (a) a $5,000 term note, payable to a bank
in quarterly installments of $250, and (b) a revolving bank credit facility for
borrowings of up to $5,000. The February 1998 Agreement was further modified on
March 5, 1999 to revise certain terms, resulting in (a) a $4,000 term note,
payable in quarterly installments of $250 through March 31, 2000, with the
remainder due on June 30, 2000, and (b) a revolving bank credit facility for
borrowings of up to $5,000 until June 30, 1999, and $4,000 thereafter until
expiration on June 30, 2000. Borrowings under the February 1998 Agreement, as
modified, currently bear interest at either (a) the prime rate or (b) LIBOR plus
3%. As of December 31, 1998, $9,000 was outstanding under the February 1998
Agreement, and $5,472 was outstanding as of December 31, 1997 under its
predecessor agreement. The Company also had a demand bank note for borrowings of
up to $2,000, bearing interest at the bank's prime rate, under which $2,000 and
$1,500 was outstanding as of December 31, 1998 and 1997, respectively.
The loans are collateralized by Datasouth's accounts receivable,
inventories and equipment; common stocks of Gray, HCI, CSP, Rawlings and TSI
owned by the Company; preferred stock of Gray owned by the Company; warrants to
purchase Gray's and Rawlings' common stocks held by the Company; and shares of
the Company's common stock held by a significant shareholder of the Company. The
loans require adherence to certain financial covenants, the most restrictive of
which requires maintaining a debt service ratio, as defined, of 1.1 to 1.0.
In January 1998, the Company executed two interest rate swap agreements,
effectively modifying the interest characteristics of $24,000 of the Company's
outstanding long-term debt. The agreements involve the exchange of amounts based
on a fixed interest rate for amounts based on variable interest rates over the
life of the agreements, without an exchange of the notional amount upon which
the payments are based. The differential to be paid or received as interest
rates change will be accrued and recognized as an adjustment of interest expense
related to the debt. The Company effectively converted $20,000 and $4,000 of
floating rate debt to a fixed rate basis under two separate agreements, one of
which was modified in September 1998. Under the first agreement, $20,000 of
long-term debt is subject to a one-year forward swap agreement, whereby
F-19
<PAGE> 148
BULL RUN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
beginning January 1, 1999 and for the following nine years, the Company will be
subject to a fixed rate of 7.83%, instead of LIBOR plus 1.75%, the rate in
effect until then. Under the second agreement, $4,000 of long-term debt is
subject to a fixed rate of no more than 8.66% beginning September 30, 1998
through December 31, 2004, instead of LIBOR plus 3%, the rate in effect until
then.
The bank's prime rate as of December 31, 1998 was 7.75%. The interest rate
on the Company's LIBOR-based debt of $31,912 for the 90-day period including
December 31, 1998 was 8.72%. The interest rate on the Company's LIBOR-based debt
of $10,400 for the 90-day period including December 31, 1998 was 8.73%. The
interest rate on the Company's LIBOR-based borrowings of $4,000 for the 30-day
period including December 31, 1998 was 8.38%.
8. INCOME TAXES
The Company's income tax benefit (provision) for the years ending December
31 consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- ---- -------
<S> <C> <C> <C>
Current:
Federal.............................................. $ -- $ 50 $ (67)
Foreign.............................................. (14) -- --
State................................................ (3) (3) (66)
------- ---- -------
(17) 47 (133)
Deferred............................................... (1,837) 892 (3,879)
------- ---- -------
$(1,854) $939 $(4,012)
======= ==== =======
</TABLE>
The principal differences between the federal statutory tax rate and the
effective tax rate are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate.................................. 34.0% 34.0% 34.0%
Reduction in valuation allowance........................ (0.5)
Goodwill amortization................................... 3.1 (3.8) 1.0
State income taxes, net of federal benefit.............. 6.3 1.7 4.6
Other, net.............................................. 0.6 2.6 1.5
---- ---- ----
Effective tax rate...................................... 44.0% 34.5% 40.6%
==== ==== ====
</TABLE>
F-20
<PAGE> 149
BULL RUN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax liabilities (assets) are comprised of the following as of
December 31:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Investment in affiliated companies.......................... $ 6,971 $ 4,420
Property and equipment...................................... 165 204
Goodwill.................................................... 32 --
------- -------
Gross deferred tax liabilities............................ 7,168 4,624
------- -------
Deferred consulting fee income.............................. (263) (141)
Allowance for doubtful accounts............................. (32) (21)
Inventory costs and reserves................................ (232) (154)
Employee benefits........................................... (47) (40)
Warranty reserve............................................ (33) (23)
Net operating loss carryforward............................. (535) --
Business credit carryforward................................ (115) (129)
Alternative Minimum Tax credit carryforward................. (492) (503)
Other, net.................................................. (10) (14)
------- -------
Gross deferred tax assets................................. (1,759) (1,025)
------- -------
Total deferred taxes, net................................. $ 5,409 $ 3,599
======= =======
</TABLE>
A valuation allowance was provided principally to offset a portion of the
deferred tax asset associated with an Alternative Minimum Tax ("AMT") credit
carryforward at December 31, 1995, the realization of which was uncertain.
Following two successive years in which the Company utilized some of its AMT
credit carryforward, the Company determined that the realization of the entire
AMT credit carryforward was reasonably certain, and as a result, reduced its
valuation allowance to zero. The reduction in the valuation allowance resulted
in a tax benefit of $47 and a reduction in goodwill of $131 in 1996.
As of December 31, 1998, the Company has a net operating loss carryforward
for tax purposes of approximately $1,500 expiring in 2018 to reduce Federal
taxable income in the future, and an Alternative Minimum Tax ("AMT") credit
carryforward of approximately $500, and a business credit carryforward of
approximately $115, to reduce regular Federal tax liabilities in the future.
9. STOCK OPTIONS
The Company's 1994 Long Term Incentive Plan (the "1994 Plan") reserves
3,500,000 shares of the Company's common stock for issuance of stock options,
restricted stock awards and stock appreciation rights. Certain options granted
under the 1994 Plan are fully vested at the date of grant, and others vest over
three to five year periods. Options granted under the 1994 Plan have terms
ranging from three to ten years. Shares available for future option grants under
the 1994 Plan as of December 31, 1998 and 1997 were 1,527,500 and 567,000,
respectively.
The Company's Non-Employee Directors' 1994 Stock Option Plan (the "1994
Directors' Plan") reserves 350,000 shares of the Company's common stock for
issuance of stock options. Options under the 1994 Directors' Plan are fully
vested when granted.
F-21
<PAGE> 150
BULL RUN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Shares available for future option grants under the 1994 Directors' Plan as of
December 31, 1998 and 1997 were 170,000 and 180,000, respectively.
Information with respect to the Company's stock option plans follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
--------- -------------
<S> <C> <C>
Outstanding as of December 31, 1995.................... 1,641,000 $0.75 - $1.66
Granted.............................................. 535,000 $2.44 - $2.68
Exercised............................................ (45,000) $0.88
Forfeited............................................ (96,000) $0.88
---------
Outstanding as of December 31, 1996.................... 2,035,000 $0.75 - $2.68
Granted.............................................. 135,000 $2.31 - $2.44
Exercised............................................ (258,000) $0.75 - $1.48
Forfeited............................................ (30,000) $2.44
---------
Outstanding as of December 31, 1997.................... 1,882,000 $0.75 - $2.68
Granted.............................................. 50,000 $3.19 - $4.38
Exercised............................................ (254,000) $0.88 - $0.96
---------
Outstanding as of December 31, 1998.................... 1,678,000 $0.75 - $4.38
=========
Exercisable as of December 31:
1996................................................. 1,120,000 $0.75 - $2.44
1997................................................. 1,287,000 $0.75 - $2.68
1998................................................. 1,387,000 $0.75 - $4.38
</TABLE>
The weighted average per share fair value of options granted was $1.59 in
1998 and $1.26 in 1997. As of December 31, 1998, the number of outstanding
shares under option, weighted average option exercise price and weighted average
remaining option contractual life is as follows: 75,000 exercisable shares at
$.75 per share, expiring in 3.8 years; 613,000 exercisable shares at $.88 per
share, expiring in 4.5 years; 300,000 exercisable shares at $1.46 per share,
expiring in 4.5 years; 535,000 shares at $2.64 per share, expiring in 1.4 years
(360,000 shares of which are exercisable); 105,000 shares at $2.40 per share,
expiring in 7.2 years (29,000 shares of which are exercisable); and, 50,000
shares at $3.59 per share, expiring in 9.4 years (10,000 shares of which are
exercisable).
Pro forma net income and earnings per share required by FASB Statement No.
123, "Accounting for Stock-Based Compensation" ("FAS 123") has been determined
as if the Company had accounted for its employee stock options under the fair
value method of that Statement. The fair values for these options were estimated
at the time of grant using a Black-Scholes option pricing model assuming a
risk-free interest rate of 6.32%, dividend yield of 0.0%, a volatility factor of
.461, and a weighted-average expected life for the options of four to six years.
Had compensation cost been measured based on the fair value based accounting of
FAS 123, 1998 net income would have been $2,224, or $.10 per share (basic) and
$.10 per share (diluted), 1997 net loss would have been $(1,900), or $(.09) per
share (basic and diluted), and 1996 net income would have been $5,225, or $.24
per share (basic) and $.23 per share (diluted). These pro forma results are
provided for comparative purposes only and do not purport to be indicative of
what would had occurred had compensation cost been measured under FAS 123 or of
results which may occur in the future. Since FAS 123 is applicable only to
options granted subsequent to
F-22
<PAGE> 151
BULL RUN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994, its pro forma effect will not likely be representative of the
effects on reported net income for future years.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The aggregate fair value of the Company's investment in affiliated
companies was approximately $88,000 as of December 31, 1998, compared to the
carrying value of $73,346, and approximately $73,000 as of December 31, 1997,
compared to the carrying value of $61,551. The estimate of fair value was based
on, in the case of public-traded Gray and Rawlings, quoted market prices on the
New York Stock Exchange and the Nasdaq Stock Market, respectively, as of
December 31, 1998 and 1997; in the case of privately-held HCI, CSP and USA, for
December 31, 1998, the negotiated HCI-USA Acquisition per share purchase price
for shares not currently owned by the Company, and for December 31, 1997, recent
transactions in the capital stock of each company; in the case of TSI, recent
transactions in its capital stock; and management estimates.
The fair value of the interest rate swap agreements executed in 1998,
having an aggregate notional amount of $24,000 as of December 31, 1998 and
$24,750 as of December 31, 1997, is not recognized in the financial statements.
If, in the future, an interest rate swap agreement was terminated, any resulting
gain or loss would be deferred and amortized to interest expense over the
remaining life of the interest rate swap agreement. In the event of early
extinguishment of a designated debt obligation, any realized or unrealized gain
or loss from the swap would be recognized in the statement of operations
coincident with the extinguishment. In aggregate, the estimated cost of
terminating the swap agreements, if the Company elected to do so, was
approximately $1.3 million as of December 31, 1998.
All other financial instruments, including cash, cash equivalents,
receivables, payables and variable rate notes payable and long-term debt are
estimated to have a fair value which approximates its carrying value in the
financial statements.
11. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- ------
<S> <C> <C> <C>
Income (loss) before extraordinary item and cumulative
effect of accounting change.......................... $2,360 $(1,773) $5,877
====== ======= ======
Weighted average number of common shares outstanding
for basic earnings (loss) per share.................. 22,189 21,302 22,013
Effect of dilutive employee stock options.............. 993 -- 932
------ ------- ------
Adjusted weighted average number of common shares and
assumed conversions for diluted earnings (loss) per
share................................................ 23,182 21,302 22,945
====== ======= ======
Basic earnings (loss) per share........................ $ 0.11 $ (0.08) $ 0.26
Diluted earnings (loss) per share...................... $ 0.10 $ (0.08) $ 0.25
</TABLE>
F-23
<PAGE> 152
BULL RUN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. RETIREMENT PLANS
The Company has a 401(k) defined contribution benefit plan, whereby
employees of the Company may contribute 1% to 15% of their gross pay to the plan
subject to limitations set forth by the Internal Revenue Service. The Company
may make matching and/or discretionary contributions to the employees' accounts
in amounts to be determined annually. Total Company contributions to the plan
were $252 in 1998, $208 in 1997 and $243 in 1996.
13. GEOGRAPHIC DATA AND SIGNIFICANT CUSTOMER
Sales to non-domestic customers, located primarily in Western Europe and
South America were $2,823 in 1998, $2,497 in 1997 and $2,954 in 1996.
A significant amount of revenue from printer operations is derived from one
customer. In 1998, 1997 and 1996, approximately 31%, 33% and 30% of the
Company's revenue from printer operations was attributable to this customer,
respectively.
F-24
<PAGE> 153
BULL RUN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1998
Revenue from printer operations.......... $ 6,614 $ 7,544 $ 7,220 $ 8,470
Gross profit............................. 1,644 1,877 1,849 2,375
Consulting fee income.................... 2 650 964 2
Net income (loss)........................ (1,083) (199) 4,040 (398)
Earnings (loss) per share:
Basic.................................. $ (0.05) $ (0.01) $ 0.18 $ (0.02)
Diluted................................ $ (0.05) $ (0.01) $ 0.17 $ (0.02)
Weighted averaged number of shares:
Basic.................................. 22,029 22,167 22,283 22,277
Diluted................................ 22,029 22,167 23,285 22,277
1997
Revenue from printer operations.......... $ 5,465 $ 5,102 $ 5,545 $ 5,527
Gross profit............................. 1,528 1,313 1,566 1,265
Consulting fee income.................... 598 9 72 2
Net income (loss)........................ 20 (469) (374) (950)
Earnings (loss) per share:
Basic.................................. $ 0.00 $ (0.02) $ (0.02) $ (0.04)
Diluted................................ $ 0.00 $ (0.02) $ (0.02) $ (0.04)
Weighted average number of shares:
Basic.................................. 21,363 21,260 21,290 21,294
Diluted................................ 22,259 21,260 21,290 21,294
</TABLE>
F-25
<PAGE> 154
BULL RUN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS AND SHARES IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1999
---------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 103
Accounts receivable (includes $322 due from Gray
Communications Systems, Inc.).......................... 5,268
Inventories............................................... 5,457
Other..................................................... 180
--------
Total current assets.............................. 11,008
Property and equipment, net................................. 2,598
Investment in affiliated companies.......................... 84,254
Goodwill.................................................... 7,501
Other assets................................................ 384
--------
$105,745
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt....... $ 14,000
Accounts payable.......................................... 2,772
Accrued and other liabilities:
Employee compensation and related taxes................ 544
Interest............................................... 579
Other.................................................. 789
--------
Total current liabilities......................... 18,684
Long-term debt.............................................. 53,377
Deferred income taxes....................................... 4,892
Stockholders' equity:
Common stock, $.01 par value (authorized 100,000 shares;
issued 22,824 shares).................................. 228
Additional paid-in capital................................ 21,436
Treasury stock, at cost (542 shares)...................... (1,392)
Retained earnings......................................... 8,520
--------
Total stockholders' equity........................ 28,792
--------
$105,745
========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-26
<PAGE> 155
BULL RUN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Revenue from printer operations............................ $ 7,533 $ 6,614
Cost of goods sold......................................... 5,375 4,970
------- -------
Gross profit..................................... 2,158 1,644
Consulting fee income...................................... 195 2
Operating expenses:
Research and development................................. 706 554
Selling, general and administrative...................... 1,774 1,574
------- -------
2,480 2,128
------- -------
Loss from operations............................. (127) (482)
Other income (expense):
Equity in losses of affiliated companies................. (470) (270)
Interest and dividend income............................. 226 286
Interest expense......................................... (1,205) (1,032)
Other expense............................................ (2) (6)
------- -------
Loss before income taxes......................... (1,578) (1,504)
Income tax benefit......................................... 521 421
------- -------
Net loss......................................... (1,057) (1,083)
Retained earnings, beginning of period..................... 9,577 7,218
------- -------
Retained earnings, end of period........................... $ 8,520 $ 6,135
------- -------
Loss per share:
Basic.................................................... $ (0.05) $ (0.05)
Diluted.................................................. $ (0.05) $ (0.05)
Weighted average number of common shares outstanding:
Basic.................................................... 22,264 22,029
Diluted.................................................. 22,264 22,029
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-27
<PAGE> 156
BULL RUN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(1,057) $(1,083)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Provision for bad debts................................... 3 5
Depreciation and amortization............................. 267 340
Equity in losses of affiliated companies.................. 470 270
Deferred income taxes..................................... (517) (412)
Accrued preferred stock dividend income................... (75)
Change in operating assets and liabilities:
Accounts receivable.................................... 709 297
Inventories............................................ (290) (783)
Other current assets................................... 52 (49)
Accounts payable and accrued expenses.................. 561 424
------- -------
Net cash provided by (used in) operating expenses........... 198 (1,066)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (98) (117)
Investment in affiliated companies.......................... (11,378) (4,953)
Deferred acquisition costs.................................. (213)
Acquisition of printer manufacturer, net of cash acquired... (50) (1,903)
------- -------
Net cash used in investing activities....................... (11,739) (6,973)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from notes payable............................... 10,000
Borrowings from revolving lines of credit................... 5,269 4,062
Repayments on revolving lines of credit..................... (4,667) (5,371)
Proceeds from long-term debt................................ 1,176 10,015
Repayments on long-term debt................................ (250) (531)
Issuance of common stock.................................... 59 8
------- -------
Net cash provided by financing activities................... 11,587 8,183
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 46 144
Cash and cash equivalents, beginning of period.............. 57 142
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 103 $ 286
------- -------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid.......................................... $ 1,027 $ 785
Income taxes paid...................................... 3
Treasury stock issued in connection with acquisition of
printer manufacturer, a noncash investing and
financing activity................................... 2,500
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-28
<PAGE> 157
BULL RUN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
In management's opinion, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (consisting solely of normal,
recurring adjustments) necessary to present fairly the financial position and
results of operations for the interim periods reported. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements contained elsewhere in this proxy
statement/prospectus.
The accompanying condensed consolidated financial statements include the
accounts of Bull Run Corporation and its wholly-owned subsidiary, Datasouth
Computer Corporation (collectively, unless the context otherwise requires, the
"Company"), after elimination of intercompany accounts and transactions.
2. PENDING TRANSACTION
On February 15, 1999, the Company entered into a merger agreement to
acquire the stock of Host Communications, Inc. ("Host"), Universal Sports
America, Inc. ("Universal") and Capital Sports Properties, Inc. ("Capital") not
currently owned, directly or indirectly, by the Company, for approximately
$95,000 net of cash acquired (the "Host-Universal Acquisition"). Pursuant to the
agreement, a new holding company for the Company will be created immediately
prior to the Host-Universal Acquisition whereby each outstanding share of the
Company's common stock will be converted into one share of a newly formed
company. The new holding company, which will be a publicly held company, will be
owned by the stockholders of the Company, Host, Universal and Capital
immediately prior to such conversion and the Company and its subsidiaries will
become subsidiaries of such holding company. Approximately $37,000 of the Host-
Universal Acquisition purchase price is expected to be paid to Host, Universal
and Capital stockholders in cash and the remainder is expected to be paid in
common stock of the new holding company. The Company is currently Host's largest
stockholder, owning directly or indirectly approximately 32.5% of Host's
outstanding common stock and 51.5% of Host's outstanding preferred stock. The
Company's indirect ownership of Host's common stock and Host's preferred stock
is owned by Capital, in which the Company owns 51.5% of the outstanding common
stock. The Company and Host together are the largest stockholders of Universal,
with the Company owning directly approximately 3% of Universal's outstanding
capital stock and Host owning approximately 33% of Universal's outstanding
capital stock. For their most recent fiscal year ended June 30, 1998, Host and
Universal together had revenues of approximately $109,000. This transaction is
subject to the terms and conditions of the merger agreement, including approval
of the stockholders of Host, Universal, Capital and the Company.
3. INVESTMENT IN AFFILIATED COMPANIES
The Company accounts for its investments in Gray Communications Systems,
Inc. ("Gray"), Host, Capital and Rawlings Sporting Goods Company, Inc.,
("Rawlings") using the equity method. The excess of the Company's investments in
Gray, Host, Capital and Rawlings over the underlying equity thereof is being
amortized over 20 to 40 years, with such amortization (totaling $275 and $194 in
the three months ended March 31, 1999 and
F-29
<PAGE> 158
BULL RUN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998, respectively) reported as a reduction in the Company's equity in earnings
of affiliated companies (or, addition to the equity in losses of affiliates).
The Company provides consulting services to Gray from time to time in
connection with Gray's acquisitions and dispositions. Income on a portion of
such fees is deferred and recognized over 40 years as a result of the Company's
17.0% equity investment position in Gray as of March 31, 1999, with such
position representing a 27.5% voting interest in Gray.
The Company accounts for its investment in Host by the equity method on a
six-month lag basis, in order to align Host's fiscal year ending June 30 with
the Company's fiscal year. The Company accounts for its investment in Rawlings
by the equity method on a one month lag basis, in order to align Rawlings'
fiscal quarters ending November 30, February 28, May 31 and August 31 with the
Company's fiscal quarters.
Aggregate operating results of affiliated companies (reflecting, for 1999:
(i) Gray and Capital for the three months ended March 31, 1999; (ii) Host for
the three months ended September 30, 1998; and (iii) Rawlings for the three
months ended February 28, 1999; and reflecting, for 1998: (a) Gray and Capital
for the three months ended March 31, 1998; (b) Host for the three months ended
September 30, 1997; and (c) Rawlings for the three months ended February 28,
1998) were as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Operating revenue........................................... $96,645 $96,775
Income from operations...................................... 9,069 12,165
Net income.................................................. 717 2,527
</TABLE>
4. INVENTORIES
Inventories related to the Company's printer operations consist of the
following:
<TABLE>
<S> <C> <C>
Raw materials............................................... $3,416
Work-in-process............................................. 743
Finished goods.............................................. 1,298
------
$5,457
======
</TABLE>
5. NOTES PAYABLE AND LONG-TERM DEBT
The Company amended its long-term debt agreements in 1999, providing for
(a) four term notes payable to a bank, bearing interest at the London Interbank
Offered Rate ("LIBOR") plus 1.75%, requiring no principal payments prior to
maturity on January 1, 2003, under which $43,488 was outstanding as of March 31,
1999; (b) a revolving credit facility for borrowings of up to $3,500 expiring
May 1, 2000, bearing interest at the bank's prime rate, under which $3,209 was
outstanding as of March 31, 1999; (c) a $4,000 term note bearing interest at
LIBOR plus 3%, payable in quarterly installments of $250 through March 31, 2000,
with the remainder due June 30, 2000,
F-30
<PAGE> 159
BULL RUN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under which $3,750 was outstanding on March 31, 1999; and (d) a revolving bank
credit facility for borrowings of up to $5,000 until September 30, 1999, and
$4,000 thereafter until expiration on June 30, 2000, under which $4,930 was
outstanding as of March 31, 1999.
The Company also has (a) a bank note in the amount of $10,000 due August
26, 1999 with interest at the bank's prime rate, and (b) a demand bank note due
June 30, 1999 for borrowings of up to $2,000 bearing interest at the bank's
prime rate under which $2,000 was outstanding as of March 31, 1999. The $10,000
note was issued to finance the Company's investment in Sarkes Tarzian, Inc. on
January 28, 1999. The $2,000 demand note is expected to be extended or
refinanced under terms similar to the existing note.
The Company is a party to two interest rate swap agreements which
effectively modify the interest characteristics of $24,000 of its outstanding
long-term debt. The agreements involve the exchange of amounts based on a fixed
interest rate for amounts based on variable interest rates over the life of the
agreements, without an exchange of the notional amount upon which the payments
are based. The differential to be paid or received as interest rates change is
accrued and recognized as an adjustment of interest expense related to the debt.
Under the first agreement, $20,000 of long-term debt is subject to a one-year
forward swap agreement, whereby beginning January 1, 1999 and for the following
nine years, the Company will be subject to a fixed rate of 7.83%, instead of
LIBOR plus 1.75%. Under the second agreement, $4,000 of long-term debt is
subject to a fixed rate of 8.66% beginning September 30, 1998 through December
31, 2004, instead of LIBOR plus 3%.
6. INCOME TAXES
The principal differences between the federal statutory tax rate of 34% and
the effective tax rates are nondeductible goodwill amortization and state income
taxes.
F-31
<PAGE> 160
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Gray Communications Systems, Inc.
We have audited the accompanying consolidated balance sheets of Gray
Communications Systems, Inc., as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Gray
Communications Systems, Inc., at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
January 26, 1999
F-32
<PAGE> 161
(This page intentionally left blank)
F-33
<PAGE> 162
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 1,886,723 $ 2,367,300
Trade accounts receivable, less allowance for
doubtful accounts of $1,212,000 and $1,253,000,
respectively................................... 22,859,119 19,527,316
Recoverable income taxes.......................... 1,725,535 2,132,284
Inventories....................................... 1,191,284 846,891
Current portion of program broadcast rights....... 3,226,359 2,850,023
Other current assets.............................. 741,007 968,180
------------ ------------
Total current assets........................... 31,630,027 28,691,994
Property and equipment (Notes B and C):
Land.............................................. 2,196,021 889,696
Buildings and improvements........................ 12,812,112 11,951,700
Equipment......................................... 65,226,835 52,899,547
------------ ------------
80,234,968 65,740,943
Allowance for depreciation........................ (28,463,460) (23,635,256)
------------ ------------
51,771,508 42,105,687
Other assets:
Deferred loan costs (Note C)...................... 8,235,432 8,521,356
Goodwill and other intangibles (Note B)........... 376,014,972 263,425,447
Other............................................. 1,322,483 2,306,143
------------ ------------
385,572,887 274,252,946
------------ ------------
$468,974,422 $345,050,627
============ ============
</TABLE>
F-34
<PAGE> 163
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable (includes $880,000 and
$850,000 payable to Bull Run Corporation,
respectively).................................. $ 2,540,770 $ 3,321,903
Employee compensation and benefits................ 5,195,777 3,239,694
Accrued expenses.................................. 1,903,226 2,265,725
Accrued interest.................................. 5,608,134 4,533,366
Current portion of program broadcast
obligations.................................... 3,070,598 2,876,060
Deferred revenue.................................. 2,632,564 1,966,166
Current portion of long-term debt................. 430,000 400,000
------------ ------------
Total current liabilities........................... 21,381,069 18,602,914
Long-term debt (Notes B and C)...................... 270,225,255 226,676,377
Other long-term liabilities:
Program broadcast obligations, less current
portion........................................ 735,594 617,107
Supplemental employee benefits (Note D)........... 1,128,204 1,161,218
Deferred income taxes (Note G).................... 44,147,642 1,203,847
Other acquisition related liabilities (Note B).... 4,653,788 4,494,016
------------ ------------
50,665,228 7,476,188
Commitments and contingencies (Notes B, C and I)
Stockholders' equity (Notes B, C and E)
Serial Preferred Stock, no par value; authorized
20,000,000 shares; issued and outstanding 1,350
and 2,060 shares, respectively ($13,500,000 and
$20,600,000 aggregate liquidation value,
respectively).................................. 13,500,000 20,600,000
Class A Common Stock, no par value; authorized
15,000,000 shares; issued 7,961,574 shares,
respectively................................... 10,683,709 10,358,031
Class B Common Stock, no par value; authorized
15,000,000 shares; issued 5,273,046 shares,
respectively................................... 66,792,385 66,397,804
Retained earnings................................. 45,737,601 6,603,191
------------ ------------
136,713,695 103,959,026
Treasury Stock at cost, Class A Common, 1,129,532
and 1,172,882 shares, respectively............. (8,578,682) (9,011,369)
Treasury Stock at cost, Class B Common, 135,080
and 250,185 shares, respectively............... (1,432,143) (2,652,509)
------------ ------------
126,702,870 92,295,148
------------ ------------
$468,974,422 $345,050,627
============ ============
</TABLE>
See accompanying notes.
F-35
<PAGE> 164
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
OPERATING REVENUES:
Broadcasting (less agency
commissions)....................... $ 91,006,506 $ 72,300,105 $54,981,317
Publishing............................ 29,330,080 24,536,348 22,845,274
Paging................................ 8,552,936 6,711,426 1,478,608
------------ ------------ -----------
128,889,522 103,547,879 79,305,199
EXPENSES:
Broadcasting.......................... 52,967,142 41,966,493 32,438,405
Publishing............................ 24,197,169 19,753,387 17,949,064
Paging................................ 5,618,421 4,051,359 1,077,667
Corporate and administrative.......... 3,062,995 2,528,461 3,218,610
Depreciation.......................... 9,690,757 7,800,217 4,077,696
Amortization of intangible assets..... 8,425,821 6,718,302 3,584,845
Non-cash compensation paid in common
stock (Note D)..................... -0- -0- 880,000
------------ ------------ -----------
103,962,305 82,818,219 63,226,287
------------ ------------ -----------
24,927,217 20,729,660 16,078,912
Gain on disposition of television
stations (net of $780,000 paid to Bull
Run Corporation in 1998) (Note B)..... 70,572,128 -0- 5,671,323
Miscellaneous income and (expense),
net................................... (241,522) (30,851) 33,259
------------ ------------ -----------
95,257,823 20,698,809 21,783,494
Interest expense........................ 25,454,476 21,861,267 11,689,053
------------ ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY CHARGE......... 69,803,347 (1,162,458) 10,094,441
Federal and state income taxes (Note
G).................................... 28,143,981 240,000 4,416,000
------------ ------------ -----------
INCOME (LOSS) BEFORE EXTRAORDINARY
CHARGE........................... 41,659,366 (1,402,458) 5,678,441
Extraordinary charge on extinguishment
of debt, net of applicable income tax
benefit of $2,157,000 (Note C)........ -0- -0- 3,158,960
------------ ------------ -----------
NET INCOME (LOSS).................. 41,659,366 (1,402,458) 2,519,481
Preferred dividends (Note E)............ 1,317,830 1,409,690 376,849
------------ ------------ -----------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS.............. $ 40,341,536 $ (2,812,148) $ 2,142,632
============ ============ ===========
Average outstanding common
shares -- basic....................... 11,922,852 11,852,546 8,097,654
Stock compensation awards............... 481,443 -0- 340,668
------------ ------------ -----------
Average outstanding common
shares -- diluted..................... 12,404,295 11,852,546 8,438,322
============ ============ ===========
</TABLE>
F-36
<PAGE> 165
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
BASIC EARNINGS PER COMMON SHARE:
Income (loss) before extraordinary
charge available to common
stockholders....................... $ 3.38 $ (0.24) $ 0.65
Extraordinary charge.................. -0- -0- (0.39)
------------ ------------ -----------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS.............. $ 3.38 $ (0.24) $ 0.26
============ ============ ===========
DILUTED EARNINGS PER COMMON SHARE:
Income (loss) before extraordinary
charge available to common
stockholders....................... $ 3.25 $ (0.24) $ 0.62
Extraordinary charge.................. -0- -0- (0.37)
------------ ------------ -----------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS.............. $ 3.25 $ (0.24) $ 0.25
============ ============ ===========
</TABLE>
See accompanying notes.
F-37
<PAGE> 166
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- ----------------------- ----------------------- RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT EARNINGS
------ ----------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.............. 0 $ 0 7,624,134 $ 6,795,976 0 $ 0 $ 8,827,906
Net Income................................ 0 0 0 0 0 0 2,519,481
Common Stock Cash Dividends:
Class A ($0.05 per share)................ 0 0 0 0 0 0 (357,598)
Class B ($0.01 per share)................ 0 0 0 0 0 0 (69,000)
Purchase of Class B Common Stock (Note
E)....................................... 0 0 0 0 0 0 0
Issuance of Class A Common Stock (Notes E,
F and H):
401(k) Plan.............................. 0 0 19,837 262,426 0 0 0
Directors' Stock Plan.................... 0 0 33,750 228,749 0 0 0
Non-qualified Stock Plan................. 0 0 55,275 358,417 0 0 0
Preferred Stock Dividends................. 0 0 0 0 0 0 (376,849)
Issuance of Class A Common Stock Warrants
(Notes B and E).......................... 0 0 0 2,600,000 0 0 0
Issuance of Series A Preferred Stock in
exchange for Subordinated Note (Notes B
and E)................................... 1,000 10,000,000 0 (2,383,333) 0 0 0
Issuance of Series B Preferred Stock
(Notes B and E).......................... 1,000 10,000,000 0 0 0 0 0
Issuance of Class B Common Stock, net of
expenses (Notes B and E)................. 0 0 0 0 5,250,000 66,065,762 0
Income tax benefits relating to stock
plans.................................... 0 0 0 132,000 0 0 0
----- ----------- --------- ----------- --------- ----------- -----------
Balance at December 31, 1996.............. 2,000 20,000,000 7,732,996 7,994,235 5,250,000 66,065,762 10,543,940
<CAPTION>
CLASS A CLASS B
TREASURY STOCK TREASURY STOCK
------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT TOTAL
---------- ----------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995.............. (994,770) $(6,638,284) 0 $ 0 $ 8,985,598
Net Income................................ 0 0 0 0 2,519,481
Common Stock Cash Dividends:
Class A ($0.05 per share)................ 0 0 0 0 (357,598)
Class B ($0.01 per share)................ 0 0 0 0 (69,000)
Purchase of Class B Common Stock (Note
E)....................................... 0 0 (258,450) (2,740,137) (2,740,137)
Issuance of Class A Common Stock (Notes E,
F and H):
401(k) Plan.............................. 0 0 0 0 262,426
Directors' Stock Plan.................... 0 0 0 0 228,749
Non-qualified Stock Plan................. 0 0 0 0 358,417
Preferred Stock Dividends................. 0 0 0 0 (376,849)
Issuance of Class A Common Stock Warrants
(Notes B and E).......................... 0 0 0 0 2,600,000
Issuance of Series A Preferred Stock in
exchange for Subordinated Note (Notes B
and E)................................... 0 0 0 0 7,616,667
Issuance of Series B Preferred Stock
(Notes B and E).......................... 0 0 0 0 10,000,000
Issuance of Class B Common Stock, net of
expenses (Notes B and E)................. 0 0 0 0 66,065,762
Income tax benefits relating to stock
plans.................................... 0 0 0 0 132,000
---------- ----------- -------- ----------- ------------
Balance at December 31, 1996.............. (994,770) (6,638,284) (258,450) (2,740,137) 95,225,516
</TABLE>
F-38
<PAGE> 167
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- ----------------------- ----------------------- RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT EARNINGS
------ ----------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.............. 2,000 $20,000,000 7,732,996 $ 7,994,235 5,250,000 $66,065,762 $10,543,940
Net Loss.................................. 0 0 0 0 0 0 (1,402,458)
Common Stock Cash Dividends ($0.05) per
share.................................... 0 0 0 0 0 0 (628,045)
Preferred Stock Dividends................. 0 0 0 0 0 0 (1,409,690)
Issuance of Class A Common Stock (Notes E
and F):
Directors' Stock Plan.................... 0 0 752 9,645 0 0 0
Non-qualified Stock Plan................. 0 0 44,775 317,151 0 0 0
Stock Award Restricted Stock Plan........ 0 0 183,051 1,200,000 0 0 0
Issuance of Class B Common Stock (Notes E
and H):
401(k) Plan.............................. 0 0 0 0 23,046 282,384 0
Issuance of Series B Preferred Stock (Note
E)....................................... 60 600,000 0 0 0 0 0
Issuance of Treasury Stock (Notes E, F,
and H):
401(k) Plan.............................. 0 0 0 0 0 49,658 0
Non-qualified Stock Plan................. 0 0 0 0 0 0 (500,556)
Purchase of Class A Common Stock (Note
E)....................................... 0 0 0 0 0 0 0
Income tax benefits relating to stock
plans.................................... 0 0 0 837,000 0 0 0
----- ----------- --------- ----------- --------- ----------- -----------
Balance at December 31, 1997.............. 2,060 $20,600,000 7,961,574 $10,358,031 5,273,046 $66,397,804 $ 6,603,191
<CAPTION>
CLASS A CLASS B
TREASURY STOCK TREASURY STOCK
------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT TOTAL
---------- ----------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996.............. (994,770) $(6,638,284) (258,450) $(2,740,137) $ 95,225,516
Net Loss.................................. 0 0 0 0 (1,402,458)
Common Stock Cash Dividends ($0.05) per
share.................................... 0 0 0 0 (628,045)
Preferred Stock Dividends................. 0 0 0 0 (1,409,690)
Issuance of Class A Common Stock (Notes E
and F):
Directors' Stock Plan.................... 0 0 0 0 9,645
Non-qualified Stock Plan................. 0 0 0 0 317,151
Stock Award Restricted Stock Plan........ 0 0 0 0 1,200,000
Issuance of Class B Common Stock (Notes E
and H):
401(k) Plan.............................. 0 0 0 0 282,384
Issuance of Series B Preferred Stock (Note
E)....................................... 0 0 0 0 600,000
Issuance of Treasury Stock (Notes E, F,
and H):
401(k) Plan.............................. 0 0 8,265 87,628 137,286
Non-qualified Stock Plan................. 81,238 1,082,390 0 0 581,834
Purchase of Class A Common Stock (Note
E)....................................... (259,350) (3,455,475) 0 0 (3,455,475)
Income tax benefits relating to stock
plans.................................... 0 0 0 0 837,000
---------- ----------- -------- ----------- ------------
Balance at December 31, 1997.............. (1,172,882) $(9,011,369) (250,185) $(2,652,509) $ 92,295,148
</TABLE>
F-39
<PAGE> 168
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- ----------------------- ----------------------- RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT EARNINGS
------ ----------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997.............. 2,060 $20,600,000 7,761,574 $10,358,031 5,273,046 $66,397,804 $ 6,603,191
Net Income................................ 0 0 0 0 0 0 41,659,366
Common Stock Cash Dividends ($0.06) per
share.................................... 0 0 0 0 0 0 (715,209)
Preferred Stock Dividends................. 0 0 0 0 0 0 (1,317,830)
Issuance of Treasury Stock (Notes E, F,
and H):
401(k) Plan.............................. 0 0 0 0 0 180,821 0
Directors' Stock Plan.................... 0 0 0 0 0 30,652 0
Non-qualified Stock Plan................. 0 0 0 0 0 9,597 (491,917)
Purchase of Class A Common Stock (Note
E)....................................... 0 0 0 0 0 0 0
Issuance of Series B Preferred Stock (Note
E)....................................... 51 509,384 0 0 0 0 0
Purchase of Series B Preferred Stock (Note
E)....................................... (761) (7,609,384) 0 0 0 0 0
Income tax benefits relating to stock
plans.................................... 0 0 0 325,678 0 173,511 0
----- ----------- --------- ----------- --------- ----------- -----------
Balance at December 31, 1998.............. 1,350 $13,500,000 7,961,574 $10,683,709 5,273,046 $66,792,385 $45,737,601
===== =========== ========= =========== ========= =========== ===========
<CAPTION>
CLASS A CLASS B
TREASURY STOCK TREASURY STOCK
------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT TOTAL
---------- ----------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997.............. (1,172,882) $(9,011,369) (250,185) $(2,652,509) $ 92,295,148
Net Income................................ 0 0 0 0 41,659,366
Common Stock Cash Dividends ($0.06) per
share.................................... 0 0 0 0 (715,209)
Preferred Stock Dividends................. 0 0 0 0 (1,317,830)
Issuance of Treasury Stock (Notes E, F,
and H):
401(k) Plan.............................. 0 0 29,305 310,703 491,524
Directors' Stock Plan.................... 0 0 84,300 893,763 924,415
Non-qualified Stock Plan................. 74,100 1,015,254 1,500 15,900 548,834
Purchase of Class A Common Stock (Note
E)....................................... (30,750) (582,567) 0 0 (582,567)
Issuance of Series B Preferred Stock (Note
E)....................................... 0 0 0 0 509,384
Purchase of Series B Preferred Stock (Note
E)....................................... 0 0 0 0 (7,609,384)
Income tax benefits relating to stock
plans.................................... 0 0 0 0 499,189
---------- ----------- -------- ----------- ------------
Balance at December 31, 1998.............. (1,129,532) $(8,578,682) (135,080) $(1,432,143) $126,702,870
========== =========== ======== =========== ============
</TABLE>
See accompanying notes.
F-40
<PAGE> 169
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
------------- ------------ -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................. $ 41,659,366 $ (1,402,458) $ 2,519,481
Items which did not use (provide)
cash:
Depreciation.................... 9,690,757 7,800,217 4,077,696
Amortization of intangible
assets........................ 8,425,821 6,718,302 3,584,845
Amortization of deferred loan
costs......................... 1,097,952 1,083,303 270,813
Amortization of program
broadcast rights.............. 4,250,714 3,501,330 2,742,712
Amortization of original issue
discount on 8% subordinated
note.......................... 0 0 216,667
Write-off of loan acquisition
costs from early
extinguishment of debt........ 0 0 1,818,840
Gain on disposition of
television stations........... (70,572,128) 0 (5,671,323)
Payments for program broadcast
rights........................ (4,209,811) (3,629,350) (2,877,128)
Compensation paid in Common
Stock......................... 0 0 880,000
Supplemental employee
benefits...................... (252,611) (196,057) (855,410)
Common Stock contributed to
401(K) Plan................... 491,524 419,670 262,426
Deferred income taxes........... 26,792,795 1,283,000 (44,000)
Loss on asset sales............. 332,042 108,998 201,792
Changes in operating assets and
liabilities:
Trade accounts receivable..... (302,905) (369,675) (1,575,723)
Recoverable income taxes...... 406,749 (384,597) (400,680)
Inventories................... (344,393) (101,077) 254,952
Other current assets.......... 342,674 (569,745) (21,248)
Trade accounts payable........ (797,447) (2,825,099) 2,256,795
Employee compensation and
benefits................... 1,283,150 (2,848,092) 2,882,379
Accrued expenses.............. 79,644 1,279,164 (2,936,155)
Accrued interest.............. 1,074,768 (325,409) 3,794,284
Deferred revenue.............. 625,149 201,657 710,286
------------- ------------ -------------
Net cash provided by operating
activities......................... 20,073,810 9,744,082 12,092,301
</TABLE>
F-41
<PAGE> 170
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
------------- ------------ -------------
<S> <C> <C> <C>
INVESTING ACTIVITIES
Acquisition of television
businesses...................... $(122,455,774) $(45,644,942) $(210,944,547)
Disposition of television
business........................ 76,440,419 0 9,480,699
Purchases of property and
equipment....................... (9,270,623) (10,371,734) (3,395,635)
Proceeds from asset sales.......... 318,697 24,885 174,401
Deferred acquisition costs......... 0 (89,056) 0
Payments on purchase liabilities... (551,917) (764,658) (243,985)
Other.............................. 220,390 (652,907) (139,029)
------------- ------------ -------------
Net cash used in investing
activities......................... (55,298,808) (57,498,412) (205,068,096)
FINANCING ACTIVITIES
Proceeds from borrowings on
long-term debt.................. 90,070,000 75,350,000 238,478,310
Repayments of borrowings on
long-term debt.................. (46,609,122) (22,678,127) (109,434,577)
Deferred loan costs................ (854,235) (463,397) (9,410,078)
Dividends paid..................... (1,642,709) (1,428,045) (426,598)
Common Stock transactions.......... 499,189 1,163,796 719,166
Proceeds from equity offering -
Class B Common Stock, net of
expenses........................ 0 0 66,065,762
Proceeds from offering of Series B
Preferred Stock................. 0 0 10,000,000
Proceeds from settlement of
interest rate swap agreement.... 0 0 215,000
Proceeds from sale of treasury
shares.......................... 1,473,249 581,834 0
Purchase of Class A Common Stock... (582,567) (3,455,475) 0
Purchase of Class B Common Stock... 0 0 (2,740,137)
Redemption of Preferred Stock...... (7,609,384) 0 0
------------- ------------ -------------
Net cash provided by financing
activities......................... 34,744,421 49,070,586 193,466,848
------------- ------------ -------------
Increase (decrease) in cash and cash
equivalents........................ (480,577) 1,316,256 491,053
Cash and cash equivalents at
beginning of year.................. 2,367,300 1,051,044 559,991
------------- ------------ -------------
Cash and cash equivalents at end of
year............................... $ 1,886,723 $ 2,367,300 $ 1,051,044
============= ============ =============
</TABLE>
See accompanying notes.
F-42
<PAGE> 171
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company's operations, which are located in ten southeastern and
midwestern states, include ten television stations, a transportable satellite
uplink business, three daily newspapers, a weekly advertising only publication
and paging operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
REVENUE RECOGNITION
The Company recognizes revenues as services are performed.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit with a bank. Deposits
with the bank are generally insured in limited amounts.
INVENTORIES
Inventories, principally newsprint and supplies, are stated at the lower of
cost or market. The Company uses the last-in, first-out ("LIFO") method of
determining costs for substantially all of its inventories. Current cost
exceeded the LIFO value of inventories by approximately $13,000 and $15,000 at
December 31, 1998 and 1997, respectively.
PROGRAM BROADCAST RIGHTS
Rights to programs available for broadcast under program license agreements
are initially recorded at the beginning of the license period for the amounts of
total license fees payable under the license agreements and are charged to
operating expense on the basis of total programs available for use on the
straight-line method. The portion of the unamortized balance expected to be
charged to operating expense in the succeeding year is classified as a current
asset, with the remainder classified as a non-current asset. The liability for
the license fees payable under the program license agreements is classified as
current or long-term, in accordance with the payment terms of the various
license agreements. The capitalized costs of the rights are recorded at the
lower of unamortized costs or estimated net realizable value.
F-43
<PAGE> 172
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed
principally by the straight-line method for financial reporting purposes and by
accelerated methods for income tax purposes. Buildings, improvements and
equipment are depreciated over estimated useful lives of approximately 35 years,
10 years and 5 years, respectively.
INTANGIBLE ASSETS
Intangible assets are stated at cost and are amortized using the
straight-line method. Goodwill is amortized over 40 years. Loan acquisition fees
are amortized over the life of the applicable indebtedness. Non-compete
agreements are amortized over the life of the specific agreement. Accumulated
amortization of intangible assets resulting from business acquisitions was $21.2
million and $11.5 million as of December 31, 1998 and 1997, respectively.
If facts and circumstances indicate that the goodwill, property and
equipment or other assets may be impaired, an evaluation of continuing value
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with these assets would be compared to their
carrying amount to determine if a write down to fair market value or discounted
cash flow value is required.
INCOME TAXES
Deferred income taxes are provided on the differences between the financial
statement and income tax basis of assets and liabilities. The Company and its
subsidiaries file a consolidated federal income tax return. Consolidated state
income tax returns are filed when appropriate and separate state tax returns are
filed when consolidation is not available. Local tax returns are filed
separately.
CAPITAL STOCK
On August 20, 1998, the Board of Directors declared a 50% stock dividend,
payable on September 30, 1998, to stockholders of record of the Class A Common
Stock and Class B Common Stock on September 16, 1998. This stock dividend
effected a three for two stock split. All applicable share and per share data
have been adjusted to give effect to the stock split.
STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its stock options. Under APB 25, if the
exercise price of the stock options granted by the Company equals the market
price of the underlying stock on the date of the grant, no compensation expense
is recognized.
CONCENTRATION OF CREDIT RISK
The Company provides print advertising and advertising air time to
national, regional and local advertisers within the geographic areas in which
the Company operates. Credit is
F-44
<PAGE> 173
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
extended based on an evaluation of the customer's financial condition, and
generally advance payment is not required. Credit losses are provided for in the
financial statements and consistently have been within management's
expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of long-term debt at December 31, 1998 and 1997
exceeded book value by $10.4 million and $13.2 million, respectively. The fair
value of the Preferred Stock at December 31, 1998 and 1997 approximates its
carrying value at that date. The Company does not anticipate settlement of
long-term debt or preferred stock at other than book value.
The fair value of other financial instruments classified as current assets
or liabilities approximates their carrying values due to the short-term
maturities of these instruments.
RECLASSIFICATIONS
Certain amounts in the accompanying consolidated financial statements have
been reclassified to conform to the 1998 format.
B. BUSINESS ACQUISITIONS AND DISPOSITIONS
The Company's acquisitions have been accounted for under the purchase
method of accounting. Under the purchase method of accounting, the results of
operations of the acquired businesses are included in the accompanying
consolidated financial statements as of their respective acquisition dates. The
assets and liabilities of acquired businesses are included based on an
allocation of the purchase price.
RECENT AND PENDING ACQUISITIONS
On March 1, 1999, the Company acquired substantially all of the assets of
The Goshen News from News Printing Company, Inc. and affiliates thereof, for
aggregate cash consideration of approximately $16.7 million including a
non-compete agreement. The Goshen News is a 17,000 circulation afternoon
newspaper published Monday through Saturday and serves Goshen, Indiana and
surrounding areas. The Company financed the acquisition through its $200.0
million bank loan agreement (the "Senior Credit Facility").
On January 28, 1999, Bull Run Corporation ("Bull Run"), a principal
stockholder of the Company, acquired 301,119 shares of the outstanding common
stock of Sarkes Tarzian, Inc. ("Tarzian") from the Estate of Mary Tarzian (the
"Estate") for $10.0 million. The acquired shares (the "Tarzian Shares")
represent 33.5% of the total outstanding common stock of Tarzian (both in terms
of the number of shares of common stock outstanding and in terms of voting
rights), but such investment represents 73% of the equity of Tarzian for
purposes of dividends as well as distributions in the event of any liquidation,
dissolution or other termination of Tarzian. Tarzian has filed a complaint in
the United States District Court for the Southern District of Indiana, claiming
that it had a binding contract with the Estate to purchase the Tarzian Shares
from the Estate prior to Bull Run's purchase of the shares, and requests
judgment providing that the Estate be required to sell the Tarzian Shares to
Tarzian. Bull Run believes that a binding contract between Tarzian and the
Estate did not exist, prior to Bull Run's purchase of the Tarzian
F-45
<PAGE> 174
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Shares from the Estate, and in any case, Bull Run's purchase agreement with the
Estate provides that in the event that a court of competent jurisdiction awards
title to the Tarzian Shares to a person or entity other than Bull Run, the
purchase agreement is rescinded and the Estate is required to pay Bull Run the
full $10.0 million purchase price, plus interest. Tarzian owns and operates two
television stations and four radio stations: WRCB-TV Channel 3 in Chattanooga,
Tennessee, an NBC affiliate; KTVN-TV Channel 2 in Reno, Nevada, a CBS affiliate;
WGCL-AM and WTTS-FM in Bloomington, Indiana; and WAJI-FM and WLDE-FM in Fort
Wayne, Indiana. The Chattanooga and Reno markets rank as the 87th and the 108th
largest television markets in the United States, respectively, as ranked by A.
C. Nielsen Company.
The Company has executed an option agreement with Bull Run, whereby the
Company has the option of acquiring the Tarzian investment from Bull Run. Upon
exercise of the option, the Company will pay Bull Run an amount equal to Bull
Run's purchase price for the Tarzian investment and related costs. The option
agreement currently expires on May 31, 1999; however, the Company may extend the
option period at an established fee. In connection with the option agreement,
the Company granted to Bull Run warrants to purchase up to 100,000 shares of the
Company's Class B Common Stock at $13.625 per share. The warrants vest
immediately upon the Company's exercise of its option to purchase the Tarzian
investment. Neither Bull Run's investment nor the Company's potential investment
is presently attributable under the ownership rules of the Federal
Communications Commission ("FCC"). If the Company successfully exercises the
option agreement, the Company plans to fund the acquisition through its Senior
Credit Facility.
1998 ACQUISITIONS AND DISPOSITION
On July 31, 1998, the Company completed the purchase of all of the
outstanding capital stock of Busse Broadcasting Corporation ("Busse"). The
purchase price was $120.5 million less the accreted value of Busse's 11 5/8%
Senior Secured Notes due 2000 ("Busse Senior Notes"). The purchase price of the
capital stock consisted of the contractual purchase price of $112.0 million,
associated transaction costs of $2.9 million and Busse's cash and cash
equivalents of $5.6 million. Immediately following the acquisition of Busse, the
Company exercised its right to satisfy and discharge the Busse Senior Notes,
effectively prefunding the Busse Senior Notes at the October 15, 1998 call price
of 106 plus accrued interest. The amount necessary to satisfy and discharge the
Busse Senior Notes was approximately $69.9 million. Based on the preliminary
allocation of the purchase price, the excess of the purchase price over the fair
value of net tangible assets acquired was approximately $122.8 million.
Immediately prior to the Company's acquisition of Busse, Cosmos
Broadcasting Corporation acquired the assets of WEAU-TV ("WEAU") from Busse and
exchanged them for the assets of WALB-TV, Inc. ("WALB"), the Company's NBC
affiliate in Albany, Georgia. In exchange for the assets of WALB, the Company
received the assets of WEAU, which were valued at $66.0 million, and
approximately $12.0 million in cash for a total value of $78.0 million. The
Company recognized a pre-tax gain of approximately $70.6 million and estimated
deferred income taxes of approximately $27.5 million in
F-46
<PAGE> 175
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
connection with the exchange of WALB. The Company funded the remaining costs of
the acquisition of Busse's capital stock through its Senior Credit Facility.
As a result of these transactions, the Company added the following
television stations to its existing broadcast group: KOLN-TV ("KOLN"), the CBS
affiliate serving the Lincoln-Hastings-Kearney, Nebraska market; its satellite
station KGIN-TV ("KGIN"), the CBS affiliate serving Grand Island, Nebraska; and
WEAU, an NBC affiliate serving the La Crosse-Eau Claire, Wisconsin market. These
transactions also satisfied the FCC's requirement for the Company to divest
itself of WALB. The transactions described above are referred to herein as the
"Busse-WALB Transactions."
The Company's Board of Directors has agreed to pay Bull Run a fee of
approximately $2.0 million for services performed in connection with the
Busse-WALB Transactions. Of this fee, $1.1 million had been paid to Bull Run and
$880,000 remained in accounts payable at December 31, 1998.
Unaudited pro forma operating data for the years ended December 31, 1998
and 1997 are presented below and assumes that the Busse-WALB Transactions and
the 1997 Broadcasting Acquisitions (as defined in 1997 Acquisitions) were
completed on January 1, 1997. The above described unaudited pro forma operating
data excludes a pre-tax gain of approximately $70.6 million and estimated
deferred income taxes of approximately $27.5 million in connection with the
disposition of WALB.
This unaudited pro forma operating data does not purport to represent the
Company's actual results of operations had the Busse-WALB Transactions and the
1997 Broadcasting Acquisitions been completed on January 1, 1997, and should not
serve as a forecast of the Company's operating results for any future periods.
The pro forma adjustments are based solely upon certain assumptions that
management believes are reasonable under the circumstances at this time.
Unaudited pro forma operating data for the years ended December 31, 1998 and
1997, are as follows (in thousands, except per common share data):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues, net.............................................. $133,661 $117,981
======== ========
Net loss available to common stockholders.................. $ (4,562) $ (6,647)
======== ========
Loss per share available to common stockholders:
Basic.................................................... $ (0.38) $ (0.56)
======== ========
Diluted.................................................. $ (0.38) $ (0.56)
======== ========
</TABLE>
The pro forma results presented above include adjustments to reflect (i)
the incurrence of interest expense to fund the respective acquisitions, (ii)
depreciation and amortization of assets acquired, (iii) the elimination of the
corporate expense allocation net of additional accounting and administrative
expenses and (iv) the income tax effect of such pro forma adjustments.
F-47
<PAGE> 176
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 ACQUISITIONS
On August 1, 1997, the Company purchased the assets of WITN-TV ("WITN").
The purchase price of approximately $41.7 million consisted of $40.7 million
cash, $600,000 in acquisition related costs, and approximately $400,000 in
liabilities which were assumed by the Company. The excess of the purchase price
over the fair value of net tangible assets acquired was approximately $37.4
million. The Company funded the costs of this acquisition through its Senior
Credit Facility. WITN operates on Channel 7 and is the NBC affiliate in the
Greenville-New Bern-Washington, North Carolina market. In connection with the
purchase of the assets of WITN ("WITN Acquisition"), the Company paid Bull Run a
fee of $400,000 for services performed.
On April 24, 1997, the Company acquired all of the issued and outstanding
common stock of GulfLink Communications, Inc. ("GulfLink") of Baton Rouge,
Louisiana. The GulfLink operations included nine transportable satellite uplink
trucks. The purchase price of approximately $5.2 million consisted of $4.1
million cash, $127,000 in acquisition related costs, and approximately $1.0
million in liabilities which were assumed by the Company. The excess of the
purchase price over the fair value of net tangible assets acquired was
approximately $3.6 million. The Company funded the costs of this acquisition
through its Senior Credit Facility. In connection with the purchase of the
common stock of GulfLink Communications, Inc. (the "GulfLink Acquisition"), the
Company paid Bull Run a fee equal to $58,000 for services performed. The WITN
Acquisition and the GulfLink Acquisition are hereinafter referred to as the
"1997 Broadcasting Acquisitions."
Unaudited pro forma operating data for the year ended December 31, 1997 and
1996 are presented below and assumes that the 1997 Broadcasting Acquisitions,
the First American Acquisition (as defined in 1996 Acquisitions and Disposition)
and the KTVE Sale (as defined in 1996 Acquisitions and Disposition) occurred on
January 1, 1996.
This unaudited pro forma operating data does not purport to represent the
Company's actual results of operations had these transactions occurred on
January 1, 1996, and should not serve as a forecast of the Company's operating
results for any future periods. The pro forma adjustments are based solely upon
certain assumptions that management believes are reasonable under the
circumstances at this time. Unaudited pro forma operating data for the years
ended December 31, 1997 and 1996, are as follows (in thousands, except per
common share data):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues, net.............................................. $109,099 $108,908
======== ========
Net loss available to common stockholders.................. $ (3,769) $ (2,397)
======== ========
Loss per share available to common stockholders:
Basic.................................................... $ (0.32) $ (0.20)
======== ========
Diluted.................................................. $ (0.32) $ (0.20)
======== ========
</TABLE>
The pro forma results presented above include adjustments to reflect (i)
the incurrence of interest expense to fund the 1997 Broadcasting Acquisitions,
and the First
F-48
<PAGE> 177
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
American Acquisition (as defined in 1996 Acquisitions and Disposition), (ii)
depreciation and amortization of assets acquired, (iii) the reduction of
employee compensation related to severance and vacation compensation for 1996,
(iv) the elimination of the corporate expense allocation net of additional
accounting and administrative expenses for the WITN Acquisition and the First
American Acquisition, (v) increased pension expense for the First American
Acquisition, and (vi) the income tax effect of such pro forma adjustments.
Average outstanding shares used to calculate pro forma earnings per share data
for 1996 include the 5,250,000 Class B Common shares issued in connection with
the First American Acquisition.
1996 ACQUISITIONS AND DISPOSITION
On September 30, 1996, the Company purchased from First American Media,
Inc. substantially all of the assets used in the operation of two CBS-affiliated
television stations, WCTV-TV ("WCTV") serving Tallahassee, Florida-Thomasville,
Georgia and WKXT-TV ("WKXT") in Knoxville, Tennessee, as well as those assets
used in the operations of a satellite uplink and production services business
and a communications and paging business (the "First American Acquisition").
Subsequent to the First American Acquisition, the Company rebranded WKXT with
the call letters WVLT ("WVLT"). The purchase price of approximately $183.9
million consisted of $175.5 million cash, $1.8 million in acquisition related
costs, and the assumption of approximately $6.6 million of liabilities. The
excess of the purchase price over the fair value of net tangible assets acquired
was approximately $160.2 million. The Company paid Bull Run, a fee equal to
approximately $1.7 million for services performed in connection with this
acquisition.
The First American Acquisition and the early retirement of the Company's
existing bank credit facility and other senior indebtedness, were funded as
follows: net proceeds of $66.1 million from the sale of 5,250,000 shares of the
Company's Class B Common Stock; net proceeds of $155.2 million from the sale of
$160.0 million principal amount of the Company's 10 5/8% Senior Subordinated
Notes due 2006; $16.9 million of borrowings under the Senior Credit Facility;
and $10.0 million net proceeds from the sale of 1,000 shares of the Company's
Series B Preferred Stock with warrants to purchase 750,000 shares of the
Company's Class A Common Stock at $16 per share. The shares of Series B
Preferred Stock were issued to Bull Run and to J. Mack Robinson, Chairman of the
Board of Bull Run and President and Chief Executive Officer of the Company, and
certain of his affiliates. The Company obtained an opinion from an investment
banker as to the fairness of the terms of the sale of such Series B Preferred
Stock with warrants.
In connection with the First American Acquisition, the FCC ordered the
Company to divest itself of WALB in Albany, Georgia and WJHG-TV ("WJHG") in
Panama City, Florida by March 31, 1997 to comply with regulations governing
common ownership of television stations with overlapping service areas. The FCC
is currently reexamining these regulations, and if it revises them in accordance
with the interim policy it has adopted, divestiture of WJHG would not be
required. Accordingly, the Company requested and in July of 1997 received an
extension of the divestiture deadline with regard to WJHG conditioned upon the
outcome of the rulemaking proceedings. It can not be determined when the FCC
will complete its rulemaking on this subject. On July 31, 1998, the assets of
WALB were exchanged for the assets of WEAU. This exchange transaction satisfied
the FCC's divestiture requirement for WALB.
F-49
<PAGE> 178
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Condensed unaudited balance sheets of WALB and WJHG are as follows (in
thousands):
<TABLE>
<CAPTION>
WJHG
WALB DECEMBER 31,
DECEMBER 31, ---------------
1997 1998 1997
------------ ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current assets..................................... $2,379 $1,163 $1,053
Property and equipment............................. 1,473 1,323 848
Other assets....................................... 471 148 346
------ ------ ------
Total assets..................................... $4,323 $2,634 $2,247
====== ====== ======
Current liabilities................................ $ 994 $ 583 $ 350
Other liabilities.................................. 215 118 127
Stockholder's equity............................... 3,114 1,933 1,770
------ ------ ------
Total liabilities and stockholder's equity....... $4,323 $2,634 $2,247
====== ====== ======
</TABLE>
Condensed unaudited income statement data of WALB and WJHG are as follows
(in thousands):
<TABLE>
<CAPTION>
WALB WJHG
--------------------------------------- ------------------------
SEVEN
MONTHS YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
ENDED ----------------------- ------------------------
JULY 31, 1998 1997 1996 1998 1997 1996
------------- -------- -------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Broadcasting
revenues........... $6,773 $10,090 $10,611 $5,057 $4,896 $5,217
Expenses............. 3,130 4,770 5,070 4,038 3,757 4,131
------ ------- ------- ------ ------ ------
Operating income..... 3,643 5,320 5,541 1,019 1,139 1,086
Other income
(expense).......... (33) 3 7 1 (5) 6
------ ------- ------- ------ ------ ------
Income before income
taxes.............. $3,610 $ 5,323 $ 5,548 $1,020 $1,134 $1,092
====== ======= ======= ====== ====== ======
Net income........... $2,238 $ 3,295 $ 3,465 $ 632 $ 737 $ 685
====== ======= ======= ====== ====== ======
</TABLE>
On January 4, 1996, the Company purchased substantially all of the assets
of WRDW-TV, a CBS television affiliate serving the Augusta, Georgia television
market (the "Augusta Acquisition"). The purchase price of approximately $37.2
million which included assumed liabilities of approximately $1.3 million, was
financed primarily through long-term borrowings. The assets acquired consisted
of office equipment and broadcasting operations located in North Augusta, South
Carolina. The excess of the purchase price over the fair value of net tangible
assets acquired was approximately $32.5 million. In connection with the Augusta
Acquisition, the Company paid a fee of $360,000 to Bull Run for services
performed.
Funds for the Augusta Acquisition were obtained from the modification of
the Company's existing bank debt on January 4, 1996 (the "Bank Loan") to a
variable rate
F-50
<PAGE> 179
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reducing revolving credit facility (the "Old Credit Facility") and the sale to
Bull Run of an 8% subordinated note due January 3, 2005 in the principal amount
of $10.0 million (the "8% Note"). In connection with the sale of the 8% Note,
the Company also issued warrants to Bull Run to purchase 731,250 shares of Class
A Common Stock at $11.92 per share. Of these warrants, 450,000 vested upon
issuance with the remaining warrants vesting in five equal annual installments
commencing on the first anniversary of the date of issuance. Approximately $2.6
million of the $10.0 million of proceeds from the 8% Note was allocated to the
warrants and increased Class A Common Stock. The Old Credit Facility provided
for a credit line up to $54.2 million. This transaction also required a
modification of the interest rate of the Company's $25.0 million senior secured
note with an institutional investor (the "Senior Note") from 10.08% to 10.7%.
As part of the financing arrangements for the First American Acquisition,
the Old Credit Facility and the Senior Note were retired and the Company issued
to Bull Run, in exchange for the 8% Note, 1,000 shares of Series A Preferred
Stock. The warrants issued with the 8% Note were retired and the warrants issued
with the Series A Preferred Stock will vest in accordance with the same schedule
described above provided the Series A Preferred Stock remains outstanding. The
Company recorded an extraordinary charge of $5.3 million ($3.2 million after
taxes or $0.39 per basic common share and $0.37 per diluted common share for
1996) in connection with the early retirement of the $25.0 million Senior Note
and the write-off of loan acquisition costs from the early extinguishment of
debt.
The Company sold the assets of KTVE Inc. (the "KTVE Sale"), its
NBC-affiliated television station, in Monroe, Louisiana-El Dorado, Arkansas on
August 20, 1996. The sales price included $9.5 million in cash plus the amount
of the accounts receivable on the date of closing to the extent collected by the
buyer, to be paid to the Company within 150 days following the closing date
(approximately $829,000). The Company recognized a pre-tax gain of approximately
$5.7 million and estimated income taxes of approximately $2.8 million in
connection with the sale.
Unaudited pro forma operating data for the years ended December 31, 1996
and 1995 is presented below and assumes that the Augusta Acquisition, the First
American Acquisition, and the KTVE Sale occurred on January 1, 1995.
F-51
<PAGE> 180
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
This unaudited pro forma operating data does not purport to represent the
Company's actual results of operations had the Augusta Acquisition, the First
American Acquisition, and the KTVE Sale occurred on January 1, 1995, and should
not serve as a forecast of the Company's operating results for any future
periods. The pro forma adjustments are based solely upon certain assumptions
that management believes are reasonable under the circumstances at this time.
Unaudited pro forma operating data for the years ended December 31, 1996 and
1995, are as follows (in thousands, except per common share data):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------- -------
(UNAUDITED)
<S> <C> <C>
Revenues, net............................................... $97,540 $90,637
======= =======
Net loss available to common stockholders................... $(1,388) $(6,073)
======= =======
Loss per share available to common stockholders:
Basic..................................................... $ (0.11) $ (0.51)
======= =======
Diluted................................................... $ (0.11) $ (0.51)
======= =======
</TABLE>
The pro forma results presented above include adjustments to reflect (i)
the incurrence of interest expense to fund the First American Acquisition and
the WRDW Acquisition, (ii) depreciation and amortization of assets acquired,
(iii) the reduction of employee compensation related to severance and vacation
compensation for 1996, (iv) the elimination of the corporate expense allocation
net of additional accounting and administrative expenses for the First American
Acquisition, (v) increased pension expense for the First American Acquisition,
and (vi) the income tax effect of such pro forma adjustments. Average
outstanding shares used to calculate pro forma earnings per share data for 1996
and 1995 include the 5,250,000 Class B Common shares issued in connection with
the First American Acquisition.
C. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
10 5/8% Senior Subordinated Notes due 2006............... $160,000 $160,000
Senior Credit Facility................................... 109,500 65,630
Other.................................................... 1,155 1,446
-------- --------
270,655 227,076
Less current portion..................................... (430) (400)
-------- --------
$270,225 $226,676
======== ========
</TABLE>
On September 20, 1996, the Company sold $160.0 million principal amount of
the Company's 10 5/8% Senior Subordinated Notes (the "Senior Subordinated
Notes") due 2006. The net proceeds of $155.2 million from this offering, along
with the net proceeds from (i) the KTVE Sale, (ii) the issuance of Class B
Common Stock, (iii) the issuance
F-52
<PAGE> 181
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of Series B Preferred Stock and (iv) borrowings under the Senior Credit
Facility, were used in financing the First American Acquisition as well as the
early retirement of the Senior Note and the Old Credit Facility. Interest on the
Senior Subordinated Notes is payable semi-annually on April 1 and October 1,
commencing April 1, 1997.
The Senior Credit Facility included scheduled reductions in the $125.0
million credit limit which commenced on March 31, 1997, interest rates based
upon a spread over LIBOR and/or the lender's prime rate, an unused commitment
fee of 0.50% applied to available funds and a maturity date of June 30, 2003.
Effective September 17, 1997, the Senior Credit Facility was modified to
reinstate the original credit limit of $125.0 million which had been reduced by
the scheduled reductions. The modification also reduced the interest rate spread
over LIBOR and/or Prime. The modification also extended the maturity date from
June 30, 2003 to June 30, 2004. The modification required a one-time fee of
$250,000.
Effective July 31, 1998, the Senior Credit Facility was modified to
increase the committed credit limit from $125.0 million to $200.0 million. This
modification also allows for an additional uncommitted $100.0 million in
available credit which is in addition to the committed $200.0 million credit
limit. This $100.0 million in uncommitted available credit can be borrowed by
the Company only after approval of the bank consortium. The modification also
extended the maturity date from June 30, 2004 to June 30, 2005. The modification
required a one-time fee of approximately $750,000.
At December 31, 1998, the Company had approximately $109.5 million borrowed
under the Senior Credit Facility with approximately $90.5 million available
under the agreement. The interest rate on the outstanding balance was based on
the lender's prime rate and a spread over LIBOR of 1.75%. Additionally, the
effective interest rate of the Senior Credit Facility can be changed based upon
the Company's maintenance of certain operating ratios as defined by the Senior
Credit Facility, not to exceed the lender's prime rate plus 0.50% or LIBOR plus
2.25%. The effective interest rate on the Senior Credit Facility at December 31,
1998 and 1997 was 7.1% and 7.9%, respectively. The Company is charged a
commitment fee on the excess of the aggregate average daily available credit
limit less the amount outstanding. At December 31, 1998, the commitment fee was
0.50% per annum.
The Company's $200.0 million Senior Credit Facility, as amended, is
comprised of a term loan (the "Term Commitment") of $100.0 million and a
revolving credit facility (the "Revolving Commitment") of $100.0 million.
As of December 31, 1998, the Company had $9.5 million borrowed under the
Senior Credit Facility's Revolving Commitment. The Revolving Commitment will
automatically reduce as follows: 10% in 2000, 15% in 2001, 15% in 2002, 20% in
2003, 25% in 1994 and 15% in 2005.
As of December 31, 1998, the Company had $100.0 million borrowed under the
Senior Credit Facility's Term Commitment. The amount outstanding under the Term
Commitment will become fixed as of December 30, 1999 and it will be reduced as
follows: 2.5% in 1999, 10.0% in 2000, 10.0% in 2001, 17.5% in 2002, 17.5% in
2003, 21.2% in 2004 and 21.3% in 2005.
F-53
<PAGE> 182
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The agreement pursuant to which the Senior Credit Facility was issued
contains certain restrictive provisions, which, among other things, limit
additional indebtedness and require minimum levels of cash flows. The Senior
Subordinated Notes also contained similar restrictive provisions as well as
limitations on restricted payments.
The Senior Subordinated Notes are jointly and severally guaranteed (the
"Subsidiary Guarantees") by all of the Company's subsidiaries (the "Subsidiary
Guarantors"). The obligations of the Subsidiary Guarantors under the Subsidiary
Guarantees is subordinated, to the same extent as the obligations of the Company
in respect of the Senior Subordinated Notes, to the prior payment in full of all
existing and future senior debt of the Subsidiary Guarantors (which will include
any guarantee issued by such Subsidiary Guarantors of any senior debt).
The Company is a holding company with no material independent assets or
operations, other than its investment in its subsidiaries. The aggregate assets,
liabilities, earnings and equity of the Subsidiary Guarantors are substantially
equivalent to the assets, liabilities, earnings and equity of the Company on a
consolidated basis. The Subsidiary Guarantors are, directly or indirectly,
wholly-owned subsidiaries of the Company and the Subsidiary Guarantees are full,
unconditional and joint and several. All of the current and future direct and
indirect subsidiaries of the Company will be guarantors of the Senior
Subordinated Notes. Accordingly, separate financial statements and other
disclosures of each of the Subsidiary Guarantors are not presented because
management has determined that they are not material to investors. The Senior
Subordinated Notes and the Senior Credit Facility are secured by substantially
all of the Company's existing and hereafter acquired assets.
Aggregate minimum principal maturities on long-term debt as of December 31,
1998, were as follows (in thousands):
<TABLE>
<CAPTION>
MINIMUM PRINCIPAL
YEAR MATURITIES
- ---- -----------------
<S> <C>
1999........................................................ $ 430
2000........................................................ 330
2001........................................................ 209
2002........................................................ 62
2003........................................................ 27,067
Thereafter.................................................. 242,557
--------
$270,655
========
</TABLE>
The Company made interest payments of approximately $22.9 million, $21.3
million, and $7.6 million during 1998, 1997 and 1996, respectively.
In the year ended December 31, 1996, the Company recorded an extraordinary
charge of $5.3 million ($3.2 million after taxes or $0.39 per basic common share
or $0.37 per diluted common share) in connection with the early retirement of
the Senior Note and the write-off of unamortized loan acquisition costs of the
Senior Note and the Old Credit Facility resulting from the early extinguishment
of debt.
F-54
<PAGE> 183
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
D. SUPPLEMENTAL EMPLOYEE BENEFITS AND OTHER AGREEMENTS
The Company had an employment agreement with its former President, Ralph W.
Gabbard, which provided for an award of 183,051 shares of the Company's Class A
Common Stock if his employment with the Company continued until September 1999.
Mr. Gabbard died unexpectedly in September 1996. The Company awarded these
shares to the estate of Mr. Gabbard. Approximately $880,000 of expense was
recorded in 1996.
The Company has entered into supplemental retirement benefit and other
agreements with certain key employees. These benefits are to be paid primarily
in equal monthly amounts over the employees' life for a period not to exceed 15
years after retirement. The Company charges against operations amounts
sufficient to fund the present value of the estimated lifetime supplemental
benefit over each employee's anticipated remaining period of employment.
The following summarizes activity relative to certain officers' agreements
and the supplemental employee benefits (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Beginning liability.................................. $ 1,526 $ 3,158 $ 2,938
------- ------- -------
Provision............................................ 180 161 918
Forfeitures.......................................... (61) -0- -0-
------- ------- -------
Net expense.......................................... 119 161 918
Payments............................................. (202) (1,793) (698)
------- ------- -------
Net change........................................... (83) (1,632) 220
------- ------- -------
Ending liability..................................... 1,443 1,526 3,158
Less current portion................................. (315) (365) (1,801)
------- ------- -------
$ 1,128 $ 1,161 $ 1,357
======= ======= =======
</TABLE>
E. STOCKHOLDERS' EQUITY
During 1996, the Company amended its Articles of Incorporation to increase
to 50,000,000 the number of shares of all classes of stock which the Company has
the authority to issue, of which, 15,000,000 shares are designated Class A
Common Stock, 15,000,000 shares are designated Class B Common Stock, and
20,000,000 shares are designated "blank check" preferred stock for which the
Board of Directors has the authority to determine the rights, powers,
limitations and restrictions. The rights of the Company's Class A and Class B
Common Stock are identical, except that the Class A Common Stock has 10 votes
per share and the Class B Common Stock has one vote per share. The Class A and
Class B Common Stock receive cash dividends on an equal per share basis.
As part of the financing for the Augusta Acquisition in 1996, funding was
obtained from the 8% Note, which included the issuance of detachable warrants to
Bull Run to purchase 731,250 shares of Class A Common Stock at $11.92 per share.
Of these warrants 450,000 vested upon issuance, with the remaining warrants
vesting in five equal annual
F-55
<PAGE> 184
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
installments commencing on the first anniversary of the date of issuance.
Approximately $2.6 million of the $10.0 million of proceeds from the 8% Note was
allocated to the warrants and increased Class A Common Stock. This allocation of
the proceeds was based on an estimate of the relative fair values of the 8% Note
and the warrants on the date of issuance. The Company amortized the original
issue discount on a ratable basis in accordance with the original terms of the
8% Note through September 30, 1996. The Company recognized approximately
$217,000 in amortization costs for the $2.6 million original issue discount. In
September 1996, the Company exchanged the 8% Note with Bull Run for 1,000 shares
of liquidation preference Series A Preferred Stock yielding 8%. The warrants
issued with the 8% Note were retired and the warrants issued with the Series A
Preferred Stock will vest in accordance with the same schedule described above
provided the Series A Preferred Stock remains outstanding. The holder of the
Series A Preferred Stock will receive cash dividends at an annual rate of $800
per share. The liquidation or redemption price of the Series A Preferred Stock
is $10,000 per share.
As part of the financing for the First American Acquisition in 1996, the
Company also issued 1,000 shares of Series B Preferred Stock, with warrants to
purchase an aggregate of 750,000 shares of Class A Common Stock at an exercise
price of $16.00 per share. Of these warrants 450,000 vested upon issuance, with
the remaining warrants vesting in five equal annual installments commencing on
the first anniversary of the date of issuance. The shares of Series B Preferred
Stock were issued to Bull Run and to J. Mack Robinson, Chairman of the Board of
Bull Run and President and Chief Executive Officer of the Company, and certain
of his affiliates. The Company obtained a written opinion from an investment
banker as to the fairness of the terms of the sale of such Series B Preferred
Stock with warrants. The holders of the Series B Preferred Stock will receive
dividends at an annual rate of $600 per share, except the Company at its option
may pay these dividends in cash or in additional shares. The liquidation or
redemption price of the Series B Preferred Stock is $10,000 per share. In August
1998 and September 1997, the Company issued 50.9 shares and 60.0 shares of
Series B Preferred Stock, respectively, as payment of dividends to the holders
of its then outstanding Series B Preferred Stock. During 1998, the Company
redeemed 760.9 shares of Series B Preferred Stock at a cost of $7.6 million.
On September 24, 1996, the Company completed a public offering of 5.25
million shares of its Class B Common Stock at an offering price of $13.67 per
share. The proceeds, net of expenses, from this public offering of approximately
$66.1 million were used in the financing of the First American Acquisition.
The Company is authorized by its Board of Directors to purchase up to two
million shares of the Company's Class A or Class B Common Stock to either be
retired or reissued in connection with the Company's benefit plans, including
the Capital Accumulation Plan and the Incentive Plan. During 1998, 1997 and
1996, the Company purchased 30,750 Class A Common Stock Shares, 259,350 Class A
Common Stock shares and 258,450 Class B Common Stock shares, respectively, under
this authorization. The 1998, 1997 and 1996 treasury shares were purchased at
prevailing market prices with an average effective price of $18.95, $13.33 and
$10.60 per share, respectively, and were funded from the Company's operating
cash flow.
F-56
<PAGE> 185
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
F. LONG-TERM INCENTIVE PLAN AND STOCK PURCHASE PLAN
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123 "Accounting for Stock-Based Compensation" ("Statement 123") requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of the grant, no compensation expense is recognized.
The Company has a long-term incentive plan (the "Incentive Plan") under
which 300,000 shares of the Company's Class A Common Stock and 600,000 shares of
the Company's Class B Common Stock are reserved for grants to key personnel for
(i) incentive stock options, (ii) non-qualified stock options, (iii) stock
appreciation rights, (iv) restricted stock and (v) performance awards, as
defined by the Incentive Plan. Shares of Common Stock underlying outstanding
options or performance awards are counted against the Incentive Plan's maximum
shares while such options or awards are outstanding. Under the Incentive Plan,
the options granted typically vest after a two year period and expire three
years after full vesting. Options granted through December 31, 1998, have been
granted at a price which approximates fair market value on the date of the
grant. On December 11, 1998, the Company repriced certain Class B Common Stock
grants made under the Incentive Plan, at a price which approximated the market
price of the Class B Common Stock on that day.
The Company also has a Stock Purchase Plan which grants outside directors
up to 7,500 shares of the Company's Common Stock. Under this Stock Purchase
Plan, the options granted vest at the beginning of the upcoming calendar year
and expire at the end of January following that calendar year.
Prior to 1996, grants under the Incentive Plan and the Stock Purchase Plan
were made with the Company's Class A Common Stock. In 1996, the Company amended
its Incentive Plan and Stock Purchase Plan for grants to be made with Class A or
Class B Common Stock.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of Statement
123. The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997 and 1996, respectively: risk-free interest rates of
4.57%, 5.82% and 5.43%; dividend yields of 0.55%, 0.32% and 0.50%; volatility
factors of the expected market price of the Company's Class A Common Stock of
0.28, 0.28 and 0.33; and a weighted-average expected life of the options of 4.0,
4.5 and 2.0 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and which are fully transferable. In addition, option valuation models require
the input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock
F-57
<PAGE> 186
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except per common share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Pro forma income (loss) before extraordinary charge
available to common stockholders.................... $39,523 $(3,174) $5,190
Pro forma income (loss) before extraordinary charge
per common share:
Basic............................................... $ 3.31 $ (0.27) $ 0.64
Diluted............................................. $ 3.20 $ (0.27) $ 0.62
</TABLE>
A summary of the Company's stock option activity for Class A Common Stock,
and related information for the years ended December 31, 1998, 1997, and 1996 is
as follows (in thousands, except weighted average data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Stock options outstanding --
beginning of year......... 92 $ 7.43 297 $ 8.74 394 $8.26
Options granted........... 19 17.81 -0- -0-
Options exercised......... (74) 7.08 (127) 7.17 (78) 6.62
Options forfeited......... (1) 8.89 -0- (9) 8.29
Options expired........... -0- (78) 12.83 (10) 6.78
--- ---- ---
Stock options outstanding --
end of year............... 36 $13.71 92 $ 7.43 297 $8.74
=== ==== ===
Exercisable at end of
year...................... 16 $ 8.89 92 $ 7.43 246 $8.71
Weighted-average fair value
of options granted during
the year.................. $ 5.59
</TABLE>
Exercise prices for Class A Common Stock options outstanding as of December
31, 1998, ranged from $8.89 to $17.81 for the Incentive Plan. The
weighted-average remaining contractual life of the Class A Common Stock options
outstanding for the Incentive Plan is 3.2 years.
F-58
<PAGE> 187
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock option activity for Class B Common Stock,
and related information for the years ended December 31, 1998, 1997, and 1996 is
as follows (in thousands, except weighted average data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Stock options outstanding --
beginning of year......... 630 $15.80 102 $10.58 -0-
Options granted........... 589 14.43 528 16.80 102 $10.58
Options exercised......... (86) 11.05 -0- -0-
Options forfeited......... (474) 16.95 -0- -0-
---- --- ---
Stock options outstanding --
end of year............... 659 $14.36 630 $15.80 102 $10.58
==== === ===
Exercisable at end of
year...................... 84 $14.65 79 $10.58 -0-
Weighted-average fair value
of options granted during
the year.................. $ 3.95 $ 5.40 $ 2.15
</TABLE>
Exercise prices for Class B Common Stock options outstanding as of December
31, 1998, ranged from $10.58 to $14.50 for the Incentive Plan and $14.00 to
$16.13 for the Stock Purchase Plan. The weighted-average remaining contractual
life of the Class B Common Stock options outstanding for the Incentive Plan and
Stock Purchase Plan is 4.0 and 0.5 years, respectively.
G. INCOME TAXES
The Company uses the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Federal and state income tax expense (benefit) included in the consolidated
financial statements are summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Current
Federal............................................. $ 414 $(1,620) $1,462
State and local..................................... 937 577 841
Deferred.............................................. 26,793 1,283 (44)
------- ------- ------
$28,144 $ 240 $2,259
======= ======= ======
</TABLE>
F-59
<PAGE> 188
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total provision for income taxes for 1998 included a deferred tax
charge of $27.5 million which related to the exchange of WALB's assets for the
assets of WEAU. For income tax purposes, the gain on the exchange of WALB
qualified for deferred capital gains treatment under the "like-kind exchange"
provision of Section 1031 of the Internal Revenue Code of 1986. The total
provision for income taxes for 1996 included a tax benefit of $2.2 million which
related to an extraordinary charge on extinguishment of debt.
Significant components of the Company's deferred tax liabilities and assets
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1997
------- ------
<S> <C> <C>
Deferred tax liabilities:
Net book value of property and equipment.................. $ 6,597 $2,670
Goodwill and other intangibles............................ 45,546 6,281
Other..................................................... 122 120
------- ------
Total deferred tax liabilities......................... 52,265 9,071
Deferred tax assets:
Liability under supplemental retirement plan.............. 528 526
Allowance for doubtful accounts........................... 465 499
Difference in basis of assets held for sale............... 1,106 941
Federal operating loss carryforwards...................... 3,825 4,412
State and local operating loss carryforwards.............. 2,534 1,952
Other..................................................... 457 290
------- ------
Total deferred tax assets.............................. 8,915 8,620
Valuation allowance for deferred tax assets............... (798) (753)
------- ------
Net deferred tax assets................................ 8,117 7,867
------- ------
Deferred tax liabilities, net............................... $44,148 $1,204
======= ======
</TABLE>
Approximately $11.3 million in federal operating loss carryforwards will
expire by the year ended December 31, 2012. Additionally, the Company has
approximately $56.0 million in state operating loss carryforwards.
A reconciliation of income tax expense at the statutory federal income tax
rate and income taxes as reflected in the consolidated financial statements is
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
------- ----- ------
<S> <C> <C> <C>
Statutory rate applied to income (loss)................ $24,431 $(395) $1,625
State and local taxes, net of federal tax benefits..... 3,472 572 (7)
Permanent difference relating to sale of KTVE.......... -0- -0- 602
Other items, net....................................... 241 63 39
------- ----- ------
$28,144 $ 240 $2,259
======= ===== ======
</TABLE>
F-60
<PAGE> 189
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company made income tax payments of approximately $1.5 million,
$275,000 and $3.6 million during 1998, 1997 and 1996, respectively. At December
31, 1998 and 1997, the Company had current recoverable income taxes of
approximately $1.7 million and $2.1 million, respectively.
H. RETIREMENT PLANS
PENSION PLAN
The Company has a retirement plan covering substantially all full-time
employees. Retirement benefits are based on years of service and the employees'
highest average compensation for five consecutive years during the last ten
years of employment. The Company's funding policy is to contribute annually the
minimum amounts deductible for federal income tax purposes.
The following summarizes the plan's funded status and related assumptions
(dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1997
------ ------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $7,053 $6,483
Service cost................................................ 616 429
Interest cost............................................... 496 443
Actuarial losses............................................ 203 31
Change in benefit obligation due to change in discount
rate...................................................... 303 -0-
Benefits paid............................................... (349) (333)
------ ------
Benefit obligation at end of year........................... $8,322 $7,053
====== ======
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. $6,926 $6,241
Actual return on plan assets................................ 618 644
Company contributions....................................... 212 374
Benefits paid............................................... (349) (333)
------ ------
Fair value of plan assets at end of year.................... $7,407 $6,926
====== ======
COMPONENTS OF ACCRUED BENEFIT COSTS
Underfunded status of the plan.............................. $ (915) $ (134)
Unrecognized net actuarial (gain) loss...................... 297 (58)
Unrecognized net transition amount.......................... (188) (242)
Unrecognized prior service cost............................. (3) (4)
------ ------
Accrued benefit cost........................................ $ (809) $ (438)
====== ======
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate............................................... 6.8% 7.0%
Expected long-term rate of return on plan assets............ 6.8% 7.0%
Estimated rate of increase in compensation levels........... 5.0% 5.0%
</TABLE>
F-61
<PAGE> 190
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net periodic pension cost includes the following components (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC PENSION COST
Service cost............................................. $ 616 $ 429 $ 360
Interest cost............................................ 496 443 409
Expected return on plan assets........................... (475) (433) (393)
Amortization of prior service cost....................... (1) (1) (1)
Amortization of transition (asset) or obligation......... (54) (54) (54)
----- ----- -----
Pension cost............................................. $ 582 $ 384 $ 321
===== ===== =====
</TABLE>
CAPITAL ACCUMULATION PLAN
Effective October 1, 1994, the Company adopted the Gray Communications
Systems, Inc. Capital Accumulation Plan (the "Capital Accumulation Plan") for
the purpose of providing additional retirement benefits for substantially all
employees. The Capital Accumulation Plan is intended to meet the requirements of
section 401(k) of the Internal Revenue Code of 1986.
On November 14, 1996, the Company amended its Capital Accumulation Plan to
allow an investment option in the Company's Class B Common Stock. The amendment
also allowed for the Company's percentage match to be made by a contribution of
the Company's Class B Common Stock, effective in 1997. On December 13, 1996, the
Company reserved 300,000 shares of the Company's Class B Common Stock for
issuance under the Capital Accumulation Plan.
Employee contributions to the Capital Accumulation Plan, not to exceed 6%
of the employees' gross pay, are matched by Company contributions. Until 1997,
the Company's percentage match was made by a contribution of the Company's Class
A Common Stock. Since 1997, the Company's percentage match has been made by a
contribution of the Company's Class B Common Stock. The Company's percentage
match amount is declared by the Company's Board of Directors before the
beginning of each plan year. The Company's percentage match was 50% for the
three years ended December 31, 1998. The Company contributions vest, based upon
each employee's number of years of service, over a period not to exceed five
years.
Company matching contributions aggregating $491,524, $419,670 and $262,426
were charged to expense for 1998, 1997 and 1996, respectively, for the issuance
of 29,305 and 31,311 Class B shares and 19,837 Class A shares, respectively.
F-62
<PAGE> 191
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
I. COMMITMENTS AND CONTINGENCIES
The Company has various operating lease commitments for equipment, land and
office space. The Company has also entered into commitments for various
television film exhibition rights for which the license periods have not yet
commenced. Rent expense resulting from operating leases for the years ended
December 31, 1998, 1997 and 1996 were $1.8 million, $1.4 million and $501,000,
respectively. Future minimum payments under operating leases with initial or
remaining noncancelable lease terms in excess of one year and obligations under
film exhibition rights for which the license period have not yet commenced are
as follows (in thousands):
<TABLE>
<CAPTION>
LEASE FILM TOTAL
------ ------ -------
<S> <C> <C> <C>
1999................................................... $1,411 $1,550 $ 2,961
2000................................................... 877 3,656 4,533
2001................................................... 661 2,428 3,089
2002................................................... 344 1,535 1,879
2003................................................... 137 302 439
Thereafter............................................. 714 421 1,135
------ ------ -------
$4,144 $9,892 $14,036
====== ====== =======
</TABLE>
The Company is subject to legal proceedings and claims which arise in the
normal course of its business. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not materially
affect the Company's financial position.
F-63
<PAGE> 192
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
J. INFORMATION ON BUSINESS SEGMENTS
The Company operates in three business segments: broadcasting, publishing
and paging. The broadcasting segment operates ten television stations located in
the southeastern and midwestern United States at December 31, 1998. The
publishing segment operates three daily newspapers in three different markets,
and an area weekly advertising only publication in Georgia. The paging
operations are located in Florida, Georgia, and Alabama. The following tables
present certain financial information concerning the Company's three operating
segments (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating revenues:
Broadcasting.................................... $ 91,007 $ 72,300 $ 54,981
Publishing...................................... 29,330 24,536 22,845
Paging.......................................... 8,553 6,712 1,479
-------- -------- --------
$128,890 $103,548 $ 79,305
======== ======== ========
Operating income:
Broadcasting(1)................................. $ 21,113 $ 17,509 $ 14,106
Publishing...................................... 2,867 2,206 1,980
Paging.......................................... 947 1,015 (7)
-------- -------- --------
Total operating income(1)......................... 24,927 20,730 16,079
Gain on disposition of television stations........ 70,572 -0- 5,671
Miscellaneous income and (expense), net........... (242) (31) 33
Interest expense.................................. (25,454) (21,861) (11,689)
-------- -------- --------
Income (loss) before income taxes................. $ 69,803 $ (1,162) $ 10,094
======== ======== ========
</TABLE>
Operating income is total operating revenue less operating expenses,
excluding gain on disposition of television stations, miscellaneous income and
expense (net) and interest. Corporate and administrative expenses are allocated
to operating income based on net segment revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Depreciation and amortization expense:
Broadcasting.................................... $ 14,713 $ 11,024 $ 5,554
Publishing...................................... 1,554 1,973 1,730
Paging.......................................... 1,773 1,480 329
-------- -------- --------
18,040 14,477 7,613
Corporate....................................... 77 42 50
-------- -------- --------
Total depreciation and amortization expense....... $ 18,117 $ 14,519 $ 7,663
======== ======== ========
</TABLE>
F-64
<PAGE> 193
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
J. INFORMATION ON BUSINESS SEGMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Media cash flow:
Broadcasting.................................... $ 38,446 $ 30,519 $ 22,594
Publishing...................................... 5,214 4,856 4,957
Paging.......................................... 2,964 2,686 401
-------- -------- --------
$ 46,624 $ 38,061 $ 27,952
======== ======== ========
Media cash flow reconciliation:
Operating income(1)............................. $ 24,927 $ 20,730 $ 16,079
Add:
Amortization of program license rights....... 4,251 3,501 2,743
Depreciation and amortization................ 18,117 14,519 7,663
Corporate overhead........................... 3,063 2,528 3,219
Non-cash compensation and contribution to
401(k) Plan, paid in Common Stock.......... 476 412 1,125
Less:
Payments for program license liabilities..... (4,210) (3,629) (2,877)
-------- -------- --------
$ 46,624 $ 38,061 $ 27,952
======== ======== ========
Capital expenditures:
Broadcasting.................................... $ 6,718 $ 5,000 $ 2,674
Publishing...................................... 934 4,235 692
Paging.......................................... 1,461 975 -0-
-------- -------- --------
9,113 10,210 3,366
Corporate....................................... 158 162 30
-------- -------- --------
Total capital expenditures........................ $ 9,271 $ 10,372 $ 3,396
======== ======== ========
Identifiable assets:
Broadcasting.................................... $410,039 $287,254 $245,614
Publishing...................................... 17,196 19,818 16,301
Paging.......................................... 25,563 23,950 23,764
-------- -------- --------
452,798 331,022 285,679
Corporate....................................... 16,176 14,029 12,985
-------- -------- --------
Total identifiable assets......................... $468,974 $345,051 $298,664
======== ======== ========
</TABLE>
- -------------------------
(1) Operating income excludes gain on disposition of television stations of
$70.6 million recognized for the exchange of WALB in 1998 and $5.7 million
recognized for the KTVE Sale in 1996.
F-65
<PAGE> 194
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
K. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL QUARTERS
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Operating revenues.......................... $27,982 $32,061 $31,845 $37,002
Operating income (1)........................ 4,868 7,210 5,020 7,829
Net income (loss)........................... (1,483) 837 41,830 475
Net income (loss) available to common
stockholders.............................. (1,842) 478 41,484 221
Basic income (loss) per share............... (0.16) 0.04 3.48 0.02
Diluted income (loss) per share............. $ (0.16) $ 0.04 $ 3.31 $ 0.02
YEAR ENDED DECEMBER 31, 1997:
Operating revenues.......................... $22,761 $25,499 $25,984 $29,304
Operating income............................ 4,337 6,124 4,271 5,998
Net income (loss)........................... (461) 622 (1,162) (401)
Net income (loss) available to common
stockholders.............................. (811) 272 (1,513) (760)
Basic income (loss) per share............... (0.07) 0.02 (0.13) (0.06)
Diluted income (loss) per share............. $ (0.07) $ 0.02 $ (0.13) $ (0.06)
</TABLE>
- -------------------------
(1) Operating income excludes $70.6 million gain on exchange of television
station recognized from the disposition of WALB.
Because of the method used in calculating per share data, the quarterly per
share data will not necessarily add to the per share data as computed for the
year.
The third quarter of 1998 includes the Busse-WALB Transactions. As a result
of the exchange of WALB for WEAU, the Company recognized a pre-tax gain of
approximately $70.6 million and estimated deferred income taxes of approximately
$27.5 million (See Note B).
On August 20, 1998, the Board of Directors declared a 50% stock dividend,
payable on September 30, 1998, to stockholders of record of the Class A Common
Stock and Class B Common Stock on September 16, 1998. This stock dividend
effected a three for two stock split. All applicable share and per share data
have been adjusted to give effect to the stock.
F-66
<PAGE> 195
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1999
------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,312,580
Trade accounts receivable, less allowance for doubtful
accounts of $1,187,000................................. 21,040,174
Recoverable income taxes.................................. 1,752,033
Inventories............................................... 1,111,054
Current portion of program broadcast rights............... 2,223,423
Other current assets...................................... 1,063,613
------------
Total current assets................................. 29,502,877
PROPERTY AND EQUIPMENT:
Land...................................................... 2,456,021
Buildings and improvements................................ 13,531,260
Equipment................................................. 69,045,300
------------
85,032,581
Allowance for depreciation................................ (31,182,233)
------------
53,850,348
OTHER ASSETS:
Deferred loan costs....................................... 7,950,304
Goodwill and other intangibles............................ 387,595,791
Other..................................................... 1,346,897
------------
396,892,992
------------
$480,246,217
============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-67
<PAGE> 196
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)(CONTINUED)
<TABLE>
<CAPTION>
MARCH 31,
1999
------------
<S> <C>
CURRENT LIABILITIES:
Trade accounts payable (includes $80,000 payable to Bull
Run Corporation)....................................... $ 1,370,778
Employee compensation and benefits........................ 4,545,098
Accrued expense........................................... 1,840,505
Accrued interest.......................................... 9,754,956
Current portion of program broadcast obligation........... 2,083,155
Deferred revenue.......................................... 3,229,145
Current portion of long-term debt......................... 380,000
------------
Total current liabilities.............................. 23,203,637
Long-term debt.............................................. 282,882,368
OTHER LONG-TERM LIABILITIES:
Program broadcast obligations, less current portion....... 572,930
Supplemental employee benefits............................ 1,076,761
Deferred income taxes..................................... 43,565,642
Other acquisition related liabilities..................... 4,406,937
------------
Commitments and contingencies............................... 49,622,270
STOCKHOLDERS' EQUITY:
Serial Preferred Stock, no par value; authorized
20,000,000 shares; issued and outstanding 1,350 shares,
($13,500,000 aggregate liquidation value).............. 13,500,000
Class A Common Stock, no par value; authorized 15,000,000
shares; issued 7,961,574 shares........................ 10,683,709
Class B Common Stock, no par value; authorized 15,000,000
shares; issued 5,273,046 shares........................ 66,822,986
Retained earnings......................................... 43,684,818
------------
134,691,513
Treasury Stock at cost, Class A Common, 1,129,532 shares.... (8,578,682)
Treasury Stock at cost, Class B Common, 144,590............. (1,574,889)
------------
124,537,942
------------
$480,246,217
============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-68
<PAGE> 197
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Operating revenues
Broadcasting (net of agency commissions)............ $21,168,040 $19,511,064
Publishing.......................................... 8,022,053 6,537,335
Paging.............................................. 2,201,977 1,933,466
----------- -----------
31,392,070 27,981,865
Expenses
Broadcasting........................................ 12,988,524 12,118,387
Publishing.......................................... 6,354,622 5,457,505
Paging.............................................. 1,513,645 1,255,605
Corporate and administrative........................ 746,506 660,480
Depreciation and amortization....................... 5,455,817 3,621,584
----------- -----------
27,059,114 23,113,561
----------- -----------
4,332,956 4,868,304
Miscellaneous income (expense)........................ 421,748 (241,067)
----------- -----------
4,754,704 4,627,237
Interest expense 6,770,163 5,927,481
----------- -----------
Loss before income taxes............................ (2,015,459) (1,300,244)
Income tax expense (benefit).......................... (455,000) 182,563
----------- -----------
Net loss............................................ (1,560,459) (1,482,807)
Preferred dividends................................... 252,501 358,998
----------- -----------
Net loss available to common shareholders........... $(1,812,960) $(1,841,805)
----------- -----------
Average outstanding common shares:
Basic............................................... 11,954,590 11,880,642
Diluted............................................. 11,954,590 11,880,642
Basic loss per common share:
Net loss available to common stockholders........... $ (0.15) $ (0.16)
=========== ===========
Diluted loss per common share:
Net loss available to common stockholders........... $ (0.15) $ (0.16)
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-69
<PAGE> 198
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED CLASS A CLASS B
STOCK COMMON STOCK COMMON STOCK
-------------------- ------------------------- -------------------------- RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT EARNINGS
------ ----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1998...................... 1,350 $13,500,000 7,961,574 $10,683,709 5,273,046 $ 66,792,385 $45,737,601
Net loss for the three
months ended March 31,
1999.................... (1,560,459)
Common stock dividends
($.02 per share)........ (239,823)
Preferred stock
dividends............... (252,501)
Issuance of treasury
stock:
401 (k) plan............ 30,601
Purchase of Class B Common
Stock
----- ----------- ----------- ----------- ----------- ------------ -----------
BALANCE AT MARCH 31, 1999... 1,350 $13,500,000 7,961,574 $10,683,709 5,273,046 $ 66,822,986 $43,684,818
===== =========== =========== =========== =========== ============ ===========
<CAPTION>
CLASS A CLASS B
TREASURY STOCK TREASURY STOCK
------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT TOTAL
---------- ----------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1998...................... (1,129,532) $(8,578,682) (135,080) $(1,432,143) $126,702,870
Net loss for the three
months ended March 31,
1999.................... (1,560,459)
Common stock dividends
($.02 per share)........ (239,823)
Preferred stock
dividends............... (252,501)
Issuance of treasury
stock:
401 (k) plan............ 10,490 114,258 144,859
Purchase of Class B Common
Stock (20,000) (257,004) (257,004)
---------- ----------- -------- ----------- ------------
BALANCE AT MARCH 31, 1999... (1,129,532) $(8,578,682) (144,590) $(1,574,889) $124,537,942
========== =========== ======== =========== ============
</TABLE>
See notes to condensed consolidated financial statements.
F-70
<PAGE> 199
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................ $ (1,560,459) $(1,482,807)
Items which did not use (provide) cash:
Depreciation.......................................... 2,832,799 1,827,823
Amortization of intangible assets..................... 2,623,018 1,793,761
Amortization of deferred loan costs................... 285,128 271,174
Amortization of program broadcast rights.............. 1,202,465 940,319
Payments for program broadcast rights................. (1,190,132) (995,668)
Supplemental employee benefits........................ (51,443) (74,851)
Common Stock contributed to 401(k) Plan............... 144,859 83,840
Deferred income taxes................................. (582,000) (102,119)
(Gain) loss on disposal of assets..................... (378,097) 260,930
Changes in operating assets and liabilities:
Receivables, inventories and other current
assets........................................... 2,029,673 272,743
Accounts payable and other current liabilities..... 2,513,733 4,850,232
------------ -----------
Net cash provided by operating activities........ 7,869,544 7,645,377
INVESTING ACTIVITIES:
Purchase of newspaper business........................ (16,520,701) 0
Purchase of FCC license............................... 0 (829,600)
Purchases of property and equipment................... (2,436,979) (2,656,786)
Deferred acquisition costs............................ (66,558) (93,972)
Payments on purchase liabilities...................... (404,756) (210,640)
Other................................................. 395,023 (355,839)
------------ -----------
Net cash used in investing activities............ (19,033,971) (4,146,837)
FINANCING ACTIVITIES:
Dividends paid........................................ (759,825) (358,607)
Class A Common Stock transactions..................... 0 46,843
Class B Common Stock transactions..................... (257,004) 166,550
Proceeds from sale of treasury shares................. 0 917,938
Proceeds from borrowings of long-term debt............ 23,700,000 500,000
Payments on long-term debt............................ (11,092,887) (6,087,555)
------------ -----------
Net cash provided by (used in) financing
activities.................................... 11,590,284 (4,814,831)
------------ -----------
Increase (decrease) in cash and cash equivalents........ 425,857 (1,316,291)
Cash and cash equivalents at beginning of period...... 1,886,723 2,367,300
------------ -----------
Cash and cash equivalents at end of period....... $ 2,312,580 $ 1,051,009
============ ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-71
<PAGE> 200
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Gray Communications Systems, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
NOTE B -- BUSINESS ACQUISITIONS
On April 14, 1999, the Company announced that it had entered into
agreements to acquire the CBS affiliates KWTX-TV ("KWTX") located in Waco, Texas
and KBTX-TV ("KBTX"), a satellite station of KWTX located in Bryan, Texas, each
serving the 95th largest television market of Waco-Temple-Bryan, Texas (as
ranked by Nielson Media Research). In addition, the Company has agreed to
acquire KXII-TV ("KXII"), which is the CBS affiliate serving Sherman, Texas and
Ada, Oklahoma, the 161st largest television market (as ranked by Nielson Media
Research). These transactions are referred to herein as the "Texas Acquisition."
Aggregate consideration for the Texas Acquisition will be approximately $139
million before payment for certain net working capital amounts and other fees
and expenses. The Company will acquire KWTX and KBTX in merger transactions with
the KWTX and KBTX shareholders receiving a combination of cash and the Company's
Class B Common Stock for their shares. The Company will acquire KXII in an all
cash transaction. The Texas Acquisition is subject to a number of conditions,
including the approval by the shareholders of the Company. In addition, the
Texas Acquisition is subject to certain government approvals, including the
approval of the Federal Communications Commission.
NOTE C -- LONG-TERM DEBT
The Company's bank loan agreement (the "Senior Credit Facility") provides
$200.0 million of committed credit and $100.0 million of uncommitted credit. The
Company can borrow the $100.0 million in uncommitted available credit only after
approval of the bank consortium. At March 31, 1999, the balance outstanding and
the balance available under the $200.0 million committed portion of the Senior
Credit Facility were $122.2 million and $77.8 million, respectively, and the
interest rate on the balance outstanding was 6.91%. At March 31, 1999, the bank
consortium had not committed nor had the Company borrowed any funds under the
uncommitted $100.0 million portion of the Senior Credit Facility.
F-72
<PAGE> 201
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- INFORMATION ON BUSINESS SEGMENTS
The Company operates in three business segments: broadcasting, publishing
and paging. The broadcasting segment operates ten television stations located in
the southeastern and midwestern United States at March 31, 1999. The publishing
segment operates four daily newspapers in three different markets, and an area
weekly advertising only publication in Georgia. The paging operations are
located in Florida, Georgia, and Alabama. The following tables present certain
financial information concerning the Company's three operating segments:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Operating revenues:
Broadcasting.............................................. $21,168 $19,511
Publishing................................................ 8,022 6,537
Paging.................................................... 2,202 1,934
------- -------
$31,392 $27,982
======= =======
Operating income:
Broadcasting.............................................. $ 3,120 $ 3,862
Publishing................................................ 1,032 785
Paging.................................................... 181 221
------- -------
Total operating income...................................... 4,333 4,868
Miscellaneous income and (expense), net..................... 422 (241)
Interest expense............................................ (6,770) (5,927)
------- -------
Loss before income taxes.................................... $(2,015) $(1,300)
======= =======
</TABLE>
Operating income is total operating revenue less operating expenses,
excluding miscellaneous income and expense (net) and interest. Corporate and
administrative expenses are allocated to operating income based on net segment
revenues.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
1999 1998
------- ------
(IN THOUSANDS)
<S> <C> <C>
Media Cash Flow:
Broadcasting.............................................. $ 8,297 $7,428
Publishing................................................ 1,690 1,097
Paging.................................................... 699 687
------- ------
$10,686 $9,212
======= ======
</TABLE>
F-73
<PAGE> 202
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------
1999 1998
------- ------
(IN THOUSANDS)
<S> <C> <C>
Media Cash Flow reconciliation:
Operating income.......................................... $ 4,333 $4,868
Add:
Amortization of program license rights................. 1,202 940
Depreciation and amortization.......................... 5,456 3,622
Corporate overhand..................................... 747 661
Non-cash compensation and contributions to the
Company's 401(k) plan, paid in common stock........... 138 117
Less:
Payments for program license liabilities............... (1,190) (996)
------- ------
Media Cash Flow........................................... $10,686 $9,212
======= ======
</TABLE>
"Media Cash Flow" is defined as operating income, plus depreciation and
amortization (including amortization of program license rights), non-cash
compensation and corporate overhead, less payments for program license
liabilities. The Company has included Media Cash Flow data because such data are
commonly used as a measure of performance for media companies and are also used
by investors to measure a company's ability to service debt. Media Cash Flow is
not, and should not be used as, an indicator or alternative to operating income,
net income or cash flow as reflected in the Company's unaudited Condensed
Consolidated Financial Statements. Media Cash Flow is not a measure of financial
performance under generally accepted accounting principles and should not be
considered in isolation or as a substitute for measures of performance prepared
in accordance with generally accepted accounting principles.
F-74
<PAGE> 203
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders of Capital Sports Properties, Inc.:
We have audited the accompanying balance sheets of Capital Sports
Properties, Inc. as of June 30, 1998 and 1997, and the related statements of
income and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Capital Sports Properties,
Inc. at June 30, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
March 17, 1999
F-75
<PAGE> 204
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Capital Sports Properties, Inc.:
We have audited the accompanying statements of earnings, changes in
stockholders' equity and cash flows of Capital Sports Properties, Inc. for the
six-months ended June 30, 1996 and the year ended December 31, 1995. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Capital
Sports Properties, Inc. for the six-months ended June 30, 1996, and the year
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Stamford, Connecticut
February 10, 1997
F-76
<PAGE> 205
CAPITAL SPORTS PROPERTIES, INC.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
---------------
1998 1997
------ ------
<S> <C> <C>
ASSETS
Investment in Host Communications, Inc...................... $5,247 $4,378
Accrued dividends receivable................................ 1,664 1,364
Income taxes refundable..................................... 177
------ ------
$7,088 $5,742
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Income taxes payable........................................ $ $ 9
State franchise taxes payable............................... 5
Deferred income taxes....................................... 520 225
Amounts due to stockholders................................. 322 96
------ ------
842 335
------ ------
Stockholders' equity:
Common stock, $.01 par value (authorized 200 shares;
issued and outstanding 100 shares)..................... 0 0
Additional paid-in capital................................ 5,000 5,000
Retained earnings......................................... 1,246 407
------ ------
Total stockholders' equity............................. 6,246 5,407
------ ------
$7,088 $5,742
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE> 206
CAPITAL SPORTS PROPERTIES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31,
1998 1997 1996 1995
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Dividend income................... $ 300 $ 400 $ 200 $ 400
Equity in earnings of Host
Communications, Inc............. 869 624
--------- --------- --------- ---------
Income....................... 1,169 1,024 200 400
State franchise tax expense....... 4 2 3
--------- --------- --------- ---------
Income before income taxes...... 1,169 1,020 198 397
Income tax provision.............. 330 231 6 27
--------- --------- --------- ---------
Net income...................... 839 789 192 370
Retained earnings, beginning of
period.......................... 407 1,322 1,130 760
Dividends paid.................... (1,704)
--------- --------- --------- ---------
Retained earnings, end of
period.......................... $ 1,246 $ 407 $ 1,322 $ 1,130
========= ========= ========= =========
Earnings per share -- Basic....... $ 8,390 $ 7,890 $ 1,920 $ 3,700
Earnings per share -- Diluted..... $ 8,390 $ 7,890 $ 1,920 $ 3,700
Weighted average number of shares
outstanding:
Basic........................... 100 100 100 100
Diluted......................... 100 100 100 100
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-78
<PAGE> 207
CAPITAL SPORTS PROPERTIES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31,
1998 1997 1996 1995
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income...................... $ 839 $ 789 $ 192 $ 370
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in earnings of Host
Communications, Inc.......... (869) (624)
Change in operating assets and
liabilities:
Accrued dividends
receivable.............. (300) 54 (200) (400)
Amounts due shareholders... 226 41 6
State franchise taxes
payable................. (5) 2 3
Income taxes payable....... (186) (14) 5 18
Deferred income taxes...... 295 212 1 3
----- ------- ----- -----
Cash provided by operating
activities................. 0 458 0 0
Cash flows from investing
activities:
Exercise of warrant to purchase
common stock................. (4)
Redemption of preferred stock
investment................... 1,250
-------
Cash provided by investing
activities................. 1,246
-------
Cash flows from financing
activities:
Dividends paid.................. (1,704)
-------
Cash used in financing
activities................. (1,704)
----- ------- ----- -----
Net increase in cash.............. 0 0 0 0
Cash, beginning of year........... 0 0 0 0
----- ------- ----- -----
Cash, end of year................. $ 0 $ 0 $ 0 $ 0
===== ======= ===== =====
Supplemental cash flow disclosure:
Income taxes paid............... $ 221 $ 33
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-79
<PAGE> 208
CAPITAL SPORTS PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS
Capital Sports Properties, Inc. (the "Company"), a Delaware corporation,
holds common stock and preferred stock in Host Communications, Inc. ("HCI"), a
sports marketing and association management company. HCI, based in Lexington,
Kentucky, and HCI's 33.8%-owned affiliate, Universal Sports America, Inc.
("USA"), provide media and marketing services to universities, athletic
conferences and various associations representing collegiate sports and, in
addition, market and operate amateur participatory sporting events.
In 1996, the Company changed its fiscal year end for financial reporting
purposes from December 31 to June 30 to coincide with the fiscal year end of
HCI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION -- Dividends on the Company's investment in HCI are
recognized on the accrual basis of accounting.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
INVESTMENT IN HCI -- The Company has accounted for its investment in HCI by
the equity method since August 30, 1996, the date on which the Company exercised
warrants to purchase 447,002 shares of HCI common stock. Prior to August 30,
1996, the Company accounted for its investment in HCI by the cost method.
AMOUNTS DUE TO STOCKHOLDERS -- Certain expenses, taxes and other cash
obligations of the Company are paid by certain shareholders of the Company,
including General Electric Capital Corporation ("GE Capital") and Bull Run
Corporation ("Bull Run"). The liability is non-interest bearing and has no fixed
repayment date.
INCOME TAXES -- Income taxes are recognized in accordance with Statement of
Accounting Standards No. 109, "Accounting for Income Taxes," whereby deferred
income tax liabilities or assets at the end of each period are determined using
the tax rate expected to be in effect when the taxes are actually paid or
recovered. Accordingly, income tax expense will increase or decrease in the same
period in which a change in tax rates is enacted. A valuation allowance is
recognized on certain deferred tax assets whose realization is not reasonably
assured.
EARNINGS (LOSS) PER SHARE -- Basic and diluted earnings (loss) per share
are determined in accordance with Financial Accounting Standards Board Statement
No. 128, "Earnings Per Share," whereby basic earnings per share exclude any
dilutive effects of stock options. In periods where they are anti-dilutive,
dilutive effects of stock options are excluded from the calculation of dilutive
earnings (loss) per share.
3. PENDING TRANSACTION
On February 15, 1999, the Company entered into an agreement whereby Bull
Run, a shareholder of 51.5% of the Company's common stock, agreed to acquire the
stock of
F-80
<PAGE> 209
CAPITAL SPORTS PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
HCI, USA and the Company not currently owned, directly or indirectly, by Bull
Run, for approximately $95,000, net of cash acquired (the "Bull Run
Acquisition"). Pursuant to the merger agreement, Bull Run will reorganize into a
holding company structure immediately prior to the Bull Run Acquisition whereby
each outstanding share of Bull Run common stock will be converted into one share
of a new holding company, BR Holding, Inc. ("BR Holding") BR Holding, which will
be a publicly held company, will be owned by the stockholders of Bull Run
immediately prior to such conversion and Bull Run and its subsidiaries will be
subsidiaries of BR Holding. Under the merger agreement, each share of the
Company's common stock (except for shares held by Bull Run) will be converted
into the right to receive (a) an amount in cash equal to $194,085, (b) an amount
in cash equal to 1% of the Company's accrued dividends payable on Host preferred
stock through the date of the Bull Run Acquisition, and (c) a number of shares
of BR Holding common stock having an aggregate value of $162,562. This
transaction is subject to the terms and conditions of the merger agreement,
including approval of the stockholders of HCI, USA, Bull Run and the Company.
4. INVESTMENT IN HOST
On December 15, 1992, the Company acquired 50,000 shares of HCI series B
cumulative preferred stock ("HCI Preferred Stock") and detachable warrants to
purchase 447,002 shares of HCI common stock ("HCI Common Stock"). On August 30,
1996, the Company exercised the warrants at the redemption price of $.01 per
share to purchase the HCI Common Stock. On June 30, 1997, HCI redeemed 12,500
shares of HCI Preferred Stock owned by the Company. The HCI Preferred Stock
accrues an annual dividend of $8.00 per share as declared by HCI's Board of
Directors. HCI may redeem the HCI Preferred Stock at any time at a price of $100
per share plus a stated premium and if not previously redeemed, the HCI series B
cumulative preferred stock must be redeemed on December 15, 1999 at $100 per
share, plus any unpaid dividends. As of June 30, 1998 and 1997, the Company
owned approximately 47.8% and 48.9% of HCI's outstanding common stock,
respectively. Undistributed earnings of the investment in HCI accounted for by
the equity method amount to $1,493 as of June 30, 1998.
SUMMARIZED FINANCIAL INFORMATION -- The summarized financial information of
HCI follows:
FINANCIAL POSITION AS OF JUNE 30, 1998 AND 1997:
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Current assets.............................................. $11,144 $8,561
Property and equipment...................................... 5,872 6,093
Total assets................................................ 32,536 25,707
Current liabilities......................................... 14,846 12,672
Long-term debt.............................................. 2,170 2,524
Total liabilities........................................... 21,078 18,015
Stockholders' equity........................................ 11,458 7,692
</TABLE>
F-81
<PAGE> 210
CAPITAL SPORTS PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Operating revenue.................................... $46,337 $39,591 $40,129
Operating income..................................... 1,563 2,312 1,947
Income before cumulative effect of accounting
change............................................. 2,108 1,626 5,397
Net income........................................... 2,108 1,626 838
</TABLE>
5. INCOME TAXES
The Company's income tax provision consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31,
1998 1997 1996 1995
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Federal taxes -- current.......... $ 12 $ 19 $ 5 $ 24
State income taxes -- current..... 23 -- -- --
Deferred taxes.................... 295 212 1 3
---- ---- --- ----
$330 $231 $ 6 $ 27
==== ==== === ====
</TABLE>
A reconciliation of the Company's actual income tax expense to the federal
statutory amount (34% for the years ended June 30, 1998 and 1997, 15% for the
six months ended June 30, 1996 and 35% for the year ended December 31, 1995) is
as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, DECEMBER 31,
1998 1997 1996 1995
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Federal tax at statutory rate..... $397 $347 $30 $139
Dividends received deduction...... (82) (109) (24) (112)
State income taxes and other...... 15 (7) -- --
---- ---- --- ----
Income tax expense.............. $330 $231 $ 6 $ 27
==== ==== === ====
</TABLE>
The Company's deferred tax liability arises from the Company's investment
in HCI.
Prior to March 29, 1995, the Company was a party to a tax sharing agreement
with GE Capital, whereby General Electric Company, then the ultimate parent of
GE Capital, filed a consolidated U.S. federal income tax return which included
the Company. Effective March 29, 1995, the tax sharing agreement was terminated
as a result of GE Capital's sale of 44 shares of the Company's common stock to
Bull Run. Accordingly, the Company has provided for income taxes and franchise
taxes on a separate return basis subsequent to March 29, 1995.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's investment in HCI Preferred Stock and HCI
Common Stock was approximately $26,100 as of June 30, 1998 and 1997, compared to
the carrying values of $5,247 and $4,378 as of June 30, 1998 and 1997,
respectively. The fair
F-82
<PAGE> 211
CAPITAL SPORTS PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
value of the Company's investment in HCI Common Stock was estimated based on
transactions in HCI's common stock occurring near June 30, 1998 and 1997. The
fair value of the Company's investment in HCI Preferred Stock was estimated to
approximate its face value.
All other financial instruments, including receivables and payables, are
estimated to have a fair value that approximates carrying value in the financial
statements.
F-83
<PAGE> 212
CAPITAL SPORTS PROPERTIES, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
1999
---------
<S> <C>
ASSETS
Investment in Host Communications, Inc...................... $ 8,447
Accrued dividends receivable................................ 1,889
Income taxes refundable..................................... 162
-------
$10,498
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deferred income taxes....................................... $ 1,608
Amounts due to stockholders................................. 334
-------
1,942
-------
Stockholders' equity:
Common stock, $.01 par value (authorized 200 shares;
issued and outstanding 100 shares)..................... 0
Additional paid-in capital................................ 5,000
Retained earnings......................................... 3,556
-------
Total stockholders' equity............................. 8,556
-------
$10,498
=======
</TABLE>
See accompanying notes to these condensed financial statements.
F-84
<PAGE> 213
CAPITAL SPORTS PROPERTIES, INC.
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE NINE
MONTHS MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1999 1998
---------- ---------
<S> <C> <C>
Dividend income........................................... $ 225 $ 225
Equity in earnings of Host Communications, Inc............ 3,200 705
---------- --------
Income before income taxes.............................. 3,425 930
Income tax provision...................................... 1,115 267
---------- --------
Net income.............................................. 2,310 663
Retained earnings, beginning of period.................... 1,246 407
---------- --------
Retained earnings, end of period.......................... $ 3,556 $ 1,070
========== ========
Earnings (loss) per share -- Basic........................ $ 23,100 $ 6,630
Earnings (loss) per share -- Diluted...................... $ 23,100 $ 6,630
Weighted average number of shares outstanding:
Basic................................................... 100 100
Diluted................................................. 100 100
</TABLE>
See accompanying notes to these condensed financial statements.
F-85
<PAGE> 214
CAPITAL SPORTS PROPERTIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 2,310 $ 663
Adjustments to reconcile net income to net cash
provided by operating activities:
Accrued dividends receivable..................... (225) (225)
Equity in earnings of Host Communications,
Inc............................................ (3,200) (705)
Amounts due shareholders......................... 12
Income taxes refundable.......................... 15
Deferred income taxes............................ 1,088 267
------- -----
Cash provided by operating activities.......... 0 0
------- -----
Net increase in cash.................................. 0 0
Cash, beginning of year............................... 0 0
------- -----
Cash, end of year..................................... $ 0 $ 0
======= =====
</TABLE>
See accompanying notes to these condensed financial statements.
F-86
<PAGE> 215
CAPITAL SPORTS PROPERTIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
In management's opinion, the accompanying unaudited condensed financial
statements of Capital Sports Properties, Inc. (the "Company") reflect all
adjustments (consisting solely of normal, recurring adjustments) necessary to
present fairly the financial position and results of operations for the interim
periods reported. These condensed financial statements should be read in
conjunction with the financial statements contained elsewhere herein this proxy
statement/prospectus.
2. PENDING TRANSACTION
On February 15, 1999, the Company entered into a merger agreement whereby
Bull Run Corporation ("Bull Run"), the holder of 51.5% of the Company's common
stock, agreed to acquire the stock of Host Communications, Inc. ("Host"),
Universal Sports America, Inc. ("Universal") and the Company not currently
owned, directly or indirectly, by Bull Run for approximately $95,000, net of
cash acquired (the "Bull Run Acquisition"). Pursuant to the merger agreement,
Bull Run will reorganize into a holding company structure immediately prior to
the Bull Run Acquisition whereby each outstanding share of Bull Run common stock
will be converted into one share of a new holding company, BR Holding, Inc. ("BR
Holding") BR Holding, which will be a publicly held company, will be owned by
the stockholders of Bull Run immediately prior to such conversion and Bull Run
and its subsidiaries will be subsidiaries of BR Holding. Under the merger
agreement, each share of the Company's common stock (except for shares held by
Bull Run) will be converted into the right to receive (a) an amount in cash
equal to $194,085, (b) an amount in cash equal to 1% of the Company's accrued
dividends payable on Host preferred stock through the date of the Bull Run
Acquisition, and (c) a number of shares of BR Holding common stock having an
aggregate value of $162,562. This transaction is subject to the terms and
conditions of the merger agreement, including approval of the stockholders of
Host, Universal, Bull Run and the Company.
3. INVESTMENT IN HOST
The Company currently owns 37,500 shares of Host series B cumulative
preferred stock and 447,002 shares of Host common stock. The Host series B
cumulative preferred stock accrues an annual dividend of $8.00 per share as
declared by Host Board of Directors. Host may redeem the series B cumulative
preferred stock at any time at a price of $100 per share plus a stated premium
and if not previously redeemed, the Host series B cumulative preferred stock
must be redeemed on December 15, 1999 at $100 per share, plus any unpaid
dividends. As of December 31, 1998, the Company's ownership of Host common stock
represented approximately 47.8% of Host's outstanding common stock.
F-87
<PAGE> 216
CAPITAL SPORTS PROPERTIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
Host's operating results for the nine months ended March 31, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Operating revenue........................... $42,467 $37,113
Operating income (loss)..................... (1,098) 2,563
Net income.................................. 6,920 1,369
</TABLE>
4. INCOME TAXES
The principal difference between the federal statutory rate of 34% and the
effective tax rates is the 80% federal tax exclusion on dividend income.
F-88
<PAGE> 217
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Host Communications, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Host
Communications, Inc. and Subsidiaries as of June 30, 1998 and 1997 and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Host
Communications, Inc. and subsidiaries at June 30, 1998 and 1997 and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Indianapolis, Indiana
August 21, 1998
/s/ ERNST & YOUNG LLP
F-89
<PAGE> 218
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Host Communications, Inc.:
We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows of Host Communications, Inc. and
subsidiaries for the year ended June 30, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Host Communications, Inc. and subsidiaries for the year ended June 30,
1996 in conformity with generally accepted accounting principles.
As discussed in notes 1 and 3 to the consolidated financial statements, the
Company changed its method of accounting for license fee revenues and rights fee
expenses.
/s/ KPMG LLP
Cincinnati, Ohio
October 11, 1996
F-90
<PAGE> 219
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1998 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 13 $ 41
Accounts and notes receivable, less allowance of $105 in
1998 and $158 in 1997.................................. 8,885 5,637
Due from affiliates....................................... 423 897
Note receivable from officer.............................. 385 385
Inventory................................................. 469 456
Prepaid expenses and other current assets................. 860 919
Deferred income taxes..................................... 109 226
------- -------
Total current assets........................................ 11,144 8,561
------- -------
Property and equipment, net................................. 5,872 6,093
Investment in affiliates.................................... 12,274 8,762
Goodwill, net of accumulated amortization of $160 in 1998
and $76 in 1997........................................... 1,756 1,781
Other assets................................................ 1,490 510
------- -------
Total assets................................................ $32,536 $25,707
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 6,756 $ 1,193
Current maturities of long-term obligations............... 507 540
Trade accounts payable.................................... 391 861
Accrued expenses.......................................... 4,288 6,905
Deferred income........................................... 2,904 3,173
------- -------
Total current liabilities................................... 14,846 12,672
Long-term obligations....................................... 2,170 2,524
Deferred income taxes....................................... 4,062 2,819
------- -------
Total liabilities........................................... 21,078 18,015
------- -------
Commitments and contingencies............................... -- --
Series B redeemable cumulative preferred stock, no par
value -- $100 stated and redemption value:
Authorized shares -- 80,000
Issued and outstanding shares 37,500 in 1998 and
1997................................................. 5,333 4,980
Stockholders' Equity
Common stock, no par value:
Authorized shares -- 1,500,000
Issued and outstanding shares -- 915,283 in 1998 and
907,141 in 1997...................................... 1,138 1,090
Additional capital........................................ 1,801 191
Retained earnings......................................... 3,186 1,431
------- -------
Total stockholders' equity.................................. 6,125 2,712
------- -------
Total liabilities and stockholders' equity.................. $32,536 $25,707
======= =======
</TABLE>
See accompanying notes.
F-91
<PAGE> 220
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Net revenues.................................... $ 46,337 $ 39,591 $ 40,129
Cost of revenues................................ 27,801 23,702 23,855
---------- -------- --------
Gross profit.................................... 18,536 15,889 16,274
Selling, general, and administrative expenses... 16,973 13,577 14,327
---------- -------- --------
Operating income................................ 1,563 2,312 1,947
Other income (expense):
Interest expense, net......................... (725) (417) (562)
Equity in earnings of affiliates.............. 459 677 678
Gain on sale of TC3 to Total Sports, Inc...... 2,843 -- --
Loss on sale of AdCraft assets................ (276) -- --
Gain on sale of assets to Universal Sports
America, Inc............................... -- -- 6,726
---------- -------- --------
Income from operations before income taxes and
cumulative effect of change in accounting
principle..................................... 3,864 2,572 8,789
Provision for income taxes...................... 1,756 946 3,392
---------- -------- --------
Income from operations before cumulative effect
of change in accounting principle............. 2,108 1,626 5,397
Cumulative effect of change in accounting
principle (net of income tax benefit of
$2,883)....................................... -- -- (4,559)
---------- -------- --------
Net Income...................................... $ 2,108 $ 1,626 $ 838
Less preferred stock dividends.................. 300 400 400
---------- -------- --------
Net income available to common shareholders..... $ 1,808 $ 1,226 $ 438
Basic earnings per share:
Income before cumulative effect of a change in
an accounting principle.................... $ 1.98 $ 1.44 $ 11.54
Cumulative effect of accounting change........ -- -- (10.53)
---------- -------- --------
Basic earnings per share...................... $ 1.98 $ 1.44 $ 1.01
========== ======== ========
Diluted earnings per share:
Income before cumulative effect of a change in
an accounting principle.................... $ 1.77 $ 1.40 $ 11.54
Cumulative effect of accounting change........ -- -- (10.53)
---------- -------- --------
Diluted earnings per share.................... $ 1.77 $ 1.40 $ 1.01
========== ======== ========
Basic weighted average shares outstanding....... 913,000 849,000 433,000
========== ======== ========
Diluted weighted average shares outstanding..... 1,020,000 875,000 433,000
========== ======== ========
</TABLE>
See accompanying notes.
F-92
<PAGE> 221
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- ADDITIONAL RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1995......... 433,118 $1,101 $ -- $ 6 $1,107
Repurchase of common stock.... (346) (8) -- -- (8)
Common stock issued to
employees, net of issuance
costs...................... 1,000 3 -- -- 3
Preferred stock dividends..... -- -- -- (400) (400)
Net income.................... -- -- -- 838 838
------- ------ ------ ------ ------
Balance at June 30, 1996........ 433,772 1,096 -- 444 1,540
Repurchase of common stock.... (507) (11) -- -- (11)
Common stock issued........... 26,374
Exercise of warrants
outstanding................ 447,002 5 5
Compensation expense of stock
options.................... -- -- 184 184
Stock options exercised....... 500 -- 7 7
Accretion of issuance costs... -- -- -- (239) (239)
Preferred stock dividends..... -- -- -- (400) (400)
Redemption of 12,500 shares of
preferred stock............ -- -- --
Net income.................... -- -- 1,626 1,626
------- ------ ------ ------ ------
Balance at June 30, 1997........ 907,141 1,090 191 1,431 2,712
Repurchase of common stock.... (100) (2) -- -- (2)
Common stock issued........... 242 -- -- -- --
Compensation expense of stock
options.................... -- -- 1,610 -- 1,610
Stock options exercised....... 8,000 50 -- -- 50
Accretion of issuance costs... -- -- -- (53) (53)
Preferred stock dividends..... -- -- -- (300) (300)
Net income.................... -- -- -- 2,108 2,108
------- ------ ------ ------ ------
Balance at June 30, 1998........ 915,283 $1,138 $1,801 $3,186 $6,125
======= ====== ====== ====== ======
</TABLE>
See accompanying notes.
F-93
<PAGE> 222
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 2,108 $ 1,626 $ 838
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization............................. 1,159 1,072 1,024
Provision for bad debt reserve............................ (53) 67 200
Loss on sale of properties and equipment.................. -- -- 118
Equity in earnings of affiliates.......................... (459) (677) (678)
Gain on sale of TC3 to Total Sports, Inc.................. (2,843) -- --
Gain on sale of assets of Universal Sports America,
Inc..................................................... -- -- (6,726)
Cumulative effect of accounting change.................... -- -- 7,442
Deferred taxes............................................ 1,360 966 51
Loss on sale of AdCraft assets............................ 276 -- --
Compensation expense of stock options..................... 1,610 191 --
Changes in assets and liabilities, net of effects of
acquisitions and dispositions of businesses:
Accounts and notes receivable........................ (3,552) 1,991 (4,546)
Amounts due from related parties..................... 582 1,126 --
Prepaid expenses and other current assets............ (105) 459 (358)
Trade accounts payable............................... (470) (357) (456)
Accrued expenses..................................... (2,503) (3,220) 5,689
Deferred income...................................... (187) 1,378 (381)
Other................................................ (737) (1,963) (53)
------- ------- -------
Net cash (used in) provided by operating activities......... (3,814) 2,659 2,164
INVESTING ACTIVITIES
Purchase of properties and equipment........................ (1,120) (1,492) (452)
Proceeds from sale of properties and equipment.............. -- 48 68
Investments in businesses, net of cash acquired............. (318) 201 --
------- ------- -------
Net cash used in investing activities....................... (1,438) (1,243) (384)
FINANCING ACTIVITIES
Net activity on notes payable............................... 5,563 (688) (1,091)
Payments on long-term obligations........................... (387) (402) 674
Proceeds from long-term obligations......................... -- 1,352 --
Net proceeds from issuance of common stock.................. 50 5 3
Redemption of preferred stock............................... -- (1,705) --
Payments to repurchase common stock......................... (2) (11) (8)
------- ------- -------
Net cash provided by (used in) financing activities......... 5,224 (1,449) (1,770)
------- ------- -------
Net (decrease) increase in cash............................. (28) (33) 10
Cash at beginning of year................................... 41 74 64
------- ------- -------
Cash at end of year......................................... $ 13 $ 41 74
======= ======= =======
Supplemental disclosures of cash flow information:
Interest paid during the year............................. $ 725 $ 366 528
======= ======= =======
Income taxes paid during the year......................... $ 764 $ 403 324
======= ======= =======
Noncash investing and financing activities:
Capital leases............................................ $ -- $ -- $ 1,316
======= ======= =======
Preferred stock dividends................................. $ 300 $ 400 $ 400
======= ======= =======
Long-term obligations incurred for acquisition............ $ -- $ 1,046 $ --
======= ======= =======
</TABLE>
See accompanying notes.
F-94
<PAGE> 223
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 1998
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Host Communications, Inc. (the "Company") provides specialized marketing
and management services to corporate clients focusing primarily on
sports-related affinity groups. Host also provides professional marketing and
other management services to the NCAA and other groups and associations such as
the National Tour Association (a package travel association), Quest (J. D.
Edwards user group association) for and the International Spa and Fitness
Association. Among other things, Host's responsibilities under these
relationships may include the sale of "official sponsorship" rights to
corporations, advertising space in game-day or other programs and advertising in
television and radio broadcasts of games. Host also produces a broad array of
electronic and print media through their broadcasting, printing and publishing
divisions and maintain minority investments in service companies which provide
marketing and production support to their corporate clients and associations.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries, all of which are wholly owned. Intercompany
balances and transactions have been eliminated in consolidation.
RECOGNITION OF LICENSE FEE REVENUES AND RIGHTS FEE EXPENSES AND ACCOUNTING
CHANGE
The Company enters into contractual arrangements with the associations it
represents in various capacities which often involve payment of guaranteed
rights fees and/or profit splits, pursuant to applicable terms and conditions
specified in the contract. The profit splits are computed based on the net
profit associated with the projects. Guaranteed rights fees are specified by
period and recognized ratably over the term specified within the contract.
Effective July 1, 1995, the Company adopted a new accounting policy for the
recognition of corporate sponsor license fee revenues and guaranteed rights fee
expenses, since the nature of rights contracts entered into by the Company was
changing to include revenue-sharing or net profit split arrangements rather than
guaranteed rights fee payments. As such, the rights fee expense associated with
this type of contract could not be precisely measured until the expiration of
each contract period when the revenue-sharing or net profits split amount was
precisely determined. Under this policy, license fee revenues and rights fee
expenses are recognized on a straight-line basis over the life of the contract,
which provides for the uniform matching of revenue and expense. The effect of
the change of recognizing license fee revenues and rights fee expenses was
calculated and reported as the cumulative effect of a change in accounting
principle in the 1996 consolidated statement of income. The amount of the
cumulative change was $4,559 (net of income tax benefit of $2,883).
F-95
<PAGE> 224
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are provided for in amounts sufficient to relate the cost of depreciable assets
to operations over their estimated useful lives. Leasehold improvements and
equipment held under capital leases are amortized over the shorter of the lease
term or the estimated useful lives. The straight-line method of depreciation is
followed for all assets for financial reporting purposes and accelerated methods
are used for tax purposes.
GOODWILL
Goodwill represents the excess of the aggregate purchase price paid by the
Company in acquisitions accounted for as purchases over the fair value of the
net assets acquired. Goodwill is amortized on a straight-line basis over 25
years.
The Company periodically reevaluates the carrying amounts of its
intangibles as well as the related amortization period to determine whether
current events and circumstances warrant adjustments to the carrying amounts
and/or revised estimates of useful lives. If events and circumstances warrant
reevaluation of the carrying value, it would be based on the Company's estimate
of the undiscounted operating income before depreciation, amortization and
interest over the remaining lives of the amortization periods of the related
intangible assets.
BARTER TRANSACTIONS
The Company provides advertising and licensing rights to certain customers
or sub-licensees in exchange for services. The estimated fair value of the
services to be received is recorded as an account receivable. As these services
are used, they are charged to expense. Advertising revenue is recognized as the
advertising is used by the customer and license fee revenues are recognized on a
straight-line basis over the term of the sub-license agreement. Net revenues and
operating expenses include the following amounts related to barter transactions:
<TABLE>
<CAPTION>
1998 1997 1996
------ ---- ------
<S> <C> <C> <C>
Net revenues............................................. $1,278 $343 $1,612
Operating expenses....................................... $1,366 $755 $1,468
</TABLE>
EARNINGS PER COMMON SHARE
Earnings per common share is calculated in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. The Company
calculates basic earnings per common share using the weighted average number of
shares outstanding for the period. Diluted earnings per common share include
both the weighted average number of shares and any common share equivalents,
such as options or warrants in the calculation.
STOCK OPTIONS
SFAS No. 123, Accounting for Stock-Based Compensation, prescribes
accounting and reporting standards for all stock-based compensation plans. SFAS
No. 123 provides that
F-96
<PAGE> 225
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
companies may elect to continue using existing accounting requirements for
stock-based awards or may adopt a new fair value method to determine the
intrinsic value. The Company has elected to continue to account for its
stock-based awards as prescribed by Accounting Principle Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB No. 25).
INCOME TAXES
The Company uses the liability method of recording income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between financial statement
carrying amounts of assets and liabilities and their respective tax bases.
FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Values of Financial Instruments,
requires the fair value of financial instruments be disclosed. The Company's
financial instruments are accounts receivable, accounts payable, and long term
debt. Because of their nature, the carrying amounts of these items approximate
fair value.
RECENTLY-ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board Issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities." The Company
expects to adopt the new Statement effective July 1, 2000. The Statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. The Company does not anticipate that the adoption of this Statement will
have a significant effect on its results of operations or financial position.
ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. INVESTMENT IN AFFILIATES
The Company has various investments in affiliates that are accounted for on
the equity method.
INVESTMENT IN UNIVERSAL SPORTS AMERICA, INC.
In fiscal 1996, the Company and Streetball Sports Ventures Partners, L.P.
("Streetball") formed Universal Sports America, Inc. ("USA") to offer corporate
sponsors and advertisers sponsorship and promotional opportunities involving
college athletics and participatory sporting events. The Company contributed net
operating assets
F-97
<PAGE> 226
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of approximately $2,000 related to its university and conference sports
marketing projects, Historically Black Collegiate Coalition and marketing
divisions, to USA Collegiate, L.P. ("USAC"), a wholly owned limited partnership
of HCI, in exchange for a 99% limited partner interest in USAC. On October 16,
1995, the Company sold its interest in USAC to USA, Inc. in exchange for 719
shares of USA common stock, representing 33.79% of the outstanding shares of USA
common stock on a fully-diluted basis. USA assumed all assets and liabilities of
USAC. As a result, the Company realized a pre-tax gain of $6,726.
The investment carrying amounts increased by the Company's share of the
income of USA of $825, $478 and $487, respectively, which was reported in the
Company's 1998, 1997 and 1996 consolidated statements of income. Shown below is
summarized financial information related to USA:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
As of June 30:
Total assets.............................................. $69,034 $23,804
Total liabilities......................................... $21,521 $14,611
</TABLE>
The Company provides management, finance, administrative, production,
national sales and accounting services to USA in exchange for an annual
management fee. Management fees of $853, $1,011 and $1,181 were recognized in
1998, 1997 and 1996 respectively. In addition, USA reimbursed the Company for
expenses paid on its behalf in the amount of $141 and $2,370 in 1997 and 1996,
respectively.
INVESTMENT IN CORPORATE MARKETING ASSOCIATES
Effective July 1, 1997, HCI acquired a 45% interest in Corporate Marketing
Associates ("CMA"), a newly formed company engaged in corporate promotions and
advertising, for an initial investment of $125. The investment is being
accounted for on the equity method of accounting. HCI's loss on its investment
in CMA during 1998 was $269. In connection with the acquisition, HCI also
entered into agreements to provide CMA with leased employees and various
accounting and professional services for a fee. HCI recorded total fees
associated with these agreements of $1,030 for the year ended June 30, 1998. HCI
has also provided working capital to CMA during the year ended June 30, 1998
evidenced by a note receivable from CMA in the amount of $399 as of such year
end.
BASKETBALL HALL OF FAME PROPERTIES
During 1998, HCI entered into a joint venture with NBA Properties, Inc.
("NBA"), to form Hall of Fame Properties, LLC ("HOFP"), whereby HCI received a
25% interest in HOFP. Subject to certain conditions precedent which have not yet
occurred, HOFP has separately entered into a contract with the Naismith Memorial
Basketball Hall of Fame, Inc. ("HOF"), whereby HOFP was granted exclusive
marketing rights for the HOF. Under the terms of the contract, HOFP will solicit
advertising and sponsorship revenues for the HOF which is intended to help HOF
supplement funding for a new museum facility. In exchange for these exclusive
marketing rights, HOFP will pay HOF a guaranteed amount of $2,117 per year
during the first six years of the ten-year contract. The agreement also calls
for net revenue sharing between the parties based on certain revenue thresholds
achieved in excess of the initial guarantee by HOFP. The joint venture
F-98
<PAGE> 227
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreement with NBA provides that HCI's portion of the liabilities associated
with this joint venture will not exceed $530 annually.
3. ACQUISITION AND DISPOSITION OF BUSINESSES
On August 1, 1996, HCI acquired 100% of the outstanding common stock of
AdCraft Associates, Inc. ("AdCraft"). The transaction was accounted for under
the purchase method of accounting, and accordingly, the results of AdCraft are
included in the financial statements from the date of acquisition. In connection
with the acquisition, HCI recorded a future obligation under this agreement in
the amount of $712 as a long-term obligation, assuming a discount rate of 8.5%
(see Note 8). The total cost of the acquisition, including direct costs of the
acquisition, was $1,641, and total net deficiency of assets of AdCraft at the
date of the transaction, was $142. The excess of the purchase price over net
assets acquired of $1,783 was recorded as goodwill and is being amortized over
25 years. Effective October 29, 1997, AdCraft was merged into HCI.
Effective November 14, 1997, HCI sold certain assets and liabilities
associated with its investment in AdCraft to an individual who was an employee
of the Company in exchange for a $350 promissory note, resulting in a loss of
$276. The promissory note bears interest at the prime rate, with interest
payable on a quarterly basis. The note matures on November 30, 1999 at which
time the entire principal amount of the note is due. HCI was also required to
buy out the remaining term of this individual's employment contract in the
amount of $250, pursuant to his terminating his employment in connection with
this transaction.
On January 1, 1997, HCI acquired 100% of the outstanding common stock of
Wayne Smith Company ("WSC"). The transaction was accounted for under the
purchase method of accounting, and accordingly, the results of WSC are included
in the financial statements from the date of acquisition. In connection with the
acquisition, HCI issued 8,000 shares of HCI common stock to the previous owner
WSC. The stock has a put/call option allowing the previous owner to put the
stock back to HCI at the conclusion of his employment agreement in 2002 for a
price of $50 per share, or $400. The agreement also permits HCI to call the
stock at any time upon written notice for $50 per share. At June 30, 1997, the
present value of HCI's future obligation under this agreement was recorded in
the amount of $262 as a long-term obligation, assuming a discount rate of 8.5%
(see Note 8). The total cost of the acquisition, including direct costs of the
acquisition, was $267 and total net assets of WSC at the date of acquisition
were $250. The excess of the purchase price over net assets acquired of $17 was
recorded as goodwill and is being amortized over 25 years. Effective May 22,
1998, WSC was merged into HCI.
On June 1, 1998, HCI exchanged its interest in a 50% owned joint venture
engaged in the production and marketing of Internet sites to various colleges
and universities for 418,971 shares of common stock of Total Sports, Inc.
("Total Sports"), representing approximately 15% of the total equity of Total
Sports on a fully diluted basis. Total Sports has access to a significant
database of sports information which it distributes through a variety of media,
including print, graphic design and Internet. HCI's share of Total Sports at the
time of the exchange was valued at $7.11 per share, or approximately $2,977,
resulting in a gain of $2,843.
F-99
<PAGE> 228
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTE RECEIVABLE FROM OFFICER
The note receivable from officer consists of a $385 demand note bearing
interest at the prime rate plus 1% (9.5% as of June 30, 1998) with interest
payable monthly. Interest due on the note receivable of $174 and $138 is
included in accounts receivables as of June 30, 1998 and 1997, respectively.
5. PROPERTY AND EQUIPMENT
Property and equipment at June 30 consists of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Land........................................................ $ 448 $ 150
Building.................................................... 1,183 1,183
Machinery and equipment..................................... 5,738 5,807
Leasehold and building improvements......................... 955 884
Furniture and fixtures...................................... 1,581 1,580
Computer equipment.......................................... 3,268 2,759
Autos and trucks............................................ 64 64
------- -------
13,237 12,427
Less accumulated depreciation and amortization.............. 7,365 6,334
------- -------
$ 5,872 $ 6,093
======= =======
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses at June 30 consist of the following:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Guaranteed rights fees...................................... $1,066 $3,241
Unbilled payables........................................... 2,906 1,111
Profit splits............................................... 124 2,477
Other....................................................... 192 76
------ ------
$4,288 $6,905
====== ======
</TABLE>
7. NOTES PAYABLE
Notes payable under a loan agreement with Bank One Lexington, N.A. ("Bank
One") at June 30, 1998 and 1997 were $6,756 and $1,193, respectively. The
agreement provides for a revolving line of credit up to $10,000 and expires
December 31, 1999.
Interest is payable monthly at Bank One's prime rate or LIBOR plus 175
basis points as selected by the Company for specified rate periods. The interest
rate on outstanding borrowings was 8.5% as of June 30, 1998. The facility fee is
0.32% per quarter on the average daily unadvanced portion of the revolving line
of credit.
The Bank One loan agreement is secured by accounts receivable and contains
various affirmative and negative covenants as well as specific financial
covenants relating to net worth, coverage ratios, debt ratios and additional
indebtedness.
F-100
<PAGE> 229
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM OBLIGATIONS
Long-term obligations at June 30 consist of the following:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Obligations under capital leases............................ $ 225 $ 498
Obligations under acquisition agreements.................... 1,136 1,045
Obligations under equipment financing:
8.5% secured installment note, payable in monthly
installments of $17 including interest, due on January
5, 2003................................................ 749 877
9.0% secured installment note, payable in monthly
installments of $4 including interest, due on November
1, 2002................................................ 182 215
8.34% secured installment note, payable in monthly
installments of $4 including interest, due on June 27,
2004................................................... 262 306
Other....................................................... 123 123
------ ------
2,677 3,064
Less current maturities..................................... 507 540
------ ------
Long-term obligations....................................... $2,170 $2,524
====== ======
</TABLE>
Obligations under capital leases relate to the acquisition of computer
equipment and expire at various dates through 1999. The amount of assets under
capital leases included in properties and equipment at June 30, 1998 and 1997
was $1,200. Accumulated amortization on assets under capital leases at June 30,
1998 and 1997 was $870 and $656, respectively. Amortization of assets held under
capital lease is included with depreciation expense.
Future minimum lease payments under noncancellable capital leases and the
present value of future minimum capital lease payments are $236 and $225,
respectively. All lease payments are due in 1999.
Obligation under acquisition agreements relate to the put/call options
issued in connection with the AdCraft and WSC acquisitions (see note 3). These
obligations were recorded at the present value of the future obligation based on
the put/call option price of $50 per share issued in the transaction. The
present value for each of these put/call options was based on a discount rate of
8.5% per annum and are being accrued to their terminal value over the respective
terms of these agreements. Interest expense recorded for the years ended June
30, 1998 and 1997 associated with these obligations was $90 and $69
respectively. Aggregate annual principal payments of long-term obligations at
June 30, 1998 are:
<TABLE>
<S> <C>
1999........................................................ $ 507
2000........................................................ 1,103
2001........................................................ 272
2002........................................................ 579
2003 and Thereafter......................................... 216
------
$2,677
======
</TABLE>
F-101
<PAGE> 230
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. REDEEMABLE CUMULATIVE PREFERRED STOCK
In 1992, the Company authorized 80,000 shares and issued 50,000 shares of
series B redeemable cumulative preferred stock ("Series B") having no par value
per share and $100 stated value per share. Pursuant to certain agreements
entered into in connection with the sale of this Series B, certain restrictions
were placed on transfers of common stock, voting and irrevocable proxy
agreements between certain stockholders and officers of the Company were entered
into and the Company is required to comply with various covenants related to
financial ratios and financial reporting. The Series B stockholders are entitled
to receive, as declared by the Company's Board of Directors, cumulative cash
dividends at an annual rate of $8.00 per share. The dividends accrue quarterly
in arrears and are payable on the dates set forth by the Company's Board of
Directors. Effective June 30, 1997, the Company redeemed 12,500 shares of Series
B preferred stock, including cumulative dividends, for $1,705. The Series B
recorded value increased $300 in 1998, and $400 in 1997 and 1996, respectively,
to reflect the dividends accrued from the issuance date through June 30, 1998.
Cumulative preferred dividends in arrears at June 30, 1998 were $1,291. The
Company incurred stock issuance costs of $371 which were netted against the
original proceeds and are being accreted to retained earnings.
The Series B shares may be redeemed at agreed-upon rates per share as
called by the Company, and must be redeemed on December 15, 1999. At June 30,
1998, the cost of redeeming the shares is $5,412 including cumulative dividends.
10. COMMON STOCK OPTION PLANS
The Company has three stock option plans: the Directors' Non-Qualified
Stock Option Plan (the "Directors Plan"), the Non-Qualified Stock Option
Agreements for certain senior executives (the "Senior Executive Plan") and the
Management Committee Non-Qualified Stock Option Plan (the "Management Committee
Plan").
The Directors Plan provides for the grant of options to purchase up to
24,000 shares of common stock of the Company to non-employee directors. The
Board of Directors granted options to purchase 8,000 shares of common stock in
1998. Under the Directors Plan, 50% of the options are exercisable on the date
of grant and 50% of the options are exercisable on the first anniversary of the
date of grant. The option price per share is $3.125.
In 1998, under the Senior Executive Plan, the Company granted to two senior
executives options to purchase 90,000 shares of common stock at $3.125 per
share. These options are exercisable 50% on or after the date of grant and 50%
on or after June 30, 1999. No additional options are available for grant under
the Senior Executive Plan.
The Management Committee Plan provides for the grant of options to purchase
up to 100,000 shares of common stock of the Company to eligible members of the
Company's senior management. The Board of Directors granted options to purchase
24,000 shares of common stock in 1998. Under the Management Committee Plan,
options are exercisable as follows: 33 1/3% on the first anniversary of the
grant date, 33 1/3% on the second anniversary of the grant date, and 33 1/3% on
the third anniversary of the grant date. Options under this plan are exercisable
at $6.25 per share.
F-102
<PAGE> 231
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At June 30, 1998 and 1997, other outstanding options entitle the holders
(employees and others) to purchase 12,000 shares of common stock at prices
ranging from $11.25 to $22.00 per share through 1999. Options to purchase 500
shares of common stock were granted in 1998.
On the date of the grant of the stock options in 1998 and 1997, the fair
value of the Company's common stock exceeded the exercise price of such stock
options. Accordingly, compensation expense was recognized for the years ended
June 30, 1998 and 1997 in the aggregate amounts of $1,610 and $191,
respectively. The fair value for options granted was estimated at the date of
grant using the minimum value option pricing model with the following weighted
average assumptions for fiscal 1998 and 1997: risk free interest rate of 5.5%;
no dividends expected to be declared; volatility factor of zero for the expected
price of the Company's common stock as it is not publicly traded; and the
expected life of the options of six years. The weighted average grant date fair
value of options was $25 in 1998 and $9 in 1997. Had compensation cost been
recognized based on the estimated fair value of the options on the grant date
under the methodology prescribed by SFAS 123, the Company's net income for the
years ended June 30, 1998 and 1997 would not have been materially different
using the "minimum value" method for valuing the options.
A summary of the Company's stock option activity for the years ended June
30 follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of
year......................... 131,500 $5.24 88,500 $5.60 46,000 $6.60
Granted........................ 122,500 3.75 43,500 4.53 44,000 4.51
Exercised...................... (9,500) 6.25 (500) 6.25 (1,500) 4.17
------- ----- ------- ----- ------ -----
Outstanding -- end of year..... 244,500 $4.46 131,500 $5.24 88,500 $5.60
======= ===== ======= ===== ====== =====
Exercisable at end of year..... 124,500 $4.63 64,667 $5.65 39,083 $6.48
======= ===== ======= ===== ====== =====
</TABLE>
F-103
<PAGE> 232
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share before the cumulative effect of a change in accounting
principle (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
NUMERATOR
Income before cumulative effect of accounting change.... $2,108 $1,626 $5,397
Preferred stock dividends............................... (300) (400) (400)
------ ------ ------
Numerator for basic and diluted earnings per share...... $1,808 $1,226 $4,997
====== ====== ======
DENOMINATOR
Weighted average shares for basic earnings per share.... 913 849 433
Effect of dilutive securities:
Employee stock options.................................. 107 26 --
------ ------ ------
Adjusted weighted average shares for dilutive earnings
per share............................................. 1020 875 433
====== ====== ======
Basic earnings per common share......................... $ 1.98 $ 1.44 $ 1.01
====== ====== ======
Diluted earnings per common share....................... $ 1.77 $ 1.40 $ 1.01
====== ====== ======
</TABLE>
12. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
Year ended June 30, 1998:
Federal.............................................. $321 $1,240 $1,561
State and local...................................... 75 120 195
---- ------ ------
Total income tax expense............................... $396 $1,360 $1,756
==== ====== ======
Year ended June 30, 1997:
Federal.............................................. $ 16 $ 704 $ 720
State and local...................................... (36) 262 226
---- ------ ------
Total income tax expense............................... $(20) $ 966 $ 946
==== ====== ======
Year ended June 30, 1996:
Federal.............................................. $454 $ (72) $ 382
State and local...................................... 106 21 127
---- ------ ------
Total income tax expense............................... $560 $ (51) $ 509
==== ====== ======
</TABLE>
Income tax expense for the year ended June 30, 1996 is net of a benefit of
$2,883 representing the tax benefit related to the cumulative effect of
accounting change.
F-104
<PAGE> 233
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense differs from the amounts computed by applying the
statutory U.S. Federal income tax rate to income before income taxes and
cumulative effect of change in accounting principle as a result of the
following:
<TABLE>
<CAPTION>
1998 1997 1996
------ ----- ------
<S> <C> <C> <C>
Computed statutory tax expense.......................... $1,353 $ 967 $2,988
Equity in earnings of affiliates........................ - (258) (184)
State and local income taxes, net of Federal income tax
benefit............................................... 205 153 84
Other, net.............................................. 198 84 504
------ ----- ------
Income tax expense...................................... $1,756 $ 946 $3,392
====== ===== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30 are
as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Investments in affiliates................................. $ 176 $ 30
Accounts receivable....................................... 43 43
Change from cash to accrual tax recognition on acquired
business............................................... 213 319
Federal and state net operating loss (NOL)
carryforwards.......................................... 81 339
AMT credit carryforward................................... -- 159
Stock option compensation................................. 611 74
Other..................................................... -- 5
------ ------
Gross deferred tax assets................................... 1,124 969
Valuation allowance......................................... (17) (117)
------ ------
Deferred tax assets, net.................................... 1,107 852
------ ------
Deferred tax liabilities:
Gains on sale of businesses............................... 3,841 2,699
Equity in earnings of affiliates.......................... 490 109
Plant and equipment....................................... 727 635
Other..................................................... 2 2
------ ------
Deferred tax liabilities.................................... 5,060 3,445
------ ------
Net deferred tax liability.................................. $3,953 $2,593
====== ======
</TABLE>
13. EMPLOYEE BENEFIT PLANS
The Company provides defined contribution and profit sharing plans which
cover substantially all employees. In 1998 and 1997, the Company matched
employee contributions at 35% within prescribed limits. The Company's expense
for these plans was approximately $85, $77, and $92 in 1998, 1997 and 1996,
respectively.
14. COMMITMENTS AND CONTINGENCIES
The Company commits under certain contracts, the nature and terms of which
vary, to the payment of guaranteed rights fees as specified by contract. Future
guaranteed rights fee commitments at June 30, 1998 total $95,589. Included in
this amount is $15,929
F-105
<PAGE> 234
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
representing contracts entered into by the Company from which the revenues have
been transferred to USA. USA has agreed to indemnify the Company for these
commitments.
The Company is also committed under contracts, the nature and terms of
which vary, projects to share the net profits, as specified by contract, with
other parties to the contract. The expense for 1998, 1997 and 1996, under these
arrangements was approximately $1,098, $2,501 and $2,716, respectively.
The Company has various leases for facilities and equipment which are
classified as operating leases. Rent expense for leased facilities and equipment
for 1998, 1997 1996, was $908, $778 and $700, respectively. Of these amounts,
rent expense for office facilities of $455 in 1998, $410 in 1997 and $407 in
1996 was paid to two organizations in which a stockholder of the Company has a
16.0% and 33.3% ownership interest, respectively. Future commitments associated
with operating leases are $1,797 at June 30, 1998.
The total future minimum payments required under the above commitments are
as follows:
<TABLE>
<S> <C>
1999........................................................ $24,012
2000........................................................ 23,926
2001........................................................ 21,669
2002........................................................ 25,244
2003 and thereafter......................................... 2,535
-------
$97,386
=======
</TABLE>
At June 30, 1998, a letter of credit in the amount of $75 was outstanding.
This letter of credit related to a contractual obligation associated with a
leased facility. The Company has also issued an irrevocable letter of credit in
the amount of $11,500 to guarantee the Company's payments to the NCAA for the
first contract year ending August 31, 1998. The letter of credit is secured by
the accounts receivable of the Company.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a significant effect on the Company's
consolidated financial position or results of operations.
15. CONCENTRATION OF CREDIT RISK
During 1998, 1997, and 1996, approximately $21,209 (46%), $18,194 (46%) and
$16,000 (36%), respectively, of the Company's net revenues arose from
sub-licensing NCAA corporate sponsor rights to major corporations. The Company's
current contract with the NCAA, which gives the Company the sole rights to
sub-license NCAA corporate partners, expires August 31, 2002. At June 30, 1998,
accounts receivables related to NCAA corporate sponsors included balances of
$1,943, or 35% of total billed accounts receivable. At June 30, 1997, accounts
receivables related to NCAA corporate sponsors included balances of $1,590, or
26% of total billed accounts receivable.
Concentrations of credit risk with respect to accounts receivable are
limited because a large number of geographically diverse customers comprise the
Company's customer base,
F-106
<PAGE> 235
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
thus spreading the credit risk. In addition, the Company controls credit risk
through credit approvals, credit limits and other monitoring procedures.
16. EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF INDEPENDENT AUDITOR'S REPORT
On February 15, 1999, the Company entered into a merger agreement whereby
Bull Run Corporation ("Bull Run"), the direct and indirect holder of 33% of the
Company's common stock and 52% of the Company's preferred stock, agreed to
acquire the stock of Universal Sports America, Inc. ("Universal"), Capital
Sports Properties, Inc. ("Capital") and the Company not currently owned,
directly or indirectly, by Bull Run for approximately $95,000, net of cash
acquired (the "Bull Run Acquisition"). Pursuant to the merger agreement, Bull
Run will reorganize into a holding company structure immediately prior to the
Bull Run Acquisition whereby each outstanding share of Bull Run common stock
will be converted into one share of a new holding company, BR Holding, Inc. ("BR
Holding"). BR Holding, which will be a publicly held company, will be owned by
the stockholders of Bull Run immediately prior to such conversion and Bull Run
and its subsidiaries will be subsidiaries of BR Holding. Under the merger
agreement, each share of the Company's common stock (except for shares held by
Bull Run and Capital) will be converted into the right to receive (a) an amount
in cash equal to $35 and (b) a number of shares of BR Holding common stock
having an aggregate value of $36.37. This transaction is subject to the terms
and conditions of the merger agreement, including the approvals of the
stockholders of Capital, Universal, Bull Run and the Company.
Universal, Inc., an affiliate of HCI, sold 395,160 shares of broadcast.com
inc. in January 1999 and recognized a gain of approximately $61,500. HCI
recognized its proportionate share of the gain amounting to approximately
$13,500 in January 1999.
F-107
<PAGE> 236
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
1999
---------
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 45
Accounts and notes receivable, less allowance of $192..... 18,763
Due from affiliates....................................... 296
Note receivable from officer.............................. 442
Prepaid project costs and expenses........................ 1,511
Deferred income taxes..................................... 109
-------
Total current assets........................................ 21,166
Property and equipment, net................................. 5,269
Investment in affiliates.................................... 26,111
Goodwill, net............................................... 1,537
Other assets................................................ 2,242
-------
Total assets................................................ $56,325
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 1,188
Note payable to related party............................. 8,000
Current maturities of long-term obligations............... 277
Trade accounts payable.................................... 1,111
Accrued expenses.......................................... 9,360
Deferred income........................................... 5,613
-------
Total current liabilities................................... 25,549
Long-term obligations....................................... 2,069
Deferred income taxes....................................... 8,967
-------
Total liabilities........................................... 36,585
-------
Commitments and contingencies............................... --
Series B cumulative preferred stock, no par value:
Authorized shares -- 80,000
Issued and outstanding shares --.......................... 5,598
Stockholders' Equity
Common stock, no par value:
Authorized shares -- 1,500,000
Issued and outstanding shares -- 927,783............... 1,216
Additional capital........................................ 3,085
Retained earnings......................................... 9,841
-------
Total stockholders' equity.................................. 14,142
-------
Total liabilities and stockholders' equity.................. $56,325
=======
</TABLE>
See accompanying notes.
F-108
<PAGE> 237
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Net revenues................................................ $42,467 $37,113
Cost of revenues............................................ 30,087 24,194
------- -------
Gross profit................................................ 12,380 12,919
Selling, general, and administrative expenses............... 13,478 10,356
------- -------
Operating loss.............................................. (1,098) 2,563
Other income (expense):
Interest expense, net..................................... (566) (531)
Equity in earnings of affiliates.......................... 13,654 567
Loss on sale of assets.................................... -- (271)
Other, net................................................ 81 74
------- -------
Income before income taxes.................................. 12,071 2,402
Provision for income taxes.................................. 5,151 1,033
------- -------
Net income............................................. $ 6,920 $ 1,369
======= =======
Basic earnings per common share............................. $ 7.25 $ 1.25
======= =======
Diluted earnings per common share........................... $ 6.08 $ 1.15
======= =======
</TABLE>
See accompanying notes.
F-109
<PAGE> 238
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- ADDITIONAL RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1998......... 915,283 $1,138 $1,801 $3,186 $ 6,125
Compensation expense of stock
options....................... -- -- 1,284 -- 1,284
Stock options exercised......... 12,500 78 -- -- 78
Accretion of issuance costs..... -- -- -- (40) (40)
Preferred stock dividends....... -- -- -- (225) (225)
Net income...................... -- -- -- 6,920 6,920
------- ------ ------ ------ -------
Balance at March 31, 1999....... 927,783 $1,216 $3,085 $9,841 $14,142
======= ====== ====== ====== =======
</TABLE>
See accompanying notes.
F-110
<PAGE> 239
HOST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
------------------
1999 1998
-------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 6,920 $ 1,442
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization............................. 930 858
Provision for bad debt reserve............................ 192 75
Equity in earnings of affiliates.......................... (13,654) (567)
Deferred taxes............................................ 4,905 --
Loss on sale of AdCraft assets............................ -- 271
Compensation expense of stock options..................... 1,284 254
Changes in assets and liabilities, net of effects of
acquisitions and dispositions of businesses:
Accounts and notes receivable........................ (9,686) (9,027)
Amounts due from related parties..................... 127 136
Prepaid expenses and other current assets............ 182 250
Employee notes receivable............................ (57) (125)
Trade accounts payable............................... 720 (364)
Accrued expenses..................................... 5,072 2,087
Deferred income...................................... 2,709 1,767
Other................................................ (639) (1,269)
-------- -------
Net cash (used in) provided by operating activities......... (1,359) (4,212)
INVESTING ACTIVITIES
Purchase of properties and equipment........................ (606) (968)
Investments in businesses, net of cash acquired............. (182) (44)
-------- -------
Net cash used in investing activities....................... (788) (1,012)
FINANCING ACTIVITIES
Net activity on notes payable............................... (5,798) 5,458
Net activity on note payable to related party............... 8,000 --
Payments on long-term obligations........................... (101) (279)
Proceeds from long-term obligations......................... -- --
Net proceeds from issuance of common stock.................. -- --
Redemption of preferred stock............................... -- --
Payments to repurchase common stock......................... 78 29
-------- -------
Net cash provided by (used in) financing activities......... 2,179 5,208
-------- -------
Net decrease in cash........................................ 32 (16)
Cash at beginning of year................................... 13 41
-------- -------
Cash at end of year......................................... $ 45 $ 25
======== =======
Supplemental disclosures of cash flow information:
Interest paid during the year.............................
======== =======
Income taxes paid (received) during the year.............. $ (342) $ (267)
======== =======
Noncash investing and financing activities:
Preferred stock dividends................................. $ 225 $ 225
======== =======
Long-term obligations incurred for acquisition............ $ -- $ --
======== =======
</TABLE>
See accompanying notes.
F-111
<PAGE> 240
HOST COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS)
1. GENERAL
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. These financial statements should be read in conjunction with the
financial statements of Host Communications, Inc. (the Company) for the nine
months ended March 31, 1999 and 1998, included elsewhere herein. Results of
operations for the period ended March 31, 1999 are not necessarily indicative of
results to be expected for the fiscal year ending June 30, 1999.
2. INCOME TAX EXPENSE
Income tax expense for the nine months ended March 31, 1999 and 1998
differs from the amount of income tax expense that would result from applying
the domestic federal statutory tax rate to pretax income principally due to
expenditures disallowed for income tax purposes.
3. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
NUMERATOR
Net income.................................................. $6,920 $1,369
Preferred stock dividends................................... (225) (225)
------ ------
$6,695 $1,144
DENOMINATOR
Weighted average shares for basic loss per share............ 924 912
Effect of dilutive employee stock options................... 178 79
------ ------
Adjusted weighted average shares for basic and dilutive loss
per share................................................. 1,102 991
====== ======
Basic earnings per share.................................... 7.25 1.25
------ ------
Diluted earnings per share.................................. 6.08 1.15
====== ======
</TABLE>
4. SALE OF MARKETABLE SECURITIES
Universal Sports America, Inc., an affiliate of the Company, sold 395,160
shares of broadcast.com in January 1999 and recognized a gain of approximately
$61.5 million. The Company recognized its proportionate share of the gain
amounting to approximately $13.5 million in January 1999.
F-112
<PAGE> 241
HOST COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
5. PENDING TRANSACTION
On February 15, 1999, the Company entered into an agreement whereby Bull
Run, a shareholder of 8% of the Company's common stock, agreed to acquire the
stock of Capital Sports, USA and the Company not currently owned by Bull Run,
for approximately $95,000, net of cash acquired (the "Bull Run Acquisition").
Approximately $37,000 of the purchase price is expected to be paid to Capital
Sports, USA and Company stockholders in cash and the remainder is expected to be
paid in Bull Run's common stock. Under the merger agreement, the holder of each
share of the Company's common stock (except for Bull Run) is entitled to (a)
cash consideration of $24.00, plus (b) consideration in the form of Bull Run
common stock valued for purposes of this transaction at $36.37. This transaction
is subject to the terms and conditions of the merger agreement, including
approval of the stockholders of each of the companies, and is currently expected
to close during the second quarter of 1999. Once closed, the Company would
become a wholly-owned subsidiary of Bull Run.
6. RELATED PARTY PROMISSORY NOTE
On February 24, 1999, the Company borrowed $8 million from Universal Sports
America, Inc., an affiliate of the Company, as evidenced by the Company's
promissory note. The note bears interest at 6% per annum, payable monthly
beginning in March 1999. The principal amount of the note is due upon the
earlier of (i) 10 days following demand made by Universal Sports America, Inc.
or (ii) immediately upon change in control of the majority ownership of
Universal Sports America, Inc.
F-113
<PAGE> 242
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Universal Sports America, Inc.
We have audited the accompanying consolidated balance sheets of Universal
Sports America, Inc. and subsidiaries as of June 30, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the two years in the period ended June 30, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Universal
Sports America, Inc. and subsidiaries as of June 30, 1998 and 1997, and the
results of their operations and their cash flows for the two years in the period
ended June 30, 1998, in conformity with generally accepted accounting
principles.
Dallas, Texas
August 25, 1998
/s/ ERNST & YOUNG LLP
F-114
<PAGE> 243
INDEPENDENT AUDITORS' REPORT
Board of Directors
Universal Sports America, Inc.:
We have audited the consolidated statements of income, stockholders'
equity, and cash flows of Universal Sports America, Inc. and subsidiaries for
the year ended June 30, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Universal Sports America, Inc. and subsidiaries for the year ended June
30, 1996 in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Dallas, Texas
September 6, 1996
F-115
<PAGE> 244
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1998 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,552 $ 800
Accounts receivable, net of allowance for doubtful
accounts of $178 and $151 in 1998 and 1997,
respectively........................................... 13,757 7,797
Inventory and prepaid costs............................... 7,636 5,541
Other assets.............................................. 435 498
------- -------
Total current assets........................................ 23,380 14,636
Property and equipment, net................................. 1,452 1,464
Investments in affiliates................................... 957 697
Contract investment, net.................................... 5,506 5,825
Goodwill, net............................................... 3,163 3,247
Other intangible assets, net................................ 232 204
------- -------
Total assets................................................ $34,690 $26,073
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,642 $ 2,779
Accrued rights fees....................................... 3,297 1,716
Accrued expenses.......................................... 2,702 1,067
Deferred revenues......................................... 1,198 2,583
Deferred income taxes..................................... 2,030 1,411
Payable to affiliate...................................... 925 1,213
------- -------
Total current liabilities................................... 12,794 $10,769
Long-term debt.............................................. 7,245 3,020
Deferred income taxes....................................... 1,483 1,554
Series A redeemable convertible preferred stock, $1 par
value:
Authorized shares -- 600
Issued and outstanding shares -- 490...................... 4,900 4,900
Commitments and contingencies
Stockholders' equity
Common stock, $1 par value:
Authorized shares -- 10,000
Issued and outstanding shares -- 1,640.5............... 2 2
Additional paid-in capital................................ 3,491 3,491
Retained earnings......................................... 4,775 2,337
------- -------
Total stockholders' equity.................................. 8,268 5,830
------- -------
Total liabilities and stockholders' equity.................. $34,690 $26,073
======= =======
</TABLE>
See accompanying notes.
F-116
<PAGE> 245
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net revenues......................................... $62,939 $52,872 $37,079
Cost of revenues..................................... 38,536 35,204 24,418
------- ------- -------
Gross profit......................................... 24,403 17,668 12,661
Selling, general and administrative.................. 19,665 15,335 11,006
------- ------- -------
Operating income..................................... 4,738 2,333 1,655
Other income (expense):
Interest expense................................... (572) (140) (172)
Equity in earnings of affiliates................... 221 101 317
Other.............................................. (382) 183 78
------- ------- -------
Income before taxes.................................. 4,005 2,477 1,878
Income taxes......................................... 1,567 880 642
------- ------- -------
Net income........................................... $ 2,438 $ 1,597 $ 1,236
======= ======= =======
Basic earnings per common share...................... $ 1,486 $ 973 $ 1,007
======= ======= =======
Diluted earnings per common share.................... $ 1,145 $ 749 $ 776
======= ======= =======
</TABLE>
See accompanying notes.
F-117
<PAGE> 246
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL TOTAL
---------------- PAID-IN PARTNERS' RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL CAPITAL EARNINGS EQUITY
------- ------ ---------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1995............... -- $ -- $ -- $ 800 $ -- $ 800
Distributions...... -- -- -- (103) -- (103)
Net income......... -- -- -- 496 740 1,236
Recapitalization
due to reverse
acquisition and
acquisition..... 1,640.5 2 8,391 (1,193) -- 7,200
Exchange of
interests for
Series A
redeemable
convertible
preferred
stock........... -- -- (4,900) -- -- (4,900)
------- ---- ------- ------- ------ -------
Balance at June 30,
1996............... 1,640.5 2 3,491 -- 740 4,233
Net income......... -- -- -- -- 1,597 1,597
------- ---- ------- ------- ------ -------
Balance at June 30,
1997............... 1,640.5 2 3,491 -- 2,337 5,830
Net income......... -- -- -- -- 2,438 2,438
------- ---- ------- ------- ------ -------
Balance at June 30,
1998............... 1,640.5 $ 2 $ 3,491 $ -- $4,775 $ 8,268
======= ==== ======= ======= ====== =======
</TABLE>
See accompanying notes.
F-118
<PAGE> 247
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................... $ 2,438 $ 1,597 $ 1,236
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Amortization........................................... 457 424 285
Depreciation........................................... 522 262 189
Equity in earnings of affiliates....................... (221) (101) (317)
Deferred income taxes.................................. 548 616 356
Changes in operating assets and liabilities, net of
effects of acquired business:
Accounts receivable................................. (5,960) (2,723) 574
Inventory........................................... (66) 157 (294)
Prepaid costs....................................... (2,029) (3,345) (292)
Other assets........................................ 63 (368) -
Accounts payable and accrued expenses............... 3,079 2,015 (61)
Deferred revenues................................... (1,385) 717 (499)
Payable to affiliate................................ (288) (986) 280
------- ------- -------
Net cash (used in) provided by operating activities...... (2,842) (1,735) 1,457
INVESTING ACTIVITIES
Additions to property and equipment, net................. (549) (969) (385)
Purchase of event rights................................. -- (227) --
Cash received in reverse acquisition..................... -- -- 88
Distributions received from affiliates................... -- -- 205
------- ------- -------
Net cash used in investing activities.................... (549) (1,196) (92)
FINANCING ACTIVITIES
Borrowings on long-term debt............................. 4,225 3,020 1,011
Repayments of notes payable.............................. -- (650) (1,300)
Distribution to partners................................. -- -- (1,898)
Issuance of preferred stock.............................. -- -- 1,900
Other.................................................... (82) -- --
------- ------- -------
Net cash provided by (used in) financing activities...... 4,143 2,370 (287)
------- ------- -------
Net increase (decrease) in cash.......................... 752 (561) 1,078
Cash at beginning of year................................ 800 1,361 283
------- ------- -------
Cash at end of year...................................... $ 1,552 $ 800 $ 1,361
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest................................... $ 553 $ 140 $ 172
======= ======= =======
Cash paid for income taxes............................... $ 150 $ 99 $ --
======= ======= =======
</TABLE>
See accompanying notes.
F-119
<PAGE> 248
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS
ORGANIZATION
The accompanying consolidated financial statements include the accounts of
Universal Sports America, Inc. and its wholly owned subsidiaries, Universal
Sports America, Inc. I, Streetball Sports Ventures Partners, L.P.
("Streetball"), and USA Collegiate, L.P. ("USA Collegiate"), (collectively the
"Company").
Effective October 1, 1995, the Company acquired 100% of the partnership
interests of Streetball through the issuance of 920.5 shares of common stock,
300 shares of series A redeemable convertible preferred stock, and $1,665 in
cash to Streetball's partners in exchange for 100% of the partnership interests
of Streetball. The Company also issued 125 shares of series A redeemable
convertible preferred stock to a former Streetball partner for $1,250 and 65
shares of series A redeemable convertible preferred stock to a third party for
$650. Upon completion of the transactions, previous partners of Streetball
controlled approximately 63% of the voting rights of the combined company.
For financial reporting purposes, Streetball was deemed to be the acquiring
entity. Accordingly, the merger has been reflected in the accompanying
consolidated financial statements as a recapitalization of Streetball.
Simultaneously, the Company acquired the net assets of a division of Host
Communications, Inc. ("Host Communications") by exchanging 719 shares of common
stock valued at approximately $7,200 for Host Communication's interest in USA
Collegiate. The purchase price exceeded the fair value of net tangible assets
acquired by approximately $7,300, and of such amount approximately $6,400 was
allocated to contract investment and the remaining amount of approximately $900
was allocated to goodwill under the purchase method of accounting. Additionally,
a deferred tax liability of approximately $2,400 was recorded to contract
investment with a corresponding amount recorded to goodwill.
DESCRIPTION OF BUSINESS
The Company is a provider of specialized marketing and management services
to corporate clients focusing primarily on sports-related affinity groups. The
Company also produces and manages grass roots participatory sporting events
throughout the United States and internationally and provides professional
marketing and other management services to university athletic departments,
athletic conferences and high school associations. The Company identifies and
reaches consumer segments with attractive demographic characteristics and
designs and implement marketing programs and sports-based events to target these
specific affinity groups.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include all
subsidiaries which are over 50% owned and controlled by the Company. Significant
intercompany balances and transactions have been eliminated. Investments in
unconsolidated companies which are
F-120
<PAGE> 249
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20% to 50% owned are accounted for using the equity method. Investments which
are less than 20% owned are carried at cost.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
PREPAID COSTS
The Company incurs significant costs directly relating to future events.
Such costs include, but are not limited to, production costs, amounts paid under
guaranteed rights fee arrangements, rent, insurance, tents, banners and
trophies. These costs are recorded as prepaid costs at year-end and are charged
to expense as the related events occur.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. The Company charges
depreciation to operations on a straight-line basis over the estimated useful
lives (generally three to seven years) of the related property and equipment.
INTANGIBLE ASSETS
In connection with the acquisition of USA Collegiate, certain contracts
with universities, athletic conferences and associations were recorded at their
estimated fair value and are amortized on a straight-line basis over an
estimated useful life of 20 years. Accumulated amortization relating to this
contract investment totaled $862 and $544 at June 30, 1998 and 1997,
respectively. Goodwill consists of the difference between the purchase price and
the fair value assigned to net assets acquired. Goodwill is amortized on a
straight-line basis over 40 years. At June 30, 1998 and 1997, accumulated
amortization relating to goodwill totaled $230 and $145, respectively.
The Company periodically reevaluates the propriety of the carrying amounts
of its intangibles as well as the related amortization period to determine
whether current events and circumstances warrant adjustments to the carrying
amounts and/or revised estimates of useful lives. If events and circumstances
warrant reevaluation of the carrying value, it would be based on the Company's
projection of the undiscounted operating income before depreciation,
amortization and interest over the remaining lives of the amortization periods
of the related intangible assets.
BARTER ASSETS OR SERVICES
Barter assets or services are recognized at the estimated fair value of the
product or service received. The estimated fair values of these assets and
services are recognized as sponsor revenues and as event management and
operations expenses as used. Any unused amounts which have a future value are
capitalized as other assets and the sponsor revenue is deferred until the
related event occurs. The total value of barter assets or services received was
$1,200, $1,055 and $1,300 for the years ended June 30, 1998, 1997 and 1996,
respectively.
F-121
<PAGE> 250
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
The Company's revenues are principally derived from sponsorship revenue and
registration fees. Corporate sponsor license fee revenues and advertising
revenues are recognized as the related events occur. Registration fees are
received from individuals and teams participating in events and are recognized
as each event occurs.
INCOME TAXES
The Company uses the liability method for recording income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between financial statement
carrying amounts of assets and liabilities and their respective tax bases.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk are accounts receivable. The Company performs ongoing credit
evaluation of its sponsors and generally does not require collateral. The
Company maintains an allowance for losses based upon the expected collectibility
of all accounts receivable.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
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.
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Basic and diluted common shares outstanding are calculated in accordance
with SFAS No. 128, Earnings per Share. The earnings per share for 1997 and 1996
have been restated to conform to SFAS No. 128.
FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Values of Financial Instruments,
requires the fair value of financial instruments be disclosed. The Company's
financial instruments are accounts receivable, accounts payable and long term
debt. Because of their nature, the carrying amounts of these items approximate
fair value.
STOCK OPTIONS
The Company has adopted the required provisions of SFAS No. 123, Accounting
for Stock-Based Compensation. SFAS No. 123 establishes a fair value method of
accounting and reporting standards for stock-based compensation plans. However,
as permitted by SFAS No. 123, the Company has elected to continue to apply the
provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees.
F-122
<PAGE> 251
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is required to disclose the pro forma net income as if the fair
value method defined in SFAS No. 123 has been applied.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------
1998 1997
------- ------
<S> <C> <C>
Machinery and equipment..................................... $ 1,231 $1,136
Computer equipment and software............................. 1,178 887
Furniture and fixtures...................................... 415 298
Other....................................................... 8 8
------- ------
Property and equipment...................................... 2,832 2,329
Accumulated depreciation.................................... (1,380) (865)
------- ------
Property and equipment, net................................. $ 1,452 $1,464
======= ======
</TABLE>
4. LONG-TERM DEBT
As of June 30, 1998, the Company had a revolving line of credit agreement,
as amended, with a bank that provided for borrowings of up to $10,000, with a
termination date of November 30, 1999. This agreement contains limitations on
incurring additional indebtedness and requires the Company to maintain certain
financial ratios and covenants. Advances under this facility can be made at the
prime rate (8.5% at June 30, 1998) or the LIBOR rate plus an applicable margin
(7.41% at June 30, 1998). Prime advances require quarterly interest payments and
the principal can be repaid at any time. LIBOR advances are thirty- to
ninety-day term loans whose interest and principal is payable on the maturity
date. Amounts outstanding under this agreement at June 30, 1998 and 1997 were
$7,245 and $3,020, respectively. Borrowings as of June 30, 1998 consisted solely
of prime advances.
The Company had available borrowings of $2,755 and $4,480 at June 30, 1998
and 1997, respectively. Borrowings under this agreement are secured by the
accounts receivable and inventory of the Company.
During 1996, the Company had a note payable with a bank that provided for
borrowings of up to $1,500 at the prime rate (8.5% at June 30, 1996) plus .5%.
The note matured on September 10, 1996, and was replaced with the revolving line
of credit agreement.
5. RELATED PARTY TRANSACTIONS
The Company and NBC Sports Ventures, Inc. ("NBC Sports Ventures"), a
stockholder of the Company, entered into a television rights agreement with NBC
Sports,
F-123
<PAGE> 252
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inc. ("NBC Sports"), an affiliate of NBC Sports Ventures. The terms of the
contract require the Company to reimburse NBC Sports for production costs
incurred to broadcast the Company's "3 on 3" basketball tour finals. For the
years ended June 30, 1998, 1997, and 1996, the production costs reimbursed to
NBC Sports totaled $365, $336, and $178, respectively, which amounts are
included in cost of revenues in the accompanying consolidated financial
statements.
NBC Sports Venture had extended an unsecured and non-interest-bearing line
of credit during 1996. This note had an outstanding balance of $50 at June 30,
1996 and was paid off during 1997.
During fiscal 1997 and for the first quarter of fiscal 1998, Host
Communications, Inc. a stockholder of the Company ("Host"), performed certain
finance and management services for the Company under a five-year agreement for
an annual fee of $1,200. The Company incurred expenses of $250 and $1,200 under
this agreement for the years ended June 30, 1998 and 1997, respectively. Amounts
under this agreement are included in selling, general and administrative
expenses. This agreement was terminated on October 1, 1997. The Company also
purchased certain printed material and other services from Host, totaling
$3,900, $2,300, and $1,000 for the years ended June 30, 1998, 1997, and 1996,
respectively. Amounts due Host for services and purchases were $300 and $1,213
as of June 30, 1998 and 1997, respectively.
Effective July 1, 1997, the Company entered into a one-year consulting
agreement with Host Communications pursuant to which certain executives of Host
will continue to provide consulting services to the Company. As compensation,
the Company will pay Host an aggregate consulting fee of $600. During the term
of the agreement and for two years after termination of the agreement, Host will
be subject to a non-compete agreement. Similar consulting services were provided
in 1997 and 1996 in the amounts of $595 and $455, respectively.
The Company had a total of $416 and $255 in accounts receivable from
various stockholders and affiliates as of June 30, 1998 and 1997, respectively.
6. EMPLOYEE BENEFITS
The Company has a qualified 401(k) plan (the "Plan") whereby participants
may contribute portions of their annual compensation to the Plan and matching
contributions are to be made by the Company based on criteria set forth in the
Plan agreement. For the years ended June 30, 1998, 1997 and 1996, the Company's
expense under the Plan was $59, $21 and $33, respectively.
7. STOCKHOLDERS' EQUITY
STOCK OPTIONS
The Company has a 1996 Employee Stock Option Plan (the "Option Plan") under
which the Company's Board of Directors is authorized to grant options to key
employees for the purchase of common stock at a price not less than the
estimated fair value at the date of grant. The Option Plan provides that the
estimated fair value of the Company's common stock is to be determined by the
Board of Director's based on an independent valuation. Options under the Option
Plan can be issued as either Non-qualified Stock
F-124
<PAGE> 253
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options (NSOs) or Incentive Stock Options (ISOs). NSOs expire in seven years and
ISOs expire in five years. Each option granted to an optionee vests according to
the respective option agreement. There were 48 options granted during each of
the years ended June 30, 1997 and 1996 (none in 1998). The options granted in
1997 and 1996 all vest over four years. As of June 30, 1998 and 1997, NSOs to
purchase 96 shares, which all vest over four years, have been granted under the
Option Plan. Of the 96 shares outstanding under the Option Plan, which have a
weighted average remaining contractual life of 5.25 years as of June 30, 1998,
36 shares, 12 shares, and zero shares were exercisable as of June 30, 1998, 1997
and 1996, respectively. Each option has an exercise price of $10,000 per share.
Pro forma information regarding net income and the net loss attributable to
common stockholders is required by SFAS No. 123, and has been determined as if
the Company had accounted for employee stock options granted under the fair
value method. The fair value for options granted was estimated at the date of
grant using a minimum value option pricing model with the following
weighted-average assumptions for fiscal 1998, 1997, and 1996: risk-free interest
rates of 5.71 -- 5.62%; no dividends expected to be declared; volatility factor
of zero for the expected price of the Company's common stock as it is not
publicly traded; and the expected life of the options of 5 years. The estimated
fair values of the stock options granted in 1997 and 1996 were $118 and $119,
respectively. The pro forma effect on net income is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net Income:
As reported........................................... $2,438 $1,597 $1,236
Pro forma............................................. $2,400 $1,569 $1,235
Earnings per common share:
As reported basic..................................... $1,486 $ 973 $1,007
As reported diluted................................... $1,145 $ 749 $ 776
Pro forma basic....................................... $1,463 $ 956 $1,007
Pro forma diluted..................................... $1,126 $ 736 $ 775
</TABLE>
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Series A redeemable convertible preferred shareholders have the right
to receive dividends declared by the Company on the same basis as the common
shareholders. Each share of preferred stock is entitled to one vote per share on
all matters submitted to a vote of the shareholders of the Company. The Company
can redeem any outstanding preferred stock three years after its issuance date.
The preferred shareholders can demand redemption of their preferred shares six
years after their issuance date. At any time after the issuance of their shares,
the preferred shareholders can convert their preferred stock into common stock
at a one for one exchange rate. In the case of the Company's liquidation, each
preferred share is entitled to a liquidation preference of $10 plus any accrued
dividends unless the liquidation cannot be sufficed by the Company's assets,
then any such liquidating distribution will be on a pro-rata basis between the
preferred shareholders.
F-125
<PAGE> 254
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ------
<S> <C> <C> <C>
NUMERATOR
Income available to common shareholders............. $ 2,438 $ 1,597 $1,236
======== ========= ======
DENOMINATOR
Weighted average shares for basic earnings per
share............................................. 1,640.5 1,640.50 1,227
Effect of dilutive securities:
Convertible redeemable preferred stock............ 490.0 490.0 366
Adjusted weighted average shares for dilutive
earnings per share................................ 2,130.5 2,130.5 1,593
======== ========= ======
Basic earnings per share............................ $ 1,486 $ 973 $1,007
======== ========= ======
Diluted earnings per share.......................... $ 1,145 $ 749 $ 776
======== ========= ======
</TABLE>
9. INCOME TAXES
Income tax expense attributable to income before income taxes consists of
the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1998 1997 1996
------ ---- ----
<S> <C> <C> <C>
Current:
Federal.................................................. $ 889 $240 $256
State.................................................... 130 24 30
Deferred................................................... 548 616 356
------ ---- ----
$1,567 $880 $642
====== ==== ====
</TABLE>
Actual income tax expense differs from the statutory income tax expense
(computed by applying the U.S. federal corporate tax rate of 34% to income
before income taxes) as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1998 1996 1997
------ ---- ----
<S> <C> <C> <C>
Computed statutory tax expense............................. $1,362 $842 $639
Effect of change in tax status............................. -- -- (58)
State income taxes, net of federal benefit................. 86 16 20
Other, net................................................. 119 22 42
------ ---- ----
$1,567 $880 $642
====== ==== ====
</TABLE>
F-126
<PAGE> 255
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------
1998 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Charitable contributions carryforward..................... $ 612 $ 474
Deferred license fees and unbilled receivables............ 444 444
Accounts receivable allowance............................. 59 51
Other..................................................... 122 94
------ ------
Total deferred tax assets................................... 1,237 1,063
Deferred tax liabilities:
Intangible assets, principally due to difference in
amortization........................................... 2,081 2,080
Prepaid costs............................................. 2,532 1,906
Other..................................................... 137 42
------ ------
Total deferred tax liabilities.............................. 4,750 4,028
------ ------
Net deferred tax liability.................................. $3,513 $2,965
====== ======
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company is party to several long-term national sponsorship agreements
which obligate the Company to provide advertising (including commercials for the
NBC Sports broadcast of the tour) and other services at a minimum number of
events for each tour in exchange for cash payments, goods and services.
The Company and NBC Sports Ventures were parties to a license and
affiliation agreement with NBA Properties, Inc. ("NBA Properties"), which
expired December 31, 1997. As part of the agreement, a joint venture was formed
between the Company and NBC Sports Ventures and was granted the exclusive right
to use the National Basketball Association ("NBA") trademark in promoting and
operating the three-on-three basketball events. In consideration, NBA Properties
was entitled to 7.5% of net participant registration fees (license fees) and
7.5% of certain sponsorship payments made by NBA sponsors. Further, NBA
Properties has directed the cash payment of the license fees to a charitable
organization that it supports. Amounts paid on behalf of NBA Properties to the
charitable organization were $128, $118, and $220 for the years ended June 30,
1998, 1997 and 1996, respectively.
F-127
<PAGE> 256
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain agreements between the Company and various universities require the
Company to guarantee the university a rights fee to provide marketing and
production services. Total minimum payments required under the Company's
commitment to pay future guaranteed rights fees are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 7,005
2000........................................................ 5,468
2001........................................................ 1,265
2002........................................................ 1,340
2003........................................................ 1,415
-------
$16,493
=======
</TABLE>
The Company leases certain facilities and equipment under noncancelable
operating leases. Rent expense incurred under the leases during the years ended
June 30, 1998, 1997, and 1996 was $894, $616 and $436, respectively. These
agreements, which expire on various dates through the year 2003, require future
minimum rental payments as follows:
<TABLE>
<S> <C>
1999........................................................ $ 919
2000........................................................ 672
2001........................................................ 344
2002........................................................ 209
2003........................................................ 46
------
$2,190
======
</TABLE>
11. INVESTMENTS IN AFFILIATES
As of June 30, 1996, the Company had a 50.01% non controlling interest in
Street Hoops International ("SHI"). On April 17, 1997, the other partner in SHI
agreed to purchase .01% of the Company's general partner interest in SHI. Such
sale reduced the Company's interest in SHI to 50%. Accordingly, the Company has
accounted for its investments in SHI using the equity method for all periods
presented.
Summarized financial information for SHI is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------ ------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $1,378 $ 959
Accounts receivable......................................... 292 80
Prepaid expenses and other assets........................... 100 189
Fixed Assets................................................ 47 100
------ ------
$1,817 $1,328
====== ======
LIABILITIES
Accounts payable and accrued expenses....................... $ 565 $ 325
Partners' Capital........................................... 1,252 1,003
------ ------
$1,817 $1,328
====== ======
</TABLE>
F-128
<PAGE> 257
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Revenues................................................ $5,604 $4,960 $5,047
Operating, general and administrative expenses.......... 5,354 4,921 4,618
------ ------ ------
Net Income.............................................. $ 250 $ 39 $ 429
====== ====== ======
</TABLE>
12. MARKETABLE SECURITY
The Company owns 395,160 shares of broadcast.com inc. which completed an
initial public offering on July 17, 1998. As of June 30, 1998 and 1997, these
shares were valued at their cost basis of $46, because prior to such initial
public offering no readily determinable fair value existed. Beginning in fiscal
1999, the Company will account for this investment as securities available for
sale and defer all unrealized gains or losses in equity until such sale occurs.
F-129
<PAGE> 258
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
1999
------------
<S> <C>
ASSETS
Current assets:
Cash...................................................... $41,371
Accounts receivable, including unbilled receivables of
$13,606 net of allowance for doubtful accounts of
$491................................................... 26,231
Note receivable from related party........................ 8,000
Inventory and prepaid costs............................... 9,480
Other assets.............................................. 517
-------
Total current assets.............................. 85,599
Property and equipment, net................................. 1,321
Investments in affiliates................................... 640
Contract investment, net.................................... 5,267
Goodwill, net............................................... 3,099
Other intangible assets, net................................ 230
-------
Total assets...................................... $96,156
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,441
Current taxes payable..................................... 21,301
Accrued rights fees....................................... 9,382
Accrued expenses.......................................... 5,171
Deferred revenues......................................... 812
Deferred income taxes..................................... 2,619
Payable to affiliate...................................... 9
-------
Total current liabilities......................... 42,735
Deferred income taxes....................................... 1,509
Series A redeemable convertible preferred stock, $1 par
value:
Authorized shares -- 600
Issued and outstanding shares -- 490...................... 4,900
Commitments and contingencies
Stockholders' equity
Common stock, $1 par value:
Authorized shares -- 10,000
Issued and outstanding shares -- 1,640.5............... 2
Additional paid-in capital................................ 3,491
Retained earnings......................................... 43,519
-------
Total stockholders' equity........................ 47,012
-------
Total liabilities and stockholders' equity........ $96,156
=======
</TABLE>
See accompanying notes.
F-130
<PAGE> 259
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Net revenues................................................ $58,703 $49,099
Cost of revenues............................................ 41,979 34,077
------- -------
Gross profit................................................ 16,724 15,021
Selling, general and administrative......................... 17,628 12,403
------- -------
Operating income (loss)..................................... (904) 2,619
Other income (expense):
Interest expense, net..................................... (63) 382
Equity in earnings (losses) of affiliates................. (33) 71
Gain on sale of security.................................. 61,471 --
------- -------
Income before taxes......................................... 60,471 2,308
Income taxes................................................ 21,727 877
------- -------
Net income.................................................. $38,744 $ 1,431
======= =======
Basic earnings per common share............................. $23,617 $ 872
======= =======
Diluted earnings per common share........................... $18,185 $ 672
======= =======
</TABLE>
See accompanying notes.
F-131
<PAGE> 260
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
-------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1998........ 1,640.5 $ 2 $3,491 $ 4,775 $ 8,268
Net income.................... -- -- -- 38,744 38,744
-------- --- ------ ------- -------
Comprehensive income.......... -- -- -- -- 38,744
-------- --- ------ ------- -------
Balance at March 31, 1999....... 1,640.5 $ 2 $3,491 $43,519 $47,012
</TABLE>
See accompanying notes.
F-132
<PAGE> 261
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................. $ 38,744 $ 1,431
Adjustments to reconcile net income to net cash (used in)
operating activities:
Amortization............................................. 348 336
Depreciation............................................. 467 377
Equity in earnings (losses) of affiliates................ 317 (88)
Deferred income taxes.................................... 616 --
Allowance for bad debts.................................. 330 16
Changes in assets and liabilities:
Accounts receivable................................... (12,805) (11,552)
Note receivable from related party.................... (8,000) --
Inventory............................................. (123) 122
Prepaid costs......................................... (1,720) (2,667)
Other assets.......................................... (82) 225
Accounts payable and accrued expenses................. 9,352 8,259
Income taxes payable.................................. 21,301 856
Deferred revenues..................................... (386) (180)
Payable to affiliate.................................. (916) (1,026)
-------- --------
Net cash provided by (used in) operating activities........ 47,443 (3,891)
INVESTING ACTIVITIES
Additions to property and equipment........................ (336) (396)
-------- --------
Net cash used in investing activities...................... (336) (396)
FINANCING ACTIVITIES
(Repayments of) borrowings on long-term debt............... (7,245) 6,380
Other...................................................... (43) (150)
-------- --------
Net cash (used in) provided by financing activities........ (7,288) 6,230
-------- --------
NET INCREASE IN CASH....................................... 39,819 1,943
Cash at beginning of year.................................. 1,552 800
-------- --------
Cash at end of year........................................ $ 41,371 $ 2,743
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest..................................... $ 464 $ 317
======== ========
Cash paid for income taxes................................. $ 998 $ 150
======== ========
</TABLE>
See accompanying notes.
F-133
<PAGE> 262
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)
1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS
ORGANIZATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Universal Sports America, Inc. ("USA"), and its wholly
owned subsidiaries, Universal Sports America, Inc. I, Streetball Sports Ventures
Partners, L.P. ("SSVP"), and USA Collegiate, L.P. ("USAC") (collectively, the
"Company").
DESCRIPTION OF BUSINESS
The Company is a provider of specialized marketing and management services
to corporate clients focusing primarily on sports-related affinity groups. The
Company also produces and manages grass roots participatory sporting events
throughout the United States and internationally and provides professional
marketing and other management services to university athletic departments,
athletic conferences and high school associations. The Company identifies and
reaches consumer segments with attractive demographic characteristics and
designs and implement marketing programs and sports-based events to target these
specific affinity groups.
2. UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated financial statements as of March 31, 1999 and for the nine
months ended March 31, 1999 and 1998 are unaudited, however, in the opinion of
management, reflect all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations for such periods. Operating results for the nine months ended March
31, 1999 are not necessarily indicative of the results that may be expected for
the entire year because of the seasonal nature of the Company's events and
sports marketing programs. These consolidated financial statements should be
read in conjunction with the consolidated financial statements, including the
notes thereto, for the year ending June 30, 1998, appearing elsewhere in this
document.
3. GAIN ON SALE OF SECURITY
In January 1999 the Company sold 395,160 shares of broadcast.com, Inc.
having a cost basis of $46 for $61,517. As a result of this transaction, the
Company recognized a gain of $61,471 and a federal tax liability of
approximately $21,500. A portion of the proceeds was used to repay the Company's
revolving line of credit, which was not renewed after its expiration on January
31, 1999.
4. INCOME TAXES
Income tax expense for the nine months ended March 31, 1999 and 1998
differs from the statutory income tax expense (computed by applying the U.S.
federal corporate tax rate of 34% to income before income taxes) primarily
because of state income taxes and permanent tax differences.
F-134
<PAGE> 263
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
----------- -------------
<S> <C> <C>
NUMERATOR
Income available to common shareholders.............. $ 38,744 $ 1,431
DENOMINATOR
Weighted average shares for basic earnings per
share.............................................. 1,640.5 1,640.5
Effect of dilutive securities:
Convertible redeemable preferred stock............. 490.0 490.0
-------- -------
Adjusted weighted average shares for dilutive
earnings per share................................. 2,130.5 2,130.5
======== =======
Basic earnings per share............................. $ 23,617 $ 872
======== =======
Dilutive earnings per share.......................... $ 18,185 $ 672
======== =======
</TABLE>
6. NEW ACCOUNTING STANDARDS
Effective July 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, and SFAS No. 131, Financial Reporting for Segments of
Business Enterprise. Under the provisions of SFAS No. 130, the Company's
comprehensive income consist of net income and unrealized gains on securities
available for sale. In 1997, there were no items other than net income that
would be classified as part of comprehensive income. Under the provisions of
SFAS No. 131, there are no requirements for interim financial statements in the
initial year of application.
7. PENDING TRANSACTION
On February 15, 1999, the Company entered into a merger agreement whereby
Bull Run Corporation ("Bull Run"), the direct and indirect holder of
approximately 13% of the Company's common stock and approximately 15% of the
preferred stock, agreed to acquire the stock of Host Communications Inc
("Host"), Capital Sports Properties, Inc. ("Capital") and the Company not
currently owned, directly or indirectly, by Bull Run for approximately $95,000,
net of cash acquired (the "Bull Run Acquisition"). Pursuant to the merger
agreement, Bull Run will reorganize into a holding company structure immediately
prior to the Bull Run Acquisition whereby each outstanding share of Bull Run
common stock will be converted into one share of a new holding company, BR
Holding, Inc. ("BR Holding"). BR Holding, which will be a publicly held company,
will be owned by the stockholders of Bull Run immediately prior to such
conversion and Bull Run and its subsidiaries will be subsidiaries of BR Holding.
Under the merger agreement, each share of the Company's common stock and
preferred stock (except for shares held by Bull Run, Capital or Host) will be
converted into the right to receive (a) an amount in cash equal to
F-135
<PAGE> 264
UNIVERSAL SPORTS AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
$27,477 and (b) a number of shares of BR Holding common stock having an
aggregate value of $16,750. This transaction is subject to the terms and
conditions of the merger agreement, including the approvals of the stockholders
of Capital, Host, Bull Run and the Company.
8. RELATED PARTY PROMISSORY NOTE
On February 24, 1999, the Company loaned Host, an affiliate of the Company,
$8 million in exchange for Host's promissory note. The note bears interest at 6%
per annum, payable monthly beginning in March 1999. The principal amount of the
note is due upon the earlier of (i) 10 days following demand made by the Company
or (ii) immediately upon change in control of the majority ownership of the
Company.
F-136
<PAGE> 265
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of August 5, 1999, by and among Bull Run Corporation , a Georgia
corporation ("Bull Run"), BR Holding, Inc., a Georgia corporation ("Parent"),
and Bull Run Merger Sub, Inc., a Georgia corporation and a wholly owned
subsidiary of Parent ("Merger Sub").
RECITALS
WHEREAS, the Boards of Directors of Bull Run, Parent and Merger Sub have
each approved the merger (the "Merger") of Merger Sub with and into Bull Run in
accordance with the Georgia Business Corporation Code ("Georgia Law") and upon
the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, Bull
Run, Parent and Merger Sub hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and Georgia Law,
Merger Sub shall be merged with and into Bull Run, the separate corporate
existence of Merger Sub shall cease, and Bull Run shall continue as the
surviving corporation and a wholly owned subsidiary of Parent. Bull Run as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
1.2 Effective Time. The parties shall file Articles of Merger with the
Secretary of State of the State of Georgia in such form as is required by
Georgia Law. The Merger shall become effective at such time as the Articles of
Merger are so duly filed, or at such other time as the parties may determine and
set forth in the Articles of Merger (the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Georgia Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time all the rights, privileges, powers, franchises and property of Merger Sub
and Bull Run shall vest in the Surviving Corporation, and all restrictions,
disabilities, duties, debts and liabilities of Merger Sub and Bull Run shall
become the restrictions, disabilities, duties, debts and liabilities of the
Surviving Corporation.
1.4 Certificate of Incorporation; By-Laws. At the Effective Time, the
Certificate of Incorporation and By-Laws of Bull Run shall be the Certificate of
Incorporation and By-Laws of the Surviving Corporation until thereafter amended.
<PAGE> 266
1.5 Directors and Officers. The directors and officers of the Surviving
Corporation shall be the directors and officers of Bull Run immediately prior to
the Effective Time, in each case until their respective successors are duly
elected or appointed and qualified.
1.6 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, Parent, Bull Run or the
holders of any of the securities of Merger Sub, Parent or Bull Run, Bull Run
will become a wholly owned subsidiary of Parent, and the stockholders of Bull
Run will become stockholders of Parent. To effect the foregoing:
(a) each share of common stock, par value $.01 per share ("Common
Stock"), of Bull Run then held by Bull Run as a treasury share or then held
by Merger Sub or Parent shall be canceled and extinguished without payment
of any consideration therefor and without any conversion thereof;
(b) each share of Common Stock then issued and outstanding (other
than those referred to in Section 1.6(a)) shall, subject to and in
accordance with Section 1.7 hereof, be converted into and thereafter shall
represent the right to receive one validly issued, fully paid and
non-assessable share of common stock, par value $.01 per share ("Parent
Common Stock"), of Parent;
(c) each share of common stock, par value $.01 per share, of Merger
Sub issued and outstanding immediately prior to the Effective Time shall be
converted into and thereupon and thereafter shall represent one validly
issued, fully paid, and non-assessable share of common stock, par value
$.01 per share, of the Surviving Corporation; and
(d) each share of Parent Common Stock held by Bull Run immediately
prior to the Effective Time shall be canceled and extinguished without
payment of any consideration therefor and without any conversion thereof.
1.7 Surrender and Exchange.
(a) Prior to the Effective Time, if required by applicable law, Bull
Run shall designate the transfer agent for the Common Stock as agent (in
such capacity, the "Exchange Agent") for the purpose of exchanging
certificates representing shares of Common Stock for certificates
representing shares of Parent Common Stock. Each holder of shares of Common
Stock that have been converted into a right to receive shares of Parent
Common Stock pursuant to Section 1.6, upon surrender to the Exchange Agent
of a certificate or certificates representing such shares of Common Stock,
together with a properly completed letter of transmittal covering such
shares of Common Stock, will be entitled to receive a certificate or
certificates representing an equal number of shares of Parent Common Stock.
After the Effective Time, each such certificate shall, until so
surrendered, represent for all purposes only the right to receive such
shares of Parent Common Stock.
(b) After the Effective Time, there shall be no further registration
of transfers of shares of Common Stock outstanding prior to the Effective
Time. If, after the Effective Time, certificates representing shares of
Common Stock outstanding prior to the Effective Time are presented to the
Surviving Corporation, they shall be canceled and exchanged for
certificates representing shares of Parent Common Stock, as provided for
and in accordance with the procedures set forth in this Agreement.
2
<PAGE> 267
1.8 Options and Restricted Shares.
(a) Immediately following the Effective Time, each outstanding stock
option (an "Option") granted under Bull Run's 1994 Long Term Incentive Plan
or Bull Run's Non-Employee Directors' Stock Option Plan (collectively, the
"Option Plans"), whether or not then vested or exercisable, shall be
converted into the right to receive an equal amount of options to purchase
Parent Common Stock on identical terms as the Options.
(b) Bull Run shall (i) make any amendments to the Option Plans and
any other plan, agreement, or arrangement and (ii) use all reasonable best
efforts to obtain any consents or releases in connection therewith. Parent
shall assume or adopt benefit plans identical in all material respects to
the Option Plans, except that all references to Bull Run and Common Stock
shall be changed to refer to Parent and Parent Common Stock. Bull Run and
Parent shall take any other action necessary to effect the transactions
contemplated by this Section 1.8. Notwithstanding any other provision of
this Section 1.8, the transactions contemplated by this Section 1.8 may be
delayed in respect of any Option until any necessary consents or releases
are obtained.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MERGER SUB,
PARENT AND BULL RUN
Each of Merger Sub, Parent and Bull Run hereby represents and warrants to
each of the others that:
2.1 Corporate Organization. It is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and any
necessary governmental authority to own, operate or lease the properties that it
purports to own, operate or lease and to carry on its business as it is now
being conducted, and is in good standing in each jurisdiction where the
character of its properties owned, operated, or leased or the nature of its
activities makes such qualification necessary, except for such failures which,
individually or in the aggregate, would not have a material adverse effect on
its business.
2.2 Authority Relative to this Agreement. It has all necessary corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder. Its execution and delivery of this Agreement and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action, subject only with respect to Bull
Run to the approval of the Merger by a majority of the outstanding shares of
Common Stock in accordance with Georgia Law and the Articles of Incorporation of
Bull Run. It has duly executed and delivered this Agreement, which constitutes a
legal, valid and binding obligation, enforceable against it in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
or by an implied covenant of good faith and fair dealing.
3
<PAGE> 268
ARTICLE III
MISCELLANEOUS
3.1 Amendment. This Agreement may be amended by the parties hereto by
action taken by or on behalf of their respective Boards of Directors at any time
prior to the Effective Time, except as provided by Georgia Law. This Agreement
may be terminated any time prior to the Effective Time by the respective Boards
of Directors of Bull Run, Parent and Merger Sub, notwithstanding approval of
this Agreement by the stockholders of Bull Run.
3.2 Further Action. Upon the terms and subject to the conditions hereof,
each of the parties hereto shall use its commercially reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
other things necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement, to obtain all necessary waivers,
consents and approvals and to effect all necessary registrations and filings.
IN WITNESS WHEREOF, Bull Run, Parent and Merger Sub have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
BULL RUN CORPORATION
By /s/ ROBERT S. PRATHER, JR.
------------------------------------
Name: Robert S. Prather, Jr.
Title: President and Chief
Executive
Officer
BR HOLDING, INC.
By /s/ ROBERT S. PRATHER, JR.
------------------------------------
Name: Robert S. Prather, Jr.
Title: President
BULL RUN MERGER SUB, INC.
By /s/ ROBERT S. PRATHER, JR.
------------------------------------
Name: Robert S. Prather, Jr.
Title: President
4
<PAGE> 269
APPENDIX B
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
BR HOLDING, INC.
BULL RUN CORPORATION
CAPITAL SPORTS PROPERTIES, INC.
HOST COMMUNICATIONS, INC.
UNIVERSAL SPORTS AMERICA, INC.
CAPITAL MERGER SUB, INC.
HOST MERGER SUB, INC.
AND USA MERGER SUB, INC.
DATED AS OF FEBRUARY 15, 1999
<PAGE> 270
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE I THE MERGERS............................................. 2
1.1 THE MERGERS............................................. 2
1.2 CLOSING................................................. 2
1.3 EFFECTIVE TIMES......................................... 2
1.4 CERTAIN EFFECTS OF THE MERGERS.......................... 3
1.5 EFFECT OF CAPITAL MERGER ON CAPITAL STOCK............... 3
(a) Outstanding Capital Merger Sub Stock................ 3
(b) Outstanding Capital Common Stock.................... 4
(c) Treasury Stock and Acquiror-Owned Stock............. 4
(d) Certifications of Capital Stock..................... 4
1.6 EFFECT OF HOST MERGER ON CAPITAL STOCK.................. 4
(a) Outstanding Host Merger Sub Stock................... 4
(b) Outstanding Host Common Stock....................... 4
(c) Outstanding Host Preferred Stock.................... 5
(d) Outstanding Host Options............................ 5
(e) Treasury Stock and Acquiror-Owned Stock............. 5
(f) Certifications of Host Stock and Host Options....... 5
1.7 EFFECT OF USA MERGER ON CAPITAL STOCK................... 6
(a) Outstanding USA Merger Sub Stock.................... 6
(b) Outstanding USA Common Stock........................ 6
(c) Outstanding USA Preferred Stock..................... 6
(d) Outstanding USA Options............................. 6
(e) Treasury Shares and Acquiror-Owned Stock............ 7
(f) Certifications of USA Common Stock, USA Options
and Broadcast.com Stock........................... 7
1.8 PROCEDURES TO EXCHANGE STOCK CERTIFICATES............... 7
(a) Letter of Transmittal............................... 7
(b) Other Transfer Documentation........................ 8
(c) Return of Stock Certificates........................ 8
(d) Appointment of Paying Agent......................... 8
(e) Exchange Procedures................................. 9
(f) No Further Ownership Rights in Capital Stock, Host
Stock and USA Stock............................... 10
(g) No Fractional Shares................................ 10
(h) Termination of Payment Fund......................... 10
(i) No Liability........................................ 10
1.9 DISSENTING SHARES....................................... 11
ARTICLE II REPRESENTATIONS AND WARRANTIES OF HOST.................. 11
2.1 Organization, Standing and Power........................ 11
2.2 Authority; Noncontravention; Consents and Approvals..... 12
2.3 State Takeover Statutes................................. 12
2.4 Capital Structure....................................... 13
2.5 Subsidiaries............................................ 13
2.6 Financial Statements.................................... 13
2.7 Absence of Undisclosed Liabilities...................... 14
2.8 Books of Account........................................ 14
2.9 Absence of Certain Changes or Events.................... 14
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
2.10 Contracts and Commitments............................... 15
2.11 Title to Assets......................................... 16
2.12 Condition of Assets..................................... 16
2.13 Real Property........................................... 16
2.14 Intellectual Property................................... 17
2.15 Environmental, Health and Safety Matters................ 17
2.16 Insurance............................................... 18
2.17 Personnel Information................................... 19
2.18 Employee Benefit Plans.................................. 19
2.19 Litigation: Decrees..................................... 21
2.20 Compliance with Law: Permits............................ 21
2.21 Taxes................................................... 21
2.22 Brokers................................................. 23
2.23 Certain Business Practices and Regulations: Potential
Conflicts of Interest................................... 23
2.24 Board Recommendation.................................... 24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF USA................... 24
3.1 Organization, Standing and Power........................ 24
3.2 Authority; Noncontravention; Consents and Approvals..... 24
3.3 State Takeover Statutes................................. 25
3.4 Capital Structure....................................... 25
3.5 Subsidiaries............................................ 26
3.6 Financial Statements.................................... 26
3.7 Absence of Undisclosed Liabilities...................... 27
3.8 Books of Account........................................ 27
3.9 Absence of Certain Changes or Events.................... 27
3.10 Contracts and Commitments............................... 27
3.11 Title to Assets......................................... 28
3.12 Condition of Assets..................................... 28
3.13 Real Property........................................... 29
3.14 Intellectual Property................................... 29
3.15 Environmental, Health and Safety Matters................ 30
3.16 Insurance............................................... 31
3.17 Personnel Information................................... 31
3.18 Employee Benefit Plans.................................. 32
3.19 Litigation: Decrees..................................... 33
3.20 Compliance with Law: Permits............................ 33
3.21 Taxes................................................... 34
3.22 Brokers................................................. 35
3.23 Certain Business Practices and Regulations: Potential
Conflicts of Interest................................... 35
3.24 Board Recommendation.................................... 36
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
PARENT AND BULL RUN..................................... 36
4.1 Organization, Standing and Power........................ 36
4.2 Authority; Noncontravention; Consents and Approvals..... 36
4.3 Capital Structure....................................... 38
4.4 Financial Statements.................................... 39
4.5 SEC Filings............................................. 39
</TABLE>
ii
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
4.6 Absence of Undisclosed Liabilities...................... 39
4.7 Absence of Certain Changes or Events.................... 40
4.8 Litigation: Decrees..................................... 40
4.9 Employee Benefit Plan................................... 40
4.10 Compliance with Law: Permits............................ 40
4.11 Brokers................................................. 41
4.12 State Takeover Statutes................................. 41
ARTICLE V ADDITIONAL AGREEMENTS................................... 41
5.1 Access to Information; Confidentiality.................. 41
5.2 Public Announcements.................................... 42
5.3 Acquisition Proposals................................... 42
5.4 Consents, Approvals and Filings......................... 42
5.5 Notification............................................ 43
5.6 Tax Treatment........................................... 43
5.7 Continuation of Existing Employment Agreements.......... 43
5.8 Employee Benefit Matters................................ 44
5.9 Board of Directors of Parent............................ 44
5.10 First Look Broadcasting Rights.......................... 44
5.11 Information Supplied.................................... 44
5.12 Filings; Other Actions; Notification.................... 44
5.13 Host Proxy Statement.................................... 45
5.14 Host Stockholders Meeting............................... 45
5.15 Capital Information Statement........................... 45
5.16 USA Information Statement............................... 45
5.17 Financing Cooperation................................... 45
5.18 Bull Run Stockholders Meeting........................... 46
5.19 Broadcast.com Stock Sale................................ 46
5.20 Termination of Host/USA Agreements...................... 46
5.21 Affiliates of the Company............................... 46
ARTICLE VI COVENANTS RELATING TO CONDUCT OF
BUSINESS PRIOR TO MERGERS............................... 46
6.1 Conduct of Business..................................... 46
6.2 Other Actions........................................... 48
ARTICLE VII CONDITIONS PRECEDENT.................................... 48
7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO
EFFECT THE MERGERS...................................... 48
(a) HSR Act............................................. 48
(b) No Injunctions or Restraints........................ 49
(c) Tax Opinion......................................... 49
(d) Effectiveness of the Registration Statement......... 49
(e) Bull Run Stockholder Approvals and Consummation of
the Reorganization............................... 49
(f) Consummation of the USA Stock Sale.................. 49
(g) Stockholders Approval............................... 49
(h) Stockholders Agreement.............................. 49
7.2 CONDITIONS TO OBLIGATIONS OF HOST....................... 49
(a) Representations and Warranties...................... 49
(b) Performance of Obligations of Parent and Bull Run... 50
(c) Opinion of Counsel.................................. 50
</TABLE>
iii
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
(d) Material Adverse Effect............................. 50
(e) Consent under Host Credit Facilities................ 50
7.3 CONDITIONS TO OBLIGATION OF USA......................... 50
(a) Representations and Warranties...................... 50
(b) Performance of Obligations of Parent and Bull Run... 50
(c) Opinion of Counsel.................................. 51
(d) Material Adverse Effect............................. 51
(e) Consent under USA Credit Facilities................. 51
7.4 CONDITIONS TO OBLIGATIONS OF PARENT AND
BULL RUN................................................ 51
(a) Representations and Warranties...................... 51
(b) Performance of Obligations.......................... 51
(c) Consents and Approvals.............................. 51
(d) Material Adverse Effect............................. 51
(e) Financing........................................... 52
(f) Opinions of Counsel................................. 52
(g) Dissenting Shares................................... 52
(h) Employment Agreements............................... 52
(i) Host and USA Options................................ 52
(j) Termination of Host/USA Agreements.................. 52
(k) Affiliates' Agreements.............................. 52
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER....................... 52
8.1 Termination............................................. 52
8.2 Effect of Termination................................... 53
8.3 Amendment............................................... 53
8.4 Extension; Consent; Waiver.............................. 54
8.5 Non-survival of Representations. Warranties and
Covenants............................................... 54
ARTICLE IX NOTICES................................................. 54
9.1 Notices................................................. 54
ARTICLE X MISCELLANEOUS........................................... 55
10.1 Entire Agreement........................................ 55
10.2 Expenses................................................ 56
10.3 Counterparts............................................ 56
10.4 No Third Party Beneficiary.............................. 56
10.5 Governing Law........................................... 56
10.6 Assignment; Binding Effect.............................. 56
10.7 Headings; Certain Interpretive Matters.................. 56
10.8 No Recourse against Others.............................. 57
10.9 Withholding Taxes....................................... 57
EXHIBIT A Definitions............................................. A-1
EXHIBIT B Agreement and Plan of Merger among Bull Run, Parent and
a wholly owned subsidiary of Parent..................... B-1
EXHIBIT C-1 Host Voting and Support Agreement....................... C-1-1
EXHIBIT C-2 USA Voting and Support Agreement........................ C-2-1
EXHIBIT D Stockholders Agreement.................................. D-1
EXHIBIT E-1 Form of Opinion of Alston & Bird LL..................... E-1-1
EXHIBIT E-2 Form of Opinion of Proskauer Rose LLP................... E-1-1
EXHIBIT F Form of Opinion of Dinsmore & Shohl LLP................. F-1
EXHIBIT G Form of Opinion of David, Goodman & Madole.............. G-1
</TABLE>
iv
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement")
is made and entered into as of February 15, 1999, by and among BR HOLDING, INC.,
a Georgia corporation ("Parent"), BULL RUN CORPORATION, a Georgia corporation
("Bull Run"), CAPITAL SPORTS PROPERTIES, INC., a Delaware corporation
("Capital"), HOST COMMUNICATIONS, INC., a Kentucky corporation ("Host"),
UNIVERSAL SPORTS AMERICA, INC., a Delaware corporation ("USA"), CAPITAL MERGER
SUB, INC., a Delaware corporation and a wholly owned subsidiary of Parent
("Capital Merger Sub"), HOST MERGER SUB, INC., a Kentucky corporation and a
wholly owned subsidiary of Parent ("Host Merger Sub"), and USA MERGER SUB, INC.,
a Delaware corporation and a wholly owned subsidiary of Parent ("USA Merger
Sub"). Capitalized terms used herein shall have the meanings set forth in
Exhibit A.
RECITALS
WHEREAS, the parties desire to enter into this Agreement pursuant to which,
subject to the terms and conditions contained herein, (i) Capital Merger Sub
will merge with and into Capital; (ii) Host Merger Sub will merge with and into
Host; and (iii) USA Merger Sub will merge with and into USA;
WHEREAS, subject to the terms and conditions set forth herein, the Board of
Directors of each of Capital, Host and USA have approved such mergers, the Board
of Directors and stockholders of each of Capital Merger Sub, Host Merger Sub and
USA Merger Sub have approved such mergers and the Board of Directors of Parent
has approved the issuance of its shares of common stock to the stockholders of
Capital, Host and USA in such mergers;
WHEREAS, immediately prior to the effective time of such mergers and as a
condition precedent to the consummation of such mergers, Bull Run shall be
reorganized pursuant to an Agreement and Plan of Merger (the "Reorganization
Agreement") substantially in the form attached hereto as Exhibit B by and among
Parent, Bull Run and a wholly owned Georgia subsidiary of Parent as a result of
which, among other things, Bull Run shall become a wholly owned subsidiary of
Parent (the "Reorganization");
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Parent's and Bull Run's willingness to enter
into this Agreement, Parent, Bull Run and certain stockholders of Host and USA
are entering into voting agreements in substantially the forms attached hereto
as Exhibits C-1 and C-2 pursuant to which such stockholders are agreeing to take
certain actions to support the transactions contemplated by this Agreement; and
WHEREAS, the parties desire to make certain representations, warranties,
covenants and agreements in connection with such mergers and also to prescribe
various conditions to such mergers.
<PAGE> 275
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
THE MERGERS
1.1 The Mergers. Subject to the terms and conditions of this Agreement
and in accordance with applicable law:
(a) At the Capital Effective Time, Capital Merger Sub shall merge
with and into Capital (the "Capital Merger"), the separate corporate
existence of Capital Merger Sub shall cease and Capital shall continue as
the surviving corporation of the Capital Merger (in such capacity, Capital
is sometimes hereinafter referred to as the "Capital Surviving
Corporation").
(b) At the Host Effective Time, Host Merger Sub shall merge with and
into Host (the "Host Merger"), the separate corporate existence of Host
Merger Sub shall cease and Host shall continue as the surviving corporation
of the Host Merger (in such capacity, Host is sometimes hereinafter
referred to as the "Host Surviving Corporation").
(c) At the USA Effective Time, USA Merger Sub shall merge with and
into USA (the "USA Merger," and together with the Capital Merger and the
Host Merger, the "Mergers"), the separate corporate existence of USA Merger
Sub shall cease and USA shall continue as the surviving corporation of the
USA Merger (in such capacity, USA is sometimes hereinafter referred to as
the "USA Surviving Corporation").
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
8.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VII, the closing of the Mergers (the "Closing") will take place at 10:00
a.m., New York City time, following the date on which each of the conditions set
forth in Article VII shall have been fulfilled or waived in accordance with this
Agreement (the "Closing Date"), at the offices of Proskauer Rose LLP, 1585
Broadway, New York, New York 10036, unless another date, time or place is agreed
to in writing by the parties hereto.
1.3 Effective Times.
(a) On the Closing Date, Capital Merger Sub and Capital shall file with
the Delaware Secretary of State a certificate of merger in accordance with the
relevant provisions of the Delaware General Corporation Law (the "Delaware
Code"), and shall make all other filings or recordings required under the
Delaware Code in connection with the Capital Merger. The Capital Merger shall
become effective upon the filing of the certificate of merger with the Delaware
Secretary of State (the "Capital Effective Time").
(b) Immediately following the Capital Effective Time, Host Merger Sub and
Host shall file with the Kentucky Secretary of State articles of merger in
accordance with the relevant provisions of the Kentucky Business Corporation Act
(the "Kentucky Code"), and shall make all other filings or recordings required
under the Kentucky Code in connection with the Host Merger. The Host Merger
shall become effective upon the filing of the articles of merger with the
Kentucky Secretary of State (the "Host Effective Time").
2
<PAGE> 276
(c) Immediately following the Host Effective Time, USA Merger Sub and USA
shall file with the Delaware Secretary of State a certificate of merger in
accordance with the relevant provisions of the Delaware Code, and shall make all
other filings or recordings required under the Delaware Code in connection with
the USA Merger. The USA Merger shall become effective upon the filing of the
certificate of merger with the Delaware Secretary of State (the "USA Effective
Time").
1.4 Certain Effects of the Mergers.
(a) The Mergers shall have the effects as set forth in the applicable
provisions of the Delaware Code or the Kentucky Code, as the case may be.
Without limiting the generality of the foregoing, (i) at the Capital Effective
Time, all the property, rights, privileges, powers and franchises of Capital
Merger Sub and Capital shall vest in the Capital Surviving Corporation, and all
debts, liabilities and duties of Capital Merger Sub and Capital shall become the
debts, liabilities and duties of Capital Surviving Corporation; (ii) at the Host
Effective Time, all the property, rights, privileges, powers and franchises of
Host Merger Sub and Host shall vest in the Host Surviving Corporation, and all
debts, liabilities and duties of Host Merger Sub and Host shall become the
debts, liabilities and duties of the Host Surviving Corporation; and (iii) at
the USA Effective Time, all the property, rights, privileges, powers and
franchises of USA Merger Sub and USA shall vest in the USA Surviving
Corporation, and all debts, liabilities and duties of USA Merger Sub and USA
shall become the debts, liabilities and duties of the USA Surviving Corporation.
(b) The Certificate of Incorporation and Bylaws of Capital Merger Sub as
in effect immediately prior to the Capital Effective Time shall be the
Certificate of Incorporation and Bylaws of the Capital Surviving Corporation
until they are amended, except that such Certificate of Incorporation shall, at
the Capital Effective Time, be amended to change the name of the corporation
from "Capital Merger Sub, Inc." to "Capital Sports Properties, Inc."
(c) The Articles of Incorporation and Bylaws of Host Merger Sub as in
effect immediately prior to the Host Effective Time shall be the Articles of
Incorporation and Bylaws of Host Surviving Corporation until they are amended,
except that such Articles of Incorporation shall, at the Host Effective Time, be
amended to change the name of the corporation from "Host Merger Sub, Inc." to
"Host Communications, Inc."
(d) The Certificate of Incorporation and Bylaws of USA Merger Sub as in
effect immediately prior to the USA Effective Time shall be the Certificate of
Incorporation and Bylaws of the USA Surviving Corporation until they are
amended, except that such Certificate of Incorporation shall, at the USA
Effective Time, be amended to change the name of the corporation from "USA
Merger Sub, Inc." to "Universal Sports America, Inc."
(e) The directors and officers of Capital Merger Sub, Host Merger Sub and
USA Merger Sub shall be the initial directors and officers of the Capital
Surviving Corporation, the Host Surviving Corporation and the USA Surviving
Corporation, respectively, until their respective successors are duly elected or
appointed and qualified or until their earlier death, resignation or removal.
1.5 Effect of Capital Merger on Capital Stock.
(a) Outstanding Capital Merger Sub Stock. All shares of common stock, par
value $.01 per share, of Capital Merger Sub issued and outstanding immediately
prior to the Capital Effective Time shall, by virtue of the Capital Merger and
without any action on
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the part of the holder thereof, be converted into the number of validly issued,
fully paid and nonassessable shares of common stock of the Capital Surviving
Corporation equal to the total number of shares of Capital Stock issued and
outstanding immediately prior to the Capital Effective Time (other than the
Capital Ineligible Shares).
(b) Outstanding Capital Common Stock. Each share of common stock, par
value $.01 per share ("Capital Stock"), of Capital issued and outstanding
immediately prior to the Capital Effective Time (other than shares held by
Capital and Bull Run (the "Capital Ineligible Shares") and other than Dissenting
Shares) shall, by virtue of the Capital Merger and without any action on the
part of the holder thereof, be converted into the right to receive:
(i) $194,085.24 in cash, plus an amount in cash equal to 1% of the
dividends on the Host Preferred Stock accrued but unpaid to the Closing
Date; and
(ii) a number of shares of Parent Common Stock equal to $162,562.27
divided by the Closing Price.
The consideration described in the foregoing clauses (i) and (ii) is hereinafter
collectively referred to as the "Capital Common Stock Consideration."
"Closing Price" shall mean the average closing price of Bull Run Common
Stock on the Nasdaq Stock Market for the 30 consecutive trading days immediately
preceding the fifth day prior to the mailing of the Proxy Statement/Prospectus
to the stockholders of Bull Run, provided, however, that if the Closing Price
(as so determined) is greater than $5.00, the Closing Price shall be deemed to
be $5.00 and if the Closing Price (as so determined) is less than $4.00, the
Closing Price shall be deemed to be $4.00.
(c) Treasury Stock and Acquiror-Owned Stock. Each Capital Ineligible
Share at the Capital Effective Time shall remain unaffected as a result of the
Capital Merger, without any conversion thereof.
(d) Certifications of Capital Stock. Prior to Closing, Capital shall
deliver to Parent and Bull Run a certificate, executed by a senior officer of
Capital, certifying as to the Capital Stock the name of each holder of such
shares outstanding immediately prior to the Capital Effective Time, the number
of shares held by such holder and the total number of such outstanding shares.
1.6 Effect of Host Merger on Capital Stock.
(a) Outstanding Host Merger Sub Stock. All shares of common stock, par
value $.01 per share, of Host Merger Sub issued and outstanding immediately
prior to the Host Effective Time shall, by virtue of the Host Merger and without
any action on the part of the holder thereof, be converted into the number of
validly issued, fully paid and nonassessable shares of common stock of the Host
Surviving Corporation equal to the total number of shares of Host Common Stock
issued and outstanding immediately prior to the Host Effective Time (other than
the Host Ineligible Shares).
(b) Outstanding Host Common Stock. Each share of common stock, no par
value ("Host Common Stock"), of Host issued and outstanding immediately prior to
the Host Effective Time (other than shares held by Host, Bull Run, Capital and
USA (collectively, the "Host Ineligible Shares") and other than Dissenting
Shares) shall, by virtue of the
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Host Merger and without any action on the part of the holder thereof, be
converted into the right to receive:
(i) $35.02 in cash; and
(ii) a number of shares of Parent Common Stock equal to $36.37
divided by the Closing Price.
The consideration described in the foregoing clauses (i) and (ii) is hereinafter
collectively referred to as the "Host Common Stock Consideration."
(c) Outstanding Host Preferred Stock. Each share of Host Series B
Cumulative Preferred Stock, no par value, of Host (the "Host Preferred Stock"
and, together with the Host Common Stock, the "Host Stock") issued and
outstanding immediately prior to the Host Effective Time shall remain unaffected
as a result of the Host Merger, without any conversion thereof.
(d) Outstanding Host Options. Prior to the Host Effective Time, Host
shall use its reasonable best efforts to amend each Host Option, if required, to
provide that, at the Host Effective Time, the Host Options then held by each
holder of Host Options (a "Host Optionholder") shall be converted into the right
to receive, for each share of Host Common Stock issuable upon the exercise of
such then outstanding Host Option:
(i) in the case of the Host A Options, $35.02 in cash payable in
accordance with Section 1.8 (the "Host Cash Option Consideration"); and
(ii) in the case of the Host A Options and Host B Options, an option
to purchase that number of shares of Parent Common Stock (adjusted to the
nearest whole share) equal to $36.37 divided by the Closing Price (the "New
Host Parent Options").
The New Host-Parent Options shall have the exercise price per share of
Parent Common Stock equal to the amount determined by dividing (x) the aggregate
exercise price for shares of Host Common Stock with respect to which the
corresponding Host Option was exercisable immediately prior to the Host
Effective Time by (y) the number of shares of Parent Common Stock for which such
New Host-Parent Option is exercisable. Any repurchase rights in favor of the
Host Optionholder under any New Host-Parent Option shall be eliminated from and
after the Host Effective Time. The duration and other terms of each New
Host-Parent Option (unless otherwise agreed in writing by the holder of such New
Host-Parent Option) shall be the same as the corresponding Host Options that
were in effect immediately before the Host Effective Time, except that all
references to Host in the Host stock option plans (and the corresponding
references in each option agreement documenting each such Host Option) shall be
deemed to be references to Parent. Host shall provide written notice of the
provisions of this Section 1.6(d) to each Host Optionholder no later than 20
days after the date of this Agreement. Any Host Options that are not amended as
provided in this Section 1.6(d) or otherwise exercised or canceled prior to the
Host Effective Time shall be canceled at the Host Effective Time without the
payment of any consideration.
(e) Treasury Stock and Acquiror-Owned Stock. Each Host Ineligible Share
at the Host Effective Time shall remain unaffected as a result of the Host
Merger, without any conversion thereof.
(f) Certifications of Host Stock and Host Options. Prior to Closing, Host
shall deliver to Parent and Bull Run a certificate, executed by the Chief
Financial Officer of Host, certifying: (i) as to the Host Stock, the name of
each holder of shares outstanding
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immediately prior to the Host Effective Time, the number and type of shares held
by such holder and the total number of such outstanding shares and (ii) as to
the Host Options, the name of each Host Optionholder, the number of shares of
Host Common Stock issuable upon the exercise of each such Host Optionholder's
Host Options outstanding immediately prior to the Host Effective Time, the grant
date and termination date of each such Host Option, the exercise price per share
of Host Common Stock with respect to each such Host Option and the total number
of shares of Host Common Stock issuable upon the exercise of all Host Options
outstanding immediately prior to the Host Effective Time and the amendment of
all such Host Options as contemplated by Section 1.6(d).
1.7 Effect of USA Merger on Capital Stock.
(a) Outstanding USA Merger Sub Stock. All shares of common stock, par
value $.01 per share, of USA Merger Sub issued and outstanding immediately prior
to the USA Effective Time shall, by virtue of the USA Merger and without any
action on the part of the holders thereof, be converted into the number of
validly issued, fully paid and nonassessable shares of common stock of USA
Surviving Corporation equal to the total number of shares of USA Common Stock
issued and outstanding immediately prior to the USA Effective Time (including
the total number of Conversion Shares issuable upon conversion of the shares of
USA Preferred Stock pursuant to Section 1.7(c) and other than the USA Ineligible
Shares).
(b) Outstanding USA Common Stock. Each share of common stock, par value
$1.00 per share ("USA Common Stock"), of USA issued and outstanding immediately
prior to the USA Effective Time (other than shares of USA Common Stock held by
USA, Bull Run, Capital and Host (collectively, the "USA Ineligible Shares") and
other than Dissenting Shares) shall, by virtue of the USA Merger and without any
action on the part of the holder thereof, be converted into the right to
receive:
(i) $27,477.28 in cash; and
(ii) a number of shares of Parent Common Stock equal to $16,750
divided by the Closing Price.
The consideration described in the foregoing clauses (i) and (ii) is hereinafter
collectively referred to as the "USA Common Stock Consideration."
(c) Outstanding USA Preferred Stock. Each share of Series A Convertible
Preferred Stock, $1.00 par value per share (the "USA Preferred Stock" and,
together with the USA Common Stock, the "USA Stock"), of USA issued and
outstanding immediately prior to the USA Effective Time shall, by virtue of the
USA Merger and without any action on the part of the holder thereof, be
converted into one validly issued, fully paid and nonassessable share of USA
Common Stock (a "Conversion Share"), which Conversion Share shall be deemed to
be issued and outstanding for purposes of Sections 1.7(a) and 1.7(b).
(d) Outstanding USA Options. Prior to the USA Effective Time, USA shall
use its reasonable best efforts to amend each USA Option, if required, to
provide that, at the USA Effective Time, the USA Options then held by each
holder of USA Options (a "USA Optionholder") shall be converted into the right
to receive, for each share of USA Common Stock issuable upon the exercise of
such then outstanding USA Option:
(i) in the case of the USA A Options, $27,477.28 in cash, payable in
accordance with Section 1.8 (the "USA Cash Option Consideration"); and
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(ii) in the case of the USA A Options and USA B Options, an option to
purchase that number of shares of Parent Common Stock (adjusted to the
nearest whole share) equal to $16,750 divided by the Closing Price (the
"New USA Parent Options").
The New USA-Parent Options shall have an exercise price per share of Parent
Common Stock equal to the amount determined by dividing (x) the aggregate
exercise price for shares of USA Common Stock with respect to which the
corresponding USA Option was exercisable immediately prior to the USA Effective
Time by (y) the number of shares of Parent Common Stock for which such New
USA-Parent Option is exercisable. Any repurchase rights in favor of the USA
Optionholder under any New USA-Parent Option shall be eliminated from and after
the USA Effective Time. The duration and other terms of each New USA-Parent
Option immediately after the USA Effective Time (unless otherwise agreed in
writing by the holder of such New USA-Parent Option) shall be the same as the
corresponding USA Options that were in effect immediately before the USA
Effective Time, except that all references to USA in the USA stock option plans
(and the corresponding references in each option agreement documenting each such
USA Parent Option) shall be deemed to be references to Parent. USA shall provide
written notice of the provisions of this Section 1.7(d) to each USA Optionholder
within 20 days of the date of this Agreement. Any USA Options that are not
amended as provided in this Section 1.7(d) or otherwise exercised or canceled
prior to the USA Effective Time shall be canceled at the USA Effective Time
without the payment of any consideration.
(e) Treasury Shares and Acquiror-Owned Stock. Each USA Ineligible Share
at the USA Effective Time shall remain unaffected as a result of the USA Merger,
without any conversion thereof.
(f) Certifications of USA Common Stock, USA Options and Broadcast.com
Stock. Prior to Closing, USA shall deliver to Parent and Bull Run a certificate,
executed by the Chief Financial Officer of USA, certifying (i) as to the USA
Stock, the name of each holder of USA Stock outstanding immediately prior to the
USA Effective Time, the number and type of shares of USA Stock held by such
holder, and the total number of outstanding shares of USA Stock, (ii) as to the
USA Options, the name of each holder of USA Options, the number of shares of USA
Common Stock issuable upon the exercise of each such USA Option outstanding
immediately prior to the USA Effective Time, the grant date and termination date
of each such USA Option, the exercise price per share of USA Common Stock with
respect to each such USA Option, the total number of shares of USA Common Stock
issuable upon the exercise of all USA Options outstanding immediately prior to
the USA Effective Time and the amendment of all such USA Options as contemplated
by Section 1.7(d) and (iii) the amount of the Broadcast.com Net Proceeds.
1.8 Procedures to Exchange Stock Certificates.
(a) Letter of Transmittal. Parent shall prepare a form of letter of
transmittal for each of Capital, Host and USA, which forms shall be subject to
the reasonable approval of Capital, Host and USA (collectively, the "Letters of
Transmittal"), to be mailed by Parent to the record holders of Capital Stock,
Host Stock and USA Stock, respectively, as of: (i) in the case of Capital, the
second business day prior to the date of mailing of the Capital Information
Statement; (ii) in the case of Host, the record date for the Host Stockholders
Meeting and (iii) in the case of USA, the second business day prior to the date
of mailing of the USA Information Statement. The Letters of Transmittal shall be
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used by each record holder to receive the Capital Common Stock Consideration,
the Host Common Stock Consideration or the USA Common Stock Consideration, or
any portion thereof, to which such record holder is entitled in the Mergers.
Notwithstanding anything to the contrary contained herein, any holder of Capital
Stock, Host Stock or USA Stock who fails to properly complete and return such
holder's Letter of Transmittal will not be entitled to receive the merger
consideration to which such holder is entitled in the Mergers until such time as
he properly completes and returns his Letter of Transmittal. The determination
of Parent shall be binding as to whether or not Letters of Transmittal have been
properly completed and delivered pursuant to this Section 1.8.
(b) Other Transfer Documentation. In addition to the Letters of
Transmittal, each holder of shares of Capital Stock, Host Stock or USA Stock
shall deliver to Parent or, if directed by Parent, the Paying Agent, as
appropriate, such holder's certificate or certificates evidencing the shares of
Capital Stock, Host Stock or USA Stock to be converted in the Mergers (or
affidavit of lost stock certificate in form and substance reasonably
satisfactory to Parent, in any event without the necessity of posting any bond
with respect thereto), together with such other documents, instruments and
certifications as may reasonably be requested by Parent in order to effect the
conversion of such shares of Capital Stock, Host Stock or USA Stock in the
Mergers.
(c) Return of Stock Certificates. If the Mergers are abandoned or are
otherwise not consummated for any reason, the certificate or certificates for
the shares of Capital Stock, Host Stock or USA Stock accompanying any Letters of
Transmittal shall be promptly returned to the stockholder submitting the same.
(d) Appointment of Paying Agent. Immediately following the USA Effective
Time, Parent shall deposit, or cause to be deposited, with a paying agent to be
designated by Parent and reasonably acceptable to Capital, Host and USA (the
"Paying Agent"):
(i) for the benefit of the holders of shares of Capital Stock (other
than the Capital Ineligible Shares and the Dissenting Shares), the
aggregate Capital Common Stock Consideration into which the Capital Stock
shall have been converted pursuant to Section 1.5;
(ii) for the benefit of the holders of Host Stock (other than the
Host Ineligible Shares and the Dissenting Shares), the aggregate Host
Common Stock Consideration into which the Host Stock shall have been
converted and, for the benefit of the Host Optionholders, the aggregate
Host Cash Option Consideration into which the Host Options shall have been
converted pursuant to Section 1.6; and
(iii) for the benefit of the holders of USA Stock (other than the USA
Ineligible Shares and the Dissenting Shares), the aggregate USA Merger
Consideration into which the USA Stock shall have been converted and, for
the benefit of the USA Optionholders, the aggregate USA Cash Option
Consideration into which the USA Options shall have been converted pursuant
to Section 1.7.
Such deposits with the Paying Agent are hereinafter referred to as the
"Payment Fund." In addition, if and to the extent Letters of Transmittal and
stock certificates have been delivered to Parent pursuant to Section 1.8(b) or
otherwise, Parent shall deposit the same with the Paying Agent. To the extent
that Letters of Transmittal and stock certificates are delivered to the Capital
Surviving Corporation, the Host Surviving Corporation or the USA Surviving
Corporation after the USA Effective Time, such corporation shall deposit with
the Paying Agent, for the benefit of the holders who
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delivered such Letters of Transmittal and stock certificates after the USA
Effective Time, such stock certificates for exchange in accordance with this
Article I.
(e) Exchange Procedures. Each holder of an outstanding certificate or
certificates which previously represented shares of Capital Stock, Host Stock or
USA Stock shall, upon surrender to the Paying Agent of such certificate or
certificates (or affidavit of lost certificate in form and substance reasonably
satisfactory to Parent, in any event without the necessity of posting any bond
with respect thereto), together with a duly completed and executed Letter of
Transmittal and such other documents as Parent may reasonably request, and
acceptance thereof by the Paying Agent (to the extent the foregoing have not
previously been surrendered pursuant to Section 1.8(b)), be entitled to receive,
as soon as practicable after the USA Effective Time, the Capital Common Stock
Consideration, the Host Common Stock Consideration or the USA Common Stock
Consideration, which the aggregate number of shares of Capital Stock, Host Stock
or USA Stock previously represented by such certificate or certificates so
surrendered shall have been converted into the right to receive pursuant to
Sections 1.5, 1.6 and 1.7, respectively. The Paying Agent shall accept such
certificates and other documentation upon compliance with such reasonable terms
and conditions as the Paying Agent may impose to effect an orderly exchange
thereof. If the Capital Common Stock Consideration, the Host Common Stock
Consideration or the USA Common Stock Consideration (or, in each case, any
portion thereof) is to be delivered to any person other than the person in whose
name the certificate or certificates representing the shares surrendered in
exchange therefor is registered, it shall be a condition to such exchange that
the certificate or certificates so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the person requesting such
exchange shall pay to the Paying Agent any transfer or other taxes required by
reason of the payment of such consideration to a person other than the
registered holder of the certificate(s) surrendered, or shall establish to the
satisfaction of the Paying Agent that such tax has been paid or is not
applicable.
After the Capital Effective Time, the Host Effective Time or the USA
Effective Time, as applicable, there shall be no further transfer on the records
of Capital, Host or USA or their respective transfer agents of certificates
representing shares of Capital Stock, Host Stock or USA Stock, as applicable. If
such certificates are presented to the Capital Surviving Corporation, the Host
Surviving Corporation or the USA Surviving Corporation, they shall be canceled
against delivery of the Capital Common Stock Consideration, the Host Common
Stock Consideration or the USA Common Stock Consideration, as applicable, in
each case as hereinabove provided. Until surrendered as contemplated by this
Section 1.8, each certificate representing shares of Capital Stock, Host Stock
or USA Stock (other than certificates representing the Capital Ineligible
Shares, the Host Ineligible Shares, the USA Ineligible Shares and the Dissenting
Shares), shall be deemed at any time after the Capital Effective Time, the Host
Effective Time or the USA Effective Time, as applicable, to represent only the
right to receive upon such surrender the applicable Capital Common Stock
Consideration, the Host Common Stock Consideration or the USA Common Stock
Consideration, as the case may be, without any interest thereon, as contemplated
by Sections 1.5, 1.6 and 1.7.
As soon as practicable after the Closing, the Paying Agent shall distribute
the Host Cash Option Consideration and the USA Cash Option Consideration to the
Host Optionholders and the USA Optionholders, respectively, in accordance with
the instructions of Parent based on the certificates required to be delivered by
Host and USA pursuant to Sections 1.6 and 1.7.
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(f) No Further Ownership Rights in Capital Stock, Host Stock and USA
Stock. The Capital Common Stock Consideration, the Host Common Stock
Consideration and the USA Common Stock Consideration (or, in the case of
Dissenting Shares, the cash payment therefor) paid upon the surrender for
exchange of certificates representing shares of Capital Stock, Host Stock and
USA Stock in accordance with the terms of this Section 1.8 shall be deemed to
have been issued and paid in full satisfaction of all rights pertaining to such
shares theretofore represented by such certificates, subject, however, to the
obligation of the Capital Surviving Corporation, the Host Surviving Corporation
or the USA Surviving Corporation (if any) to pay any dividends or make any other
distributions with a record date prior to the Closing Date which may have been
declared by Capital, Host or USA, as appropriate, on the shares of Capital
Stock, Host Stock or USA Stock in accordance with the terms of this Agreement or
prior to the date of this Agreement and which remain unpaid at the Closing Date.
(g) No Fractional Shares. Neither certificates nor scrip for fractional
shares of Parent Common Stock will be issued in connection with the Mergers, but
in lieu thereof each holder of shares of Capital Stock, Host Stock or USA Stock
otherwise entitled to a fraction of a share of Parent Common Stock under Section
1.5, 1.6 or 1.7 shall be paid in cash in an amount equal to such fraction
multiplied by the Closing Price. No such holder shall be entitled to dividends
or other rights in respect of any such fractional interest. If more than one
certificate for shares of Capital Stock, Host Stock or USA Stock shall be
surrendered at one time for the account of the same stockholder, the number of
full shares of Parent Common Stock for which certificates shall be exchanged
pursuant to Section 1.8 shall be computed on the basis of the aggregate of the
shares represented by the certificates so surrendered.
(h) Termination of Payment Fund. Any portion of the Payment Fund relating
to the Capital Stock, Host Stock, USA Stock, the Host Options, the USA Options
and the Broadcast.com Net Proceeds which remains undistributed to the holders of
certificates representing shares of Capital Stock, Host Stock and USA Stock and
the Host Optionholders and USA Optionholders for 120 days after the Closing Date
shall be delivered to Parent, upon demand. Thereafter, any holders of shares of
Capital Stock, Host Stock or USA Stock who have not theretofore complied with
this Section 1.8 shall look only to Parent and only as general creditors thereof
for payment of their claims for any Capital Common Stock Consideration, Host
Common Stock Consideration, USA Common Stock Consideration, the Host Cash Option
Consideration or the USA Cash Option Consideration, as the case may be.
(i) No Liability. None of the Capital Surviving Corporation, the Host
Surviving Corporation, the USA Surviving Corporation, Parent or the Paying Agent
or any of their respective directors, officers, employees, stockholders,
incorporators or counsel shall be liable to any person in respect of any cash,
shares, dividends or distributions payable from the Payment Fund delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. If any certificates representing shares of Capital Stock, Host
Stock or USA Stock shall not have been surrendered prior to five years after the
Closing Date (or immediately prior to such earlier date on which any Capital
Common Stock Consideration, Host Common Stock Consideration or USA Common Stock
Consideration, as the case may be, in respect of such certificate would
otherwise escheat to or become the property of any Governmental Entity), any
cash, shares, dividends or distributions payable in respect of such certificates
shall, to the extent permitted by applicable law, become the property of the
Capital Surviving Corporation, the Host
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Surviving Corporation or the USA Surviving Corporation, as applicable, free and
clear of all claims or interest of any person previously entitled thereto.
1.9 Dissenting Shares. Notwithstanding anything to the contrary in this
Agreement, shares of Capital Stock, Host Stock and USA Stock outstanding
immediately prior to the Capital Effective Time, the Host Effective Time or the
USA Effective Time, as applicable, and held by a holder who has not voted in
favor of the Capital Merger, the Host Merger or the USA Merger, as applicable,
or consented thereto and who properly demands in writing appraisal of such
shares in accordance with Subtitle 13 of the Kentucky Code or Section 262 of the
Delaware Code, as applicable, and who shall not have withdrawn such demand or
otherwise have forfeited appraisal rights, shall not be converted into or
represent the right to receive the appropriate merger consideration ("Dissenting
Shares"). Such stockholders shall be entitled to receive payment of the fair or
appraised value of such shares of Capital Stock, Host Stock or USA Stock, as the
case may be, held by them in accordance with the provisions of Subtitle 13 of
the Kentucky Code or Section 262 of the Delaware Code, as applicable, except
that all Dissenting Shares held by stockholders who shall have failed to perfect
or who effectively shall have withdrawn or lost their rights to appraisal of
such shares under Subtitle 13 of the Kentucky Code or Section 262 of the
Delaware Code, as applicable, shall thereupon be deemed to have been converted
into, as of the Capital Effective Time, the Host Effective Time or the USA
Effective Time, as applicable, the right to receive, without any interest
thereon, the applicable merger consideration upon surrender, in the manner
provided in Section 1.8, of the certificate or certificates that formerly
represented such shares. Each of Capital, Host and USA shall give Parent and
Bull Run prompt written notice of any demands for appraisal, withdrawals of such
demands, and any other instruments served pursuant to the Kentucky Code or the
Delaware Code and received by it, and Parent shall have the right to participate
in all negotiations and proceedings with respect to such demands. Prior to the
Closing Date, none of Capital, Host or USA shall, except with the prior written
consent of Parent, make any payments with respect to any demands for appraisal,
or settle or offer to settle, any such demands.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF HOST
Host hereby makes the following representations and warranties to Parent
and Bull Run, each of which shall be unaffected by any investigation heretofore
or hereafter made by Parent or Bull Run or any notice to Parent or Bull Run
other than in the schedules to this Agreement relating to Host:
2.1 Organization, Standing and Power. Each of Host and its Subsidiaries
is a corporation or partnership duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and has the
requisite corporate or partnership power and authority to own, lease and operate
its properties and to carry on its business as presently being conducted. Each
of Host and its Subsidiaries is duly qualified to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties requires such qualification, except where
the failure to be so qualified, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect with respect to Host.
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2.2 Authority; Noncontravention; Consents and Approvals.
(a) Host has the requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by Host and the
consummation by Host of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Host, subject only
to the approval of the Host Merger by a majority of the outstanding shares of
Host Common Stock and a majority of the outstanding shares of Host Preferred
Stock in accordance with the Kentucky Code and the Amended and Restated Articles
of Incorporation, as amended, of Host (the "Host Stockholder Approval"). This
Agreement has been duly executed and delivered by Host and, assuming this
Agreement constitutes the valid and binding agreement of each of the other
parties hereto, constitutes a valid and binding obligation of Host, enforceable
against it in accordance with its terms, except that the enforcement thereof may
be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to creditor's rights generally and (ii)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
(b) Except as set forth in Schedule 2.2(b) and subject to the Host
Stockholder Approval, none of the execution and delivery of this Agreement by
Host, the performance by Host of its obligations hereunder, or the consummation
by Host of the Host Merger will (i) violate, conflict with or result in any
breach of any provision of certificates of incorporation or bylaws (or similar
documents) of Host or any of its Subsidiaries, (ii) violate, conflict with or
result in a violation or breach of, constitute a default (with or without due
notice or lapse of time or both) under, or permit the termination of, or require
the consent of any other party to, or result in the acceleration of, or entitle
any party to accelerate (whether as a result of a change in control of Host or
any or its Subsidiaries or otherwise) any material obligation, or result in the
loss of any material benefit, or give rise to the creation of any Lien upon any
of the properties or assets of Host or any of its Subsidiaries under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture or deed
of trust, or any material Contract to which Host or any of its Subsidiaries is a
party or by which they or any of their respective properties or assets may be
bound or affected, or (iii) violate any order, writ, judgment, injunction,
decree, statute, law, rule or regulation, of any Governmental Entity applicable
to Host or any of its Subsidiaries or any of their respective properties or
assets.
(c) No material consent, approval, order or authorization of, or
registration, declaration or filing with, notice to, or permit from any
Governmental Entity is required by or with respect to Host or any of its
Subsidiaries in connection with the execution and delivery of this Agreement by
Host, or the consummation by Host of the Host Merger except for: (i) the filing
of a pre-merger notification and report form under the HSR Act, and the
expiration or termination of the applicable waiting period thereunder; (ii) the
filing of articles of merger with the Kentucky Secretary of State and
appropriate documents with the relevant authorities of other states in which
Host does business; (iii) such filings and approvals as may be required by any
federal or state securities laws; and (iv) such filings and consents as are set
forth on Schedule 2.2(c) hereof.
2.3 State Takeover Statutes. The Board of Directors of Host has approved
the terms of this Agreement and the consummation of the transactions
contemplated by this Agreement in accordance with the Kentucky Code and the Host
Charter, and such approval is sufficient to render inapplicable to the Host
Merger and the other transactions
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contemplated by this Agreement the provisions of Section 271B.12-210 of the
Kentucky Code.
2.4 Capital Structure. As of the date of this Agreement, the authorized
capital stock of Host consists of (i) 1,500,000 shares of Host Common Stock, of
which 927,783 shares are issued and outstanding and (ii) 80,000 shares of Host
Preferred Stock, of which 37,500 shares are issued and outstanding. As of the
date of this Agreement, 270,000 shares of Host Common Stock are reserved for
issuance pursuant to outstanding class A options (the "Host A Options") and
class B options (the "Host B Options" and, together with the Host A Options, the
"Host Options") to purchase Host Common Stock and no shares of Host Common Stock
are held as treasury shares by Host or by any Subsidiary of Host and no shares
of Host Preferred Stock were held as treasury shares by Host or by any
Subsidiary of Host. Schedule 2.4 sets forth a true and complete list of the
record owners of all classes of Host's capital stock and Host Options as of the
date of this Agreement. Each outstanding share of capital stock of Host is duly
authorized, validly issued, fully paid and nonassessable and free of any
preemptive rights and, to Host's knowledge, each issued and outstanding share of
capital stock of Host issued in the past five years was not issued in violation
of any federal or state securities laws. Except for the Host Options and except
as set forth on Schedule 2.4, there are no outstanding subscriptions, options,
warrants, puts, calls, agreements, understandings, claims or other commitments
or rights of any type obligating Host to issue any additional shares of capital
stock or any other securities convertible into, exchangeable for or evidencing
the right to subscribe for any shares of capital stock of Host.
2.5 Subsidiaries.
(a) Schedule 2.5(a) sets forth (i) the name of each Subsidiary of Host,
(ii) the name of each corporation, partnership, joint venture or other entity
(other than Subsidiaries of Host) in which Host has, or has the right to
acquire, an equity or other ownership interest and (iii) the capitalization of
the foregoing and the percentage of equity or other ownership interests therein
held by Host or by any of its Subsidiaries.
(b) All of the outstanding shares of capital stock of each corporate
Subsidiary of Host have been duly authorized and validly issued, are fully paid
and non-assessable, and have not been issued in violation of any preemptive
rights or federal or state securities law. The stock or other ownership interest
of each Subsidiary of Host shown to be owned by Host or a Subsidiary of Host on
Schedule 2.5(a) is owned by Host or such Subsidiary of record and beneficially
free and clear of any Liens.
(c) Except as set forth on Schedule 2.5(c), there are no options,
warrants, calls, subscriptions, conversion or other rights, agreements or
commitments obligating any of the Subsidiaries of Host to issue any additional
shares of capital stock or other ownership interests of such Subsidiary or any
other securities convertible into, exchangeable for or evidencing the right to
subscribe for any shares of such capital stock or other ownership interests or
obligating Host or any of its Subsidiaries to transfer any of their respective
shares of capital stock or other ownership interests of any such Subsidiary.
2.6 Financial Statements. Host has delivered to Parent and Bull Run true
and complete copies of (a) the audited consolidated balance sheets of Host at
June 30, 1998, 1997 and 1996 and the related consolidated statements of income,
cash flow and changes in shareholders' equity for the fiscal years then ended,
and the notes thereto, accompanied by the reports thereon of the applicable firm
of independent public accountants; and (b) unaudited consolidated balance sheets
of Host at December 31, 1998 and related
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consolidated statements of income and cash flow for the periods then ended, all
of which have been prepared in accordance with GAAP, except that the unaudited
statements are subject to normal year end adjustments which will not be material
in the aggregate. Such balance sheets, including the related notes, fairly
present the financial position, assets and Liabilities of Host and its
consolidated Subsidiaries at the dates indicated and such statements of income,
cash flow and changes in shareholders' equity fairly present the results of
operations, cash flow and changes in shareholders' equity of Host and its
consolidated Subsidiaries for the periods indicated. References in this
Agreement to the "Host Interim Balance Sheet" mean the consolidated balance
sheet as of December 31, 1998 referred to above; and references in this
Agreement to the "Host Interim Balance Sheet Date," shall be deemed to refer to
December 31, 1998. To Host's knowledge, except as set forth on Schedule 2.6, the
accounts receivable set forth on the Host Interim Balance Sheet or arising since
the date thereof are valid and genuine; have arisen solely out of bona fide
sales and deliveries of goods, performance of services and other business
transactions in the ordinary course of business consistent with past practice;
are not subject to valid defenses, set-offs or counterclaims; and are
collectible within 90 days after billing at the full recorded amount thereof
subject, in the case of accounts receivable appearing on the Host Interim
Balance Sheet, to the allowance for collection losses reflected on the Host
Interim Balance Sheet and, in the case of accounts receivable arising subsequent
to the Host Interim Balance Sheet Date, to an allowance for collection losses
consistent (determined based upon the percentage that such allowance bears to
the total accounts receivable as of the applicable date) with that reflected on
the Host Interim Balance Sheet. The allowance for collection losses reflected on
the Host Interim Balance Sheet has been determined in accordance with GAAP
consistent with past practice.
2.7 Absence of Undisclosed Liabilities. Except for matters relating to
the transactions contemplated by this Agreement, neither Host nor any of its
Subsidiaries has any Liabilities or obligations except: (i) those Liabilities or
obligations set forth on the Host Interim Balance Sheet and not heretofore paid
or discharged; (ii) Liabilities arising in the ordinary course of business under
any Contract specifically disclosed in the schedules to this Agreement relating
to Host or not required to be disclosed because of the term or amount involved;
and (iii) those Liabilities or obligations incurred, consistently with past
business practice, in or as a result of the normal and ordinary course of
business since the Host Interim Balance Sheet Date.
2.8 Books of Account. Except as set forth on Schedule 2.8, the books and
records of Host and its Subsidiaries accurately and fairly reflect, in
reasonable detail and in all material respects, the transactions and the assets
and liabilities of Host and its Subsidiaries with respect to their businesses
and operations. Neither Host nor any of its Subsidiaries has engaged in any
material transaction with respect to its business or operations, maintained any
bank account or used any material amount of funds of Host or any of its
Subsidiaries in the conduct of its business or operations except for
transactions, bank accounts and funds which have been and are reflected in the
normally maintained books and records of Host and its Subsidiaries.
2.9 Absence of Certain Changes or Events. Since the Host Interim Balance
Sheet Date, except as set forth on Schedule 2.9, (i) the business of Host and
its Subsidiaries has been carried on only in the ordinary and usual course and
no event or events has or have occurred that, either individually or in the
aggregate, has had, or reasonably could be expected to have, a Material Adverse
Effect with respect to Host, (ii) neither Host nor any of its Subsidiaries has
suffered an extraordinary loss or casualty, whether or not covered by insurance,
and (iii) none of the events or actions which Host and its
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Subsidiaries are prohibited from taking pursuant to Section 6.1 have occurred or
been taken.
2.10 Contracts and Commitments.
(a) Except as described on Schedule 2.10(a) and except for Contracts which
can be canceled on 90 days or less notice without penalty, neither Host nor any
of its Subsidiaries is a party to any:
(i) Contract for the future purchase or sale of, or payment for,
supplies or products, or for the performance of services involving in any
one case more than $125,000 in value;
(ii) Contract under which Host or any of its Subsidiaries is either
lessor or lessee of real property or Contract under which Host or any of
its Subsidiaries is either lessor or lessee of personal property providing
for annual payments of $125,000 or more;
(iii) note, debenture, bond, equipment trust agreement, letter of
credit agreement, loan agreement or other contract or commitment for the
borrowing or lending of money or agreement or arrangement for a line of
credit or guarantee, pledge or undertaking of the indebtedness of any other
person;
(iv) Contract for any capital expenditure or leasehold improvement
involving more than $125,000 in value;
(v) Contract limiting or restraining Host, any of its Subsidiaries or
any successor thereto from engaging or competing in any manner or in any
business;
(vi) advertising, distribution, dealer, representative or sales
agency Contract involving more than $125,000 in value;
(vii) any Contract granting to any person a power of attorney with
respect to Host, its Subsidiaries or their respective businesses;
(viii) employment, consulting, severance, or other similar Contract
with any present or former employee, director, agent, consultant, or
similar representative providing for annual payments in excess of $100,000,
excluding commissions;
(ix) Contract relating to or involving the barter or exchange of
goods, services, equipment, or other assets involving more than $125,000 in
value;
(x) collective bargaining agreement with any labor union;
(xi) Contract relating to cleanup, abatement or other environmental
actions;
(xii) Contract (other than employment and related Contracts required
to be disclosed pursuant to clause (viii) above) with any officer or
director of Host or any of its Subsidiaries, or Contract with any Affiliate
of Host;
(xiii) Contract which relates in whole or in part to any Host
Intellectual Property involving more than $125,000 in value;
(xiv) licensing, rights, sponsorship or other similar Contract
involving more than $125,000 in value; or
(xv) material Contract not made in the ordinary course of business.
(b) Host has made available, or will make available, to Parent and Bull
Run true and correct copies of all of the Contracts required to be listed on
Schedule 2.10(a), along
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with all amendments, supplements and modifications thereof. To Host's knowledge,
each Contract listed or required to be listed on Schedule 2.10(a) is valid and
enforceable with respect to Host in accordance with its terms; Host and its
Subsidiaries are, and all other parties thereto are, in material compliance with
the provisions thereof; Host and its Subsidiaries are not and, no other party
thereto is, in default in the performance, observance or fulfillment of any
obligation, covenant or condition contained therein; and, to Host's knowledge,
no event has occurred which with or without the giving of notice or lapse of
time, or both, would constitute a default thereunder.
2.11 Title to Assets. Except as set forth on Schedule 2.11, Host and each
of its Subsidiaries has, good, valid and indefeasible title to the assets owned
by it free and clear of all title defects or objections, mortgages, liens,
claims, charges, pledges, or other encumbrances of any nature whatsoever,
including without limitation, Liens, other than (a) those reflected or reserved
against in the Host Interim Balance Sheet, (b) Liens for Taxes, assessments and
other governmental charges which are not due and payable or which may thereafter
be paid without penalty and (c) mechanics', carriers', workmen's, repairmen's
and other similar Liens arising or incurred in the ordinary course of business
consistent with past practice. (The items referred to in the exceptions to the
immediately preceding sentence are hereinafter referred to as "Host Permitted
Liens.") There are no existing agreements with, options or rights of, or
commitments to, any person to acquire any of the assets of Host or any of its
Subsidiaries or any interest therein, except for sales in the ordinary course of
business consistent with past practices.
2.12 Condition of Assets. All the assets owned or used by Host (other
than assets used by Host pursuant to a lease or other arrangement with the
duration of less than 30 days) or any of its Subsidiaries are in good operating
condition and repair, subject to normal wear and tear and normal maintenance,
are usable in the regular and ordinary course of business and conform to all
applicable laws, ordinances, codes, rules and regulations, and Permits (as
hereinafter defined) relating to their construction, use and operation. Such
assets constitute all assets and rights necessary for the business and
operations of Host and its Subsidiaries as currently conducted. No person other
than Host or its Subsidiaries owns any tangible assets or properties necessary
for the business and operations of Host and its Subsidiaries, except for items
leased pursuant to Contracts disclosed on Schedule 2.10(a) or not required to be
disclosed therein because of the amount thereof.
2.13 Real Property.
(a) Schedule 2.13(a) sets forth all of the real property owned in fee by
Host or any of its Subsidiaries (such owned property, together with real
property leased pursuant to contracts required to be listed on Schedule 2.10(a)
being hereinafter referred to as the "Host Real Property"). Each of Host or its
Subsidiaries has good, insurable and marketable fee simple title to each parcel
of real property and the improvements thereon owned by it free and clear of all
Liens (other than Host Permitted Liens). Host has delivered to Parent true and
complete copies of (i) each title policy, if any, insuring that Host or a
Subsidiary of Host, as applicable, is the fee owner of each parcel of real
property owned by Host or any of its Subsidiaries and (ii) the recorded deed by
which Host or a Subsidiary of Host acquired title to any parcel of real property
owned by Host or one of its Subsidiaries. Each leasehold interest created under
Contracts required to be listed on Schedule 2.10(a) is free and clear of all
Liens, except Host Permitted Liens.
(b) Neither Host nor any of its Subsidiaries has received, or been
informed in writing of the receipt of, any written notice that there is, and to
Host's knowledge, there
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does not exist, any material violation of a condition or agreement contained in
any easement, restrictive covenant or any similar instrument or agreement
affecting any of the Host Real Property or any portion thereof.
(c) Neither Host nor any of its Subsidiaries has received notice from any
utility company or municipality of any discontinuation of presently available or
otherwise necessary sewer, water, electric, gas, telephone or other utilities or
services for any of the Host Real Property or of any fact or condition which
would otherwise lead to discontinuance.
(d) Neither Host nor any of its Subsidiaries has received notice of any
violation of any applicable building, zoning, land use or other similar statues,
laws, ordinances, regulation, Permits or other requirement. Neither Host nor any
of its Subsidiaries has received notice of any pending or contemplated rezoning,
condemnation or other proceeding affecting the Host Real Property.
2.14 Intellectual Property. Except for Intellectual Property licensed
pursuant to Contracts disclosed on Schedule 2.10(a) or not required to be
disclosed therein because of the amount involved, Host and its Subsidiaries, to
Host's knowledge, own the entire right, title and interest in and to all
Intellectual Property owned or used by them in the conduct of their business and
operations (the "Host Intellectual Property") free and clear of all Liens.
Neither Host nor any of its Subsidiaries is under any obligation to pay
royalties or similar payments in connection with any license, except pursuant to
the licensing agreements disclosed on Schedule 2.10(a) or not required to be
disclosed therein. There are no pending, or to the knowledge of Host, threatened
actions affecting the Host Intellectual Property. To Host's knowledge, the Host
Intellectual Property is valid, subsisting, unexpired, in proper form and
enforceable and all renewal fees and other maintenance fees which have fallen
due have been paid. To the knowledge of Host, there are no conflicts with or
infringements of any Host Intellectual Property by any third party and, to the
knowledge of Host, none of the Host Intellectual Property conflicts with or
infringes upon any proprietary right of any third party.
2.15 Environmental, Health and Safety Matters.
(a) Except as set forth on Schedule 2.15:
(i) the assets and operations of Host and its Subsidiaries (including
all Host Real Property) have been and are in compliance in all material
respects with all Environmental Laws;
(ii) (x) to Host's knowledge, each of Host and its Subsidiaries has
obtained and currently maintains all Environmental Permits required for its
operations and is in compliance with all the terms of such Environmental
Permits, (y) there are no judicial or administrative actions, proceedings
or investigations pending against Host or its Subsidiaries or, to the
knowledge of Host, threatened to revoke such Environmental Permits, and (z)
to Host's knowledge, neither Host nor any of its Subsidiaries has received
any written notice from any Governmental Entity or written notice from any
person to the effect that there is lacking any Environmental Permit
required for the current use or operation of any property owned, operated
or leased by any of Host or its Subsidiaries, except in the case of each of
the matters specified in clauses (x), (y) and (z) as could not reasonably
be expected, individually or in the aggregate, to have a Material Adverse
Effect with respect to Host;
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(iii) there are no judicial or administrative actions, proceedings,
or investigations pending or, to the knowledge of Host, threatened against
any Host or any of its Subsidiaries alleging the violation of, or liability
pursuant to, any Environmental Law or Environmental Permit;
(iv) neither Host nor any of its Subsidiaries nor, to Host's
knowledge, any predecessor thereof, has filed any notice under any
Environmental Law indicating past or present treatment, storage, or
disposal of or reporting a Release or threatened Release of Hazardous
Material into the environment;
(v) neither Host nor any of its Subsidiaries nor, to Host's
knowledge, any of their past or current facilities and operations or any
predecessor of Host or any of its Subsidiaries for which Host has
liability, is subject to any outstanding Claims or any agreement with any
Governmental Entity or other person, or to any governmental investigation
respecting (x) Environmental Laws or (y) the Release or threatened Release
of any Hazardous Material and, to the knowledge of Host, no facts,
circumstances or conditions exist which could give rise to such Claims
against Host or any of its Subsidiaries;
(vi) to Host's knowledge, all the Host Real Property, all real
property formerly owned, operated, or leased by Host or any of its
Subsidiaries or any predecessor thereof for which Host has liability and,
to Host's knowledge without any independent investigation, all property
adjacent to the Host Real Property, is free of contamination by or from any
Hazardous Materials at concentrations that are not in compliance with
Environmental Laws and Environmental Permits, except for such as could not
reasonably be expected to have a Material Adverse Effect with respect to
Host;
(vii) to Host's knowledge, there is not now, nor has there been in
the past, on, in, or under the Host Real Property or any real property
formerly owned, leased or operated by Host or any of its Subsidiaries, or
any predecessor thereof for which Host has liability (v) any underground
storage tanks, (w) above-ground storage tanks, dikes or impoundments
containing Hazardous Materials, (x) any asbestos or asbestos-containing
materials, (y) any polychlorinated biphenyls or (z) any radioactive
substances (other than insignificant amounts that are naturally occurring);
and
(viii) to Host's knowledge, no real property currently or formerly,
owned, operated or leased by Host or any of its Subsidiaries is listed or
has been proposed for listing on the National Priorities List, the
Comprehensive Environmental Response Compensation and Liability and
Information System or any analogous state lists,
(b) Host has made available, or will make available, to Bull Run and
Parent true and complete copies of all environmental, health or safety
assessments, audits, investigations, analyses or similar reports relating to
Host, any of its Subsidiaries or the Host Real Property that are in the
possession, custody or control of Host.
2.16 Insurance. To Host's knowledge, Host and its Subsidiaries have
insurance policies in full force and effect insuring against risks and
liabilities customary in their industry and sufficient for compliance with all
applicable laws, statutes, rules and regulations and with requirements of
Contracts to which they are a party. To Host's knowledge, no event has occurred
which can reasonably be expected to result in a material retroactive upward
adjustment in premiums under any such insurance policies or which is likely to
result in a prospective material upward adjustment in such premiums. To Host's
knowledge, no threat has been made to cancel any such insurance policy and all
such insurance will remain in full force and effect with respect to periods
before the Closing.
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2.17 Personnel Information.
(a) None of Host or any of its Subsidiaries is a party to or bound by any
employment, consulting, collective bargaining or other labor agreement except as
set forth on Schedule 2.10(a).
(b) None of Host or any of its Subsidiaries has agreed to recognize any
union or other collective bargaining unit, nor has any union or other collective
bargaining unit been certified as representing any of their employees. Host has
no knowledge of any organizational effort currently being made or threatened, or
occurring within the past two years, by or on behalf of any labor union with
respect to employees of Host or any of its Subsidiaries.
(c) To Host's knowledge, Host and each of its Subsidiaries, (i) except as
set forth on Schedule 2.17(c), is and has been in compliance for the past five
years with all applicable laws regarding employment and employment practices,
including without limitation, laws relating to terms and conditions of
employment, wages and hours, occupational safety and health and workers'
compensation and is not engaged in any unfair labor practices, except where the
failure to so comply could not reasonably be expected to have a Material Adverse
Effect with respect to Host, (ii) has no unfair labor practice charges or
complaints pending or threatened against it before the National Labor Relations
Board, (iii) has no grievances pending or threatened against it, and (iv) has no
charges pending before the Equal Employment Opportunity Commission of any state
or local agency responsible for the prevention of unlawful employment practices.
(d) No employee or former employee has made or asserted or, to Host's
knowledge, threatened to make or assert, any claim or cause of action against
any of Host or its Subsidiaries or any officer, director, employee or agent of
Host or any of its Subsidiaries that has not been finally resolved, settled,
satisfied, waived, released, dismissed or the subject of a final judgment,
except as disclosed in Schedule 2.19.
2.18 Employee Benefit Plans.
(a) All "employee benefit plans," as defined by Section 3(3) of ERISA, and
all bonus or other incentive compensation, stock option, stock purchase, stock
appreciation, deferred compensation, salary continuation, severance, disability,
section 125 cafeteria, company car, club membership, educational assistance
plan, pension, compensation, fringe benefit, insurance, post-retirement,
accident, sick, vacation, welfare, health, life individual employment,
consulting, retention, commission, change in control, noncompetition and any
other plan, agreement, policy or arrangement as to which Host or any of its
Subsidiaries or any entity that would be deemed a "single employer" with Host or
any of its Subsidiaries under Section 414(b), (c), (m), (n) or (o) of the Code
or Section 4001 of ERISA (a "Host ERISA Affiliate") has, or has had within the
past six years, any obligation or liability, contingent or otherwise (the "Host
Employee Plans") are listed on Schedule 2.18(a). No Host Employee Plan
constitutes a "multiemployer plan" as defined in Section 4001(a)(3) or 3(37) of
ERISA or Section 414(f) of the Code or a plan subject to Section 412 of the
Code, Section 302 of ERISA or Title IV of ERISA.
(b) A complete and correct copy of each of the following documents
relating to each Host Employee Plan has been provided, or will be provided, to
Parent and Bull Run, if applicable: (i) plan document and any amendments,
supplements or modifications thereto; (ii) most recent summary plan description;
(iii) most recent actuarial report; (iv) most recent trust agreement or
insurance policy; (v) most recent Form 5500; and (vi) most recent IRS
determination letter.
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(c) Each Host Employee Plan intended to qualify under Section 401 of the
Code (as hereinafter defined) has received a favorable determination letter from
the IRS under Rev. Rul. 93-39 or its progeny that such Host Employee Plan is so
qualified and any trust maintained pursuant thereto is exempt from federal
income taxation under Section 501 of the Code and, to Host's knowledge, nothing
has occurred or is reasonably expected to occur that could adversely affect such
qualified status or revoke such determination letter. Except as set forth on
Schedule 2.18(c), for each of the last six years, each Host Employee Plan and
Host and its Subsidiaries have complied in all material respects with applicable
laws, including, without limitation, ERISA and the Code, and Host, each Host
ERISA Affiliate and its Subsidiaries do not have any liability (contingent or
otherwise) on account of a non-exempt "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Code.
(d) Except as set forth in Schedule 2.18(d), all contributions required by
law or by the terms of any Host Employee Plan with respect to all periods
through the Closing Date shall have been made prior to the Closing Date (or a
pro rata basis where such payments are otherwise discretionary at year end) or
provided for by Host or its financial statements (by full accruals as if all
targets required by each Host Employee Plan has been or will be met at maximum
levels) to have been made under such Host Employee Plan.
(e) To Host's knowledge, none of the Host Employee Plans subject to Title
IV of ERISA has been terminated or had a reportable event (as defined in Section
4043(b) of ERISA and for which the 30-day notice requirement has not been waived
by the regulations thereunder) occur.
(f) No claim, lawsuit, arbitration or other action has been threatened,
asserted, instituted or, to Host's knowledge, anticipated against the Host
Employee Plans (other than non-material routine claims for benefits and appeal
of such claims), any trustee or fiduciary thereof, Host, any of its Subsidiaries
or Host ERISA Affiliates, any director, officer or employee thereof or any of
the assets of any trust of the Host Employee Plans. Host has not received
notification that an audit or investigation of any Host Employee Plan is pending
or ongoing by the IRS or any other Governmental Entity.
(g) With respect to each Host Employee Plan that is funded mostly or
partially through an insurance policy, none of Host, any of its Subsidiaries or
any of the Host ERISA Affiliates has any liabilities in the nature of a
retroactive rate adjustment, loss sharing arrangement or other actual or
contingent liability arising wholly or partially out of events occurring before
the Closing Date.
(h) Except to the extent set forth on Schedule 2.18(h), the consummation
of the transactions contemplated by this Agreement will not give rise to any
liability, including, without limitation, liability for severance pay,
unemployment compensation, termination pay or withdrawal liability or accelerate
the time of payment or vesting or increase the amount of compensation or
benefits due to any employee, director or shareholder of Host or any of its
Subsidiaries (whether current or former) or their beneficiaries solely by reason
of such transactions. Neither Host nor any of its Subsidiaries maintains,
contributes to or in any way provides for any benefits of any kind whatsoever
(other than under Section 4980B of the Code, the Federal Social Security Act or
a plan qualified under Section 401(a) of the Code) to any current or future
retiree or terminee. None of Host, any of its Subsidiaries, any Host ERISA
Affiliate, or any officer or employee thereof, has made any promises or
commitments, whether legally binding or not, to create any additional plan,
agreement or arrangement, or to modify or change any existing Host Employee
Plan. Other than routine price increases by service providers, no event,
condition
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or circumstance exists that could result in an increase of the benefits provided
under any Host Employee Plan or the expense of maintaining any Host Employee
Plan from the level of benefits or expense incurred for the most recent fiscal
year ended before the Closing Date. Except as set forth on the Host Financial
Statements, none of Host, any of its Subsidiaries or any of the Host ERISA
Affiliates has any unfunded liabilities pursuant to any Host Employee Plan that
is not intended to be qualified under Section 401(a) of the Code. No event,
condition or circumstance exists that would prevent the amendment or termination
of any Host Employee Plan.
2.19 Litigation: Decrees. There are no judicial or administrative
actions, proceedings or, to Host's knowledge, investigations pending or, to
Host's knowledge, threatened, that question the validity of this Agreement or
any action taken or to be taken by Host in connection with this Agreement.
Except as disclosed on Schedule 2.19, there are no (i) lawsuits, claims,
administrative or other proceedings or, to Host's knowledge, investigations
pending or, to Host's knowledge, threatened by, against or affecting Host or any
of its Subsidiaries or (ii) judgments, orders or decrees of any Governmental
Entity binding on Host or any of its Subsidiaries or any of their respective
assets, except in each case for those which could not reasonably be expected to
have a Material Adverse Effect with respect to Host.
2.20 Compliance with Law: Permits. To Host's knowledge, Host and each of
its Subsidiaries has complied with each law, statute, rule, regulation,
judgment, order and decree of any Governmental Entity to which it or its
business, operations, assets or properties is subject, and none of Host or any
of its Subsidiaries is currently in violation of any of the foregoing (other
than laws, statutes, rules, regulations, judgments, orders and decrees which are
otherwise expressly referenced in or otherwise the subject of any other
representation or warranty made by Host herein), except for instances of
noncompliance which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect with respect to Host; and, except for
foreign qualifications which are the subject of the second sentence of Section
2.1, each of Host and its Subsidiaries owns, holds, possesses or lawfully uses
in the operation of its business all Permits which are in any manner necessary
for it to conduct its business as now or previously conducted or for the
ownership and use of its assets. To Host's knowledge, none of Host or any of its
Subsidiaries is in default, nor has it received any notice of any claim of
default, with respect to any Permits, all Permits are renewable by their terms
or in the ordinary course of business without the need to comply with any
special qualification procedures or to pay any amounts other than routine filing
fees, and none of such Permits will be adversely affected by consummation of the
transactions contemplated hereby, except in each case where such has not had and
could not reasonably be expected to have a Material Adverse Effect with respect
to Host.
2.21 Taxes. Except as disclosed on Schedule 2.21:
(a) All income, franchise and material other Tax Returns required to
be filed by or with respect to Host and its Subsidiaries have been filed
when due in a timely manner, and all such Tax Returns are true, correct and
complete in all material respects, except in the case of state and local
Tax Returns where the failure to so file has not resulted in or could not
reasonably be expected to result in the payment of Taxes or damages, costs,
fines, penalties or other expenses (out-of-pocket or otherwise) which
exceed $500,000. Each of Host and its Subsidiaries has paid all income,
franchise and material other Taxes that are due from or with respect to it,
except in the case of state and local income, franchise and material other
Taxes those
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where the failure to so pay has not resulted in or could not reasonably be
expected to result in the payment of Taxes or damages, costs, fines,
penalties or other expenses (out-of-pocket or otherwise) which exceed
$500,000. With respect to any period for which Taxes are not yet due, each
of Host and its Subsidiaries has made sufficient current accruals for all
such Taxes in its financial statements (including the Host Interim Balance
Sheet). Host and its Subsidiaries have made all required estimated Tax
payments sufficient to avoid any material underpayment penalties. Host and
its Subsidiaries have withheld and paid all Taxes required by all
applicable laws to be withheld or paid in connection with any amounts paid
or owing to any employee, creditor, independent contractor or other third
party, except in the case where the failure so to withhold and pay has not
resulted in or could not reasonably be expected to result in the payment of
a material amount of Taxes.
(b) There are no outstanding agreements, waivers, or arrangements
extending the statutory period of limitation applicable to any claim for,
or the period for the collection or assessment of, Taxes due from or with
respect to Host or its Subsidiaries for any taxable period. No audit or
other proceeding by any court, governmental or regulatory authority, or
similar person is pending or, to the knowledge of Host, threatened in
regard to any Taxes due from or with respect to Host or its Subsidiaries or
any Tax Return filed by or with respect to Host or its Subsidiaries. No
assessment of Taxes is proposed by any taxing authority against Host or its
Subsidiaries or any of their assets. No claim has been made by a taxing
authority in a jurisdiction where Host or any of its Subsidiaries does not
currently file Tax Returns that any of them is or may be subject to
taxation by that jurisdiction. Host has made available to Parent and Bull
Run for the last three (3) taxable years all income, franchise and material
other Tax Returns, including any amendments thereto. Host made available to
Parent and Bull Run copies of all examination reports and statements of
Taxes due with respect to any examinations listed on Schedule 2.21. There
are no Liens for any Tax on the assets of Host.
(c) Host and its Subsidiaries have not agreed to make any adjustment
pursuant to Section 481(a) of the Code (or any predecessor provision) by
reason of any change in any accounting method, there is no application
pending with any taxing authority requesting permission for any changes in
any accounting method of Host or any of its Subsidiaries, nor has the
Internal Revenue Service proposed any such change in accounting method.
(d) None of Host or its Subsidiaries is a party to, is bound by, or
has any obligation under, any Tax sharing agreement, Tax allocation or any
other similar contract.
(e) There is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, could give rise to the payment
of any amount that would not be deductible by Host or its Subsidiaries by
reason of Sections 280G or 162(m) of the Code.
(f) Host is not and during the five preceding years has not been a
United States real property holding corporation (as defined in section
897(c)(2) of the Code).
(g) There are no deferred gains with respect to intercompany
transactions for purposes of Treasury Regulation Section 1.1502-13 (and any
predecessor regulation) with respect to Host or its Subsidiaries; and there
is no excess loss account with
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respect to the stock of any of Host's Subsidiaries for purposes of Treasury
Regulation Section 1.1502-19.
(h) Host has not at any time been a member of any affiliated,
consolidated, combined, unitary or similar group of corporations, except
with respect to the group for which it is currently the common parent
corporation. There are no Tax rulings, requests for rulings or closing
agreements relating to Host which could affect Host's liability for Taxes
after the effective date of the Host Merger. All Tax Returns filed by, or
with respect to, Host for tax years through the tax year ended June 30,
1995 have been examined and closed or are Tax Returns with respect to which
the applicable period for assessment under applicable law, after giving
effect to extensions and waivers, has expired. There is not any agreement
or consent made under Section 341(f) of the Code affecting Host. None of
the assets owned or used by Host or any of its Subsidiaries constitutes
tax-exempt bond financed property or tax-exempt use property within the
meaning of Section 168 of the Code. None of such assets is subject to a
safe-harbor lease under Section 168 of the Code or other lease or
arrangement which is not a "true" lease for Federal income tax purposes,
and no event has occurred that would require indemnification by Host or any
of its Subsidiaries of any tax lessor under any such safe-harbor lease
agreement.
(i) Notwithstanding the foregoing, the representations and warranties
contained in this Section 2.21 relating to the Subsidiaries of Host listed
on Schedule 2.21 hereof shall be deemed to have been made to the knowledge
of Host.
2.22 Brokers. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried out by Host directly with
Bull Run and Parent without the intervention of any person engaged by Host
(pursuant to a written agreement) in such a manner as to give rise to any valid
claim by any person against Capital, Host, USA, Bull Run, Parent, the Capital
Surviving Corporation, the Host Surviving Corporation, the USA Surviving
Corporation or any Subsidiary of any of them for a finder's fee, brokerage
commission, or similar payment.
2.23 Certain Business Practices and Regulations: Potential Conflicts of
Interest.
(a) None of Host, its Subsidiaries or any directors, officers, agents or
employees of Host or its Subsidiaries has (i) used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, or (iii) made any other unlawful payment,
except in each case which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect with respect to Host.
(b) Except as disclosed on Schedule 2.23(b), to Host's knowledge, none of
the stockholders, officers or directors of Host or its Subsidiaries or any
entity controlled by any of the foregoing (i) owns, directly or indirectly, any
significant interest in, or is a director, officer, employee, consultant or
agent of, any person which is a lessor, lessee or customer of, or supplier of
goods or services to, Host or its Subsidiaries, (ii) owns, directly or
indirectly, in whole or in part, any real property, leasehold interests or other
property with a fair market value of at least $25,000 in the aggregate the use
of which is necessary for the business of Host and its Subsidiaries, (iii) has
any cause of action or other suit, action or claim whatsoever against, or owes
any amount to either Host or its Subsidiaries other than claims in the ordinary
course of business, (iv) has sold to, or purchased from, either
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Host or any of its Subsidiaries any assets or property for aggregate
consideration in excess of $25,000 since January 1, 1995, or (v) is a party to
any contract or participates in any arrangement, written or oral, pursuant to
which Host or any of its Subsidiaries provides services of any nature to any
such individual or entity, except to such individual in his capacity as an
employee of Host or its Subsidiaries.
2.24 Board Recommendation. The Board of Directors of Host, at a meeting
duly called and held, has by the requisite vote of such Board of Directors (i)
determined that this Agreement and the transactions contemplated hereby are fair
to and in the best interests of the stockholders of Host and has approved the
same and (ii) resolved to recommend that the stockholders of Host approve this
Agreement and the transactions contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF USA
USA hereby makes the following representations and warranties to Parent and
Bull Run, each of which shall be unaffected by any investigation heretofore or
hereafter made by Parent or Bull Run or any notice to Parent or Bull Run other
than in the schedules to this Agreement relating to USA:
3.1 Organization, Standing and Power. Each of USA and its Subsidiaries is
a corporation or partnership duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization and has the
requisite corporate or partnership power and authority to own, lease and operate
its properties and to carry on its business as presently being conducted. Each
of USA and its Subsidiaries is duly qualified to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties requires such qualification, except where
the failure to be so qualified, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect with respect to USA.
3.2 Authority; Noncontravention; Consents and Approvals.
(a) USA has the requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement by USA and the consummation by USA of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of USA, subject only to the approval of the USA
Merger by at least 75% of the outstanding shares of USA Common Stock and USA
Preferred Stock (voting together as a single class), and the unanimous consent
of the USA Preferred Stock (voting as a separate class), in each case in
accordance with the Delaware Code and the Amended and Restated Certificate of
Incorporation of USA, as amended (the "USA Stockholder Approval"). This
Agreement has been duly executed and delivered by USA and, assuming this
Agreement constitutes the valid and binding agreement of each of the other
parties hereto, constitutes a valid and binding obligation of USA, enforceable
against it in accordance with its terms, except that the enforcement thereof may
be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to creditor's rights generally and (ii)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
(b) Except as set forth in Schedule 3.2(b) and subject to the USA
Stockholder Approval, none of the execution and delivery of this Agreement by
USA, the performance by USA of its obligations hereunder, or the consummation by
USA of the USA Merger
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will (i) violate, conflict with or result in any breach of any provision of the
certificate of incorporation or bylaws (or similar documents) of USA or any of
its Subsidiaries, (ii) violate, conflict with or result in a violation or breach
of, constitute a default (with or without due notice or lapse of time or both)
under, or permit the termination of, or require the consent of any other party
to, or result in the acceleration of, or entitle any party to accelerate
(whether as a result of a change in control of USA or any or its Subsidiaries or
otherwise) any material obligation, or result in the loss of any material
benefit, or give rise to the creation of any Lien upon any of the properties or
assets of USA or any of its Subsidiaries under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture or deed of trust, or any
material Contract to which USA or any of its Subsidiaries is a party or by which
they or any of their respective properties or assets may be bound or affected,
or (iii) violate any order, writ, judgment, injunction, decree, statute, law,
rule or regulation, of any Governmental Entity applicable to USA or any of its
Subsidiaries or any of their respective properties or assets,
(c) No material consent, approval, order or authorization of, or
registration, declaration or filing with, notice to, or permit from any
Governmental Entity is required by or with respect to USA or any of its
Subsidiaries in connection with the execution and delivery of this Agreement by
USA, or the consummation by USA of the USA Merger except for: (i) the filing of
a pre-merger notification and report form under the HSR Act, and the expiration
or termination of the applicable waiting period thereunder; (ii) the filing of a
certificate of merger with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which USA does
business; and (iii) such filings and approvals as may be required by any federal
or state securities laws.
3.3 State Takeover Statutes. The Board of Directors of USA have approved
the terms of this Agreement and the consummation of the transactions
contemplated by this Agreement in accordance with the Delaware Code and the USA
Charter, and such approval is sufficient to render inapplicable to the USA
Merger and the other transactions contemplated by this Agreement the provisions
of Section 203 of the Delaware Code.
3.4 Capital Structure. As of the date of this Agreement, the authorized
capital stock of USA consists of (i) 10,000 shares of USA Common Stock, of which
1,640.5 shares are issued and outstanding and (ii) 600 shares of USA Preferred
Stock, of which 490 shares are issued and outstanding. As of the date of this
Agreement, 168 shares of USA Common Stock are reserved for issuance pursuant to
outstanding class A options (the "USA A Options") and class B options (the "USA
B Options" and, together with the USA A Options, the "USA Options") to purchase
USA Common Stock, and no shares of USA Common Stock are held as treasury shares
by USA or by any Subsidiary of USA and no shares of USA Preferred Stock were
held as treasury shares by USA or by any Subsidiary of USA. Schedule 3.4 sets
forth a true and complete list of the record owners of all classes of USA's
capital stock and USA Options as of the date of this Agreement. Each outstanding
share of capital stock of USA is duly authorized, validly issued, fully paid and
nonassessable and free of any preemptive rights and, to USA's knowledge, each
issued and outstanding share of capital stock of USA issued in the past five
years was not issued in violation of any federal or state securities laws.
Except for the USA Preferred Stock and the USA Options, there are no outstanding
subscriptions, options, warrants, puts, calls, agreements, understandings,
claims or other commitments or rights of any type obligating USA to issue any
additional shares of capital stock or any other securities convertible into,
exchangeable for or evidencing the right to subscribe for any shares of capital
stock of USA.
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3.5 Subsidiaries.
(a) Schedule 3.5(a) sets forth (i) the name of each Subsidiary of USA,
(ii) the name of each corporation, partnership, joint venture or other entity
(other than Subsidiaries of USA) in which USA has, or has the right to acquire,
an equity or other ownership interest and (iii) the capitalization of the
foregoing and the percentage of equity or other ownership interests therein held
by USA or by any of its Subsidiaries.
(b) Except as otherwise disclosed in Schedule 3.5(b), all of the
outstanding shares of capital stock of each corporate Subsidiary of USA have
been duly authorized and validly issued, are fully paid and non-assessable, and
have not been issued in violation of any preemptive rights or federal or state
securities law. The stock or other ownership interest of each Subsidiary of USA
shown to be owned by USA or any Subsidiary of USA on Schedule 3.5(a) is owned by
USA or such Subsidiary of record and beneficially free and clear of any Liens.
(c) There are no options, warrants, calls, subscriptions, conversion or
other rights, agreements or commitments obligating any of the Subsidiaries of
USA to issue any additional shares of capital stock or other ownership interests
of such Subsidiary or any other securities convertible into, exchangeable for or
evidencing the right to subscribe for any shares of such capital stock or other
ownership interests or obligating USA or any of its Subsidiaries to transfer any
of their respective shares of capital stock or other ownership interests of any
such Subsidiary.
3.6 Financial Statements. USA has delivered to Parent and Bull Run true
and complete copies of (a) the audited consolidated balance sheets of USA at
June 30, 1998, 1997 and 1996 and the related consolidated statements of income,
cash flow and changes in shareholders' equity for the fiscal years then ended,
and the notes thereto, accompanied by the reports thereon of the applicable firm
of independent public accountants; and (b) unaudited consolidated balance sheets
of USA at December 31, 1998 and related consolidated statements of income and
cash flow for the periods then ended, all of which have been prepared in
accordance with GAAP, except that the unaudited statements are subject to normal
year-end adjustments which will not be material in the aggregate. Such balance
sheets, including the related notes, fairly present the financial position,
assets and liabilities of USA and its consolidated Subsidiaries at the dates
indicated and such statements of income, cash flow and changes in shareholders'
equity fairly present the results of operations, cash flow and changes in
shareholders' equity of USA and its consolidated Subsidiaries for the periods
indicated. References in this Agreement to the "USA Interim Balance Sheet" mean
the consolidated balance sheet as of December 31, 1998 referred to above; and
references in this Agreement to the "USA Interim Balance Sheet Date" shall be
deemed to refer to December 31, 1998. To USA's knowledge, the accounts
receivable set forth on the USA Interim Balance Sheet or arising since the date
thereof are valid and genuine have arisen solely out of bona fide sales and
deliveries of goods, performance of services and other business transactions in
the ordinary course of business consistent with past practice; are not subject
to valid defenses, set-offs or counterclaims; and are collectible within 90 days
after billing at the full recorded amount thereof subject, in the case of
accounts receivable appearing on the USA Interim Balance Sheet, to the allowance
for collection losses reflected on the USA interim Balance Sheet and, in the
case of accounts receivable arising subsequent to the USA Interim Balance Sheet
Date, to an allowance for collection losses consistent (determined based upon
the percentage that such allowance bears to the total accounts receivable as of
the applicable date) with that reflected on the USA Interim Balance Sheet. The
allowance for collection
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losses reflected on the USA Interim Balance Sheet has been determined in
accordance with GAAP consistent with past practice.
3.7 Absence of Undisclosed Liabilities. Except for matters relating to
the transactions contemplated by this Agreement, neither USA nor any of its
Subsidiaries has any Liabilities or obligations except: (i) those Liabilities or
obligations set forth on the USA Interim Balance Sheet and not heretofore paid
or discharged; (ii) Liabilities arising in the ordinary course of business under
any Contract specifically disclosed in the schedules to this Agreement relating
to USA or not required to be disclosed because of the term or amount involved;
and (iii) those Liabilities or obligations incurred, consistently with past
business practice, in or as a result of the normal and ordinary course of
business since the USA Interim Balance Sheet Date.
3.8 Books of Account. Except as set forth on Schedule 3.8, the books and
records of USA and its Subsidiaries accurately and fairly reflect, in reasonable
detail and in all material respects, the transactions and the assets and
liabilities of USA and its Subsidiaries with respect to their businesses and
operations. Neither USA nor any of its Subsidiaries has engaged in any material
transaction with respect to its business or operations, maintained any bank
account or used any material amount of funds of USA or any of its Subsidiaries
in the conduct of its business or operations except for transactions, bank
accounts and funds which have been and are reflected in the normally maintained
books and records of USA and its Subsidiaries.
3.9 Absence of Certain Changes or Events. Since the USA Interim Balance
Sheet Date, except as set forth on Schedule 3.9, (i) the business of USA and its
Subsidiaries has been carried on only in the ordinary and usual course and no
event or events has or have occurred that, either individually or in the
aggregate, has had, or reasonably could be expected to have, a Material Adverse
Effect with respect to USA, (ii) neither USA nor any of its Subsidiaries has
suffered an extraordinary lose or casualty, whether or not covered by insurance,
and (iii) none of the events or actions which USA and its Subsidiaries are
prohibited from taking pursuant to Section 6.1 have occurred or been taken.
3.10 Contracts and Commitments.
(a) Except as described on Schedule 3.10(a) and except for Contracts which
can be canceled on 90 days or less notice without penalty, neither USA nor any
of its Subsidiaries is a party to any:
(i) Contract for the future purchase or sale of, or payment for,
supplies or products, or for the performance of services involving in any
one case more than $125,000 in value;
(ii) Contract under which USA or any of its Subsidiaries is either
lessor or lessee of real property or Contract under which USA or any of its
Subsidiaries is either lessor or lessee of personal property providing for
annual payments of $125,000 or more;
(iii) note, debenture, bond, equipment trust agreement, letter of
credit agreement, loan agreement or other contract or commitment for the
borrowing or lending of money or agreement or arrangement for a line of
credit or guarantee, pledge or undertaking of the indebtedness of any other
person;
(iv) Contract for any capital expenditure or leasehold improvement
involving more than $125,000 in value;
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(v) Contract limiting or restraining USA, any of its Subsidiaries or
any successor thereto from engaging or competing in any manner or in any
business;
(vi) advertising, distribution, dealer, representative or sales
agency Contract involving more than $125,000 in value;
(vii) any Contract granting to any person a power of attorney with
respect to USA, its Subsidiaries or their respective businesses;
(viii) employment, consulting, severance, or other similar Contract
with any present or former employee, director, agent, consultant, or
similar representative providing for annual payments in excess of $100,000,
excluding commissions;
(ix) Contract relating to or involving the barter or exchange of
goods, services, equipment, or other assets involving more than $125,000 in
value;
(x) collective bargaining agreement with any labor union;
(xi) Contract relating to cleanup, abatement or other environmental
actions;
(xii) Contract (other than employment and related Contracts required
to be disclosed pursuant to clause (viii) above) with any officer or
director of USA or any of its Subsidiaries, or Contract with any Affiliate
of USA;
(xiii) Contract which relates in whole or in part to any USA
Intellectual Property involving more than $125,000 in value;
(xiv) licensing, rights, sponsorship or other similar Contract
involving more than $125,000 in value; or
(xv) material Contract not made in the ordinary course of business.
(b) USA has made available, or will make available, to Parent and Bull Run
true and correct copies of all of the Contracts required to be listed on
Schedule 3.10(a), along with all amendments, supplements and modifications
thereof. To USA's knowledge, each Contract listed or required to be listed on
Schedule 3.10(a) is valid and enforceable with respect to USA or its
Subsidiaries in accordance with its terms; USA and its Subsidiaries are, and all
other parties thereto are, in material compliance with the provisions thereof;
USA and its Subsidiaries are not and no other party thereto is, in default in
the performance, observance or fulfillment of any obligation, covenant or
condition contained therein; and no event has occurred which with or without the
giving of notice or lapse of time, or both, would constitute a default
thereunder.
3.11 Title to Assets. Except as set forth on Schedule 3.11, USA and each
of its Subsidiaries has, good, valid and indefeasible title to the assets owned
by it, free and clear of all Liens, other than (a) those reflected or reserved
against in the USA Interim Balance Sheet, (b) Liens for Taxes, assessments and
other governmental charges which are not due and payable or which may thereafter
be paid without penalty and (c) mechanics', carriers', workmen's, repairmen's
and other similar Liens arising in the ordinary course of business consistent
with past practice. (The items referred to in the exceptions to the immediately
preceding sentence are hereinafter referred to as "USA Permitted Liens.") There
are no existing agreements with, options or rights of, or commitments to, any
person to acquire any of the assets of USA or any of its Subsidiaries or any
interest therein, except for sales in the ordinary course of business consistent
with past practice.
3.12 Condition of Assets. All the assets owned or used by USA (other than
assets used by USA pursuant to a lease or other arrangement with a duration of
less than
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30 days) or any of its Subsidiaries are in good operating condition and repair,
subject to normal wear and tear and normal maintenance, are usable in the
regular and ordinary course of business and conform to all applicable laws,
ordinances, codes, rules and regulations, and Permits relating to their
construction, use and operation. Such assets constitute all assets and rights
necessary for the business and operations of USA and its Subsidiaries as
currently conducted. No person other than USA or its Subsidiaries owns any
tangible assets or properties necessary for the business and operations of USA
and its Subsidiaries, except for items leased pursuant to Contracts disclosed on
Schedule 3.10(a) or not required to be disclosed therein because of the amount
thereof.
3.13 Real Property.
(a) Neither USA nor any of its Subsidiaries owns any real property. Each
leasehold interest created under Contracts required to be listed on Schedule
3.10(a) is free and clear of all Liens, except USA Permitted Liens. The real
property leased pursuant to contracts required to be listed on Schedule 3.10(a)
are hereinafter referred to as the "USA Real Property").
(b) Neither USA nor any of its Subsidiaries has received, or been informed
in writing of the receipt of, any written notice that there is, and to USA's
knowledge, there does not exist, any material violation of a condition or
agreement contained in any easement, restrictive covenant or any similar
instrument or agreement affecting any of the USA Real Property or any portion
thereof.
(c) Neither USA nor any of its Subsidiaries has received notice from any
utility company or municipality of any discontinuation of presently available or
otherwise necessary sewer, water, electric, gas, telephone or other utilities or
services for any of the USA Real Property or of any fact or condition which
would otherwise lead to discontinuance.
(d) Neither USA nor any of its Subsidiaries has received notice of any
violation of any applicable building, zoning, land use or other similar statues,
laws, ordinances, regulation, Permits or other requirement. Neither USA nor any
of its Subsidiaries has received notice of any pending or contemplated rezoning,
condemnation or other proceeding affecting the USA Real Property.
3.14 Intellectual Property. Except for Intellectual Property licensed
pursuant to Contracts disclosed on Schedule 3.10(a) or not required to be
disclosed therein because of the amount, USA and its Subsidiaries, to USA's
knowledge, own the entire right, title and interest in and to all Intellectual
Property owned or used by them in the conduct of their business and operations
(the "USA Intellectual Property") free and clear of all Liens. Neither USA nor
any of its Subsidiaries is under any obligation to pay royalties or similar
payments in connection with any license, except pursuant to the licensing
agreements disclosed on Schedule 3.10(a) or not required to be disclosed
therein. There are no pending, or to the knowledge of USA, threatened actions
affecting the USA Intellectual Property. To USA's knowledge, the USA
Intellectual Property is valid, subsisting, unexpired, in proper form and
enforceable and all renewal fees and other maintenance fees which have fallen
due have been paid. To the knowledge of USA, there are no conflicts with or
infringements of any USA Intellectual Property by any third party and, to the
knowledge of USA, none of the USA Intellectual Property conflicts with or
infringes upon any proprietary right of any third party.
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3.15 Environmental, Health and Safety Matters.
(a) Except as set forth on Schedule 3.15:
(i) the assets and operations of USA and its Subsidiaries (including
all USA Real Property) have been and are in compliance in all material
respects with all Environmental Laws;
(ii) (x) to USA's knowledge, each of USA and its Subsidiaries has
obtained and currently maintains all Environmental Permits required for its
operations and is in compliance with the terms of such Environmental
Permits, (y) there are no judicial or administrative actions, proceedings
or investigations pending against USA or its Subsidiaries or, to USA's
knowledge, threatened to revoke such Environmental Permits, and (z) to
USA's knowledge, neither USA nor any of its Subsidiaries has received any
written notice from any Governmental Entity or written notice from any
person to the effect that there is lacking any Environmental Permit
required for the current use or operation of any property owned, operated
or leased by any of USA or its Subsidiaries, except in the case of each of
the matters specified in clauses (x), (y) and (z) as could not reasonably
be expected, individually or in the aggregate, to have a Material Adverse
Effect with respect to USA;
(iii) there are no judicial or administrative actions, proceedings,
or investigations pending or, to USA's knowledge, threatened, against USA
or any of its Subsidiaries alleging the violation of, or liability pursuant
to, any Environmental Law or Environmental Permit;
(iv) neither USA nor any of its Subsidiaries nor, to USA's knowledge,
any predecessor thereof, has filed any notice under any Environmental Law
indicating past or present treatment, storage, or disposal of or reporting
a Release or threatened Release of Hazardous Material into the environment;
(v) neither USA nor any of its Subsidiaries nor, to USA's knowledge,
any of their past or current facilities and operations or any predecessor
of USA or any of its Subsidiaries for which USA has liability, is subject
to any outstanding Claims or any agreement with any Governmental Entity or
other person, or to any governmental investigation respecting (x)
Environmental Laws or (y) the Release or threatened Release of any
Hazardous Material and, to the knowledge of USA, no facts, circumstances or
conditions exist which could give rise to such Claims against USA or any of
its Subsidiaries;
(vi) to USA's knowledge, all the USA Real Property and all real
property formerly owned, operated, or leased by USA or any of its
Subsidiaries or any predecessor thereof for which USA has liability and, to
USA's knowledge without any independent investigation, all property
adjacent to the USA Real Property, is free of contamination by or from any
Hazardous Materials at concentrations that are not in compliance with
Environmental Laws and Environmental Permits, except for such as could not
reasonably be expected to have a Material Adverse Effect with respect to
USA;
(vii) to USA's knowledge, there is not now, nor has there been in the
past, on, in, or under the USA Real Property or any real property formerly
owned, leased, or operated by USA or any of its Subsidiaries, or any
predecessor thereof for which USA has liability (v) any underground storage
tanks, (w) above-ground storage tanks, dikes or impoundments containing
Hazardous Materials, (x) any asbestos or
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asbestos-containing materials, (y) any polychlorinated biphenyls or (z) any
radioactive substances (other than insignificant amounts that are naturally
occurring); and
(viii) to USA's knowledge, no real property currently or formerly,
owned, operated or leased by USA or any of its Subsidiaries is listed or,
to the knowledge of USA, has been proposed for listing on the National
Priorities List, the Comprehensive Environmental Response Compensation and
Liability and Information System or any analogous state lists.
(b) USA has made available, or will make available, to Parent and Bull Run
true and complete copies of all environmental, health or safety assessments,
audits, investigations, analyses or similar reports relating to USA, any of its
Subsidiaries or the USA Real Property that are in the possession, custody or
control of USA.
3.16 Insurance. To USA's knowledge, USA and its Subsidiaries have
insurance policies in full force and effect insuring against risks and
liabilities customary in their industry and sufficient for compliance with all
applicable laws, statutes, rules and regulations and with requirements of
Contracts to which they are a party, To USA's knowledge, no event has occurred
which can reasonably be expected to result in a material retroactive upward
adjustment in premiums under any such insurance policies or which is likely to
result in a material prospective upward adjustment in such premiums. To USA's
knowledge, no threat has been made to cancel any such insurance policy and all
such insurance will remain in full force and effect with respect to periods
before the Closing.
3.17 Personnel Information.
(a) None of USA or any of its Subsidiaries is a party to or bound by any
employment, consulting, collective bargaining or other labor agreement except as
set forth on Schedule 3.10(a).
(b) None of USA or any of its Subsidiaries has agreed to recognize any
union or other collective bargaining unit, nor has any union or other collective
bargaining unit been certified as representing any of their employees, USA has
no knowledge of any organizational effort currently being made or threatened, or
occurring within the past two years, by or on behalf of any labor union with
respect to employees of USA or any of its Subsidiaries.
(c) To USA's knowledge, USA and each of its Subsidiaries, (i) is and has
been in compliance for the past five years with all applicable laws regarding
employment and employment practices, including without limitation, laws relating
to terms and conditions of employment, wages and hours, occupational safety and
health and workers' compensation and is not engaged in any unfair labor
practices, except where the failure to so comply could not reasonably be
expected to have a Material Adverse Effect with respect to USA, (ii) has no
unfair labor practice charges or complaints pending or threatened against it
before the National Labor Relations Board, (iii) has no grievances pending or
threatened against it, and (iv) has no charges pending before the Equal
Employment Opportunity Commission of any state or local agency responsible for
the prevention of unlawful employment practices.
(d) No employee or former employee has made or asserted or, to USA's
knowledge, threatened to make or assert, any claim or cause of action against
any of USA or its Subsidiaries or any officer, director, employee or agent of
USA or any of its Subsidiaries
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that has not been finally resolved, settled, satisfied, waived, released,
dismissed or the subject of a final judgment, except as disclosed in Schedule
3.19.
3.18 Employee Benefit Plans.
(a) All "employee benefit plans," as defined by Section 3(3) of ERISA, and
all bonus or other incentive compensation, stock option, stock purchase, stock
appreciation, deferred compensation, salary continuation, severance, disability,
section 125 cafeteria, company car, club membership, educational assistance
plan, pension, compensation, fringe benefit, insurance, post-retirement,
accident, sick, vacation, welfare, health, life individual employment,
consulting, retention, commission, change in control, noncompetition and any
other plan, agreement, policy or arrangement as to which USA or any of its
Subsidiaries or any entity that would be deemed a "single employer" with USA or
any of its Subsidiaries under Section 414(b), (c), (m), (n) or (o) of the Code
or Section 4001 of ERISA (a "USA ERISA Affiliate") has, or has had within the
past six years, any obligation or liability, contingent or otherwise (the "USA
Employee Plans") are listed on Schedule 3.18(a). No USA Employee Plan
constitutes a "multiemployer plan" as defined in Section 4001(a)(3) or 3(37) of
ERISA or Section 414(f) of the Code or a plan subject to Section 412 of the
Code, Section 302 of ERISA or Title IV of ERISA.
(b) A complete and correct copy of each of the following documents
relating to each USA Employee Plan has been provided, or will be provided, to
Parent and Bull Run, if applicable: (i) plan document and any amendments,
supplements or modifications thereto; (ii) most recent summary plan description;
(iii) most recent actuarial report; (iv) most recent trust agreement or
insurance policy; (v) most recent Form 5500; and (vi) most recent IRS
determination letter.
(c) Each USA Employee Plan intended to qualify under Section 401 of the
Code (as hereinafter defined) has received a favorable determination letter from
the IRS under Rev. Rul. 93-39 or its progeny that such USA Employee Plan is so
qualified and any trust maintained pursuant thereto is exempt from federal
income taxation under Section 501 of the Code and, to USA's knowledge, nothing
has occurred or is reasonably expected to occur that could adversely affect such
qualified status or revoke such determination letter. Except as set forth on
Schedule 3.18(c), for each of the last six years, each USA Employee Plan and USA
and its Subsidiaries have complied in all material respects with applicable
laws, including, without limitation, ERISA and the Code, and USA, each USA ERISA
Affiliate and its Subsidiaries do not have any liability (contingent or
otherwise) on account of a non-exempt "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Code.
(d) Except as set forth on Schedule 3.18(d), all contributions required by
law or by the terms of any USA Employee Plan with respect to all periods through
the Closing Date shall have been made prior to the Closing Date (or a pro rata
basis where such payments are otherwise discretionary at year end) or provided
for by USA or its financial statements (by full accruals as if all targets
required by each USA Employee Plan has been or will be met at maximum levels) to
have been made under such USA Employee Plan.
(e) To USA's knowledge, none of the USA Employee Plans subject to Title IV
of ERISA has been terminated or had a reportable event (as defined in Section
4043(b) of ERISA and for which the 30-day notice requirement has not been waived
by the regulations thereunder) occur.
(f) No claim, lawsuit, arbitration or other action has been threatened,
asserted, instituted or, to USA's knowledge, anticipated against the USA
Employee Plans (other
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than non-material routine claims for benefits and appeal of such claims), any
trustee or fiduciary thereof, USA, any of its Subsidiaries or USA ERISA
Affiliates, any director, officer or employee thereof or any of the assets of
any trust of the USA Employee Plans. USA has not received notification that an
audit or investigation of any USA Employee Plan is pending or ongoing by the IRS
or any other Governmental Entity.
(g) With respect to each USA Employee Plan that is funded mostly or
partially through an insurance policy, none of USA, any of its Subsidiaries or
any of the USA ERISA Affiliates has any liabilities in the nature of a
retroactive rate adjustment, loss sharing arrangement or other actual or
contingent liability arising wholly or partially out of events occurring before
the Closing Date.
(h) Except to the extent set forth on Schedule 3.18(h), the consummation
of the transactions contemplated by this Agreement will not give rise to any
liability, including, without limitation, liability for severance pay,
unemployment compensation, termination pay or withdrawal liability or accelerate
the time of payment or vesting or increase the amount of compensation or
benefits due to any employee, director or shareholder of USA or any of its
Subsidiaries (whether current or former) or their beneficiaries solely by reason
of such transactions. Neither USA nor any of its Subsidiaries maintains,
contributes to or in any way provides for any benefits of any kind whatsoever
(other than under Section 4980B of the Code, the Federal Social Security Act or
a plan qualified under Section 401(a) of the Code) to any current or future
retiree or terminee. None of USA, any of its Subsidiaries, any USA ERISA
Affiliate, or any officer or employee thereof, has made any promises or
commitments, whether legally binding or not, to create any additional plan,
agreement or arrangement, or to modify or change any existing USA Employee Plan.
Other than routine price increases by service providers, no event, condition or
circumstance exists that could result in an increase of the benefits provided
under any USA Employee Plan or the expense of maintaining any USA Employee Plan
from the level of benefits or expense incurred for the most recent fiscal year
ended before the Closing Date. Except as set forth in the USA Financial
Statements, none of USA, any of its Subsidiaries or any of the USA ERISA
Affiliates has any unfunded liabilities pursuant to any USA Employee Plan that
is not intended to be qualified under Section 401(a) of the Code. No event,
condition or circumstance exists that would prevent the amendment or termination
of any USA Employee Plan.
3.19 Litigation: Decrees. There are no judicial or administrative
actions, proceedings or, to USA's knowledge, investigations pending or, to USA's
knowledge, threatened that question the validity of this Agreement or any action
taken or to be taken by USA in connection with this Agreement. Except as
disclosed on Schedule 3.19, there are no (i) lawsuits, claims, administrative or
other proceedings or, to USA's knowledge, investigations pending or, to USA's
knowledge, threatened by, against or affecting USA or any of its Subsidiaries or
(ii) judgments, orders or decrees of any Governmental Entity binding on USA or
any of its Subsidiaries or any of their respective assets, except in each case
for those which could not reasonably be expected to have a Material Adverse
Effect with respect to USA.
3.20 Compliance with Law: Permits. To USA's knowledge, USA and each of
its Subsidiaries has complied with each law, statute, rule, regulation,
judgment, order and decree of any Governmental Entity to which it or its
business, operations, assets or properties is subject and none of USA or any of
its Subsidiaries is currently in violation of any of the foregoing (other than
laws, statutes, rules, regulations, judgments, order and decrees which are made
by USA herein), except for instances of non-compliance which
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could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect with respect to USA; and except for foreign
qualifications which are the subject of the second sentence of Section 3.1, each
of USA and its Subsidiaries owns, holds, possesses or lawfully uses in the
operation of its business all Permits which are in any manner necessary for it
to conduct its business as now or previously conducted or for the ownership and
use of its assets. To USA's knowledge, none of USA or any of its Subsidiaries is
in default, nor has it received any notice of any claim of default, with respect
to any Permits, all Permits are renewable by their terms or in the ordinary
course of business without the need to comply with any special qualifications
procedures or to pay any amounts other than routine filing fees, and none of
such Permits will be adversely affected by consummation of the transactions
contemplated hereby except in each case where such has not had and could not
reasonably be expected to have a Material Adverse Effect with respect to USA.
3.21 Taxes. Except as disclosed on Schedule 3.21:
(a) All income, franchise and material other Tax Returns required to be
filed by or with respect to USA and its Subsidiaries have been filed when due in
a timely manner, and all such Tax Returns are true, correct and complete in all
material respects, except in the case of state and local Tax Returns where the
failure to so file has not resulted in or could not reasonably be expected to
result in the payment of Taxes or damages, costs, fines, penalties or other
expenses (out-of-pocket or otherwise) which exceed $500,000. Each of USA and its
Subsidiaries has paid all income, franchise and material other Taxes that are
due from or with respect to it, except in the case of state and local income,
franchise and material other Taxes those where the failure to so pay has not
resulted in or could not reasonably be expected to result in the payment of
Taxes or damages, costs, fines, penalties or other expenses (out-of-pocket or
otherwise) which exceed $500,000. With respect to any period for which Taxes are
not yet due, each of USA and its Subsidiaries has made sufficient current
accruals for all such Taxes in its financial statements (including the USA
Interim Balance Sheet), USA and its Subsidiaries have made all required
estimated Tax payments sufficient to avoid any material underpayment penalties.
USA and its Subsidiaries have withheld and paid all Taxes required by all
applicable laws to be withheld or paid in connection with any amounts paid or
owing to any employee, creditor, independent contractor or other third party,
except in the case where the failure so to withhold and pay has not resulted in
or could not reasonably be expected to result in the payment of a material
amount of Taxes.
(b) There are no outstanding agreements, waivers, or arrangements
extending the statutory period of limitation applicable to any claim for, or the
period for the collection or assessment of, Taxes due from or with respect to
USA or its Subsidiaries for any taxable period. No audit or other proceeding by
any court, governmental or regulatory authority, or similar person is pending
or, to the knowledge of USA, threatened in regard to any Taxes due from or with
respect to USA or its Subsidiaries or any Tax Return filed by or with respect to
USA or its Subsidiaries. No assessment of Taxes is proposed by any taxing
authority against USA or its Subsidiaries or any of their assets. No claim has
been made by a taxing authority in a jurisdiction where USA or any of its
Subsidiaries does not currently file Tax Returns that any of them is or may be
subject to taxation by that jurisdiction. USA has made available to Parent and
Bull Run for the last three (3) taxable years all income, franchise and material
other Tax Returns, including any amendments thereto. USA has made available to
Parent and Bull Run copies of all examination reports and statements of Taxes
due with respect to any examinations listed on Schedule 2.21. There are no Liens
for any Tax on the assets of USA.
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(c) USA and its Subsidiaries have not agreed to make any adjustment
pursuant to Section 481(a) of the Code (or any predecessor provision) by reason
of any change in any accounting method, there is no application pending with any
taxing authority requesting permission for any changes in any accounting method
of USA or any of its Subsidiaries, nor has the Internal Revenue Service proposed
any such change in accounting method.
(d) None of USA or its Subsidiaries is a party to, is bound by, or has any
obligation under, any Tax sharing agreement, Tax allocation or any other similar
contract.
(e) There is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, could give rise to the payment of any
amount that would not be deductible by USA or its Subsidiaries by reason of
Sections 280G or 162(m) of the Code.
(f) USA is not and during the five preceding years has not been a United
States real property holding corporation (as defined in section 897(c)(2) of the
Code.
(g) There are no deferred gains with respect to intercompany transactions
for purposes of Treasury Regulation Section 1.1502-13 (and any predecessor
regulation) with respect to USA or its Subsidiaries; and there is no excess loss
account with respect to the stock of any of USA's Subsidiaries for purposes of
Treasury Regulation Section 1.1502-19.
(h) USA has not at any time been a member of any affiliated, consolidated,
combined, unitary or similar group of corporations. There are no Tax rulings,
requests for rulings or closing agreements relating to USA which could affect
USA's liability for Taxes after the effective date of the USA Merger. All Tax
Returns filed by, or with respect to, USA for tax years through the tax year
ended December 31, 1995 have been examined and closed or are Tax Returns with
respect to which the applicable period for assessment under applicable law,
after giving effect to extensions and waivers, has expired. There is not any
agreement or consent made under Section 341(f) of the Code affecting USA. None
of the assets owned or used by USA or any of its Subsidiaries constitutes tax-
exempt bond financed property or tax-exempt use property within the meaning of
Section 168 of the Code. None of such assets is subject to a safe-harbor lease
under Section 168 of the Code or other lease or arrangement which is not a
"true" lease for Federal income tax purposes, and no event has occurred that
would require indemnification by USA or any of its Subsidiaries of any tax
lessor under any such safe-harbor lease agreement.
3.22 Brokers. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried out by USA directly with Bull
Run and Parent without the intervention of any person engaged by USA (pursuant
to a written agreement) in such a manner as to give rise to any valid claim by
any person against Capital, Host, USA, Bull Run, Parent, the Capital Surviving
Corporation, the USA Surviving Corporation, the USA Surviving Corporation or any
Subsidiary of any of them for a finder's fee, brokerage commission, or similar
payment.
3.23 Certain Business Practices and Regulations: Potential Conflicts of
Interest.
(a) None of USA, its Subsidiaries or any directors, officers, agents or
employees of USA or its Subsidiaries has (i) used any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, or (iii) made any other unlawful
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payment, except in each case which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect with respect to USA.
(b) Except as disclosed on Schedule 3.23(b), to USA's knowledge, none of
the stockholders, officers or directors of USA or its Subsidiaries or any entity
controlled by any of the foregoing (i) owns, directly or indirectly, any
significant interest in, or is a director, officer employee, consultant or agent
of, any person which is a lessor, lessee or customer of, or supplier of goods or
services to, USA or its Subsidiaries, (ii) owns, directly or indirectly, in
whole or in part, any real property, leasehold interests or other property with
a fair market value of at least $25,000 in the aggregate the use of which is
necessary for the business of USA and its Subsidiaries, (iii) has any cause of
action or other suit, action or claim whatsoever against, or owes any amount to
either USA or its Subsidiaries other than claims in the ordinary course of
business, (iv) has sold to, or purchased from, either USA or any of its
Subsidiaries any assets or property for aggregate consideration in excess of
$25,000 since January 1, 1995, or (v) is a party to any contract or participates
in any arrangement, written or oral, pursuant to which USA or any of its
Subsidiaries provides services of any nature to any such individual or entity,
except to such individual in his capacity as an employee of USA or its
Subsidiaries.
3.24 Board Recommendation. The Board of Directors of USA, at a meeting
duly called and held, has by the requisite vote of such Board of Directors (i)
determined that this Agreement and the transactions contemplated hereby are fair
to and in the best interests of the stockholders of USA and has approved the
same and (ii) resolved to recommend that the stockholders of USA approve this
Agreement and the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND BULL RUN
Parent and Bull Run, jointly and severally, hereby make the following
representations and warranties to Capital, Host and USA, each of which shall be
unaffected by any investigation heretofore or hereafter made by Capital, Host or
USA or, except as provided in Section 5.5(b), any notice to Capital, Host or USA
other than in the schedules to this Agreement relating to Bull Run. Without
limiting the generality of the foregoing, except where the context may otherwise
require, for purposes of this Article IV, the term "Subsidiaries" shall include
Capital and, immediately after giving effect to the Reorganization, Capital
Merger Sub, Host Merger Sub and USA Merger Sub.
4.1 Organization, Standing and Power. Each of Parent, Bull Run and their
respective Subsidiaries is a corporation or partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and has the requisite corporate or partnership power and authority
to own, lease and operate its properties and to carry on its business as
presently being conducted. Each of Parent, Bull Run and their respective
Subsidiaries is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties requires such qualification, except where the failure to be so
qualified, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect with respect to Parent or Bull Run.
4.2 Authority; Noncontravention; Consents and Approvals.
(a) Each of Parent, Bull Run, Capital, Capital Merger Sub, Host Merger Sub
and USA Merger Sub has the requisite corporate power and authority to enter into
this
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Agreement and to consummate the transactions contemplated by this Agreement and
the execution and delivery of this Agreement by Parent, Bull Run, Capital,
Capital Merger Sub, Host Merger Sub and USA Merger Sub and the consummation by
each such party of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of such party, in each
case, subject only (i) in the case of Parent, to the approval of the Mergers by
a majority of the outstanding shares of Parent Common Stock in accordance with
the Georgia Business Corporation Code and the Certificate of Incorporation of
Parent (the "Parent Stockholder Approval"), (ii) in the case of Capital, to the
approval of the Capital Merger by a majority of the outstanding shares of
Capital Common Stock in accordance with the Delaware Code and the Certificate of
Incorporation, as amended, of Capital (the "Capital Stockholder Approval") and
(iii) in the case of Bull Run, to the approval of the matters set forth in
Section 5.18 by the stockholders of Bull Run. This Agreement has been duly
executed and delivered by Parent, Bull Run, Capital, Capital Merger Sub, Host
Merger Sub and USA Merger Sub and, assuming this Agreement constitutes the valid
and binding agreement of each of the other parties hereto and subject to the
approvals described in the preceding sentence, constitutes a valid and binding
obligation of each of Parent, Bull Run, Capital, Capital Merger Sub, Host Merger
Sub and USA Merger Sub, enforceable against each of them in accordance with its
terms, except that the enforcement thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditors rights generally and (ii) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
(b) None of the execution and delivery of this Agreement by Parent, Bull
Run, Capital, Capital Merger Sub, Host Merger Sub or USA Merger Sub, the
performance by such parties of their respective obligations hereunder, or the
consummation by such parties of the Mergers will (i) violate, conflict with or
result in any breach of any provision of the certificates of incorporation or
bylaws (or similar documents) of Parent, Bull Run, Capital, Capital Merger Sub,
Host Merger Sub or USA Merger Sub, (ii) violate, conflict with or result in a
violation or breach of, constitute a default (with or without due notice or
lapse of time or both) under, or permit the termination of, or require the
consent of any other party to, or result in the acceleration of, or entitle any
party to accelerate any material obligation, or result in the loss of any
material benefit, or give rise to the creation of any Lien upon any of the
properties or assets of Parent, Bull Run, Capital, Capital Merger Sub, Host
Merger Sub, USA Merger Sub or any of their Subsidiaries under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture or deed of
trust, or any material Contract to which Parent, Bull Run, Capital, Capital
Merger Sub, Host Merger Sub, USA Merger Sub or any of their Subsidiaries is a
party or by which they or any of their respective properties or assets may be
bound or affected, or (iii) violate any order, writ, judgment, injunction,
decree, statute, law, rule or regulation, of any Governmental Entity applicable
to Parent, Bull Run, Capital, Capital Merger Sub, Host Merger Sub, USA Merger
Sub or any of their respective Subsidiaries or any of their respective
properties or assets.
(c) No material consent, approval, order or authorization of, or
registration, declaration or filing with, notice to, or permit from any
Governmental Entity is required by or with respect to Parent, Bull Run, Capital,
Capital Merger Sub, Host Merger Sub, USA Merger Sub or any of their respective
Subsidiaries in connection with the execution and delivery of this Agreement by
Parent, Bull Run, Capital, Capital Merger Sub, Host Merger Sub or USA Merger Sub
or the consummation by any such party except for: (i) the filing of a pre-merger
notification and report form under the HSR Act, and the
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expiration or termination of the applicable waiting period thereunder; (ii) the
filing of a certificate of merger with the Delaware Secretary of State and
articles of merger with the Kentucky Secretary of State and appropriate
documents with the relevant authorities of other states in which Parent, Bull
Run, Capital, Capital Merger Sub, Host Merger Sub or USA Merger Sub does
business; and (iii) such filings and approvals as may be required by any federal
or state securities laws.
4.3 Capital Structure.
(a) The amounts of authorized and issued and outstanding shares of common
stock, par value $.01 per share ("Parent Common Stock"), of Parent immediately
following the consummation of the Reorganization will be identical to the
amounts of authorized and issued and outstanding shares of Bull Run Common Stock
immediately prior to the Reorganization. Each share of capital stock of Parent
which will be outstanding immediately following the consummation of the
Reorganization will be duly authorized, validly issued, fully paid and
nonassessable and free of any preemptive rights and, to Parent's knowledge, will
not be, issued in violation of any federal or state securities laws. The shares
of Parent Common Stock to be issued to stockholders of Capital, Host and USA
pursuant to the Mergers will be duly authorized, validly issued, fully-paid and
nonassessable and shall not be issued in violation of any preemptive rights.
Except as contemplated hereby or by the Reorganization, immediately following
the consummation of the Reorganization, there will be no outstanding
subscriptions, options, warrants, puts, calls, agreements, understandings,
claims or other commitments or rights of any type obligating to issue any
additional shares of capital stock or any other securities convertible into,
exchangeable for or evidencing the right to subscribe for any shares of capital
stock of Parent.
(b) The authorized capital stock of Bull Run consists of 100,000,000
shares of common stock, par value $.01 per share ("Bull Run Common Stock"), of
which 22,253,267 shares are issued and outstanding. All issued and outstanding
shares of Bull Run Common Stock are duly authorized, validly issued, fully paid
and nonassessable and free of preemptive rights and were not issued in violation
of any federal or state securities laws. Immediately following the consummation
of the Reorganization, Parent will own of record and beneficially all of the
issued and outstanding shares of capital stock of Bull Run.
(c) The authorized capital stock of Capital Merger Sub consists of 100
shares of common stock, par value $.01 per share, of which 100 are issued and
outstanding. All issued and outstanding shares of common stock of Capital Merger
Sub are duly authorized, validly issued, fully paid and nonassessable and free
of preemptive rights and were not issued in violation of any federal or state
securities laws. Parent owns of record and beneficially all of the issued and
outstanding shares of capital stock of Capital Merger Sub.
(d) The authorized capital stock of Host Merger Sub consists of 100 shares
of common stock, no par value, of which 100 are issued and outstanding. All
issued and outstanding shares of capital stock of Host Merger Sub are duly
authorized, validly issued, fully paid and nonassessable and free of preemptive
rights and were not issued in violation of any federal or state securities laws.
Parent owns of record and beneficially all of the issued and outstanding shares
of capital stock of Host Merger Sub.
(e) The authorized capital stock of USA Merger Sub consists of 100 shares
of common stock, $.01 par value, of which 100 are issued and outstanding. All
issued and
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outstanding shares of capital stock of USA Merger Sub are duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights and
were not issued in violation of any federal or state securities laws. Parent
owns of record and beneficially all of the issued and outstanding shares of
capital stock of USA Merger Sub.
4.4 Financial Statements.
(a) Bull Run has delivered to Host and USA true and correct copies of (i)
the audited consolidated balance sheets of Bull Run at December 31, 1997, 1996
and 1995 and the related consolidated statements of income, cash flow and
changes in shareholders' equity for the fiscal years then ended, and the notes
thereto, accompanied by the reports thereon of the applicable firm of
independent public accountants; and (ii) the unaudited consolidated balance
sheet of Bull Run at December 31, 1998 and the related consolidated statements
of income and cash flow for the year then ended, all of which have been prepared
in accordance with GAAP (the "Bull Run Financial Statements"), except that the
unaudited statements are subject to normal year end adjustments which will not
be material in the aggregate. Such balance sheets, including the related notes,
fairly present the financial position, assets and Liabilities of Bull Run and
its consolidated subsidiaries at the dates indicated and such statements of
operations, cash flow and changes in shareholders' equity of Bull Run and its
consolidated subsidiaries for the periods indicated. References in this
Agreement to the "Bull Run Balance Sheet" mean the unaudited consolidated
balance sheet of Bull Run and its consolidated subsidiaries at December 31,
1998; and references in this Agreement to the "Bull Run Balance Sheet Date"
shall be deemed to refer to December 31, 1998.
4.5 SEC Filings. Bull Run has filed all forms, reports and documents
required to be filed by it with the Securities and Exchange Commission (the
"SEC") since January 1, 1997. Bull Run has made available to Capital, Host and
USA, in the form filed with the SEC, (i) its Annual Report on Form 10-K for the
year ended December 31, 1997, (ii) its Quarterly Reports on Form 10-Q for the
periods ended March 31, June 30, 1998 and September 30, 1998, (iii) all proxy
statements relating to Bull Run's meetings of stockholders (whether annual or
special) held since January 1, 1997, (iv) all reports or registration statements
filed by Bull Run with the SEC (other than Reports on Form 10-Q, Reports on Form
3, 4 or 5 and Schedules 13G filed on behalf of affiliates of Bull Run) since
January 1, 1997 and (v) all amendments and supplements to all such reports and
registration statements filed by Bull Run with the SEC (collectively, the "Bull
Run SEC Reports"). The Bull Run SEC Reports (i) were prepared in accordance with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and (ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of the Subsidiaries of Bull Run is required to file any forms,
reports or other documents with the SEC.
4.6 Absence of Undisclosed Liabilities. Except for matters relating to
the transactions contemplated by this Agreement, neither Bull Run nor any of its
Subsidiaries has any Liabilities or obligations except:
(a) those Liabilities or obligations set forth in the Bull Run
Balance Sheet and not heretofore paid or discharged;
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(b) Liabilities arising in the ordinary course of business under any
Contract to which Bull Run or any of its Subsidiaries is a party
specifically disclosed in the schedules to this Agreement relating to Bull
Run or not required to be disclosed because of the term or amount involved;
and
(c) those Liabilities or obligations incurred in or as a result of
the normal and ordinary course of business since September 30, 1998.
4.7 Absence of Certain Changes or Events. Since the Bull Run Balance
Sheet Date, except as set forth on Schedule 4.7, (i) the business of Bull Run
and its Subsidiaries has been carried on only in the ordinary and usual course
and no event or events has or have occurred that, either individually or in the
aggregate, has had, or reasonably could be expected to have, a Material Adverse
Effect with respect to Bull Run and (ii) neither Bull Run nor any of its
Subsidiaries has suffered an extraordinary loss or casualty, whether of not
covered by insurance.
4.8 Litigation: Decrees. There are no judicial or administrative actions,
proceedings or, to Parent's and Bull Run's knowledge, investigations pending or
threatened that question the validity of this Agreement or any action taken or
to be taken by Bull Run in connection with this Agreement. There are no (i)
lawsuits, claims, administrative or other proceedings or, to Bull Run's
knowledge, investigations pending or, to Bull Run's knowledge, threatened by,
against or affecting Bull Run or any of its Subsidiaries or (ii) judgments,
orders or decrees of any Governmental Entity binding on Bull Run or any of its
Subsidiaries or any of their respective assets, except in each case for those
which could not reasonably be expected to have a Material Adverse Effect with
respect to Bull Run.
4.9 Employee Benefit Plan. Pursuant to Bull Run's 1994 Long Term
Incentive Plan, 3,500,000 shares of Bull Run Common Stock are reserved for
issuance as restricted stock awards and upon the exercise of stock options and
stock appreciation rights and, as of the date hereof, 1,462,000 shares of Bull
Run Common Stock are reserved for issuance pursuant to the exercise of
outstanding stock options. Under the terms of the 1994 Long Term Incentive Plan,
such restricted stock awards, stock options and stock appreciation rights are
available for grant to employees of, and consultants and advisors to, Bull Run
or a parent or subsidiary thereof including, immediately upon consummation of
the Mergers, employees of, and consultants and advisors to, Host and USA.
4.10 Compliance with Law: Permits. To Bull Run's knowledge, Bull Run has
complied with each law, statute, rule, regulation, judgment, order and decree of
any Governmental Entity to which it or its business, operations, assets or
properties is subject (including those relating to Taxes) and Bull Run is not
currently in violation of any of the foregoing, except for instances of
non-compliance which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect with respect to Bull Run. Bull Run
owns, holds, possesses or lawfully uses in the operation of its business all
Permits which are in any manner necessary for it to conduct its business as now
or previously conducted or for the ownership and use of its assets. To Bull
Run's knowledge, Bull Run is not in default, nor has it received any notice of
any claim of default, with respect to any Permits, all Permits are renewable by
their terms or in the ordinary course of business without the need to comply
with any special qualification procedures or to pay any amounts other than
routine filing fees, and none of such Permits will be adversely affected by
consummation of the transactions contemplated hereby except in each case where
such has not had and could not reasonably be expected to have a Material Adverse
Effect with respect to Bull Run.
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4.11 Brokers. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried out by Parent and Bull Run
directly with Capital, Host and USA without the intervention of any person
engaged on behalf of Parent or Bull Run in such a manner as to give rise to any
valid claim by any person against Parent, Bull Run, Capital, Host, USA, the
Capital Surviving Corporation, the Host Surviving Corporation, the USA Surviving
Corporation or any Subsidiary of any of them for a finder's fee, brokerage
commission or similar payment.
4.12 State Takeover Statutes. The provisions of Section 14-2-1132 of the
Georgia Business Corporation Code are inapplicable to Parent with respect to the
Mergers and the other transactions contemplated by this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Access to Information; Confidentiality.
(a) Upon reasonable notice, each of Capital, Host and USA shall, and shall
cause each of its respective Subsidiaries to, afford to Parent and Bull Run and
to their respective officers, employees, counsel, financial advisors and other
representatives reasonable access during normal business hours during the period
prior to the Closing Date to all its properties, books, Contracts, commitments,
personnel and records and, during such period, each of Capital, Host and USA
shall, and shall cause each of its respective Subsidiaries to, furnish as
promptly as practicable to Parent and Bull Run such information concerning its
business, properties, financial condition, operations and personnel as Parent or
Bull Run may from time to time reasonably request. Except as required by law,
Parent and Bull Run will hold, and will cause their respective directors,
officers, partners, employees, accountants, counsel, financial advisors and
other representatives and Affiliates to hold, any nonpublic information obtained
from Capital, Host, USA or their respective Subsidiaries, as the case may be, in
confidence and will not (except as required by applicable law, rule, regulation
or legal process), without the prior written consent Capital, Host or USA, as
appropriate, disclose such information in any manner whatsoever. Parent and Bull
Run shall use that standard of care with respect to all nonpublic information
obtained from Capital, Host and USA or their respective Subsidiaries which they
accord to their own proprietary and confidential information of like kind and
character.
(b) Upon reasonable notice, each of Parent and Bull Run shall, and shall
cause its respective Subsidiaries to, afford to Capital, Host and USA and to its
respective officers, employees, counsel, financial advisors and other
representatives reasonable access during normal business hours during the period
prior to the Closing Date to all their properties, books, Contracts,
commitments, personnel and records and, during such period, each of Parent and
Bull Run shall, and shall cause each of its respective Subsidiaries to, furnish
as promptly as practicable to Capital, Host and USA such information concerning
its business, properties, financial condition, operations and personnel as
Capital, Host and USA may from time to time reasonably request. Except as
required by law, Capital, Host and USA will hold, and will cause their
respective directors, officers, partners, employees, accountants, counsel,
financial advisors and other representatives and Affiliates to hold, any
nonpublic information obtained from Parent or Bull Run or their respective
Subsidiaries, as the case may be, in confidence and will not (except as required
by applicable law, rule, regulation or legal process), without the prior written
consent Capital, Host or USA, as appropriate, disclose such information in any
manner whatsoever. Capital, Host and USA
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shall use that standard of care with respect to all nonpublic information
obtained from Parent and Bull Run or their respective Subsidiaries which they
accord to their own proprietary and confidential information of like kind and
character.
5.2 Public Announcements. Parent, Bull Run, Capital, Host and USA agree
that each of them will consult with each of the others before issuing, and will
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the transactions contemplated by this
Agreement, including the Mergers, and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by applicable law or judicial process.
5.3 Acquisition Proposals.
(a) From and after the date hereof, Capital, Host and USA (for purposes of
this Section 5.3, each a "Party") shall not, without the prior written consent
of Parent and Bull Run, and none of them shall authorize nor permit any of their
Subsidiaries to, and each of them shall direct and use its best efforts to cause
its and its Subsidiaries' Affiliates, officers, directors, employees,
stockholders, agents, investment bankers, attorneys, accountants or other
advisors or representatives (collectively, "Representatives") not to, (i)
directly or indirectly, solicit, initiate or encourage (including by way of
furnishing information or assistance) or take any other action to facilitate any
inquiries or the making of any proposal which constitutes or may reasonably be
expected to lead to an Acquisition Proposal or (ii) enter into or participate in
any discussions or negotiations regarding any Acquisition Proposal. Each Party
shall immediately cease and terminate any existing solicitation, initiation,
encouragement, activity, discussion or negotiation with any persons conducted
heretofore by the Party or its Representatives with respect to the foregoing.
Each Party agrees not to release any third party from, or waive any provision
of, any standstill agreement to which it is a party or any confidentiality
agreement between it and another person who has made, or who may reasonably be
considered likely to make, an Acquisition Proposal. Each Party agrees that it
will promptly notify Parent, orally and in writing, of any such inquiries,
offers or proposals (including, without limitation, the terms and conditions of
any such proposal).
(b) "Acquisition Proposal" means any proposal or offer from any person for
a merger, consolidation, other business combination, recapitalization,
liquidation, dissolution or similar transaction involving any Party or any
Subsidiary of any Party, or any proposal to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets of, such Party or any
Subsidiary of such Party.
5.4 Consents, Approvals and Filings. Parent, Bull Run, Capital, Host and
USA will make and cause their respective subsidiaries and, to the extent
necessary, their other Affiliates to make all necessary filings, including,
without limitation, those required under the HSR Act, in order to facilitate the
prompt consummation of the Mergers and the other transactions contemplated by
this Agreement. In addition, Parent, Bull Run, Capital, Host and USA will each
use its commercially reasonable efforts, and will cooperate fully and in good
faith with each other, (i) to comply as promptly as practicable with all
governmental requirements applicable to the Mergers and the other transactions
contemplated by this Agreement, and (ii) to obtain as promptly as practicable
all necessary permits, orders or other consents of Governmental Entities and
consents of all third parties necessary for the consummation of the Mergers and
the other transactions contemplated by this Agreement. Each of Parent, Bull Run,
Capital, Host and USA shall use its commercially reasonable efforts to promptly
provide any information and communications to Governmental Entities as such
Governmental Entities may reasonably
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request. Each of the parties hereto shall provide to the other parties copies of
all applications in advance of filing or submission of such applications to
Governmental Entities in connection with this Agreement and shall make such
revisions thereto as reasonably requested by each other party hereto. Each of
the parties hereto shall provide to the other parties the opportunity to
participate in all meetings and material conversations with Governmental
Entities with respect to the matters contemplated by this Agreement.
5.5 Notification.
(a) Capital, Host and USA will provide prompt written notice to Parent and
Bull Run, and Parent and Bull Run will provide prompt written notice to Capital,
Host and USA (in each case within five business days), of any litigation,
arbitration or administrative proceeding pending or, to their knowledge,
threatened against Capital, Host or USA or any Affiliate thereof, on the one
hand, or Parent or Bull Run or any Affiliate thereof, on the other hand, which
challenges the transactions contemplated hereby.
(b) Capital, Host and USA will provide prompt written notice to Parent and
Bull Run, and Parent and Bull Run will provide prompt written notice to Capital,
Host and USA (in any event within five business days), of any change in any of
the information contained in their representations and warranties made herein or
any schedules referred to herein or attached hereto and shall promptly furnish
any information which Parent and Bull Run, on the one hand, or Capital, Host and
USA, on the other hand, may reasonably request in relation to such change;
provided, however, that such notice shall not operate to cure any breach of the
representations and warranties made herein or any schedules referred to herein
or attached hereto. Notwithstanding the foregoing, from the date of this
Agreement through the Closing Date, Parent and Bull Run and their respective
Subsidiaries (i) shall be entitled to enter into (A) Contracts in the ordinary
course of business consistent with past practice and (B) all Contracts ancillary
to effecting the Reorganization in a manner consistent with Exhibit B hereto,
(ii) shall notify Capital, Host or USA of such Contracts at any time prior to or
the Closing Date (but in any event no later than five business days prior to the
Closing Date) and (iii) provided such Contract was entered into in accordance
with this sentence, such notice shall operate to cure any breach of the
applicable representations and warranties made herein or any schedule referred
to herein or attached hereto that otherwise would have been caused by the
execution of such Contracts absent the application of this sentence.
5.6 Tax Treatment. The Mergers are intended to be part of an overall
incorporation transaction exchange to which the provisions of Section 351(a) and
(b) of the Code are applicable. To the knowledge of each party hereto, no fact
exists which would preclude any of the Mergers from qualifying for its intended
federal income tax treatment. No party hereto shall take (and each party shall
not permit its affiliates to take) any action which is inconsistent with or
contrary to or which adversely affects the foregoing intended federal income tax
treatment of the Mergers.
5.7 Continuation of Existing Employment Agreements. Subject to the next
sentence hereof, the employment agreements with each of Charles L. Jarvie,
Douglas L. Jarvie and W. James Host will remain in full force and effect, and
will be assumed at the Closing by Parent or one of its Subsidiaries, in
accordance with the terms of such employment agreements as of the date hereof.
Notwithstanding the foregoing, prior to the Host Effective Time and the USA
Effective Time, Host and USA, as applicable, shall take such action as is
necessary to amend each such agreement to eliminate the provisions thereof which
provide for the grant of stock options to such individuals.
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5.8 Employee Benefit Matters. If Parent elects to discontinue any of
Capital's, Host's or USA's employee benefit plans, Parent shall provide, or
shall cause any of its Subsidiaries to provide, employees at such time with
coverage under replacement or alternative benefit plans which is substantially
the same, in the aggregate, to the coverage provided under such discontinued
plans.
5.9 Board of Directors of Parent. At or prior to the USA Effective Time,
Parent will increase the size of its Board of Directors to seven members and
each of Charles L. Jarvie and W. James Host will be appointed to the Board of
Directors of Parent to serve as members thereof during any period that the
Stockholders Agreement remains in effect.
5.10 First Look Broadcasting Rights. Host and USA have entered into an
agreement with NBC pursuant to which NBC will be provided "first look"
programming rights with respect to programming developed by Host or USA that is
directed at national television markets.
5.11 Information Supplied. Capital, Host and USA each agree, as to itself
and its Subsidiaries, that none of the information supplied or to be supplied by
it or its Subsidiaries for inclusion or incorporation by reference in (i) the
Registration Statement on Form S-4 to be filed with the SEC by Parent and Bull
Run in connection with the issuance of shares of Parent Common Stock in the
Mergers (including the proxy statement and prospectus (the "Proxy
Statement/Prospectus") constituting a part thereof) (the "Registration
Statement") will, at the time the Registration Statement becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (ii) the Proxy Statement/Prospectus and any amendment or
supplement thereto will, at the date of mailing to stockholders of Bull Run and
at the time of the meeting of stockholders of Bull Run to be held in connection
with the Reorganization, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
5.12 Filings; Other Actions; Notification. Bull Run and Parent shall as
promptly as practicable prepare and file with the SEC the Registration
Statement. Bull Run and Parent shall use all reasonable efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing, and promptly thereafter mail the Proxy
Statement/Prospectus to the stockholders of Bull Run. Bull Run and Parent shall
also use all reasonable efforts to obtain prior to the effective date of the
Registration Statement all necessary state securities law or "blue sky" permits
and approvals required in connection with the Mergers and to consummate the
other transactions contemplated by this Agreement (other than qualifying to do
business in any jurisdiction in which it is not now so qualified or file a
general consent to service of process) and will pay all expenses incident
thereto.
Capital, Host and USA shall, upon request by Bull Run or Parent, furnish
Bull Run or Parent with all information concerning itself, its Subsidiaries,
directors, officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with the Registration Statement, the Proxy
Statement/Prospectus or any other statement, filing, notice or application made
by or on behalf of Bull Run, Parent or any of their Subsidiaries to any third
party or Governmental Entity in connection with the Mergers and the
Reorganization and the other transactions contemplated by this Agreement.
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5.13 Host Proxy Statement. Promptly following the date of this Agreement,
Host, Parent and Bull Run shall prepare a proxy statement (the "Host Proxy
Statement") to be sent to stockholders of Host in connection with the meeting of
the stockholders of Host to be held as contemplated by Section 5.17. The Host
Proxy Statement shall include the recommendation of the board of directors of
Host in favor of this Agreement and the Host Merger. Parent and Bull Run each
agree, as to itself and its Subsidiaries, that none of the information supplied
or to be supplied by it or its Subsidiaries for inclusion or incorporation by
reference in the Host Proxy Statement will, at the date of mailing to
stockholders of Host and at the time of the meeting of stockholders of Host to
be held in connection with the Host Merger, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5.14 Host Stockholders Meeting. As promptly as practicable following the
date hereof, Host shall duly call, give notice of, convene and hold a meeting of
its stockholders (the "Host Stockholders Meeting") for the purpose of voting
upon this Agreement and the Host Merger, in each case in accordance with the
Kentucky Code; provided, however, that Host may, subject to compliance with the
applicable provisions of Kentucky law, from time to time adjourn such meeting to
such later date as Host, Parent and Bull Run may mutually agree. Host will,
through its board of directors, recommend that its stockholders approve this
Agreement and the transactions contemplated hereby.
5.15 Capital Information Statement. Promptly following the date of this
Agreement, Capital, Parent and Bull Run shall prepare an information statement
(the "Capital Information Statement") to be mailed to stockholders of Capital no
later than 10 days after the Proxy Statement/Prospectus is mailed to
stockholders of Bull Run. The information provided and to be provided by Bull
Run, Parent and Capital for use in the Capital Information Statement shall, at
the time the Capital Information Statement is mailed to the stockholders of
Capital and on the Closing Date, be true and correct in all material respects
and shall not omit to state any material fact required to be stated therein or
necessary in order to make such information not misleading, and Capital, Parent
and Bull Run agree to correct any information provided by it for use in the
Capital Information Statement which shall have become false or misleading.
5.16 USA Information Statement. Promptly following the date of this
Agreement, USA, Parent and Bull Run shall prepare an information statement (the
"USA Information Statement") to be mailed to stockholders of USA no later than
10 days after the Proxy Statement/Prospectus is mailed to stockholders of Bull
Run. The information provided and to be provided by Bull Run, Parent and USA for
use in the USA Information Statement shall, at the time the USA Information
Statement is mailed to the stockholders of USA and on the Closing Date, be true
and correct in all material respects and shall not omit to state any material
fact required to be stated therein or necessary in order to make such
information not misleading, and USA, Parent and Bull Run agree to correct any
information provided by it for use in the USA Information Statement which shall
have become false or misleading.
5.17 Financing Cooperation. Each of Capital, Host and USA shall, and
shall cause its respective Subsidiaries and its and their respective officers,
employees and advisors to, provide all reasonable cooperation in connection with
the arrangement of any financing to be consummated in respect of the
transactions contemplated by this Agreement and the Reorganization, including
without limitation (i) participation in meetings, due diligence
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sessions and road shows, (ii) the preparation of offering memoranda, private
placement memoranda, prospectuses and similar documents and (iii) the delivery
of such other documents as may reasonably be required in connection therewith
including, without limitation, such financial statements, together with the
related opinions with respect thereto, and comfort letters of accountants as may
reasonably be requested by Parent or Bull Run.
5.18 Bull Run Stockholders Meeting. As promptly as practicable following
the date hereof, in accordance with the Georgia Business Corporation Code, Bull
Run shall duly call, give notice of, convene and hold a meeting of its
stockholders for the purpose of authorizing: (i) the Reorganization; (ii) an
increase in the number of shares of Bull Run Common Stock available for issuance
under Bull Run's 1994 Long Term Incentive Plan and, subsequent to the
Reorganization, 7,200,000 shares of Parent Common Stock issuable pursuant to a
similar benefit plan adopted or assumed by Parent in accordance with the
Reorganization Agreement; and (iii) the issuance of shares of Parent Common
Stock in the Merger; provided, however, that Bull Run may, subject to compliance
with the applicable provisions of Georgia law, from time to time adjourn such
meeting to such later date as Bull Run may deem necessary. Bull Run will,
through its board of directors, recommend that its stockholders approve the
Reorganization and the transactions contemplated thereby.
5.19 Broadcast.com Stock Sale. As promptly as practicable after the date
hereof and in no event later than the Capital Effective Time, USA will cause to
be sold all the shares of Broadcast.com Inc. owned by USA.
5.20 Termination of Host/USA Agreements. As promptly as practicable after
the date hereof and prior to the Capital Effective Time, Host and USA shall use
their respective reasonable best efforts to terminate each of the Host/USA
Agreements without any continuing liability to the Host Surviving Corporation or
the USA Surviving Corporation.
5.21 Affiliates of the Company. Prior to the Closing Date, each of
Capital, Host and USA shall deliver to Bull Run and Parent a letter identifying
all persons who are reasonably and in good faith believed to be, at the time of
the Closing, "affiliates" of such company for purposes of Rule 145 under the
Securities Act. Each of Capital, Host and USA shall use its best efforts to
cause each person who is so identified as an affiliate to deliver to Bull Run
and Parent, on or prior to the Closing Date, a written agreement, in form
reasonably satisfactory to Bull Run and Parent, that such person will not offer
to sell or otherwise dispose of any of the shares of Bull Run Common Stock
issued in connection with the Mergers in violation of the Securities Act.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGERS
6.1 Conduct of Business. Except as expressly contemplated by this
Agreement [(including, without limitation, Section 5.19 (Broadcast.com Stock
Sale)], during the period from the date of this Agreement through the Closing
Date, each of Capital, Host and USA shall, and shall cause their respective
Subsidiaries to, act and carry on their respective businesses in the ordinary
course of business and, to the extent consistent therewith, use reasonable
efforts to preserve intact their current business organizations, keep available
the services of their current officers and employees and preserve the goodwill
of those engaged in business relationships with them. Without limiting the
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generality of the foregoing and except as set forth on Schedule 6.1, during the
period from the date of this Agreement through the Closing Date, Capital, Host
and USA shall not, and Capital, Host and USA shall not permit any of their
respective Subsidiaries to, without the prior consent of Parent and Bull Run:
(i) (w) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of
its or any of their respective Subsidiaries' outstanding capital stock
(other than dividends or other distributions to Host, USA or their
respective wholly owned Subsidiaries), (x) split, combine or reclassify any
of its outstanding capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
its outstanding capital stock, (y) except in connection with the
termination of the employment of any employees, purchase, redeem or
otherwise acquire any shares of its outstanding capital stock or any
rights, warrants or options to acquire any such shares, or (z) issue, sell,
grant, pledge or otherwise encumber any shares of its capital stock, any
other equity securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, equity securities or
convertible securities (other than (A) upon the exercise of Host Options or
USA Options outstanding on the date of this Agreement or (B) in connection
with the USA Preferred Stock Conversion);
(ii) amend its Certificate of Incorporation, Bylaws or other
comparable charter or organizational documents;
(iii) acquire any business (including the assets thereof) or any
corporation, partnership, joint venture, association or other business
organization or division thereof;
(iv) sell, mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets (other than
replacements of assets and sales of inventory in the ordinary course of
business consistent with past practice) that are material to (A) Host and
its subsidiaries, taken as a whole, or (B) USA and its subsidiaries, taken
as whole, in each case as applicable;
(v) make any material loans or advances to any other person, other
than to Host, USA or any of their respective direct or indirect
wholly-owned subsidiaries and other than routine advances to employees;
(vi) make any material Tax election or settle or compromise any Tax
liability (excluding the payment of Taxes and filing of Tax Returns in the
ordinary course of business consistent with past practice);
(vii) pay, discharge, settle or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the Host Interim Balance Sheet or
the USA Interim Balance Sheet, or incurred since the date of such financial
statements in the ordinary course of business consistent with past
practice;
(viii) make any material commitments or agreements for capital
expenditures or capital additions or betterments which, in the aggregate,
exceed the amounts reflected on the capital expenditures budgets of Host
and USA attached hereto as Schedule 6.1(viii);
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(ix) except as may be required by law:
(A) other than in the ordinary course of business and consistent
with past practices, make any representation or promise, oral or
written, to any employee or former director, officer or employee of USA
or any of their respective Subsidiaries which is inconsistent with the
terms of any Host Employee Plan or USA Employee Plan, respectively;
(B) other than in the ordinary course of business and consistent
with past practices, make any change to, or amend in any way, the
contracts, salaries, wages, or other compensation of any director,
employee or any agent or consultant of Host, USA or any of their
respective Subsidiaries other than routine changes in the ordinary
course of business consistent with past practice or amendments that are
required under existing Contracts; or
(C) adopt, enter into, amend, alter or terminate, partially or
completely, any Host Employee Plan or USA Employee Plan, or any election
made pursuant to the provisions of any Host Employee Plan or USA
Employee Plan, to accelerate any payments, obligations or vesting
schedules under any Host Employee Plan or USA Employee Plan;
(x) except in the ordinary course of business, modify, amend or
terminate any material Contract to which Host or USA or any of their
respective Subsidiaries is a party or waive, release or assign any material
rights or claims thereunder;
(xi) make any change in financial or tax accounting methods,
principles or practices, unless required by GAAP or applicable law;
(xii) fail to maintain its books, accounts and records in the usual,
regular and ordinary manner on a basis consistent with prior years;
(xiii) make or agree to make any material changes to any Tax Returns
filed prior to the date hereof or file any amended Tax Returns;
(xiv) take any action that would cause any of the representations and
warranties made by Host or USA in the Agreement to not remain materially
true and correct; or
(xv) authorize any of, or commit or agree to take any of, the
foregoing actions.
6.2 Other Actions. Except as required in connection with the
Reorganization, none of Capital, Host, USA, Parent or Bull Run shall and none of
them shall permit any of their respective Subsidiaries to, take any action that
would, or that could reasonably be expected to, result in any of the conditions
of the Mergers set forth in Article VII not being satisfied.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Mergers. The
respective obligation of each party to effect the Mergers is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) HSR Act. The waiting period (and any extension thereof)
applicable to the Mergers under the HSR Act shall have been terminated or
shall have otherwise expired.
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(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Mergers shall be in effect; provided, however, that
the party invoking this condition shall use its reasonable best efforts to
have any such order or injunction vacated.
(c) Tax Opinion. Capital, Host and USA shall have received an
opinion of Proskauer Rose LLP, based on certain representations of the
parties hereto, substantially to the effect that (i) no gain or loss will
be recognized by Capital, Host or USA in the Mergers and (ii) stockholders
of Capital, Host and USA who exchange Capital Stock, Host Stock or USA
Stock for Parent Common Stock and cash in the Mergers will not recognize
gain in excess of the amount of cash received in the Mergers. Such opinion
shall be based upon reasonable and customary representations of Capital,
Host and USA and certain stockholders of Capital, Host and USA.
(d) Effectiveness of the Registration Statement. The Registration
Statement shall have become effective under the Securities Act. No stop
order suspending the effectiveness of the Registration Statement shall have
been issued by the SEC or any state securities commission and no
proceedings for that purpose and no similar proceeding in respect of the
Proxy Statement/Prospectus shall have been initiated or threatened by the
SEC or any state securities commission.
(e) Bull Run Stockholder Approvals and Consummation of the
Reorganization. The matters described in Section 5.18 shall have been duly
approved and authorized by the stockholders of Bull Run and the
Reorganization shall have been consummated as contemplated by the
Reorganization Agreement.
(f) Consummation of the USA Stock Sale. The sale by USA of all
shares of Broadcast.com stock held by it pursuant to Section 1.10 shall
have been consummated.
(g) Stockholders Approval. The Capital Stockholder Approval, Host
Stockholder Approval, the USA Stockholder Approval and the Parent
Stockholder Approval shall have been obtained.
(h) Stockholders Agreement. W. James Host, Charles L. Jarvie and
Douglas L. Jarvie shall have entered into a Stockholders Agreement
("Stockholders Agreement") with the Robinson-Prather Partnership in the
form attached as Exhibit D.
7.2 Conditions to Obligations of Host. The obligation of Host to effect
the Host Merger is further subject to the following conditions (it being
understood that the consummation of the Host Merger is expressly conditioned
upon the concurrent consummation of the Capital Merger and the USA Merger):
(a) Representations and Warranties. The representations and
warranties of Parent and Bull Run contained in this Agreement shall have
been true and correct on the date of this Agreement and shall be true and
correct at and as of the Closing Date as though made at and as of such time
(except to the extent that any such representations and warranties
expressly relate only to an earlier time, in which case they shall have
been true and correct at such earlier time), except in each such case for
such inaccuracies which, individually or in the aggregate, have not had or
could not reasonably be expected to have a Material Adverse Effect with
respect to Parent
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or Bull Run. Parent and Bull Run shall have delivered to Host a certificate
dated as of the Closing Date, signed by a senior executive officer of each
of Parent and Bull Run, to the effect set forth in this Section 7.2(a).
(b) Performance of Obligations of Parent and Bull Run. Parent and
Bull Run shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the
Closing Date, and Host shall have received a certificate signed on behalf
of Parent and Bull Run by a senior executive officer of each of Parent and
Bull Run to such effect.
(c) Opinion of Counsel. Host shall have received the opinion of
Alston & Bird LLP, counsel to Parent and Bull Run, substantially to the
effect set forth on Exhibit E-1, and the opinion of Proskauer Rose LLP,
counsel to Parent and Bull Run, substantially to the effect set forth on
Exhibit E-2.
(d) Material Adverse Effect. There shall not have occurred any (i)
Material Adverse Effect with respect to Parent or Bull Run, (ii) halt or
suspension of trading generally on the New York or American Stock Exchange
or the Nasdaq Stock Market, (iii) declaration of a banking moratorium by
New York or United States authorities, or (iv) an outbreak or escalation of
hostilities between the United States and any foreign power or an outbreak
or escalation of any other insurrection or armed conflict involving the
United States or any other national or international calamity or emergency.
(e) Consent under Host Credit Facilities. Either (i) Host shall have
received the requisite approval of the lenders party to the Host Revolving
Credit Facility, and the Business Purpose Promissory Notes dated September
27, 1995, January 5, 1996 and June 30, 1997, between Host and Bank One,
Lexington, N.A. (the "Long-Term Facility") or (ii) all amounts outstanding
under such Host Revolving Credit Facility or Long-Term Facility, as
applicable, shall have been repaid or refinanced concurrently with the
consummation of the Mergers.
7.3 Conditions to Obligation of USA. The obligation of USA to effect the
USA Merger is further subject to the following conditions (it being understood
that the consummation of the USA Merger is expressly conditioned upon the
concurrent consummation of the Capital Merger and the Host Merger):
(a) Representations and Warranties. The representations and
warranties of Parent and Bull Run contained in this Agreement shall have
been true and correct on the date of this Agreement and shall be true and
correct at and as of the Closing Date as though made at and as of such time
(except to the extent that any such representations and warranties
expressly relate only to an earlier time, in which case they shall have
been true and correct at such earlier time), except in each such case for
such inaccuracies which, individually or in the aggregate, have not had or
could not reasonably be expected to have a Material Adverse Effect with
respect to Parent or Bull Run. Parent and Bull Run shall have delivered to
USA a certificate dated as of the Closing Date, signed by a senior
executive officer of each of Parent and Bull Run, to the effect set forth
in this Section 7.3(a).
(b) Performance of Obligations of Parent and Bull Run. Parent and
Bull Run shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the
Closing Date, and USA shall have received a certificate signed on behalf of
Parent and Bull Run by a senior executive officer of each of Parent and
Bull Run to such effect.
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(c) Opinion of Counsel. USA shall have received the opinion of
Alston & Bird LLP, counsel to Parent and Bull Run, substantially to the
effect set forth on Exhibit E-1, and the opinion of Proskauer Rose LLP,
counsel to Parent and Bull Run, substantially to the effect set forth on
Exhibit E-2.
(d) Material Adverse Effect. There shall not have occurred any (i)
Material Adverse Effect with respect to Parent or Bull Run, (ii) halt or
suspension of trading generally on the New York or American Stock Exchange
or the Nasdaq Stock Market, (iii) declaration of a banking moratorium by
New York or United States authorities, or (iv) an outbreak or escalation of
hostilities between the United States and any foreign power or an outbreak
or escalation of any other insurrection or armed conflict involving the
United States or any other national or international calamity or emergency.
(e) Consent under USA Credit Facilities. Either (i) USA shall have
received the requisite approval of the lenders party to the USA Revolving
Credit Facility or (ii) all amounts outstanding under such USA Revolving
Credit Facility shall have been repaid or refinanced concurrently with the
consummation of the Mergers.
7.4 Conditions to Obligations of Parent and Bull Run. The obligations of
Parent and Bull Run to effect the Mergers is further subject to the following
conditions (it being understood that the consummation of each of the Capital
Merger, the Host Merger and the USA Merger is expressly conditioned upon the
concurrent consummation of each of the other mergers):
(a) Representations and Warranties. The representations and
warranties of each of Host and USA contained in this Agreement shall have
been true and correct on the date of this Agreement and shall be true and
correct at and as of the Closing Date as though made at and as of such time
(except to the extent that any such representations and warranties
expressly relate only to an earlier time, in which case they shall have
been true and correct at such earlier time), except in each such case for
such inaccuracies which, individually or in the aggregate, have not had or
could not reasonably be expected to have a Material Adverse Effect with
respect to Host or USA, as applicable. Each of Host and USA shall have
delivered to Parent and Bull Run a certificate dated as of the Closing
Date, signed by a senior executive officer of each of them, to the effect
set forth in this Section 7.4(a).
(b) Performance of Obligations. Host and USA shall have performed in
all material respects all obligations required to be performed by them
under this Agreement at or prior to the Closing Date, and Parent and Bull
Run shall have received a certificate signed on behalf of Host and USA by a
senior executive officer of each of them to such effect.
(c) Consents and Approvals. All consents, waivers, clearances and
approvals set forth on Schedules 2.2(b), 2.2(c), 3.2(b), 3.2(c) 4.2(b) and
4.2(c) shall have been obtained.
(d) Material Adverse Effect. There shall not have occurred any (i)
Material Adverse Effect with respect to Host or USA, (ii) halt or
suspension of trading generally on the New York or American Stock Exchange
or the Nasdaq Stock Market, (iii) declaration of a banking moratorium by
New York or United States authorities, or (iv) an outbreak or escalation of
hostilities between the United States and any foreign power or an outbreak
or escalation of any other insurrection or armed
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conflict involving the United States or any other national or international
calamity or emergency.
(e) Financing. Parent shall have obtained financing sufficient to
fund the cash to be paid as the Capital Merger Consideration, the Host
Merger Consideration and the USA Merger Consideration hereunder on terms
and conditions satisfactory to Parent in its sole discretion.
(f) Opinions of Counsel. Parent, Bull Run, Capital Merger Sub, Host
Merger Sub and USA Merger Sub shall have received the opinions of (i)
Dinsmore & Shohl LLP, counsel to Host, substantially to the effect set
forth on Exhibit F and (ii) David, Goodman & Madole, counsel to USA,
substantially to the effect set forth on Exhibit G, in each case together
with reliance letters addressed to such of Parent's financing sources as
identified by Parent prior to the Closing and entitling such lenders to
rely on such opinion to the same extent as if they were an addressee
thereof.
(g) Dissenting Shares. No more than seven percent of the outstanding
shares of Capital Stock, Host Stock or USA Stock shall be Dissenting
Shares, the holders of which have not, as of the Closing Date, effectively
withdrawn with the consent of Capital, Host or USA, as the case may be, if
required, or become ineligible for their dissenters' rights under Section
262 of the Delaware Code or Subtitle 13 of the Kentucky Code, as
applicable.
(h) Employment Agreements. Host and USA and certain of their
respective employees, as applicable, shall have entered into the employment
and non-competition agreements contemplated hereby and by that certain
letter agreement among Parent, Bull Run, Host, and USA dated as of the date
hereof.
(i) Host and USA Options. On or prior to the Capital Effective Time,
all Host Options and USA Options shall have been exercised, terminated or
converted into an option to purchase Parent Common Stock, as contemplated
by Section 1.6(d) or 1.7(d), as the case may be.
(j) Termination of Host/USA Agreements. Each of the Host/USA
Agreements shall have been terminated by Host or USA, as applicable,
without any continuing liability to the Host Surviving Corporation or the
USA Surviving Corporation.
(k) Affiliates' Agreements. On or prior to the Closing Date, Bull
Run and Parent shall have received the agreements and instruments referred
to in Section 5.21.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated and the Mergers
abandoned at any time prior to the Capital Effective Time:
(a) by mutual written consent of Parent, Bull Run, Capital, Host and
USA;
(b) by any of Parent, Bull Run, Capital, Host or USA:
(i) if the Mergers shall not have been consummated on or before
September 30, 1999 (the "Final Date"), provided, however, that (A) if
the condition set forth in Section 7.1(a) or 7.1(d) has not been
satisfied or waived,
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or if the Host Stockholders Meeting has not been held, prior to
September 30, 1999, either party may extend the Final Date by written
notice to the others to such later date, but not after October 31, 1999,
as may be specified by such extending party and (B) no party shall have
the right to terminate this Agreement under this Section 8.1(b)(i) or
extend the Final Date under this Section 8.1(b)(i) if such party's
willful and material breach of this Agreement has been the cause of or
resulted in the failure of any of the Mergers to occur on or before such
Final Date; or
(ii) if any Governmental Entity shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining
or otherwise prohibiting the Mergers and such order, decree, ruling or
other action shall have become final and nonappealable;
(c) if not then in material breach of this Agreement, by Parent and
Bull Run if Capital, Host or USA shall have breached the requirements of
Section 5.3 hereof;
(d) by Parent and Bull Run if, (i) at the Host Stockholders Meeting,
the Host Stockholder Approval shall not have been obtained or (ii) if the
Capital Stockholder Approval or the USA Stockholder Approval shall not have
been obtained by September 30, 1999; or
(e) if the party seeking to terminate this Agreement is not then in
material breach of this Agreement, (i) by Parent and Bull Run if any of
Capital, Host or USA is in material breach of any representation, warranty,
covenant or agreement herein contained and such breach shall not be cured
within fifteen days of the date of notice of default served by Parent and
Bull Run on Capital, Host and USA or (ii) by Capital, Host or USA if Parent
or Bull Run is in material breach of any representation, warranty, covenant
or agreement herein contained and such breach shall not be cured within
fifteen days of the date notice of default is served by Capital, Host or
USA on Parent and Bull Run.
8.2 Effect of Termination. (a) If Parent, Bull Run, Capital, Host, or USA
terminates this Agreement as provided in Section 8.1, this Agreement shall
forthwith become void and have no effect without any liability or obligation on
the part of Parent, Bull Run, Capital, Host or USA or any of their respective
directors, officers, employees, stockholders, incorporators or counsel, other
than the last two sentences of Sections 5.1(a) and 5.1(b) (Confidentiality) and
Sections 2.22 (Host/Brokers), 3.22 (Capital/Brokers), 4.9 (Parent and Bull
Run/Brokers), 10.2 (Expenses) and this Section 8.2. Nothing contained in this
Section 8.2 shall relieve any party from any liability resulting from any
willful, material breach of the representations, warranties, covenants or
agreements set forth in this Agreement, fraud or any material breach of Section
5.3 hereof.
(b) If Parent or Bull Run terminates this Agreement pursuant to Section
8.1(b)(i), Bull Run shall reimburse Host and USA for Host's and USA's out of
pocket expenses (including, without limitation, attorneys' fees, accountants'
fees and filing fees) relating to the transactions contemplated by this
Agreement.
8.3 Amendment. Subject to the applicable provisions of the Delaware Code,
the Kentucky Code and the Georgia Business Corporation Code, at any time prior
to the Capital Effective Time, the parties hereto may modify or amend this
Agreement, by written agreement executed and delivered by duly authorized
officers of Parent, Bull Run, Capital, Host, USA, Capital Merger Sub, Host
Merger Sub and USA Merger Sub; provided, however, that no amendment shall be
made which reduces the consideration
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payable in the Mergers or adversely affects the rights of Capital's, Host's or
USA's stockholders hereunder without the requisite approval of their respective
stockholders.
8.4 Extension; Consent; Waiver. At any time prior to the Capital
Effective Time, the parties may (a) extend the time for the performance of any
of the obligations or other acts of the other parties, (b) waive any
inaccuracies in the representations and warranties of the other parties
contained in this Agreement or in any document delivered pursuant to this
Agreement or (c) subject to Section 8.3, waive compliance with any of the
agreements or conditions of the other parties contained in this Agreement or
consent to any action requiring consent pursuant to this Agreement. Any
agreement on the part of a party to any such extension, waiver or consent shall
be valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such rights.
8.5 Non-Survival of Representations. Warranties and Covenants. None of
the representations and warranties of Parent, Bull Run, Capital, Host and USA
made in this Agreement or in any certificate delivered by either of them
pursuant to this Agreement shall survive the Closing. Except for Article I (The
Mergers), the last two sentences of Sections 5.1(a) and 5.1(b)
(Confidentiality), Section 10.2 (Expenses) and this Section 8.5 and any covenant
or agreement that expressly contemplates performance after the Closing, none of
the covenants and agreements in this Agreement shall survive the Closing.
ARTICLE IX
NOTICES
9.1 Notices. All notices and other communications under this Agreement
must be in writing and will be deemed to have been duly given if delivered,
telecopied or mailed, by certified mail, return receipt requested, first-class
postage prepaid, to the parties at the following addresses:
If to Host to:
Host Communications, Inc.
546 East Main Street
Lexington, Kentucky 40508
Attention: W. James Host
Facsimile: (606) 226-4419
with a copy to:
Dinsmore & Shohl LLP
Lexington Financial Center
250 West Main Street
Suite 2020
Lexington, Kentucky 40507
Attention: Joseph H. Terry, Esq.
Facsimile: (606) 425-1099
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If to USA to:
Universal Sports America, Inc.
12221 Merit Drive
Suite 1325
Dallas, Texas 75251
Attention: Charles L. Jarvie
Facsimile: (972) 778-7715
with a copy to:
David, Goodman & Madole
Two Lincoln Centre
5420 LBJ Freeway
Suite 1200
Dallas, Texas 75240
Attention: Bret A. Madole, Esq.
Facsimile: (972) 404-0516
If to Parent, Bull Run, Capital, Capital Merger Sub, Host Merger Sub
or USA Merger Sub to:
Bull Run Corporation
4370 Peachtree Road, N.E.
Atlanta, GA 30319
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attention: Henry O. Smith III, Esq.
Facsimile: (212) 969-2900
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Article IX will, if delivered personally,
be deemed given upon delivery, will, if delivered by telecopy, be deemed
delivered when confirmed and will, if delivered by mail in the manner described
above, be deemed given on the third business day after the day it is deposited
in a regular depository of the United States mail. Any party from time to time
may change its address for the purpose of notices to that party by giving a
similar notice specifying a new address, but no such notice will be deemed to
have been given until it is actually received by the party sought to be charged
with the contents thereof.
ARTICLE X
MISCELLANEOUS
10.1 Entire Agreement. This Agreement supersedes all prior discussions
and agreements between the parties with respect to the subject matter of this
Agreement, and this Agreement (including the schedules and exhibits hereto and
other documents delivered in connection herewith) contain the sole and entire
agreement between the parties hereto with respect to the subject matter hereof.
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10.2 Expenses. Subject to Section 8.2, whether or not the Mergers are
consummated, each of the parties will pay its own costs and expenses incident to
preparing for, entering into and carrying out this Agreement, including, without
limitation, all costs and expenses incurred in connection with the filings and
registrations with the Department of Justice and Federal Trade Commission
pursuant to the HSR Act. In no event shall Parent, Bull Run, Capital, Host or
USA pay any expenses incurred on behalf of any stockholder of Capital, Host or
USA, which expenses shall be paid solely by the stockholder incurring such
expenses.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same instrument and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
10.4 No Third Party Beneficiary. Except as otherwise expressly provided
herein, the terms and provisions of this Agreement are intended solely for the
benefit of the parties hereto, and their respective successors or assigns, and
it is not the intention of the parties to confer third-party beneficiary rights
upon any other person.
10.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
10.6 Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, and any such assignment that is
not consented to shall be null and void; provided, however, that Parent, Bull
Run, Capital Merger Sub, Host Merger Sub and USA Merger Sub may make a
collateral assignment of its rights under this Agreement to any institutional
lender who provides funds to Parent or Bull Run for the transactions
contemplated hereby. Capital, Host and USA agree to execute acknowledgments of
such assignments and collateral assignments in such forms as Parent or Bull Run
or their institutional lender(s) may from time to time reasonably request.
Subject to the preceding sentences, this Agreement will be binding upon, inure
to the benefit of and be enforceable by, the parties and their respective
successors and assigns.
10.7 Headings; Certain Interpretive Matters.
(a) The headings used in this Agreement have been inserted for convenience
and do not constitute matter to be construed or interpreted in connection with
this Agreement. Unless the context of this Agreement otherwise requires, (b)
words of any gender are deemed to include each other gender; words using the
singular or plural number also include the plural or singular number,
respectively; (c) the terms "hereof," "herein," "hereby," "hereto," and
derivative or similar words refer to this entire Agreement; (d) the terms
"Article" or "Section" refer to the specified Article or Section of this
Agreement; (e) all references to "dollars" or "$" refer to currency of the
United States of America; (f) the term "person" shall include any natural
person, corporation, limited liability company, general partnership, limited
partnership, or other entity, enterprise, authority or business organization;
(g) the term "Affiliate" means "affiliate" as defined in Rule 405 promulgated
under the Securities Act; and (h) the term "or" is not exclusive.
(b) No provision of this Agreement will be interpreted in favor of, or
against, either of the parties hereto by reason of the extent to which either
such party or its counsel
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participated in the drafting thereof or by reason of the extent to which any
such provision is inconsistent with any prior draft hereof or thereof.
10.8 No Recourse Against Others. No past, present or future director,
officer, employee, stockholder, incorporator or counsel, as such, of Parent,
Bull Run, Capital, Capital Merger Sub, Host, Host Merger Sub, USA, USA Merger
Sub, the Capital Surviving Corporation, the Host Surviving Corporation or the
USA Surviving Corporation shall have any liability for any obligations of such
parties under this Agreement or for any claim based on, in respect of or by
reason of such obligations or their creation.
10.9 Withholding Taxes. All payments due under this Agreement in
connection with the Capital Merger, the Host Merger or the USA Merger shall be
reduced by any applicable withholding Taxes. Each of the stockholders of
Capital, Host and USA shall provide Parent and Bull Run at the time of the
Capital Merger, the Host Merger and the USA Merger, to the extent applicable,
both an affidavit which complies with Section 1445(b)(2) of the Code and the
Treasury Regulations thereunder and a completed Form W-8 or W-9.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of Parent, Bull Run, Capital, Host, USA, Capital
Merger Sub, Host Merger Sub and USA Merger Sub effective as of the date first
written above.
BR HOLDING, INC.
By: /s/ ROBERT S. PRATHER
-----------------------------------
Name: Robert S. Prather
Title: President and Secretary
BULL RUN CORPORATION
By: /s/ ROBERT S. PRATHER
-----------------------------------
Name: Robert S. Prather
Title: President
CAPITAL SPORTS PROPERTIES, INC.
By: /s/ RUSSEL W. HOWARD
-----------------------------------
Name: Russel W. Howard
Title: President
HOST COMMUNICATIONS, INC.
By: /s/ W. JAMES HOST
-----------------------------------
Name: W. James Host
Title: C.E.O.
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UNIVERSAL SPORTS AMERICA , INC.
By: /s/ DOUGLAS L. JARVIE
----------------------------------
Name: Douglas L. Jarvie
Title: C.E.O. and President
CAPITAL MERGER SUB, INC.
By: /s/ ROBERT S. PRATHER
-----------------------------------
Name: Robert S. Prather
Title: President and Secretary
HOST MERGER SUB, INC.
By: /s/ ROBERT S. PRATHER
-----------------------------------
Name: Robert S. Prather
Title: President and Secretary
USA MERGER SUB, INC.
By: /s/ ROBERT S. PRATHER
-----------------------------------
Name: Robert S. Prather
Title: President and Secretary
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EXHIBIT A
DEFINITIONS
"Acquisition Proposal" has the meaning set forth in Section 5.3(b).
"Agreement" has the meaning set forth in the preamble.
"Broadcast.com Net Proceeds" means the net proceeds from the sale (after
all Taxes, commissions or other charges paid or payable with respect to such
sale) of the shares of common stock of Broadcast.com Inc. owned by USA.
"Bull Run" has the meaning set forth in the preamble.
"Bull Run Common Stock" has the meaning set forth in Section 4.3(b).
"Bull Run Financial Statements" has the meaning set forth in Section
4.4(a).
"Bull Run Balance Sheet" and "Bull Run Balance Sheet Date" have the
meanings set forth in Section 4.4(a).
"Bull Run SEC Reports" has the meaning set forth in Section 4.5.
"Capital" has the meaning set forth in the preamble.
"Capital Common Stock Consideration" has the meaning set forth in Section
1.5(b).
"Capital Effective Time" has the meaning set forth in Section 1.3(a).
"Capital Ineligible Shares" has the meaning set forth in Section 1.5(b).
"Capital Information Statement" has the meaning set forth in Section 5.15.
"Capital Merger" has the meaning set forth in Section 1.1(a).
"Capital Merger Sub" has the meaning set forth in the preamble.
"Capital Stock" has the meaning set forth in Section 1.5(b).
"Capital Stockholder Approval" has the meaning set forth in Section 4.2(a).
"Capital Surviving Corporation" has the meaning set forth in Section
1.1(a).
"Claim" means any written order, injunction, judgment, decree, ruling
assessment or arbitration award.
"Closing" and "Closing Date" have the meanings set forth in Section 1.2.
"Closing Price" shall have the meaning set forth in Section 1.5(b).
"Code" means the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations thereunder.
"Contracts" means any written or oral contracts, commitments, agreements,
leases, arrangements or understandings.
"Conversion Share" has the meaning set forth in Section 1.7(c).
"Delaware Code" has the meaning set forth in Section 1.3(a).
"Dissenting Shares" has the meaning set forth in Section 1.9.
"Environmental Law" means any applicable law, statute, code, rule,
regulation or other legal requirement (including common law) relating to the
environment, natural resources, or public and employee health and safety and
includes, but is not limited to, the
A-1
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Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
sec.sec. 9601, et seq., the Hazardous Materials Transportation Act, 49 U.S.C.,
sec.sec. 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
sec.sec. 6901, et seq., the Clean Water Act, 33 U.S.C. sec.sec. 1251 et seq.,
the Clean Air Act, 42 U.S.C. sec.sec. 7401, et seq., the Toxic Substances
Control Act, 15 U.S.C. sec.sec. 2601, et seq., the Federal Insecticide,
Fungicide, and Rodenticide Act, 7 U.S.C. sec.sec. 136, et seq., the Oil
Pollution Act of 1990, 33 U.S.C. sec.sec. 2701, et seq., the Federal Safe
Drinking Water Act, 42 U.S.C. sec.sec. 300F, et seq., and the Occupational
Safety and Health Act, 29 U.S.C. sec.sec. 651, et seq., as such Laws have been
amended or supplemented, and the regulations promulgated pursuant thereto, and
all analogous state or local statutes.
"Environmental Permit" means any permit, approval, authorization, license,
variance, registration or permission required under any Environmental Law.
"ERISA" means the Employee Retirement Income and Security Act of 1974, as
amended, and any regulations promulgated thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Final Date" has the meaning set forth in Section 8.1(b).
"GAAP" means generally accepted accounting principles consistently applied
throughout the periods involved.
"Governmental Entity" means any court, administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign.
"Hazardous Material" means any substance, material, or waste which is
regulated, defined or treated by any Governmental Entity as a "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous substance,"
"restricted hazardous waste," "contaminant," "pollutant," "toxic waste," "toxic
substance" or words of similar meaning or import under any provision of
Environmental Law, including without limitation any petroleum, petroleum
products (including crude oil and any portion thereof), asbestos,
asbestos-containing materials, urea formaldehyde and polychlorinated biphenyls.
"Host" has the meaning set forth in the preamble.
"Host Cash Option Consideration" has the meaning set forth in Section
1.6(d).
"Host Common Stock" has the meaning set forth in Section 1.6(b).
"Host Common Stock Consideration" has the meaning set forth in Section
1.6(b).
"Host Effective Time" has the meaning set forth in Section 1.3(b).
"Host Employee Plans" has the meaning set forth in Section 2.18(a).
"Host ERISA Affiliate" has the meaning set forth in Section 2.18(a).
"Host Ineligible Shares" has the meaning set forth in Section 1.6(b).
"Host Intellectual Property" has the meaning set forth in Section 2.14.
"Host Interim Balance Sheet" and "Host Interim Balance Sheet Date" have the
meanings set forth in Section 2.6.
"Host Merger" has the meaning set forth in Section 1.1(b).
"Host Merger Sub" has the meaning set forth in the preamble.
A-2
<PAGE> 334
"Host Options," "Host A Options" and "Host B Options" have the meanings set
forth in Section 2.4.
"Host Optionholder" has the meaning set forth in Section 1.6(d).
"Host Permitted Liens" has the meaning set forth in Section 2.11.
"Host Preferred Stock" has the meaning set forth in Section 1.6(c).
"Host Proxy Statement" has the meaning set forth in Section 5.13.
"Host Real Property" has the meaning set forth in Section 2.13(a).
"Host Revolving Credit Facility" means the Amended and Restated Loan
Agreement, dated June 25, 1998, by and among Host and Bank One, Kentucky, N.A.
and the other lenders party thereto.
"Host Stock" has the meaning set forth in Section 1.6(c).
"Host Stockholder Approval" has the meaning set forth in Section 2.2(a).
"Host Stockholders Meeting" has the meaning set forth in Section 5.14.
"Host Surviving Corporation" has the meaning set forth in Section 1.1(b).
"Host/USA Agreements" mean (i) the Shareholders' Agreement among the
shareholders of USA and USA dated October 16, 1995, (ii) the Registration Rights
Agreement among the shareholders of USA and USA dated October 16, 1995, (iii)
the Registration Rights Agreement, dated December 15, 1992 between Capital and
Host, (iv) the Shareholders Agreement, dated December 14, 1992 among Host, the
shareholders of Host and Capital, (v) the Voting and Irrevocable Proxy Agreement
dated December 15, 1992 among W. James Host and certain shareholders of Host
named therein, (vi) the Shareholders Agreement dated December 31, 1996 between
Host and Wayne J. Smith, (vii) the Put/Call Agreement dated as of November 14,
1997 between Host and Roy C. Hamlin, Jr. and (viii) the Put/Call Agreement dated
as of December 31, 1996 between Host and Wayne J. Smith.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Intellectual Property" means patents, trademarks, trade names, service
marks, Internet web sites, domain names, and copyrights, including registrations
and applications for registration of any of them, and software.
"Kentucky Code" has the meaning set forth in Section 1.3(b).
"Letters of Transmittal" has the meaning set forth in Section 1.8(a).
"Liabilities" mean, without limitation, any direct or indirect
indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost,
expense, obligation or responsibility, whether fixed or contingent, known or
unknown, asserted or unasserted, choate or inchoate, liquidated or unliquidated,
secured or unsecured.
"Liens" mean title defects or objections, mortgages, liens, claims,
charges, pledges, or other encumbrances of any nature whatsoever, including
without limitation licenses, leases, chattel or other mortgages, collateral
security arrangements, pledges, title imperfections, defect or objection liens,
security interest, conditional and installment sales agreements, charges,
easements, encroachments or restrictions, of any kind and other title or
interest retention arrangements, reservations or limitations of any nature.
A-3
<PAGE> 335
"Long-Term Facility" has the meaning set forth in Section 7.2(e).
"Material Adverse Effect" means, with respect to any person, a material
adverse effect (i) on the business, operations, liabilities, assets, results of
operations, prospects, projections or financial condition of such person and its
Subsidiaries, taken as a whole, or (ii) on the ability of such person to perform
on a timely basis any material obligation under this Agreement or to consummate
the transactions contemplated hereby.
"Mergers" has the meaning set forth in Section 1.1(c).
"New Host-Parent Options" have the meaning set forth in Section 1.6(d)(ii).
"New USA-Parent Options" have the meaning set forth in Section 1.7(d)(ii).
"Parent" has the meaning set forth in the preamble.
"Parent Common Stock" has the meaning set forth in Section 4.3(a).
"Parent Option Plan" has the meaning set forth in Section 5.7.
"Parent Stockholder Approval" has the meaning set forth in Section 4.2(a).
"Party" has the meaning set forth in Section 5.3(a).
"Paying Agent" has the meaning set forth in Section 1.8(d).
"Payment Fund" has the meaning set forth in Section 1.8(d).
"Permits" means licenses, permits, authorizations, registrations, variances
and approvals issued by any Governmental Entity.
"Proxy Statement/Prospectus" has the meaning set forth in Section 5.11.
"Registration Statement" has the meaning set forth in Section 5.11.
"Release" means any release, spill, emission, leaking, pumping, pouring,
dumping, emptying, injection, deposit, disposal, discharge, dispersal, leaching
or migration on or into the indoor or outdoor environment or into or out of any
property.
"Reorganization" and "Reorganization Agreement" have the meanings set forth
in the Recitals.
"Representatives" has the meaning set forth in Section 5.3(a).
"SEC" has the meaning set forth in Section 4.5.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholders Agreement" has the meaning set forth in Section 7.1(h).
"Subsidiary" of any person means any other entity of which 50% or more of
the equity or ownership interests are beneficially owned, directly or
indirectly, by the specified person.
"Taxes" mean all taxes, charges, fees, levies, duties or other similar
assessments, reassessments or liabilities, including without limitation (a)
income, gross receipts, ad valorem, premium, excise, real property, personal
property, sales, use, transfer withholding, employment, payroll, Medicare, and
franchise taxes imposed by the United States of America, or by any state, local,
or foreign government, or any subdivision, agency, or other similar person of
the United States or any such government; (b) any interest, fines, penalties,
assessments, or additions to taxes resulting from, attributable to, or incurred
in connection with any Tax or any contest, dispute, or refund thereof; and (c)
any joint,
A-4
<PAGE> 336
consolidated, combined, unitary or transferee liability in respect of taxes or
any liability for taxes imposed by tax sharing, tax indemnity or similar
agreement.
"Tax Returns" mean any report, return, or statement required to be supplied
to a taxing authority in connection with Taxes.
"USA" has the meaning set forth in the preamble.
"USA Cash Option Consideration" has the meaning set forth in Section
1.7(d).
"USA Common Stock" has the meaning set forth in Section 1.7(b).
"USA Common Stock Consideration" has the meaning set forth in Section
1.7(b).
"USA Effective Time" has the meaning set forth in Section 1.3(c).
"USA Employee Plans" has the meaning set forth in Section 3.18(a).
"USA ERISA Affiliate" has the meaning set forth in Section 3.18.
"USA Ineligible Shares" has the meaning set forth in Section 1.7(b).
"USA Information Statement" has the meaning set forth in Section 5.16.
"USA Intellectual Property" has the meaning set forth in Section 3.14.
"USA Interim Balance Sheet" and "USA Interim Balance Sheet Date" have the
meanings set forth in Section 3.6.
"USA Merger" has the meaning set forth in Section 1.1(c).
"USA Merger Sub" has the meaning set forth in the preamble.
"USA Optionholder" has the meaning set forth in Section 1.7(d).
"USA Options," "USA A Options" and "USA B Options" have the meanings set
forth in Section 3.4.
"USA Permitted Liens" has the meaning set forth in Section 3.11.
"USA Preferred Stock" has the meaning set forth in Section 1.7(c).
"USA Real Property" has the meaning set forth in Section 3.13.(a).
"USA Stock" has the meaning set forth in Section 1.7(c).
"USA Stockholder Approval" has the meaning set forth in Section 3.2(a).
"USA Surviving Corporation" has the meaning set forth in Section 1.1(c).
A-5
<PAGE> 337
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 14-2-851 of the Georgia Business Corporation Code of the State of
Georgia grants each corporation organized thereunder the power to indemnify its
officers and directors against liability for certain of their acts. Article VI
of BR Holding's Articles of Incorporation and Article VI of BR Holding's By-laws
provide that BR Holding shall, to the full extent permitted by law, indemnify
all directors, officers, employees, or agents of BR Holding. Article IX of Bull
Run's Articles of Incorporation provides that no director of BR Holding shall be
liable to for breach of any duty as a director, except for: (i) any
appropriation, in violation of such director's duties, of any business
opportunity of BR Holding; (ii) acts or omissions involving intentional
misconduct or a knowing violation of the law; (iii) unlawful distributions of BR
Holding to its shareholders; or (iv) any transaction from which the director
derives an improper personal benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2.1 -- Restated Agreement and Plan of Merger, dated as of February
15, 1999, by and among BR Holding, Inc., Bull Run
Corporation, Capital Sports Properties, Inc., Host
Communications, Inc., Universal Sports America, Inc.,
Capital Merger Sub, Inc., Host Merger Sub, Inc. and USA
Merger Sub, Inc. (incorporated by reference to Appendix B to
the proxy statement/prospectus filed as part of this
Registration Statement)
2.2 -- Plan of Merger, by and among BR Holding, Inc., Bull Run
Corporation and a wholly owned subsidiary of BR Holding,
Inc. (incorporated by reference to Appendix A to the proxy
statement/prospectus filed as part of this Registration
Statement)
3.1 -- Articles of Incorporation of BR Holding, Inc.
3.2 -- Bylaws of BR Holding, Inc.
5.1 -- Opinion of Alston & Bird LLP regarding legality of
securities
8.1 -- Opinion of Proskauer Rose LLP regarding tax matters
10.1 -- Amended and Restated 1994 Long-Term Incentive Plan
10.2 -- Bull Run Corporation Non-Employee Directors' 1994 Stock
Option Plan (incorporated by reference to Exhibit 10.15 to
the Registration Statement on Form S-4 of Bull Run
Corporation (Registration No. 33-81816))
10.3 -- Form of Stockholders Agreement, by and among Hilton H.
Howell, Jr., Douglas L. Jarvie, Robinson-Prather
Partnership, W. James Host and Charles L. Jarvie
10.4 -- Host Voting and Support Agreement, dated as of February 15,
1999, by and among BR Holding, Inc., Bull Run Corporation,
Host Merger Sub, Inc. and the stockholders of Host
Communications, Inc. listed on Exhibits A and B to the Host
Voting and Support Agreement
</TABLE>
II-1
<PAGE> 338
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.5 -- USA Voting and Support Agreement, dated as of February 15,
1999, by and among BR Holding, Inc., Bull Run Corporation,
USA Merger Sub, Inc. and the stockholders of Universal
Sports America, Inc.
21.1 -- Subsidiaries of BR Holding, Inc.
23.1 -- Consent of Alston & Bird LLP with respect to the common
stock being registered hereby (contained in Exhibit 5.1)
23.2 -- Consent of Ernst & Young LLP, independent auditors, with
respect to the financial statements and schedule of Bull Run
Corporation
23.3 -- Consent of Ernst & Young LLP, independent auditors, with
respect to certain financial statements of Capital Sports
Properties, Inc.
23.4 -- Consent of KPMG LLP, independent auditors, with respect to
certain financial statements of Capital Sports Properties,
Inc.
23.5 -- Consent of Ernst & Young LLP, independent auditors, with
respect to certain financial statements of Host
Communications, Inc.
23.6 -- Consent of KPMG LLP, independent auditors, with respect to
certain financial statements of Host Communications, Inc.
23.7 -- Consent of Ernst & Young LLP, independent auditors, with
respect to certain financial statements of Universal Sports
America, Inc.
23.8 -- Consent of KPMG LLP, independent auditors, with respect to
certain financial statements of Universal Sports America,
Inc.
23.9 -- Consent of Ernst & Young LLP, independent auditors, with
respect to the financial statements and schedule of Gray
Communications Systems, Inc.
23.10 -- Consent of Arthur Andersen LLP, independent auditors, with
respect to the financial statements of Rawlings Sporting
Goods Company, Inc.
23.11 -- Consent of Proskauer Rose LLP with respect to certain tax
matters (contained in Exhibit 8.1)
99.1 -- Form of Proxy to be used in connection with special meeting
of stockholders of Bull Run Corporation
</TABLE>
- -------------------------
(b) Financial Statement Schedules
The following financial statement schedules are included as part of the
Registration Statement (not as part of the proxy statement/prospectus):
Schedule II -- "Valuation and Qualifying Accounts," (Bull Run Corporation)
and Report of Independent Auditors thereon.
Schedule II -- "Valuation and Qualifying Accounts" (Gray Communications
Systems, Inc.) and Report of Independent Auditors thereon.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefor have been
omitted.
(c) Reports, Opinions and Appraisals
None.
II-2
<PAGE> 339
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
provided, however, that paragraphs (i) and (ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of the Registration Statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(c) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective
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<PAGE> 340
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that such a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE> 341
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on the 9th day of August, 1999.
BR HOLDING, INC
By: /s/ ROBERT S. PRATHER, JR.
-----------------------------------
Robert S. Prather, Jr.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ ROBERT S. PRATHER, JR. President and Chief August 9, 1999
- ------------------------------------------ Executive Officer;
Robert S. Prather, Jr. Director (Principal
Executive Officer)
/s/ J. MACK ROBINSON Chairman of the Board August 9, 1999
- ------------------------------------------
J. Mack Robinson
/s/ GERALD N. AGRANOFF Director August 9, 1999
- ------------------------------------------
Gerald N. Agranoff
/s/ JAMES W. BUSBY Director August 9, 1999
- ------------------------------------------
James W. Busby
/s/ HILTON H. HOWELL, JR. Director August 9, 1999
- ------------------------------------------
Hilton H. Howell, Jr.
/s/ FREDERICK J. ERICKSON Vice President -- Finance August 9, 1999
- ------------------------------------------ (Principal Financial and
Frederick J. Erickson Accounting Officer)
</TABLE>
II-5
<PAGE> 342
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Bull Run
Corporation as of December 31, 1998 and 1997, and for each of the three years in
the period ended December 31, 1998, and have issued our report thereon dated
February 9, 1999 (except for Notes 4 and 7, for which the date is March 24,
1999). Our audits also included the financial statement schedule of Bull Run
Corporation listed in Item 21(b). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
February 9, 1999
S-1
<PAGE> 343
BULL RUN CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) PERIOD
----------- ---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful
accounts................... $55,000 $22,000 $50,000 $45,000 $82,000
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful
accounts................... $45,000 $27,000 $ 0 $17,000 $55,000
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful
accounts................... $50,000 $ 1,000 $ 0 $ 6,000 $45,000
</TABLE>
- -------------------------
(1) Represents amounts recorded in connection with the CodeWriter acquisition.
(2) "Deductions" represent write-offs of amounts not considered collectible.
S-2
<PAGE> 344
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Gray
Communications Systems, Inc. as of December 31, 1998 and 1997, and for each of
the three years in the period ended December 31, 1998, and have issued our
report thereon dated January 26, 1999. Our audits also included the financial
statement schedule of Gray Communications Systems, Inc. listed in Item 21(b).
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
January 26, 1999
S-3
<PAGE> 345
GRAY COMMUNICATIONS SYSTEMS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) PERIOD
----------- ---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful
accounts.................... $1,253,000 $831,000 $ 61,000 $933,000 $1,212,000
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful
accounts.................... $1,450,000 $188,000 $ 31,000 $416,000 $1,253,000
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful
accounts.................... $ 450,000 $894,000 $583,000 $477,000 $1,450,000
</TABLE>
- -------------------------
(1) Represents amounts recorded in connection with acquisitions.
(2) Deductions are write-offs of amounts not considered collectible.
S-4
<PAGE> 346
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2.1 -- Restated Agreement and Plan of Merger, dated as of February
15, 1999, by and among BR Holding, Inc., Bull Run
Corporation, Capital Sports Properties, Inc., Host
Communications, Inc., Universal Sports America, Inc.,
Capital Merger Sub, Inc., Host Merger Sub, Inc. and USA
Merger Sub, Inc. (incorporated by reference to Appendix B to
the proxy statement/prospectus filed as part of this
Registration Statement)
2.2 -- Form of Agreement and Plan of Merger, by and among BR
Holding, Inc., Bull Run Corporation and a wholly owned
subsidiary of BR Holding, Inc. (incorporated by reference to
Appendix A to the proxy statement/prospectus filed as part
of this Registration Statement)
3.1 -- Articles of Incorporation of BR Holding, Inc.
3.2 -- Bylaws of BR Holding, Inc.
5.1 -- Opinion of Alston & Bird LLP regarding legality of
securities
8.1 -- Opinion of Proskauer Rose LLP regarding tax matters
10.1 -- Amended and Restated 1994 Long-Term Incentive Plan
10.2 -- Bull Run Corporation Non-Employee Directors' 1994 Stock
Option Plan (incorporated by reference to Exhibit 10.15 to
the Registration Statement on Form S-4 of Bull Run
Corporation (Registration No. 33-81816))
10.3 -- Form of Stockholders Agreement, by and among Hilton H.
Howell, Jr., Douglas L. Jarvie, Robinson-Prather
Partnership, W. James Host and Charles L. Jarvie
10.4 -- Host Voting and Support Agreement, dated as of February 15,
1999, by and among BR Holding, Inc., Bull Run Corporation,
Host Merger Sub, Inc. and the stockholders of Host
Communications, Inc. listed on Exhibits A and B to the Host
Voting and Support Agreement
10.5 -- USA Voting and Support Agreement, dated as of February 15,
1999, by and among BR Holding, Inc., Bull Run Corporation,
USA Merger Sub, Inc. and the stockholders of Universal
Sports America, Inc.
21.1 -- Subsidiaries of BR Holding, Inc.
23.1 -- Consent of Alston & Bird LLP with respect to the common
stock being registered hereby (contained in Exhibit 5.1)
23.2 -- Consent of Ernst & Young LLP, independent auditors, with
respect to the financial statements and schedule of Bull Run
Corporation
23.3 -- Consent of Ernst & Young LLP, independent auditors, with
respect to certain financial statements of Capital Sports
Properties, Inc.
23.4 -- Consent of KPMG LLP, independent auditors, with respect to
certain financial statements of Capital Sports Properties,
Inc.
23.5 -- Consent of Ernst & Young LLP, independent auditors, with
respect to certain financial statements of Host
Communications, Inc.
23.6 -- Consent of KPMG LLP, independent auditors, with respect to
certain financial statements of Host Communications, Inc.
</TABLE>
<PAGE> 347
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
23.7 -- Consent of Ernst & Young LLP, independent auditors, with
respect to certain financial statements of Universal Sports
America, Inc.
23.8 -- Consent of KPMG LLP, independent auditors, with respect to
certain financial statements of Universal Sports America,
Inc.
23.9 -- Consent of Ernst & Young LLP, independent auditors, with
respect to the financial statements and schedule of Gray
Communications Systems, Inc.
23.10 -- Consent of Arthur Andersen LLP, independent auditors, with
respect to the financial statements of Rawlings Sporting
Goods Company, Inc.
23.11 -- Consent of Proskauer Rose LLP with respect to certain tax
matters (contained in Exhibit 8.1)
99.1 -- Form of Proxy to be used in connection with special meeting
of stockholders of Bull Run Corporation
</TABLE>
<PAGE> 1
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
BR HOLDING, INC.
ARTICLE ONE
Name
The name of the corporation is BR Holding, Inc.
ARTICLE TWO
Authorized Shares
The total number of shares of all classes which the Corporation has
authority to issue is one hundred and five million (105,000,000) shares of
capital stock, of which one hundred million (100,000,000) shares shall be common
stock with a par value of $0.01 (the "Common Stock") and five million
(5,000,000) shares shall be preferred with a par value of $0.01 (the "Preferred
Stock").
The designations and the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of the shares of each class of stock are as follows:
Common Stock
Subject to all of the rights of the Preferred Stock as expressly provided
herein, by law or by the Board of Directors pursuant to this Article Two, the
Common Stock of the Corporation shall possess all such rights and privileges as
are afforded to capital stock by applicable law in the absence of any express
grant of rights or privileges in the Corporation's Articles of Incorporation,
including, but not limited to, the following rights and privileges:
(a) dividends may be declared and paid or set apart for payment upon
the Common Stock out of any assets or funds of the Corporation legally
available for the payment of dividends;
<PAGE> 2
(b) the holders of Common Stock shall have the right to vote for the
election of directors and on all other matters requiring stockholder
action, each share being entitled to one vote; and
(c) upon the voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, the net assets of the Corporation available
for distribution shall be distributed pro rata to the holders of the
Common Stock in accordance with their respective rights and interests.
Preferred Stock
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series. The description of shares of each
series of Preferred Stock, including any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption shall be as set forth in
resolutions adopted by the Board of Directors, and articles of amendment shall
be filed with the Georgia Secretary of State as required by law to be filed with
respect to issuance of such Preferred Stock, prior to the issuance of any shares
of such series.
The Board of Directors is expressly authorized, at any time, by adopting
resolutions providing for the issuance of, or providing for a change in the
number of, shares of any particular series of Preferred Stock and, if and to the
extent from time to time required by law, by filing articles of amendment which
are effective without shareholder action to increase or decrease the number of
shares included in each series of Preferred Stock, but not below the number of
shares then issued, and to set or change in any one or more respects the
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms and
conditions of redemption relating to the shares of each such series.
Notwithstanding the foregoing, the Board of Directors shall not be authorized to
change the right of holders of the Common Stock of the Corporation to vote one
vote per share on all matters submitted for shareholder action. The authority of
the Board of
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<PAGE> 3
Directors with respect to each series of Preferred Stock shall include, but not
be limited to, setting or changing the following:
(a) the annual dividend rate, if any, on shares of such series, the
items of payment and the date from which dividends shall be accumulated,
if dividends are to be cumulative;
(b) whether the shares of such series shall be redeemable and, if
so, the redemption price and the terms and conditions of such redemption;
(c) the obligation, if any, of the Corporation to redeem shares of
such series pursuant to a sinking fund;
(d) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes and, if
so, the terms and conditions of such conversion or exchange, including the
price or prices or the rate or rates of conversion or exchange and the
terms of adjustment, if any:
(e) whether the shares of such series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the extent of
such voting rights;
(f) the rights of the shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation; and
(g) any other relative rights, powers, preferences, qualifications,
limitations or restrictions thereof relating to such series. The shares of
Preferred Stock of any one series shall be identical with each other in
all
respects except as to the dates from and after which dividends thereon shall
cumulate, if cumulative.
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ARTICLE THREE
Registered Office and Agent
The initial registered office of the corporation is located at CT
Corporation System, 1201 Peachtree Street, N.E., Atlanta, Fulton County, Georgia
30361. The initial registered agent of the corporation at its registered office
is CT Corporation System.
ARTICLE FOUR
Incorporator
The name and address of the incorporator is as follows:
Michelle J. Nelson, Esq.
Alston & Bird
One Atlantic Center
1201 West Peachtree St.
Atlanta, Georgia 30309-3424
ARTICLE FIVE
Principal Office
The mailing address of the initial principal office of the
corporation is BR Holding, Inc., c/o Bull Run Corporation, 4370 Peachtree Road,
N. E., Atlanta, Georgia 30319.
ARTICLE SIX
Limitation of Director Liability
6.1 A director of the corporation shall not be personally liable to
the corporation or its shareholders for monetary damages for breach of duty of
care or other duty as a director, except for liability (i) for any
appropriation, in violation of his duties, of any business opportunity of the
corporation, (ii) for acts or omissions which involve intentional misconduct or
a knowing violation of law, (iii) of the types set forth in Section 14-2-832 of
the Georgia
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<PAGE> 5
Business Corporation Code, or (iv) for any transaction from which the director
derived an improper personal benefit.
6.2 Any repeal or modification of the provisions of this Article by
the shareholders of the corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
corporation with respect to any act or omission occurring prior to the effective
date of such repeal or modification.
6.3 If the Georgia Business Corporation Code is hereafter amended to
authorize the further elimination or limitation of the liability of directors,
then the liability of a director of the corporation, in addition to the
limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended Georgia Business Corporation Code.
6.4 In the event that any of the provisions of this Article
(including any provision within a single sentence) is held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, the
remaining provisions are severable and shall remain enforceable to the fullest
extent permitted by law.
ARTICLE SEVEN
Constituency Considerations
In discharging the duties of their respective positions and in
determining what is believed to be in the best interests of the corporation, the
Board of Directors, committees of the Board of Directors, and individual
directors, in addition to considering the effects of any action on the
corporation or its shareholders, may consider the interests of the employees,
customers, suppliers, and creditors of the corporation and its subsidiaries, the
communities in which offices or other establishments of the corporation and its
subsidiaries are located, and all other factors such directors consider
pertinent; provided, however, that this article shall be deemed solely to grant
discretionary authority to the directors and shall not be deemed to provide to
any constituency any right to be considered.
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<PAGE> 6
ARTICLE EIGHT
Initial Board of Directors
The initial Board of Directors shall consist of one member whose name
and address is as follows:
Robert S. Prather, Jr.
BR Holding, Inc.
C/o Bull Run Corporation
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
ARTICLE NINE
Shareholder Action by Less Than Unanimous Written Consent Any action
that is required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting if the action is taken by persons
who would be entitled to vote at a meeting shares having voting power to cast
not less than the minimum number (or numbers, in the case of voting by groups)
of votes that would be necessary to authorize or take such action at a meeting
at which all shareholders entitled to vote were present and voted. The action
must be evidenced by one or more written consents describing the action taken,
signed by shareholders entitled to take action without a meeting and delivered
to the corporation for inclusion in the minutes or filing with the corporate
records.
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IN WITNESS WHEREOF, the undersigned executes these Articles of
Incorporation this 15 day of April, 1999.
/s/ Michelle J. Nelson
------------------------------
Michelle J. Nelson
Incorporator
ALSTON & BIRD
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
(404) 881-7000
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<PAGE> 1
Exhibit 3.2
BYLAWS
BR HOLDING, INC.
<PAGE> 2
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year at such place, either
within or without the State of Georgia, on such date and at such time as the
Board of Directors by resolution may provide. The Board of Directors may specify
by resolution prior to any special meeting of shareholders held within the year
that such meeting shall be in lieu of the annual meeting.
Section 2. Special Meeting. Special meetings of the shareholders may be
called at any time by the Board of Directors, by the Chairman of the Board, by
the President, or by the holders of at least twenty-five percent (25%) of the
outstanding common stock of the Corporation entitled to vote on any issue
proposed to be considered at such meeting if such holders sign, date, and
deliver to the Secretary one or more written demands for the meeting describing
the purpose or purposes for which it is to be held and specifying the time of
the proposed meeting. Such meetings shall be held either within or without the
State of Georgia at the place and time stated in the notice of the meeting.
Business transacted at any special meeting of the shareholders shall be limited
to the purposes stated in the notice of such special meeting.
Section 3. Notice of Meetings. Written notice of each meeting of
shareholders, stating the date, time, and place of the meeting, and the purpose
or purposes of any special meeting, shall be mailed to each shareholder entitled
to vote at such meeting at the address shown on the books of the Corporation not
less than ten (10) nor more than sixty (60) days prior to such meeting unless
such shareholder waives notice of the meeting. A shareholder shall have waived
notice of a meeting if he or she: (1) executes a waiver of notice, in person or
by proxy, either before or after the meeting, or (2) attends the meeting in
person or by proxy and does not object at the beginning of the meeting to the
holding of the meeting or the transacting of business at the meeting. Neither
the business transacted at, nor the purpose of, any meeting need be stated in
the waiver of notice of such meeting, except that, with respect to a waiver of
notice of a meeting at which is considered an amendment to the Articles of
Incorporation, a plan of merger or share exchange, a sale of all of
substantially all the Corporation's assets, or any other action that would
entitle shareholders of the Corporation to dissent pursuant to the Georgia
Business Corporation Code, information as required by the Georgia Business
Corporation Code must be delivered to the shareholder prior to his execution of
the waiver of notice, or the waiver itself must expressly waive the right to
such information.
Notice of any meeting may be given by the President, the Secretary or by
any other person authorized by the Board of Directors to give notice of such
meeting. Unless the Board of Directors chooses or is required to fix a new
record date, no notice need be given
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of the date, time, and place of reconvening of any adjourned meeting if the
date, time, and place to which the meeting is adjourned are announced at the
meeting prior to adjournment.
Section 4. List of Shareholders. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make a complete list of
the shareholders entitled to vote at a meeting of shareholders or any
adjournment thereof, arranged in alphabetical order by voting groups, and within
each voting group, by class or series of shares, with the address of and the
number of shares held by each shareholder shown. Such list shall be available
for inspection by any shareholder, his or her agent or attorney at the time and
place of the meeting. Refusal or failure to prepare or make available such list
of shareholders shall not affect the validity of action taken at the meeting.
Section 5. Quorum; Required Shareholder Vote. A quorum for action on a
matter at any annual or special meeting of shareholders shall exist as to a
particular voting group when the holders of a majority of the votes entitled to
be cast on that matter by that voting group are represented, either in person or
by proxy, at such meeting. If a quorum is present, the vote of the majority of
the votes cast on the matter shall be the act of the shareholders, unless a
greater vote is required by law, by the Articles of Incorporation, or by these
Bylaws, and except in the election of directors, for which a plurality of the
votes cast shall be the act of the shareholders. Once a share is represented for
any purpose at a meeting other than solely to object to holding the meeting, it
is deemed present for quorum purposes for the remainder of the meeting and for
any adjournment of that meeting unless a new record date is or must be set for
that adjourned meeting. The holders of a majority of the voting shares
represented at a meeting, whether or not a quorum is present, may adjourn such
meeting from time to time.
Section 6. Proxies. A shareholder may vote either in person or by a proxy
appointed pursuant to an appointment of proxy that such shareholder has duly
executed in writing. No appointment of proxy shall be valid after eleven (11)
months from the date of its execution unless a longer period is expressly
provided in the appointment. No proxy shall be used to vote at a meeting of the
shareholders unless it has been filed with the Secretary of the meeting when
required by the inspectors of election. All questions regarding the
qualification of voters, the validity of proxies, and the acceptance or
rejection of votes shall be decided by two (2) inspectors of election who shall
be appointed by the Board of Directors, or if not so appointed, then by the
presiding officer of the meeting.
Section 7. Action of Shareholders Without Meeting. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting if those shareholders who, at such meeting, would be entitled to vote
shares having voting power of at least the minimum number (or numbers in the
case of voting by groups) of votes that would be necessary to authorize or take
the action at a meeting at which all the shareholders entitled to vote were
present and voted execute one or more written consents setting forth the action
or actions so taken and such written consents are delivered to the Corporation
for inclusion in the minutes of the shareholders or filing with the corporate
records; provided, however, that, with respect to any action for which the
Corporation would
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<PAGE> 4
have otherwise been required to send the shareholders materials along with and
in addition to the notice of the meeting at which such action would be voted on,
including, but not limited to, materials relating to dissenters' rights, the
Corporation must deliver such materials to the consenting shareholders prior to
their execution of the consent, or the consent must expressly waive the right to
receive such materials. Furthermore, if an action is taken by the shareholders
without a meeting, then the Corporation shall deliver to each of the
shareholders who would otherwise have been entitled to vote on the action, but
who did not participate in taking the action, written notice of the action and
any materials that would have otherwise been required to be sent to the
shareholders along with and in addition to a notice of a meeting at which such
action would be voted on, including, but not limited to, materials relating to
dissenter's rights. A written consent of the shareholders shall have the same
force and effect as an affirmative vote of the shareholders at a meeting and may
be described as such in any document.
ARTICLE II
DIRECTORS
Section 1. Power of Directors. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the Corporation shall
be managed under the direction of, the Board of Directors, subject to any
restrictions imposed by law, by the Articles of Incorporation, by a provision in
these Bylaws if approved by the Shareholders, or by any agreement among the
shareholders that is otherwise lawful. A director shall discharge his duties as
a director, including his duties as a member of any committee of the Board of
Directors, in a manner that such director believes in good faith to be in the
best interests of the Corporation and with the care an ordinarily prudent person
in a like position would exercise under similar circumstances. In discharging
his duties, a director is entitled to rely on information, opinions, reports, or
statements, including financial statements and other financial data, if prepared
or presented by: (i) one or more officers or employees of the Corporation whom
the director reasonably believes to be reliable and competent in the matters
presented; (ii) legal counsel, public accountants, investment bankers, or other
persons as to matters the director reasonably believes are within the person's
professional or expert competence ; or (iii) a committee of the Board of
Directors of which such directors is not a member if such director reasonably
believes the committee merits confidence; provided, however, that a director is
not entitled to rely on any of the foregoing if such director has knowledge
concerning the matter in question that makes reliance otherwise permitted by
this Bylaw provision unwarranted. Nothing contained in this Bylaw provision is
intended to impose upon any director any standard of care greater than that now
or hereafter provided by applicable law.
Section 2. Compensation of the Board. The Board of Directors of the
Corporation shall consist of between three (3) and seven (7) natural persons of
the age of eighteen (18) years or over. The exact number of directors within the
specified minimum and maximum shall be fixed by resolution of the Board of
Directors from time to time, but no decrease in the number of directors shall
shorten the term of any incumbent director.
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Directors need not be residents of the State of Georgia or shareholders of the
Corporation. At each annual meeting, the shareholders shall elect the directors,
who shall serve until their successors are elected and qualified, or until such
directors' earlier resignation, removal from office, or death. At any
shareholders' meeting with respect to which notice of such purpose has been
given, the entire Board of Directors or any individual director may be removed,
with or without cause, by the affirmative vote of a majority of the votes cast
on the matter.
Section 3. Meetings of the Board; Notice of Meetings; Waiver of Notice.
The annual meeting of the Board of Directors for the purpose of electing
officers and transacting such other business as may be brought before the
meeting shall be held each year immediately following the annual meeting of
shareholders. The Board of Directors may by resolution provide for the time and
place of other regular meetings, and no notice of such regular meetings need by
given. Special meetings of the Board of Directors may be called by the
President, by the Chairman of the Board, or by any two (2) directors, and
written notice of the date, time, and place of such meetings shall be given to
each director by first class mail, overnight courier or by telephone, telecopy,
or in person at least one (1) day before the meeting. A director shall have
waived notice of a meeting if he or she: (1) executes a written waiver of notice
either before or after the meeting and delivers such waiver to the Corporation
for inclusion in the minutes of the Board of Directors or filing with the
corporate records, or (2) attends the meeting and does not object at the
beginning of the meeting or promptly upon his or her arrival at the meeting to
the holding of the meeting or the transacting of business at the meeting and
does not afterward vote for or assent to any action taken at the meeting.
Neither the business to be transacted at, nor the purpose of, any meeting of the
Board of Directors need be stated in the notice or waiver of notice of such
meeting. Any meeting may be held at any place within or without the State of
Georgia.
Section 4. Quorum; Vote Requirement. A majority of the directors currently
serving shall constitute a quorum for the transaction of business any any
meeting. When a quorum is present, the vote of a majority of the directors
present and voting shall be the act of the Board of Directors, unless a greater
vote is required by law, by the Articles of Incorporation, or by these Bylaws. A
majority of the directors present, whether or not a quorum is present, may
adjourn any meeting.
Section 5. Action of Board Without Meeting. Any action required or
permitted to be taken at a meeting of the Board of Directors or any committee
thereof may be taken without a meeting if all of the members of the Board or
committee execute one or more written consents setting forth the action so
taken, and such written consents are delivered to the Corporation for filing
with the corporate records or for inclusion in the minutes of the proceedings of
the Board or committee meeting. Such consents shall have the same force and
effect as a unanimous affirmative vote of the Board of Directors or committee
members at a meeting, as the case may be, and may be described as such in any
document.
Section 6. Vacancies. Any vacancy occurring on the Board of Directors,
including a vacancy resulting from an increase in the number of directors, may
be filled by the shareholders, by the remaining directors, or if the remaining
directors constitute less than
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<PAGE> 6
a quorum, by the affirmative vote of a majority of the remaining directors. A
director elected to fill a vacancy shall serve for the unexpired term of his
predecessor in office, or if such vacancy occurs by reason of an amendment to
these Bylaws increasing the number of directors, until the next election of
directors by the shareholders and the election and qualification of the
successor.
Section 7. Committees. The Board of Directors may create one or more serve
on them. Each committee may have one or more members. Each committee shall be
authorized to exercise such powers of the Board of Directors as the Board of
Directors may specify, except that in no event shall a committee have the power
to (i) approve or propose to the shareholders any action required by law to be
approved by the shareholders; (ii) fill vacancies on the Board of Directors or
any committee; (iii) amend the Articles of Incorporation; (iv) adopt, amend or
repeal bylaws; or (v) approve a plan of merger not requiring shareholder
approval. The provisions of these Bylaws and of the Georgia Business Corporation
Code that govern meetings of the Board of Directors, action without meetings,
notice and waiver of notice, and quorum and voting requirements of the Board of
Directors shall apply to all such committees and their members as well. All such
committees shall keep regular minutes of the transactions of their meetings and
shall cause them to be recorded in the corporate minutes of the Corporation. The
designation of any such committee and the delegation of authority thereto shall
not relieve the Board of Directors or any member thereof of any responsibility
imposed by law.
Section 8. Telephone Conference Meetings. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors or committee by means of
telephone conference or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section 8 shall constitute presence in person at such
meeting.
Section 9. Registering Dissent. A director who is present at a meeting of
the Board of Directors or any committee at which action on a corporate matter is
taken shall be presumed to have assented to such action unless such director's
dissent is entered in the minutes of the meeting, or unless such director files
a written dissent to such action with the person acting as the secretary of the
meeting, before the adjournment thereof, or forwards such dissent by registered
mail to the Secretary of the Corporation immediately after the adjournment of
the meeting. This right to dissent shall not apply to a director who voted in
favor of any such action.
Section 10. Remuneration. The directors may be paid their expenses of
attendance of each meeting of the Board of Directors and may also be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as a director, as determined from time to time by resolution of the Board
of Directors. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation
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<PAGE> 7
therefor. Members of committees may be allowed like reimbursement and
compensation for attending committee meetings.
Section 11. Conflicting Interest Transactions. In furtherance and not
limitation of the provisions of the Georgia Business Corporation Code, the fact
that a director or an officer of the Corporation had a direct or indirect
interest in a corporate transaction is not grounds for either invalidating the
transaction or imposing liability on any director or officer, although the
failure to take advantage of the safe harbor provisions of the Georgia Business
Corporation Code relating to interested director and officer transactions may
cause the burden of proving the transaction's fairness to be placed on the
person asserting the validity of such transaction.
Section 12. Distribution to Shareholders. Except as now or hereafter
permitted by law or the Articles of Incorporation of the Corporation, the
Corporation may not make any distribution to its shareholders after giving it
effect either: (a) the Corporation would not be able to pay its debts as they
become due in the usual course of business; or (b) the Corporation's total
assets would be less than the sum of its total liabilities plus (unless the
Articles of Incorporation permit otherwise) the amount that would be needed, if
the Corporation were to be dissolved at the time of the distribution, to satisfy
the preferential rights upon dissolution of shareholders whose preferential
rights are superior to those receiving the distribution. The Board of Directors
may base a determination that a distribution is not prohibited either on
financial statements prepared on the basis of accounting practices and
principles that are reasonable in the circumstances or on a fair valuation or
other method that is reasonable in the circumstances. The effect of a
distribution shall be determined (i) in the case of a purchase, redemption, or
other acquisition of the Corporation's shares, as of the earlier of the date
money or other property is transferred or debt incurred by the Corporation or
the date the shareholder ceases to be a shareholder with respect to the acquired
shares, (ii) in the case of any other distribution of indebtedness, as of the
date the indebtedness is distributed, and (iii) in all other cases, as of the
date the distribution is authorized if payment occurs within one hundred twenty
(120) days after the date of authorization or the date the payment is made if it
occurs more than one hundred twenty (120) days after the date of authorization.
ARTICLE III
OFFICERS
Section 1. Executive Structure of the Corporation. The officers of the
Corporation shall be elected by the Board of Directors and shall include a
President, a Secretary, a Treasurer and such other officers or assistant
officers, including a Chairman of the Board or one or more Vice Presidents, as
may be elected by the Board of Directors. Each officer shall hold office for the
term for which such officer has been elected or appointed and until such
officer's successor has been elected or appointed and has qualified, or until
such officer's earlier resignation, removal from office, or death. Any two or
more offices may be held by the same person.
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Section 2. President. The President shall be the chief executive officer
of the Corporation and shall give general supervision and direction to the
affairs of the Corporation, subject to the direction of the Board of Directors,
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. The President shall preside at all meetings of the
shareholders and, unless there is a Chairman of the Board, at all meetings of
the Board of Directors. The President shall execute in the name of and on behalf
of the Corporation, and may affix or cause the seal to be affixed to, all
instruments requiring such execution, except to the extent the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation.
Section 3. Chairman of the Board. The Chairman of the Board, if any, shall
act in accordance with the directions of the President and shall preside at all
meetings of the Board of Directors.
Section 4. Vice President. Any Vice Presidents shall act under the
direction of the President, and in the absence or disability of the President or
if the office of the President is vacant, shall perform the duties of the
President, and shall perform such other duties and have such other powers as the
President or the Board of Directors may prescribe. The Board of Directors may
designate one or more executive Vice Presidents or may otherwise specify the
order of seniority of the Vice Presidents. The duties and powers of the
President shall descend to the Vice Presidents in such specified order of
seniority.
Section 5. Secretary. The Secretary shall act under the direction of the
President and shall attend all meetings of the shareholders and of the Board of
Directors and keep the minutes of such proceedings. The Secretary shall perform
like duties for committees when required. The Secretary shall authenticate
records of the Corporation and shall have custody of and attest the seal of the
Corporation.
Section 6. Assistant Secretaries. Any Assistant Secretary shall act under
the direction of the President in the order of their seniority and shall, in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary.
Section 7. Treasurer. The Treasurer shall act under the direction of the
President. Subject to the direction of the President, the Treasurer shall have
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements and books belonging to the Corporation,
and shall deposit all monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall disburse the funds of the Corporation as may
be ordered by the President or the Board of Directors, taking proper vouchers
for such disbursements, and shall render the President and the Board of
Directors, at its regular meetings and when the President or the Board of
Directors otherwise requires, an account of all transactions performed by the
Treasurer and of the financial condition of the Corporation.
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Section 8. Assistant Treasurer. Any Assistant Treasurers, in the order of
their seniority, shall, in the absence or disability of the Treasurer, perform
the duties and exercise the powers of the Treasurer.
Section 9. Other Duties and Authority. Each officer, employee, and agent
of the Corporation shall have such other duties and authority as may be
conferred upon such Officer, employee, or agent by the Board of Directors or
delegated to such officer, employee, or agent by the President.
Section 10. Removal of Officers. Any officer may be removed at any time by
the Board of Directors, with or without cause, and such vacancy may be filled by
the Board of Directors. This provision shall not prevent the making of a
contract of employment for a definite term with any officer and shall have no
effect upon any cause of action any officer may have as a result of such
officer's removal in breach of a contract of employment.
Section 11. Compensation. The salaries of the officers shall be fixed from
time to time by the Board of Directors. No officer shall be prevented from
receiving such salary by reason of the fact that such officer is also a director
of the Corporation.
Section 12. Inability to Serve. In the case of absence or inability to act
of any officer of the Corporation and of any person herein authorized to act in
the place of such duties of such officer to any other officer, director, or
person whom it may select.
Section 13. Resignation. Any officer may resign at any time by delivering
written notice to the President, the Chairman of the Board, or the Board of
Directors, or by giving oral notice at any meeting of the Board of Directors.
Any such resignation shall take effect at the time specified therein, or if the
time is not specified, upon delivery thereof, and unless otherwise specified
therein, the acceptance of such resignations shall not be necessary to make it
effective.
ARTICLE IV
STOCK
Section 1. Stock Certificates. The shares of stock of the Corporation
shall be represented by certificates in such form as may be approved by the
Board of Directors; provided that each such certificate when issued shall state
on its face at a minimum the following: (1) the name of the Corporation and that
it is organized under Georgia law, (2) the number and class of shares and the
designation of the series, if any, the certificate represents, and (3) the name
of the person to whom the certificate is issued. No share certificate that was
valid when issued shall cease to be valid by reason of any changes in the
information stated on the share certificate. Stock certificates of the
Corporation, when issued, shall be signed by the President or a Vice President
and the Secretary or an Assistant Secretary of the Corporation. If a certificate
is signed by a transfer agent other than the
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<PAGE> 10
Corporation or its employee, the signatures of the officers of the Corporation
may be facsimiles. In case any officer or by a registrar other than the
Corporation or its employee who has signed or whose facsimile signature has been
placed upon a certificate shall cease to be such officer before such certificate
is issued, such certificate may be issued with the same effect as though the
person had not ceased to be such officer. The seal of the Corporation or a
facsimile thereof may, but need not, be affixed to the certificate of stock. No
share certificate shall be issued until the consideration for the shares
represented thereby has been received by the Corporation.
Section 2. Transfer of Stock; Lost Certificates. In addition to any other
restrictions that may be imposed by law, the Articles of Incorporation, or these
Bylaws, or that may otherwise be validly imposed, shares of stock of the
Corporation shall be transferred only on the books of the Corporation upon
surrender to the Corporation of the certificate or certificates representing the
shares to be transferred accompanied by an assignment in writing of such shares
to be transferred accompanied by an assignment in writing of such shares
properly executed by the shareholder of record or such shareholder's duly
authorized attorney-in-fact and with all taxes on the transfer having been paid.
The Corporation may refuse any requested transfer until furnished evidence
satisfactory to it that such transfer is proper. Upon the surrender of a
certificate for transfer of stock, such certificate shall at once be
conspicuously marked on its face "Canceled" and filed with the permanent stock
records of the Corporation.
The Board of Directors may direct a new certificate or certificates to be
issued in place of any certificate or certificates previously issued by the
Corporation that are alleged to have been lost, stolen, mutilated, or destroyed
upon the receipt of an affidavit of that fact by the person claiming the
certificate of stock to be lost, stolen, mutilated or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to issuance
thereof, require the owner of such lost, stolen, mutilated, or destroyed
certificate or certificates or the owner's legal representative to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate or
certificates alleged to be lost, stolen, mutilated, or destroyed.
The Board of Directors may make such additional rules concerning the
issuance, transfer, and registration of stock and requirements regarding the
establishment of lost, destroyed, or wrongfully taken stock certificates as it
deems appropriate.
Section 3. Registered Shareholders. The Corporation may deem and treat the
holder of record of any stock as the absolute owner for all purposes, including
voting and distributions, and shall not be required to take any notice of any
right or claim of right of any other person except for any rights that a
beneficial owner of any stock may have to inspect the records of the Corporation
pursuant to the Georgia Business Corporation Code. The Board of Directors may
adopt by resolution a procedure by which the beneficial owner of shares that are
registered in the name of a nominee is recognized by the Corporation as the
shareholder. The extent of this recognition may be determined in the procedure.
The
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<PAGE> 11
procedure may set forth: (i) the types of nominees to which it applies; (ii) the
rights or privileges that the Corporation recognizes in a beneficial owner;
(iii) the manner in which the procedure is selected by the nominee; (iv) the
information that must be provided when the procedure is selected; (v) the period
for which selection of the procedure is effective; and (vi) other aspects of the
rights and duties created.
Section 4. Record Date. For the purpose of determining shareholders
entitled to notice of or entitled to vote at any meeting of shareholders, or
shareholders entitled to receive any distribution, or in order to make a
determination of shareholders for any other purpose, the Board of Directors of
the Corporation may fix in advance a date as the record date for any such
determination, such date not to be more than seventy (70) days prior to the
meeting date or the date of the action requiring a determination of
shareholders; provided that if not otherwise fixed by the Board of Directors,
the record date for determining shareholders entitled to take action without a
meeting is the date the first shareholder signs the consent to such action. A
determination of shareholders entitled to notice of or to vote at any meeting of
shareholders is effective for any adjournment of the meeting unless the Board of
Directors fixes a new record date, which it must do if the meeting is adjourned
to a date more than one hundred twenty (120) days after the date fixed for the
original meeting.
ARTICLE V
DEPOSITIONS, SIGNATURES AND SEAL
Section 1. Depositories. All funds of the Corporation shall be deposited
in the name of the Corporation in such bank, banks, or other financial
institutions as the Board of Directors may from time to time designate and shall
be drawn out on checks, drafts, or other orders signed on behalf of the
Corporation by such person or persons as the Board of Directors may from time to
time designate.
Section 2. Contracts and Deeds. All contracts, deeds, and other
instruments shall be signed in the name of and on behalf of the Corporation by
the President or by such other officer, officers, agent, or agents as the Board
of Directors may from time to time authorize. Such authority may be general or
confined to specific instances.
Section 3. Seal. The seal of the Corporation shall be in such form as the
Board of Directors may from time to time authorize. If no form of the seal is
authorized, then the seal of the Corporation shall consist of two concentric
circles, in between which shall be printed the name of the Corporation and the
year of incorporation and in the center of which shall be printed the word
"SEAL."
If the seal is affixed to a document, the signature of the Secretary or an
Assistant Secretary shall attest the seal. The seal and its attestation may be
lithographed or otherwise printed on any document and shall have, to the extent
permitted by law, the same force and effect as if it had been affixed and
attested manually. The failure to use the seal on any instrument or document
shall not affect the validity thereof.
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<PAGE> 12
ARTICLE VI
INDEMNITY
Any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, formal or informal (including any
action by or in the right of the Corporation), by reason of the fact that such
person is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, shall be indemnified by the Corporation against expenses
(including reasonable attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, if such person acted in a manner he believed in
good faith to be in or not opposed to the best interest of the Corporation (and
with respect to any criminal action or proceeding, if such person had no
reasonable cause to believe such person's conduct was unlawful), to the maximum
extent permitted by, and in the manner provided by, the Georgia Business
Corporation Code. Nothing contained in this Article VI shall in any way limit or
otherwise affect the indemnification provided for in the Articles of
Incorporation of the Corporation or in any contract to which the Corporation is
a party.
ARTICLE VII
AMENDMENT OF BYLAWS
Except as otherwise provided for herein, by the Articles of Incorporation,
or by law, the Board of Directors and the shareholders shall each have the power
to alter, amend, or repeal the Bylaws or adopt new bylaws. The shareholders may
prescribe that any bylaw or bylaws adopted by them shall not be altered,
amended, or repealed by the Board of Directors. Except as otherwise provided for
herein, by the Articles of Incorporation, or by law, action by the directors
with respect to the Bylaws shall be taken by an affirmative vote of a majority
of all of the directors then in office, and action by the shareholders with
respect to the Bylaws shall be taken by an affirmative vote of a majority of all
shares cast of each voting group entitled to vote thereon.
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<PAGE> 1
Exhibit 5.1
[ALSTON & BIRD LLP LETTERHEAD]
August 9, 1999
BR Holding, Inc.
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
Re: Registration Statement on Form S-4 (No. 333-________)
Ladies and Gentlemen:
We have acted as legal counsel to BR Holding, Inc., a Georgia corporation
(the "Company"), in connection with the filing of the above-referenced
Registration Statement (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") to register under the Securities Act of
1933, as amended (the "Act"), 11,327,000 shares of the Company's Common Stock,
par value $.01 per share, for issuance and sale by the Company (the "Shares").
We have examined the Articles of Incorporation of the Company, the Bylaws
of the Company, records of proceedings of the Board of Directors, or committees
thereof, and the shareholders of the Company deemed by us to be relevant to this
opinion letter. We also have examined originals or copies, certified or
otherwise identified to our satisfaction, of such other corporate records and
documents of the Company, such certificates of officers of the Company and
public officials, and such other records and documents as we have deemed
necessary or appropriate as a basis for the opinion hereinafter expressed. In
such examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity and completeness of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed, photostatic or facsimile
copies, and the authenticity of the originals of such copies, and we have
assumed all certificates of public officials to have been properly given and to
be accurate.
As to certain factual matters relevant to this opinion letter, we have
relied upon the statements contained in the above-referenced certificates of
officers of the Company and public officials. Except to the extent expressly set
forth herein, we have made no independent investigations with regard thereto,
and, accordingly, we do not express any opinion as to matters that might have
been disclosed by independent verification.
<PAGE> 2
BR Holding, Inc.
August 6, 1999
Page 2
Our opinion set forth below is limited to the laws of the State of
Georgia, and we do not express any opinion herein concerning any other laws.
On the basis of the foregoing, and subject to the limitations set forth
herein, we are of the opinion that the Shares have been duly authorized and
will, upon their issuance and sale in accordance with the Registration
Statement, be validly issued, fully paid and non-assessable by the Company under
the Georgia Business Corporation Code as in effect on this date.
We consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Prospectus constituting a part thereof. In giving such consent,
we do not thereby admit that we are within the category of persons whose consent
is required under Section 7 of the Act or the rules and regulations of the
Commission thereunder.
This opinion letter is being furnished by us to the Company and the
Commission solely for the benefit of the Company and the Commission in
connection with the Registration Statement and is not to be used, circulated,
quoted or otherwise relied upon by any other person, or by the Company or the
Commission for any other purpose, without our express written consent. The only
opinion rendered by us consists of those matters set forth in the fifth
paragraph hereof, and no opinion may be implied or inferred beyond those
expressly stated. This opinion letter is rendered as of the date hereof, and we
have no obligation to update this opinion letter.
Sincerely,
ALSTON & BIRD LLP
By: /s/ Stephen A. Opler
---------------------------
Stephen A. Opler, Partner
<PAGE> 1
Exhibit 8.1
[PROSKAUER ROSE LLP LETTERHEAD]
August 5, 1999
BR Holding, Inc.
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
Re: Form S-4 Registration Statement under the Securities Act of 1933
Dear Sirs :
We have acted as your counsel in connection with the Agreement and
Plan of Merger (the "Reorganization Agreement" and the merger contemplated
thereby, the "Reorganization"), by and among BR Holding, Inc. ("BR Holding"),
Bull Run Corporation ("Bull Run") and a wholly-owned subsidiary of BR Holding,
and the Agreement and Plan of Merger (the "Merger Agreement" and the mergers
contemplated thereby, the "Mergers"), dated as of February 15, 1999, as amended
to date, by and among BR Holding, Bull Run, Capital Sports Properties, Inc.
("Capital"), Host Communications, Inc. ("Host") and Universal Sports America,
Inc. ("Universal") and various subsidiaries. In that connection, we have
participated in the preparation of a Registration Statement on Form S-4 under
the Securities Act of 1933 which contains a proxy statement/prospectus
(collectively, the "Proxy Statement/Prospectus"), relating to the exchange of BR
Holding common stock for Bull Run common stock in the Reorganization and the
exchange of BR Holding common stock and cash for the outstanding stock of
Capital, Host and Universal not already owned directly or indirectly by BR
Holding.
We have examined the Reorganization Agreement, the Merger Agreement,
the Proxy Statement/Prospectus, the representation letter of BR Holding (dated
the date hereof) delivered to us for purposes of this opinion, and such other
documents and corporate records as we have deemed necessary or appropriate for
purposes of this opinion. In addition, we have assumed that (i) the
Reorganization and the Mergers will be consummated in the manner contemplated in
the Proxy Statement/Prospectus and in accordance with the Reorganization
Agreement and Merger Agreement, (ii) the statements concerning the
Reorganization and the Mergers set forth in the Proxy Statement/Prospectus are
accurate and complete, (iii) the representations made to us by BR Holding in the
representation letter are accurate and complete and (iv) insofar as such BR
Holding representation letter contemplates or describes the
<PAGE> 2
BR Holding, Inc.
August 5, 1999
Page
occurrence or absence of certain future events, such future events will in fact
occur or fail to occur, as so contemplated or described.
Based upon the foregoing, it is our opinion that the descriptions of
the Federal income tax consequences to certain holders of outstanding shares of
Bull Run, Capital, Host and Universal common stock who participate in the
Reorganization and Mergers, contained in the Proxy Statement/Prospectus under
the headings, "Proposal 1: Approval of the Creation of a Holding Company
Structure - - Material Federal Income Tax Consequences" and "Proposal 2:
Approval of the Issuance of BR Holding Shares in the Mergers - - Material
Federal Income Tax Consequences," correctly set forth the material Federal
income tax consequences for such holders.
In addition, based upon the foregoing, we confirm our opinions set
forth in the second paragraph under the heading, "Proposal 1: Approval of the
Creation of a Holding Company Structure -- Material Federal Income Tax
Consequences," and in the second paragraph under the heading, Proposal 2:
Approval of the Issuance of BR Holding Shares in the Mergers - Material Federal
Income Tax Consequences," in the Proxy Statement/Prospectus.
We hereby consent to the filing of this opinion as an exhibit to
Bull Run's Registration Statement on Form S-4 and to the reference to this firm
in the sections captioned "Proposal 1: Approval of the Creation of a Holding
Company Structure - - Material Federal Income Tax Consequences" and "Proposal 2:
Approval of the Issuance of BR Holding Shares in the Mergers - - Material
Federal Income Tax Consequences" in the Proxy Statement/Prospectus. In giving
this consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
Proskauer Rose LLP
By /s/ Alan P. Parnes
-----------------------------
Alan P. Parnes
A Member of the Firm
<PAGE> 1
Exhibit 10.1
BULL RUN CORPORATION
AMENDED AND RESTATED 1994 LONG TERM INCENTIVE PLAN
1. Purpose
The purpose of the Bull Run Corporation Amended and Restated 1994 Long
Term Incentive Plan (the "Plan") is to encourage and enable employees of, or
consultants or advisors to, Bull Run Corporation (the "Company") or a parent or
subsidiary thereof, to acquire a proprietary interest in the Company through the
ownership of common stock, par value $.01 per share (the "Common Stock"), of the
Company. Such ownership will provide such persons with a more direct stake in
the future welfare of the Company and encourage them to remain with the Company
or a parent or subsidiary of the Company. It is also expected that the Plan will
encourage qualified persons to seek and accept employment or other association
with the Company or a parent or subsidiary of the Company. Pursuant to the Plan,
such persons may be granted stock options, restricted stock awards, and stock
appreciation rights (collectively, "Plan Awards"). Consultants and advisors
entitled to receive Plan Awards are hereinafter collectively referred to as
"Associates," and the relationship of the Associates to the Company or to a
subsidiary or parent of the Company is herein referred to as "association with"
the Company.
As used herein, the term "parent" or "subsidiary" shall mean any present
or future corporation which is or would be a "parent corporation" or "subsidiary
corporation" of the Company as such terms are defined in Section 424 of the
Internal Revenue Code of 1986, as amended (the "Code") (determined as if the
Company were the employer corporation).
2. Administration of the Plan
The Plan shall be administered by a committee (the "Committee") as
appointed from time to time by the Board of Directors of the Company (the
"Board"), which committee shall consist of not less than two members of the
Board who shall be "disinterested persons" as such term is defined in Rule
16(b)-3(c)(2) promulgated under the Securities Exchange Act of 1934, as amended
(the "1934 Act"). No person while a member of the Committee or any other
committee of the Board administering the Plan shall be eligible to receive a
Plan Award.
In administering the Plan, the Committee shall follow any general
guidelines not inconsistent with the Plan established by the Board and may adopt
rules and regulations for carrying out the Plan. The Committee may consult with
counsel, who may be counsel to the Company, and shall not incur any liability
for any action taken in good faith in reliance upon the advice of counsel. The
interpretations and decisions made by the Committee with regard to any question
arising under the Plan shall be final and conclusive on all persons
participating or eligible to participate in the Plan. Subject to the provisions
of the Plan and any guidelines established by the Board, the Committee
<PAGE> 2
from time to time shall determine the terms and conditions of all Plan Awards,
including, but not limited to, the persons (the "Participants") to whom, and the
time or times at which, Plan Awards shall be granted, the number of shares
subject to each Plan Award, the number of options which shall be treated as
incentive stock options (as described in Section 422 of the Code), the duration
of each option, the specific restrictions applicable to restricted stock awards
and other Plan Awards, any performance criteria in order to determine the extent
to which a Plan Award has been earned, and other terms and provisions of each
Plan Award.
It is the intent of the Company that this Plan and all Plan Awards
satisfy, and be interpreted in a manner that will satisfy, the applicable
requirements of Rule 16b-3 promulgated under the 1934 Act, so that Participants
who are or may be, with respect to their ownership of Common Stock, directly or
indirectly (including by virtue of any other person being required to report
ownership of securities owned by a Participant) subject to Section 16 of the
1934 Act ("Insiders") will be entitled to the benefits of such Rule 16b-3, or
other exemptive rules under such Section 16, and will not be subjected to
liability thereunder. If any provision of this Plan or of any Plan Award would
otherwise frustrate or conflict with the intent expressed in this Section 2,
that provision, to the extent possible, shall be interpreted and deemed amended
so as to avoid such conflict. To the extent of any remaining irreconcilable
conflict with such intent, such provision shall be deemed void as applicable to
Insiders.
3. Shares of Stock Subject to the Plan
The aggregate number of shares that may be issued or transferred pursuant
to Plan Awards shall not exceed 3,500,000 shares of Common Stock, subject to
adjustment as provided in Section 9. Such shares of Common Stock available under
the Plan may be authorized and unissued shares or previously issued shares
acquired or to be acquired by the Company and held in treasury. Any shares
subject to a Plan Award which for any reason terminates, expires, or is
forfeited without the delivery to the holder of the Plan Award of shares of
Common Stock or other consideration may again be subject to a new Plan Award. If
an option or related stock appreciation right is exercised for shares of Common
Stock, the shares covered by such option shall not thereafter be available for
grant pursuant to the Plan. Any shares of Common Stock that are used by a
participant as full or partial payment of withholding or other taxes or of the
purchase price of shares of Common Stock acquired on the exercise of an option
shall be counted against the limit set forth in the first sentence of this
Section 3 and shall not thereafter be available for Plan Awards, except that
such shares shall be available for Plan Awards to persons who are not Insiders.
4. Eligibility
Plan Awards may be granted to employees who are employed by, and
Associates who are associated with, the Company of a parent or subsidiary of the
Company. Solely with respect to Plan Awards to employees that are intended to be
performance based compensation not subject to the $1 million deduction limit
under Section 162(m) of the Code, options to purchase no more than 750,000
shares of Common Stock may be granted under the Plan to each employee, subject
to adjustment as provided in Section 9, for each calendar year during the entire
term of the Plan. To the extent that shares of Common Stock or other Plan Awards
are not issued or granted in a particular calendar year
2
<PAGE> 3
to an individual, such shares of Common Stock or other Awards shall be available
for grant to such individual in any subsequent calendar year during the term of
the Plan.
5. Granting of Plan Awards
All Plan Awards shall be granted within 10 years from August 30, 1994, the
date of the adoption of the Plan by the favorable vote of a majority of the
Board. The date of the grant of any Plan Award shall be the date on which the
Committee authorizes the grant of such Plan Award.
6. Options
Options shall be evidenced by stock option agreements in such form, not
inconsistent with the Plan, as the Committee shall approve from time to time,
which agreements need not be identical, and shall be subject to the following
terms and conditions and such other terms and conditions as the Committee may
prescribe:
(a) Option Price. The exercise price of each stock option shall be
such price as shall be fixed by the Committee, but not less than the par
value of the Common Stock and, in the case of an incentive stock option,
shall not be less than the Fair Market Value (as defined below). In the
case of an incentive stock option granted to a Participant owning more
than 10% of the total combined voting power of all classes of stock of the
Company or of any parent or subsidiary of the Company (a "10%
Shareholder"), actually or constructively under Section 424(d) of the
Code, the exercise price shall not be less than 110% of the Fair Market
Value of the Common Stock subject to the option at the date of its grant.
(b) Medium and Time of Payment. Shares of Common Stock purchased
pursuant to the exercise of an option shall at the time of purchase be
paid for in full in cash, or with shares of Common Stock, or a combination
of cash and Common Stock to be valued at the Fair Market Value thereof on
the date of such exercise. Upon receipt of payment and such documentation
as the Company may deem necessary to establish compliance with the
Securities Act of 1933, as amended (the "1933 Act"), the Company shall,
without stock transfer tax to the optionee or other person entitled to
exercise the option, deliver to the person exercising the option a
certificate or certificates for such shares. It shall be a condition to
the performance of the Company's obligation to issue or transfer Common
Stock upon exercise of an option or options that the optionee pay, or make
provision satisfactory to the Company for the payment of, any taxes (other
than stock transfer taxes) which the Company is obligated to collect with
respect to the issue or transfer of Common Stock upon such exercise,
including any Federal, state, or local withholding taxes. At the
discretion of the Committee, or as may be provided in the option agreement
evidencing any option, such taxes may be, or may be required to be, paid
in cash or by tender of the option holder or withholding by the Company of
the number of shares of Common Stock whose Fair Market Value equals the
amount required to be withheld. At the discretion of the Committee, such
taxes may be paid by the Company.
3
<PAGE> 4
(c) Waiting and Exercise Period. The waiting period and time for
exercising an option shall be prescribed by the Committee in each
particular case; provided, however, that (i) no option may be exercised
after 10 years from the date it is granted and (ii) in the case of an
incentive stock option granted to a 10% Shareholder, such option, by its
terms, shall be exercisable only within five years from the date of grant.
(d) Reload Options. The Committee shall have the authority (but not
any obligation) to include within any option agreement a provision
entitling the optionee to a further option (a "Reload Option") if the
optionee exercises the option evidenced by the option agreement, in whole
or in part, by surrendering other shares of Common Stock in accordance
with the Plan and the terms and conditions of the option agreement. Any
such Reload Option shall not be an incentive stock option, shall be for a
number of shares of Common Stock equal to the number of surrendered
shares, shall be exercisable at a price equal to the Fair Market Value of
the Common Stock on the date of exercise of such original option, shall
become exercisable if the shares purchased by the optionee pursuant to the
option agreement are held for a minimum period of time established by the
Committee, and shall be subject to such other terms and conditions as the
Committee may determine.
(e) Fair Market Value. The "Fair Market Value" per share of the
Common Stock on any date shall be the "closing price" on the trading day
immediately preceding the date in question, where the "closing price" on
any day is (i) the last reported sales price regular way or, in case no
such reported sale takes place on such day, the closing bid price regular
way, in either case on the principal national securities exchange
(including, for purposes hereof, the NASDAQ National Market System) on
which the Common Stock is listed or admitted to trading, (ii) if on such
date the Common Stock is not listed or admitted to trading on any national
securities exchange, the highest reported bid price for the Common Stock
as furnished by the National Association of Securities Dealers, Inc.
through NASDAQ or a similar organization if NASDAQ is no longer reporting
such information, or (iii) if on such date the Common Stock is not listed
or admitted to trading on any national securities exchange and is not
quoted by NASDAQ or any similar organization, the Fair Market Value of a
share of Common Stock on such date, as determined in good faith by the
Committee in a manner consistent with the requirements of the Code, whose
determination shall be conclusive absent manifest error, shall be used.
7. Restricted Stock Awards
Restricted stock awards shall be evidenced by agreements in such form, not
inconsistent with the Plan, as the Committee shall approve from time to time,
which agreements need not be identical, and shall be subject to the following
terms and conditions and such other terms and conditions as the Committee may
prescribe:
(a) Forfeiture Period. The period and time during, and the
conditions and restrictions under, which a restricted stock award is
subject to forfeiture (the "Restriction Period") shall be prescribed by
the Committee in each particular case, subject to the provisions of
Section 12.
4
<PAGE> 5
(b) Restrictive Legend and Stock Power. Each certificate evidencing
shares of Common Stock subject to a restricted stock award shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such restricted stock award. The Committee may prescribe
that the certificates evidencing such shares be held in escrow by a bank
or other institution, or that the Company may itself hold such shares in
escrow, until the restrictions thereon shall have lapsed and may require,
as a condition of any restricted stock award, that the recipient shall
have delivered a stock power endorsed in blank relating to the shares of
Common Stock subject to the restricted stock award. Upon the termination
of the Restriction Period with respect to any shares of Common Stock
subject to a restricted stock award, the certificate evidencing such
shares will be delivered out of escrow, subject to the satisfaction by the
recipient of applicable Federal and state securities laws and withholding
tax requirements, including any Federal, state, or local withholding
taxes. At the discretion of the Committee, or as may be provided in the
agreement evidencing any option, such taxes may be paid, or may be
required to be paid, in cash or by tender of the holder of restricted
stock or withholding by the Company of the number of shares of Common
Stock whose Fair Market Value equals the amount required to be withheld.
At the discretion of the Committee, such taxes may be paid by the Company.
8. Stock Appreciation Rights
Stock appreciation rights shall be evidenced by agreements (which, in the
case of stock appreciation rights related to a stock option, may be included as
part of the agreement evidencing such option) in such form, not inconsistent
with the Plan, as the Committee shall approve from time to time, which
agreements need not be identical, and shall be subject to the following terms
and conditions and such other terms and conditions as the Committee may
prescribe:
(a) Definition. A stock appreciation right means a right granted
pursuant to the Plan to receive, upon the exercise of such right, up to
the excess of (i) the Fair Market Value of one share of Common Stock on
the date of exercise or at any time during a specified period before the
date of exercise over (ii) the Fair Market Value of one share of Common
Stock on the date of grant. Any payment by the Company in respect of such
right may be made in cash, shares of Common Stock, other property, or any
combination thereof, as the Committee, in its sole discretion, shall
determine or as shall be provided in the agreement evidencing such stock
appreciation right.
(b) Grant and Termination. Stock appreciation rights may be granted
either alone or in addition to other Plan Awards granted under the Plan
and may, but need not, relate to a specific stock option granted under the
Plan. The provisions of stock appreciation rights need not be the same
with respect to each Participant. Any stock appreciation right related to
a stock option may be granted at the same time such stock option is
granted or at any time thereafter before exercise or expiration of such
stock option. In the case of any stock appreciation right related to any
stock option, the stock appreciation right or applicable portion thereof
shall terminate and no longer be exercisable upon the termination or
exercise of the related stock option or portion thereof, except that a
stock appreciation right granted with respect to less than the full number
of shares of Common Stock covered by a related
5
<PAGE> 6
stock option shall only be reduced when the exercise or termination of the
related stock option exceeds the number of shares not covered by the stock
appreciation right. Any stock option related to any stock appreciation
right shall no longer be exercisable to the extent the related stock
appreciation right has been exercised.
(c) Number of Rights. If any agreement evidencing a stock
appreciation right which does not relate to any option shall provide that
such stock appreciation right may be settled only in cash (a "cash-only
right"), the number of shares of Common Stock to which such cash-only
right relates shall not be deducted from the limit set forth in Section 3;
provided that the number of cash-only rights which may be issued in any
fiscal year of the Company shall not exceed 10,000 shares of Common Stock.
Except with respect to cash-only rights, the Committee, for purposes of
determining compliance with the limit set forth in Section 3, shall
estimate the number of shares of Common Stock expected to be issued on
settlement of any stock appreciation right, taking into account any
intention of the Committee to require settlement in cash.
(d) Exercise by Insiders. No stock appreciation right may be
exercised by an Insider unless such exercise is exempt from Section 16(b)
of the 1934 Act pursuant to Rule 16b-3 promulgated thereunder or
otherwise.
9. Adjustments upon Changes in Capitalization
(a) If dividends payable in Common Stock during any fiscal year of
the Company exceed in the aggregate 5% of the shares of Common Stock
issued and outstanding at the beginning of such fiscal year, or if there
is during any fiscal year of the Company one or more splits, subdivisions,
or combinations of shares of Common Stock resulting in an increase or
decrease by more than 5% of the shares of Common Stock outstanding at the
beginning of the year, the number of shares of Common Stock available
under the Plan shall be increased or decreased proportionately, as the
case may be, the number of shares of Common Stock subject to stock
appreciation rights and the related Fair Market Value thereof as of the
date of grant shall be increased or decreased proportionately, as the case
may be, and the exercise price and number of shares of Common Stock
deliverable upon the exercise thereafter of any options theretofore
granted shall be increased or decreased proportionately, as the case may
be, without change in the aggregate purchase price. Common Stock
dividends, splits, subdivisions, or combinations during any fiscal year
which do not exceed in the aggregate 5% of the shares of Common Stock
issued and outstanding at the beginning of such year shall be ignored for
purposes of the Plan. All adjustments shall be made as of the day such
action necessitating such adjustment becomes effective.
(b) In the case of any change or reclassification of the Common
Stock, including by reason of any merger, consolidation, or sale of all or
substantially all of the assets of the Company, and including a change
into a right to receive cash or other property, but excluding a change or
reclassification provided for in Section 9(a), (i) the holder of each
option shall thereafter be entitled, upon exercise of such option in
accordance with its terms, to receive the kind and amount of securities,
property, or cash, or any combination thereof, receivable
6
<PAGE> 7
upon such change or reclassification by a holder of the number of shares
of Common Stock for which such option might have been exercised (without
regard to any waiting or vesting period) immediately prior to such change
or reclassification and (ii) the holder of each stock appreciation right
shall be entitled to receive, upon exercise thereof, the excess, if any,
of the fair market value (determined in a manner consistent with the
definition of Fair Market Value in Section 6(e)) of the securities,
property, or cash, or combination thereof, receivable upon such change or
reclassification by a holder of one share of Common Stock over the grant
price of such stock appreciation right.
(c) If the Committee shall determine that any event not specifically
provided for in Sections 9(a) and (b) affects the shares of Common Stock
such that an adjustment is determined by the Committee to be appropriate
to prevent dilution or enlargement of Participants' rights under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust
any or all of (i) the number and kind of shares which may thereafter be
issued in connection with Plan Awards; (ii) the number and kind of shares
issued or issuable in respect of outstanding Plan Awards; and (iii) the
exercise price, grant price, or purchase price relating to any Plan Award
or, if deemed appropriate, make provision for a cash payment with respect
to any outstanding Plan Award; provided, however, in each case, that, with
respect to incentive stock options, no such adjustment shall be authorized
to the extent that such adjustment would cause the Plan to violate Section
422(b)(2) of the Code or any successor provision thereto.
10. Effectiveness, Termination, and Amendment of the Plan
(a) The Plan shall become effective August 30, 1994, the date of its
adoption by the favorable vote of a majority of the Board, subject,
however, to approval by shareholders of the Company within 12 months next
following such adoption by the Board. If such approval is not obtained,
the Plan and any and all Plan Awards granted during such interim period
shall terminate and be of no further force or effect. The Plan shall, in
all events, terminate on August 29, 2004, or on such earlier date as the
Board may determine, except that the Plan will remain in effect with
respect to Plan Awards outstanding as of such termination date. Any option
or stock appreciation right outstanding at the termination date shall
remain outstanding until it has either expired or has been exercised. Any
restricted stock award outstanding at the termination date shall remain
subject to the terms of the Plan until the restrictions thereon shall have
lapsed.
(b) The Board shall have the right to amend, suspend, or terminate
the Plan at any time; provided, however, that (i) no such action shall
affect or in any way impair the rights of a Participant under any Plan
Award theretofore granted; (ii) unless first duly approved by the
shareholders of the Company entitled to vote thereon at a meeting duly
called and held for such purpose, except as provided in Section 10, or by
a consent of shareholders, no amendment or change shall be made in the
Plan: (A) increasing the total number of shares of Common Stock which may
be issued or transferred under the Plan; (B) extending the period during
which Plan Awards may be granted or exercised; or (C) changing the
designation of persons eligible to receive Plan Awards.
7
<PAGE> 8
11. Death, Retirement, and Termination of Employment
(a) General. An option or stock appreciation right which has not
theretofore expired shall terminate on the date of the termination for
cause (as hereinafter defined) or 12 months after the date of the
termination for any reason, other than for cause, death, or Retirement (as
defined in Section 11 (b)), of the holder's employment or association with
the Company or a parent or subsidiary of the Company (including by reason
of any event as a result of which a parent or subsidiary ceases to be
such), subject to the condition that no option or stock appreciation right
granted in connection with an option may be exercised in whole or in part
after the expiration date of the option or more than 10 years after the
date of grant of such option or stock appreciation right. "Cause" shall
mean that the Committee shall have determined that any of the following
events has occurred: (i) an act of fraud, embezzlement, misappropriation,
or theft committed by a Participant in the course of his employment by or
association with the Company or any intentional or grossly negligent
misconduct of a Participant which injures the business or reputation of
the Company; (ii) a Participant's willful failure or refusal to perform
the customary duties and responsibilities of his position with the
Company; (iii) a Participant's breach of fiduciary duty, or the making of
a false representation, to the Company; (iv) the conviction by a
Participant of a felony or a crime involving moral turpitude; or (v) the
commission by a Participant of a public or notorious act which subjects
the Company to public disrespect, scandal, or ridicule and which adversely
affects the value of the services to the Company of such Participant.
(b) Retirement, Disability, and Non-Qualified Options. With respect
to non-qualified options and stock appreciation rights, upon the
termination of employment or association due to retirement with the
consent of the Committee or Disability (as hereinafter defined)
(collectively, "Retirement"), the holder of such option or stock
appreciation right may, during a period (the "Retirement Period") which is
the lesser of (i) up to 10 years after the date of grant of such option or
stock appreciation right, such period to be set on a case by case basis by
the Committee, and (ii) three years from the date of such termination,
exercise such stock appreciation right or purchase some or all of the
shares covered by such non-qualified stock option which was exercisable
under the Plan immediately prior to such termination. "Disability" shall
have the meaning provided in Section 22(e)(3) of the Code.
(c) Retirement and Incentive Options. With respect to incentive
stock options, upon the termination of the employment of any such employee
due to Retirement, the employee may, within three months after the date of
such termination (12 months in the case of Disability), purchase some or
all of the shares covered by an incentive stock option which was
exercisable under the Plan immediately prior to such termination and
shares not purchased within three months (12 months in the case of
Disability) after the date of termination due to Retirement under such
incentive stock option may be purchased during the Retirement Period but
will be non-qualified stock option stock and not incentive stock option
stock; provided, however, that, prior to such purchase, the option will
remain subject to the provisions of the Plan governing incentive stock
options.
8
<PAGE> 9
(d) Death. Upon the death of any holder of any option or stock
appreciation right while in active service or of the death of any disabled
or retired person within the periods referenced in Sections 11(b) and (c),
the person or persons to whom such holder's rights under an option or
stock appreciation right are transferred by will or the laws of descent
and distribution may, within 12 months after the date of such person's
death, exercise such stock appreciation right or purchase some or all of
the shares to which such person was entitled pursuant to the exercise of
an option under the Plan on the date of his death.
(e) Leaves of Absence. Leaves of absence pursuant to Section 13(d)
shall not be deemed terminations or interruptions of employment or other
association.
12. Acceleration of Vesting
(a) An option or restricted stock award shall automatically be
vested and immediately exercisable in full and any restrictions contained
in any restricted stock award shall automatically terminate upon the
occurrence of any of the following events:
(i) any person within the meaning of Sections 13(d) and 14(d)
of the 1934 Act, other than the Company or any of its subsidiaries,
has become the beneficial owner, within the meaning of Rule 13d-3
under the 1934 Act, of 30 percent or more of the combined voting
power of the Company's then outstanding voting securities, unless
such ownership by such person has been approved by the Board
immediately prior to the acquisition of such securities by such
person;
(ii) the first day on which shares of Common Stock are
purchased pursuant to a tender offer or exchange offer, unless such
offer is made by the Company or unless such offer has been approved
or not opposed by the Board; or
(iii) the shareholders of the Company have approved an
agreement to merge or consolidate with or into another corporation
(and the Company is not the survivor of such merger or
consolidation) or an agreement to sell or otherwise dispose of all
or substantially all of the Company's assets (including a plan of
liquidation), unless the Board has resolved that options or
restricted stock awards shall not automatically vest and
restrictions in restricted stock awards shall not automatically
terminate.
(b) The Committee shall have the authority at any time or from time
to time to accelerate the vesting of any individual option or restricted
stock award and to permit any stock option not therefore exercisable to
become immediately exercisable and to permit the immediate termination of
any restrictions contained in any restricted stock award.
13. Miscellaneous Provisions
(a) Rights as an Employee. Nothing in the Plan, the grant or holding
of a Plan Award, or in any agreement entered into pursuant to the Plan
shall confer on any Participant any right to continue in the employ of or
other association with the Company or any parent
9
<PAGE> 10
or subsidiary of the Company or interfere in any way with the right of the
Company or any parent or subsidiary of the Company to terminate such
employment or other association of a Participant at any time.
(b) Rights as a Shareholder. Except as provided in Section 13(c), a
holder of a restricted stock award shall have all of the rights of a
shareholder with respect to all of the shares of Common Stock subject to
the restricted stock award, including, without limitation, the right to
vote such shares and to receive dividends in cash or other property or
other distributions or rights in respect of such shares. A holder of a
Plan Award (other than a restricted stock award) shall have no rights as a
shareholder with respect to any shares of Common Stock issuable or
transferable upon exercise thereof until the date a stock certificate is
issued to him for such shares, and, except as otherwise expressly provided
in the Plan, no adjustment shall be made for dividends or other rights for
which the record date is prior to the date such stock certificate is
issued.
(c) Non-Assignability of Plan Awards. No Plan Award shall be
assignable or transferable by the recipient, except (i) by will or by the
laws of descent and distribution or (ii) in the case of Plan Awards other
than incentive stock options, pursuant to a qualified domestic relations
order (as defined in the Code or the Employee Retirement Income Security
Act or the rules thereunder), provided that such restriction on the
transfer or assignment of a restricted stock award shall expire upon the
date of expiration of the related Restriction Period. During the lifetime
of a recipient (or transferee pursuant to Section 14(c)(ii)), Plan Awards
shall be exercisable only by him or his personal representative or
guardian. No Plan Award or interest therein may be pledged, attached, or
otherwise encumbered other than in favor of the Company.
(d) Leave of Absence. In the case of a Participant on an approved
leave of absence, the Committee may, if it determines that to do so would
be in the best interests of the Company, provide in a specific case for
continuation of Plan Awards during such leave of absence, such
continuation to be on such terms and conditions as the Committee
determines to be appropriate, except that in no event shall an option or
stock appreciation right be exercisable after 10 years from the date it is
granted.
(e) Other Restrictions. Each Plan Award shall be subject to the
requirement that, if at any time the Board or the Committee shall
determine, in its discretion, that the listing, registration, or
qualification of the shares of Common Stock issuable or transferable upon
exercise thereof upon any securities exchange or under any state or
Federal law, or the consent or approval of any governmental regulatory
body is necessary or desirable as a condition of, or in connection with,
the granting of such Plan Award or the issue, transfer, or purchase of
shares thereunder, such Plan Award may not be exercised in whole or in
part unless such listing, registration, qualification, consent, or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board. The Company shall not be obligated to sell or
issue any shares of Common Stock in any manner in contravention of the
1933 Act or any state securities law.
10
<PAGE> 1
EXHIBIT 10.3
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Agreement"), dated as of _____ __,
1999, is made and entered into by and among Robinson-Prather Partnership (the
"R-P Partnership"), Hilton H. Howell, Jr., W. James Host, Charles L. Jarvie and
Douglas L. Jarvie (each, a "Subject Stockholder" and collectively, the "Subject
Stockholders").
WHEREAS, BR Holding, Inc. ("Parent"), Bull Run Corporation ("Bull Run")
and a wholly owned subsidiary of Parent have entered into an Agreement and Plan
of Merger (the "Reorganization Agreement"), dated as of _________, 1999,
pursuant to which, among other things, such subsidiary will merge with and into
Bull Run (the "Reorganization") and shares of common stock, par value $. 01 per
share ("Parent Common Stock"), of Parent will be issued to the stockholders of
Bull Run;
WHEREAS, Parent, Bull Run, Capital Sports Properties, Inc. ("Capital"),
Host Communications, Inc. ("Host"), Universal Sports America, Inc. ("USA") and
three wholly owned subsidiaries of Parent have entered into an Agreement and
Plan of Merger (the "Merger Agreement"), dated as of February 15, 1999, as
amended to date, pursuant to which, among other things, such subsidiaries will
merge immediately after the Reorganization with and into Capital, Host and USA
(the "Mergers") and shares of Parent Common Stock will be issued to the
stockholders of Capital, Host and USA;
WHEREAS, after giving effect to the Reorganization and the Mergers, each
of the Subject Stockholders will beneficially own the number of shares of Parent
Common Stock set forth opposite such Subject Stockholder's name on Exhibit A
hereto (such shares, together with any shares of Parent Common Stock acquired
after the date hereof, whether upon exercise of options, conversion of
convertible securities or otherwise are collectively referred to herein as the
"Post-Merger Shares"); and
WHEREAS, the parties hereto wish to agree as to the voting of the
Post-Merger Shares by the Subject Stockholders under certain circumstances.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, the parties hereby agree
as follows:
1. Definitions. Capitalized terms used and not defined herein have the
respective meanings ascribed to them in the Merger Agreement.
<PAGE> 2
2. Voting Agreement.
(a) Agreement to Vote for Directors. From and after the date of this
Agreement, subject to Section 2(b) hereof, at any meeting of the holders of
Parent Common Stock called for the purpose of filling positions on the Board of
Directors of Parent, however called, or in any other circumstance upon which the
vote, consent or other approval of the holders of shares of Parent Common Stock
is sought for such purpose, each Subject Stockholder shall vote, or cause to be
voted, all of the Post-Merger Shares owned by him or it in favor of the election
or re-election, as the case may be, of each of Robert S. Prather, J. Mack
Robinson, Hilton H. Howell, Jr., Charles L. Jarvie, W. James Host and any
designee of the R-P Partnership (each, a "Designated Director"). No Subject
Stockholder shall vote to remove any Designated Director elected or reelected,
as the case may be, in accordance with the foregoing procedure, unless such
Designated Director ceases to be a Designated Director pursuant to Section 2(b)
or such Designated Director has engaged in willful misconduct or has breached
his fiduciary duty.
(b) Effect of Dispositions and Dilution. At such time as any of
Robert S. Prather, J. Mack Robinson, Hilton H. Howell, Jr., Charles L. Jarvie or
W. James Host ceases to beneficially own (within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934) capital stock of Parent representing 50% or
more of the total voting power of capital stock of Parent beneficially owned by
such person immediately after giving effect to the Mergers and the
Reorganization (as shown as Exhibit A hereto), such person shall cease to be a
Designated Director, shall no longer have any rights hereunder and this
Agreement shall terminate as to such person.
(c) Agreement to Vote on Other Matters. From and after the date of
this Agreement, at any meeting of the holders of Parent Common Stock, however
called, or in any circumstance upon which the vote, consent or other approval of
the holders of shares of Parent Common Stock is sought for any purpose, each of
Charles L. Jarvie, Douglas L. Jarvie and W. James Host shall vote, or cause to
be voted, all of the Post-Merger Shares owned by him in the manner designated by
the R-P Partnership.
(d) No Inconsistent Agreements. Each Subject Stockholder agrees that
he or it shall not enter into any agreement or understanding with any person or
entity, the effect of which would be inconsistent with or violate the provisions
and agreements contained in this Section 2.
(e) Fiduciary Obligations Unaffected. Nothing herein shall in any
way restrict or limit a Subject Stockholder from taking any action in his
capacity as a director or officer of Parent or otherwise fulfilling his
fiduciary obligations as a director or officer of Parent.
-2-
<PAGE> 3
3. Representations and Warranties of Each Subject Stockholder. Each
Subject Stockholder hereby represents and warrants to the other Subject
Stockholders as to his or its ownership of Post-Merger Shares as follows:
(a) Ownership of Shares. After giving effect to the Reorganization
and the Mergers, such Subject Stockholder will be beneficial owner (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934), of the number
of shares of Parent Common Stock set forth opposite such Subject Stockholder's
name on Exhibit A.
(b) Power; Binding Agreement. Such Subject Stockholder has the legal
capacity, power and authority to enter into and perform all of his or its
obligations under this Agreement. The execution, delivery and performance of
this Agreement by such Subject Stockholder will not violate any other agreement
to which such Subject Stockholder is a party, including, without limitation, any
voting agreement, stockholders' agreement or voting trust. This Agreement has
been duly and validly executed and delivered by such Subject Stockholder and
constitutes a valid and binding obligation of such Subject Stockholder
enforceable against such Subject Stockholder in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).
4. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
(b) Amendments. This Agreement may not be amended, changed,
supplemented or otherwise modified or terminated, except upon the execution and
delivery of a written agreement executed by the parties hereto.
(c) Notices. All notices, requests, claims, demands, and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service providing proof of delivery. All
communications hereunder shall be delivered to the respective parties at the
following addresses or the addresses set forth on the signature pages hereto:
-3-
<PAGE> 4
If to Robinson-
Prather Partnership: c/o Bull Run Corporation
4370 Peachtree Road, NE
Atlanta, Georgia 30319
Attention: Robert S. Prather
Facsimile: (404) 26l-9607
If to any other
Subject
Stockholder: to the address set forth on the signature page for
such Subject Stockholder attached hereto.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(d) Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal, or unenforceable provision or portion of any provision had never been
contained herein.
(e) Specific Performance. Each of the Subject Stockholders
recognizes and acknowledges that a breach by him or it of any covenants or
agreements contained in this Agreement will cause the other parties to sustain
damages for which they would not have an adequate remedy at law for money
damages and, therefore, in the event of any such breach, each non-breaching
Subject Stockholder shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which they may be entitled, at law or in equity.
(f) Further Assurances. From time to time, at a party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further action as may be necessary or
desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
(g) No Third Party Beneficiaries. This Agreement is not intended to
be for the benefit of, and shall not be enforceable by, any person or entity who
or which is not a party hereto.
(h) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Georgia, without giving effect to
the principles of conflicts of law thereof.
-4-
<PAGE> 5
(i) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(j) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but all of which, taken
together, shall constitute one and the same agreement. This Agreement shall not
be effective as to any party hereto until such time as this Agreement or a
counterpart thereof has been executed and delivered by each party hereto.
(k) Expiration. This Agreement shall expire on __________, 2006,
unless earlier terminated by the mutual written agreement of all the parties
hereto or pursuant to Section 2(b).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
ROBINSON-PRATHER PARTNERSHIP
By:
---------------------------------------
its general partner
By
---------------------------------------
Name:
Title:
------------------------------------------
Hilton H. Howell, Jr.
[Address]
------------------------------------------
W. James Host
[Address]
------------------------------------------
Charles L. Jarvie
[Address]
------------------------------------------
Douglas L. Jarvie
[Address]
-6-
<PAGE> 7
Exhibit A
SUBJECT STOCKHOLDERS
BENEFICIAL OWNERSHIP OF PARENT COMMON STOCK
AFTER GIVING EFFECT TO THE REORGANIZATION AND THE MERGERS
<TABLE>
<CAPTION>
Options to Purchase
Shares of Parent Shares of Parent
Name Common Stock Common Stock Total
- ---- ------------ ------------ -----
<S> <C> <C> <C>
Robinson-Prather
Partnership
Hilton H. Howell, Jr.
W. James Host
Charles L. Jarvie
Douglas L. Jarvie
TOTAL
</TABLE>
A-1
<PAGE> 8
Exhibit B
PREFERRED SHAREHOLDERS
<TABLE>
<CAPTION>
Number of
Name Shares Owned % of Outstanding
- ---- ------------ ----------------
<S> <C> <C>
Capital Sports Properties, Inc. 37,500 100%
</TABLE>
B-1
<PAGE> 1
Exhibit 10.4
VOTING AND SUPPORT AGREEMENT - HOST
THIS VOTING AND SUPPORT AGREEMENT (this "Agreement"), dated as of February
15, 1999, is made and entered into by and among BR Holding, Inc., a Delaware
corporation ("Parent"), Bull Run Corporation, a Georgia corporation ("Bull
Run"), Host Merger Sub, Inc., a Kentucky corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), and the stockholders of Host
Communications, Inc., a Kentucky corporation (the "Company"), listed on Exhibit
A and Exhibit B.
WHEREAS, Parent, Bull Run, Capital Sports Properties, Inc., the Company,
Universal Sports America, Inc., Merger Sub and two other wholly owned
subsidiaries of Parent have entered into an Agreement and Plan of Merger of even
date herewith (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"), pursuant to which, among other things, the parties have
agreed, on the terms and conditions set forth in the Merger Agreement, to the
merger of Merger Sub with and into the Company, with the Company as the
surviving corporation (the "Merger");
WHEREAS, as of the date hereof, each of the persons listed on Exhibit A
hereto (the "Common Shareholders") is the owner of the number of shares of
common stock, no par value per share (the "Company Common Stock"), of the
Company set forth opposite such person's name on Exhibit A (the "Existing Common
Shares" and, together with any shares of Company Common Stock acquired after the
date hereof and prior to the termination hereof, whether upon exercise of
options, conversion of convertible securities or otherwise, the "Common
Shares"); and
WHEREAS, as of the date hereof, each of the persons listed on Exhibit B
hereto (the "Preferred Shareholders") is the owner of the number of shares of
Series B Cumulative Preferred Stock, no par value per share (the "Company
Preferred Stock"), of the Company set forth opposite such person's name on
Exhibit B hereto ( the "Existing Preferred Shares" and, together with any shares
of Company Preferred Stock acquired after the date hereof and prior to the
termination hereof, whether upon exercise of options, conversion of convertible
securities or otherwise, the "Preferred Shares"); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent and Bull Run have required that each of the Common
Shareholders and the Preferred Shareholders (collectively, the "Subject
Shareholders") agree, and each of the Subject Shareholders has agreed, to vote
all of the Common Shares and Preferred Shares (collectively, the "Shares") owned
by such Subject Shareholder on the terms and conditions provided for herein;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, the parties hereby agree
as follows:
<PAGE> 2
1. Definitions. Capitalized terms used and not defined herein have the
respective meanings ascribed to them in the Merger Agreement.
2. Agreement to Vote. From and after the date of this Agreement, at any
meeting of the shareholders of the Company, however called, or in any other
circumstance upon which the vote, consent or other approval of the holders of
shares of Company Common Stock and Company Preferred Stock, as the case may be,
is sought, each Subject Shareholder shall vote (or cause to be voted) all of the
Shares owned by such Subject Shareholder (i) in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and each of the
other actions contemplated by the Merger Agreement and any actions required in
furtherance thereof; (ii) against any action or agreement that would result in a
breach of any covenant, agreement, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement; and (iii)
against the following actions (other than in connection with the Merger and the
transactions contemplated by the Merger Agreement), (A) any Acquisition Proposal
and (B) to the extent that such actions (1) are intended to, or could reasonably
be expected to, impede, interfere with, delay, postpone or materially adversely
affect the Merger, the value of the Company on a consolidated basis or the
transactions contemplated by the Merger Agreement or (2) are intended to, or
could reasonably be expected to, implement or lead to any Acquisition Proposal,
(x) any change in a majority of the persons who constitute the Board of
Directors of the Company, (y) any change in the present capitalization of the
Company or any amendment of the Company's Certificate of Incorporation or
Bylaws, in each case, as currently in effect, or (z) any other material change
in the Company's corporate structure or business. In addition to the other
covenants and agreements of the Subject Shareholders provided for elsewhere in
this Agreement, each Subject Shareholder agrees that he shall not enter into any
agreement or understanding with any person or entity the effect of which would
be inconsistent with or violate the provisions and agreements contained in this
Section 2. Nothing herein shall in any way restrict or limit a Subject
Shareholder from taking any action in his or her capacity as a director or
officer of the Company or otherwise fulfilling his or her fiduciary obligations
as a director or officer of the Company.
3. Representations and Warranties of Each Subject Stockholder. Each
Subject Stockholder hereby represents and warrants to the Company as to his
ownership of Shares as follows:
(a) Ownership of Shares. On the date hereof, the Existing Common
Shares or Existing Preferred Shares (collectively, the "Existing Shares"), as
the case may be, are owned of record and beneficially by such Subject
Shareholder and, as of the date hereof, the Existing Shares constitute all of
the shares of Company Common Stock or Company Preferred Stock, as the case may
be, owned of record or beneficially by such Subject Shareholder. Such Subject
Shareholder has sole power of disposition, sole power of conversion (if
applicable), sole power to demand appraisal right and sole power to vote or
otherwise agree to all of the matters set forth in this Agreement, in each case
with respect to all of the Existing Shares, with no material limitations,
qualifications or restrictions on such rights, subject to applicable securities
laws and the terms of this Agreement.
2
<PAGE> 3
(b) Power; Binding Agreement. Such Subject Shareholder has the legal
capacity, power, and authority to enter into and perform all of his obligations
under this Agreement. The execution, delivery and performance of this Agreement
by such Subject Shareholder will not violate any other agreement to which such
Subject Shareholder is a party, including, without limitation, any voting
agreement, shareholders' agreement or voting trust. This Agreement has been duly
and validly executed and delivered by such Subject Shareholder and constitutes a
valid and binding obligation of such Subject Shareholder enforceable against
such Subject Shareholder in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(c) No Conflict. No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution and delivery of this Agreement by such Subject
Shareholder and the consummation by him of the transactions contemplated hereby,
except where the failure to obtain such consent, permit, authorization, approval
or filing would not interfere with such Subject Shareholder's ability to perform
his obligations hereunder, and none of the execution and delivery of this
Agreement by such Subject Shareholder, the consummation by such Subject
Shareholder of the transactions contemplated hereby or compliance by such
Subject Shareholder with any of the provisions hereof shall (A) result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement, or other instrument
or obligation of any kind to which such Subject Shareholder is a party or by
which such Subject Shareholder or any of his properties or assets may be bound,
or (B) violate any order, writ, injunction, decree, judgment, statute, rule, or
regulation applicable to such Subject Shareholder or any of its properties or
assets, in each such case except to the extent that any conflict, breach,
default, or violation would not interfere with the ability of such Subject
Shareholder to perform his obligations hereunder.
(d) No Liens. Except as permitted by this agreement, the Existing
Shares and the certificates representing such shares are now, and at all times
during the term hereof will be, held by such Subject Shareholder, or by a
nominee or custodian for the benefit of such Subject Shareholder, free and clear
of all Liens, proxies, understandings or arrangements or any other rights
whatsoever, except for any such Liens or proxies arising under this Agreement.
(e) No Finder's Fees. No broker, investment banker, financial
advisor or other person is entitled to any broker's, finder's, financial
adviser's or other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of such Subject
Shareholder.
4. Certain Covenants of the Subject Shareholders. Except in accordance
with the terms of this Agreement, each Subject Shareholder hereby covenants and
agrees as follows:
3
<PAGE> 4
(a) No Solicitation. In his capacity as a stockholder of the
Company, such Subject Shareholder shall not, directly or indirectly, (i) solicit
or initiate any inquiries or proposals that constitute an Acquisition Proposal,
(ii) engage in negotiations or discussions concerning, or provide any non-public
information to any person or entity relating to, any such inquiries or any such
Acquisition Proposal or (iii) agree to, approve or recommend any Acquisition
Proposal. Such Subject Shareholder shall notify Parent orally (within one
business day) and in writing (as promptly as practicable) of all relevant
details relating to, and all material aspects of, all inquiries and proposals
which he may receive relating to any Acquisition Proposal and, if such inquiry
or proposal is in writing, such Subject Shareholder shall deliver to Parent a
copy of such inquiry or proposal as promptly as practicable. Such Subject
Shareholder will immediately cease and cause to be terminated any existing
activities, discussions, or negotiations with any parties conducted heretofore
with respect to any of the foregoing.
(b) Restriction on Transfer, Proxies, and Non-Interference. Such
Subject Shareholder shall not (i) except as contemplated by the Merger Agreement
and except, in the case of a Subject Shareholder who is an individual, upon such
Subject Shareholder's death, offer for sale, sell transfer, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, option, or other
arrangement or understanding with respect to the offer for sale, transfer,
pledge, encumbrance, assignment or other disposition of, any of the Shares, (ii)
grant any proxies or powers of attorney (except for the purpose of approving the
Merger Agreement), deposit any Shares into a voting trust, or enter into a
voting agreement with respect to any Shares, or (iii) take any action that could
reasonably be expected to make any representation or warranty of such Subject
Shareholder contained herein untrue or incorrect or have the effect of
preventing or disabling such Subject Shareholder from performing its obligations
under this Agreement.
(c) Waiver of Appraisal Rights. Such Subject Shareholder hereby
waives any rights of appraisal or rights to dissent from the Merger that such
Subject Shareholder may have, to the extent that any rights of appraisal or
dissent are applicable.
(d) Additional Shares. Such Subject Shareholder shall promptly
notify Parent and Bull Run of the number of any new shares of Company Common
Stock or Company Preferred Stock acquired by such Subject Shareholder after the
date hereof.
(e) Stop Transfer Order. In furtherance of this Agreement,
concurrently herewith, such Subject Shareholder shall and hereby does authorize
the Company's counsel to notify the Company's transfer agent that there is a
stop transfer order with respect to all of the Existing Shares held as of the
date hereof (and that this Agreement places limits on the voting and transfer of
such Existing Shares).
4
<PAGE> 5
5. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
(b) Binding Agreement. This Agreement and the obligations hereunder
shall attach to each Subject Shareholder's Shares and shall be binding upon any
Person or entity to which legal or beneficial ownership of each Subject
Shareholder's Shares shall pass, whether by operation of law or otherwise,
including, without limitation, such Subject Shareholder's administrators or
successors. Notwithstanding any transfer of Shares, the transferor shall remain
liable for the performance of all obligations of the transferor under this
Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party; provided,
however, that each of Parent, Bull Run and Merger Sub may assign all of its
rights hereunder to any direct or indirect wholly owned subsidiary of Parent to
which it has assigned all of its rights under the Merger Agreement.
(d) Amendments. This Agreement may not be amended, changed,
supplemented or otherwise modified or terminated, except upon the execution and
delivery of a written agreement executed by the parties hereto.
(e) Notices. All notices, requests, claims, demands, and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service providing proof of delivery. All
communications hereunder shall be delivered to the respective parties at the
following addresses or the addresses set forth on the signature pages hereto:
If to Parent, Bull
Run or Merger Sub: Bull Run Corporation
4370 Peachtree Road, NE
Atlanta, GA 30319
Attention: Robert S. Prather
Facsimile: (404) 261-9607
with a copy to: Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Attention: Henry O. Smith III, Esq.
Facsimile: (212) 969-2900
5
<PAGE> 6
If to any
Subject
Shareholder: to the address set forth on the signature page for
such Subject Shareholder attached hereto.
copies to: Dinsmore & Shohl LLP
Lexington Financial Center
250 West Main Street
Suite 2020
Lexington, Kentucky 40507
Attention: Joseph H. Terry, Esq.
Facsimile: (606) 425-1099
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal, or unenforceable provision or portion of any provision had never been
contained herein.
(g) Specific Performance. Each of the Subject Shareholders
recognizes and acknowledges that a breach by it of any covenants or agreements
contained in this Agreement will cause Parent and Bull Run to sustain damages
for which they would not have an adequate remedy at law for money damages and,
therefore, in the event of any such breach, Parent and Bull Run shall be
entitled to the remedy of specific performance of such covenants and agreements
and injunctive and other equitable relief in addition to any other remedy to
which they may be entitled, at law or in equity.
(h) Further Assurances. From time to time, at the other party's
request and without further consideration, each party hereto shall execute and
deliver such additional documents and take all such further action as may be
necessary or desirable to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement.
(i) No Third Party Beneficiaries. This Agreement is not intended to
be for the benefit of, and shall not be enforceable by, any person or entity who
or which is not a party hereto; provided, however, that in the event of a
Subject Shareholder's death, the benefits and obligations of such Subject
Stockholder hereunder shall inure to his or her successors and heirs.
6
<PAGE> 7
(j) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
the principles of conflicts of law thereof.
(k) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(l) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but all of which, taken
together, shall constitute one and the same agreement. This Agreement shall not
be effective as to any party hereto until such time as this Agreement or a
counterpart thereof has been executed and delivered by each party hereto.
(m) Confidentiality; Press Releases. Each Subject Shareholder shall
keep confidential all information obtained by it with respect to Parent, Bull
Run, Host Merger Sub, the Merger Agreement or the transactions contemplated by
the Merger Agreement, and will use such information solely in connection with
the transactions contemplated by the Merger Agreement and this Agreement. If the
transactions contemplated by the Merger Agreement and this Agreement are not
consummated, each Subject Shareholder shall, upon request, return to Parent,
Bull Run and Merger Sub or destroy (and certify to Parent, Bull Run and Merger
Sub that he has so destroyed), without retaining a copy thereof, any schedules,
documents or other written information, and any reports, notes, computer files
or other evidence, whether written or electronic, that reflect, refer to or
contain such information. Without limiting the generality of the foregoing, no
Subject Shareholder shall make any press release or other public statements with
respect to the Merger Agreement or the transactions contemplated by the Merger
Agreement, including the Mergers, and shall not issue any such press release or
make any such public statement, without the prior written consent of Parent,
Bull Run and Merger Sub (which may be given or withheld in their respective sole
discretion). Notwithstanding the foregoing, no Subject Shareholder shall be
required to keep confidential or return any information which (a) is required to
be disclosed by law, pursuant to an order or request of a judicial authority or
Governmental Entity having competent jurisdiction (provided the Subject
Shareholder seeking to disclose such information provides Parent, Bull Run and
Merger Sub with at least five business days prior written notice thereof), or
(b) which can be shown to have been generally available to the public otherwise
than as a result of a breach of this Agreement.
(n) Expiration. This Agreement shall expire upon the first to occur
of (i) the Host Effective Time, (ii) the termination of the Merger Agreement in
accordance with the terms thereof or (iii) written notice of termination of this
Agreement by Parent and Bull Run.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
BR HOLDING, INC.
By: /s/ Robert S. Prather, Jr.
---------------------------------------
Name: Robert S. Prather, Jr.
Title: President
BULL RUN CORPORATION
By: /s/ Robert S. Prather, Jr.
---------------------------------------
Name: Robert S. Prather, Jr.
Title: President
HOST MERGER SUB, INC.
By: /s/ Robert S. Prather, Jr
---------------------------------------
Name: Robert S. Prather
Title: President
CAPITAL SPORTS PROPERTIES, INC.
By: /s/ Russell W. Howard
---------------------------------------
Name: Russell W. Howard
Title: President
AMENDED AND RESTATED INDIVIDUAL
RETIREMENT TRUST FOR CHARLES L.
JARVIE
By: CHASE BANK OF TEXAS, N.A.
as Trustee
By: /s/ Scott Deneen
---------------------------------------
Name: Scottt Deneen
Title: Vice President
8
<PAGE> 9
/s/ Charles L. Jarvie
---------------------------------------
Charles L. Jarvie
/s/ W. James Host
---------------------------------------
W. James Host
9
<PAGE> 10
Exhibit A
COMMON SHAREHOLDERS
<TABLE>
<CAPTION>
Existing
Name Shares % of Outstanding
- ---- ------ ----------------
<S> <C> <C>
Bull Run Corporation 45,731 5.1%
Capital Sports Properties, Inc. 447,002 49.0%
W. James Host 122,482 13.4%
Charles L. Jarvie (In Trust) 45,646 5.0%
------- ----
TOTAL 660,861 72.5%
======= ====
</TABLE>
A-1
<PAGE> 1
Exhibit 10.5
VOTING AND SUPPORT AGREEMENT - USA
THIS VOTING AND SUPPORT AGREEMENT (this "Agreement"), dated as of February
15, 1999, is made and entered into by and among BR Holding, Inc., a Delaware
corporation ("Parent"), Bull Run Corporation, a Georgia corporation ("Bull
Run"), USA Merger Sub, Inc., a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), and the stockholders of Universal Sports
America, Inc., a Delaware corporation (the "Company"), listed on Exhibit A and
Exhibit B.
WHEREAS, Parent, Bull Run, Capital Sports Properties, Inc., Host
Communications, Inc., the Company, Merger Sub and two other wholly owned
subsidiaries of Parent have entered into an Agreement and Plan of Merger of even
date herewith (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"), pursuant to which, among other things, the parties have
agreed, on the terms and conditions set forth in the Merger Agreement, to the
merger of Merger Sub with and into the Company, with the Company as the
surviving corporation (the "Merger");
WHEREAS, as of the date hereof, each of the persons listed on Exhibit A
(the "Common Stockholders") is the owner of the number of shares of common
stock, par value $1.00 per share (the "Company Common Stock"), of the Company
set forth opposite such person's name on Exhibit A (the "Existing Common Shares"
and, together with any shares of Company Common Stock acquired after the date
hereof and prior to the termination hereof, whether upon exercise of options,
conversion of convertible securities, or otherwise, the "Common Shares"); and
WHEREAS, as of the date hereof, each of the persons listed on Exhibit B
(the "Preferred Stockholders") is the owner of the number of shares of Series A
Convertible Preferred Stock, par value $1.00 per share (the "Company Preferred
Stock"), of the Company set forth opposite such person's name on Exhibit B ( the
"Existing Preferred Shares" and, together with any shares of Company Preferred
Stock acquired after the date hereof and prior to the termination hereof,
whether upon exercise of options, conversion of convertible securities or
otherwise, the "Preferred Shares"); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent and Bull Run have required that each of the Common
Stockholders and the Preferred Stockholders (collectively, the "Subject
Stockholders") agree, and each of the Subject Stockholders has agreed, to vote
all of the Common Shares and Preferred Shares (collectively, the "Shares") owned
by such Subject Stockholder on the terms and conditions provided for herein;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, the parties hereby agree
as follows:
<PAGE> 2
1. Definitions. Capitalized terms used and not defined herein have the
respective meanings ascribed to them in the Merger Agreement.
2. Agreement to Vote. From and after the date of this Agreement, at any
meeting of the stockholders of the Company, however called, or in any other
circumstance upon which the vote, consent, or other approval of the holders of
shares of Company Common Stock and Company Preferred Stock is sought, each
Subject Stockholder shall vote (or cause to be voted) all of the Shares owned by
such Subject Stockholder (i) in favor of the Merger, the execution and delivery
by the Company of the Merger Agreement and each of the other actions
contemplated by the Merger Agreement and any actions required in furtherance
thereof; (ii) against any action or agreement that would result in a breach of
any covenant, agreement, representation or warranty or any other obligation or
agreement of the Company under the Merger Agreement; and (iii) against the
following actions (other than in connection with the Merger and the transactions
contemplated by the Merger Agreement), (A) any Acquisition Proposal and (B) to
the extent that such actions (1) are intended to, or could reasonably be
expected to, impede, interfere with, delay, postpone or materially adversely
affect the Merger, the value of the Company on a consolidated basis or the
transactions contemplated by the Merger Agreement or (2) are intended to, or
could reasonably be expected to, implement or lead to any Acquisition Proposal,
(x) any change in a majority of the persons who constitute the Board of
Directors of the Company, (y) any change in the present capitalization of the
Company or any amendment of the Company's Certificate of Incorporation or
Bylaws, in each case, as currently in effect; or (z) any other material change
in the Company's corporate structure or business. In addition to the other
covenants and agreements of the Subject Stockholders provided for elsewhere in
this Agreement, each Subject Stockholder agrees that he shall not enter into any
agreement or understanding with any person or entity the effect of which would
be inconsistent with or violate the provisions and agreements contained in this
Section 2. Nothing herein shall in any way restrict or limit a Subject
Stockholder from taking any action in his or her capacity as a director or
officer of the Company or otherwise fulfilling his or her fiduciary obligations
as a director or officer of the Company.
3. Representations and Warranties of Each Subject Stockholder. Each
Subject Stockholder hereby represents and warrants to the Company as to his
ownership of Shares as follows:
(a) Ownership of Shares. On the date hereof, the Existing Common
Shares or Existing Preferred Shares (collectively, the "Existing Shares"), as
the case may be, are owned of record and beneficially by such Subject
Stockholder and, as of the date hereof, the Existing Shares constitute all of
the shares of Company Common Stock or Company Preferred Stock, as the case may
be, owned of record or beneficially by such Subject Stockholder. Such Subject
Stockholder has sole power of disposition, sole power of conversion (if
applicable), sole power to demand appraisal right and sole power to vote or
otherwise agree to all of the matters set forth in this Agreement, in each case
with respect to all of the Existing Shares, with no material limitations,
qualifications or restrictions on such rights, subject to applicable securities
laws and the terms of this Agreement.
2
<PAGE> 3
(b) Power; Binding Agreement. Such Subject Stockholder has the legal
capacity, power and authority to enter into and perform all of his obligations
under this Agreement. The execution, delivery and performance of this Agreement
by such Subject Stockholder will not violate any other agreement to which such
Subject Stockholder is a party, including, without limitation, any voting
agreement, stockholders' agreement or voting trust. This Agreement has been duly
and validly executed and delivered by such Subject Stockholder and constitutes a
valid and binding obligation of such Subject Stockholder, enforceable against
such Subject Stockholder in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(c) No Conflict. No filing with, and no permit, authorization,
consent, or approval of, any state or federal public body or authority is
necessary for the execution and delivery of this Agreement by such Subject
Stockholder and the consummation by him of the transactions contemplated hereby,
except where the failure to obtain such consent, permit, authorization, approval
or filing would not interfere with such Subject Stockholder's ability to perform
his obligations hereunder, and none of the execution and delivery of this
Agreement by such Subject Stockholder, the consummation by such Subject
Stockholder of the transactions contemplated hereby or compliance by such
Subject Stockholder with any of the provisions hereof shall (A) result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which such Subject Stockholder is a party or by
which such Subject Stockholder or any of his properties or assets may be bound,
or (B) violate any order, writ, injunction, decree, judgment, statute, rule, or
regulation applicable to such Subject Stockholder or any of its properties or
assets, in each such case except to the extent that any conflict, breach,
default or violation would not interfere with the ability of such Subject
Stockholder to perform his obligations hereunder.
(d) No Liens. Except as permitted by this agreement, the Existing
Shares and the certificates representing such shares are now, and at all times
during the term hereof will be, held by such Subject Stockholder, or by a
nominee or custodian for the benefit of such Subject Stockholder, free and clear
of all Liens, proxies, voting trusts or agreements, understandings or
arrangements or any other rights whatsoever, except for any such Liens or
proxies arising under this Agreement.
(e) No Finder's Fees. No broker, investment banker, financial
advisor or other person is entitled to any broker's, finder's, financial
adviser's or other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of such Subject
Stockholder.
3
<PAGE> 4
4. Certain Covenants of the Subject Stockholders. Except in accordance
with the terms of this Agreement, each Subject Stockholder hereby covenants and
agrees as follows:
(a) No Solicitation. In his capacity as a stockholder of the
Company, such Subject Stockholder shall not, directly or indirectly, (i) solicit
or initiate any inquiries or proposals that constitute an Acquisition Proposal,
(ii) engage in negotiations or discussions concerning, or provide any non-public
information to any person or entity relating to, any such inquiries or any such
Acquisition Proposal or (iii) agree to, approve or recommend any Acquisition
Proposal. Such Subject Stockholder shall notify Parent orally (within one
business day) and in writing (as promptly as practicable) of all relevant
details relating to, and all material aspects of, all inquiries and proposals
which he may receive relating to any Acquisition Proposal and, if such inquiry
or proposal is in writing, such Subject Stockholder shall deliver to Parent a
copy of such inquiry or proposal as promptly as practicable. Such Subject
Stockholder will immediately cease and cause to be terminated any existing
activities, discussions, or negotiations with any parties conducted heretofore
with respect to any of the foregoing.
(b) Restriction on Transfer, Proxies, and Non-Interference. Such
Subject Stockholder shall not (i) except as contemplated by the Merger Agreement
and except, in the case of a Subject Stockholder who is an individual, upon such
Subject Stockholder's death, offer for sale, sell transfer, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to the offer for sale, transfer,
pledge, encumbrance, assignment, or other disposition of any of the Shares, (ii)
grant any proxies or powers of attorney (except for the purpose of approving the
Merger Agreement), deposit any Shares into a voting trust, or enter into a
voting agreement with respect to any Shares, or (iii) take any action that could
reasonably be expected to make any representation or warranty of such Subject
Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling such Subject Stockholder from performing its obligations
under this Agreement.
(c) Waiver of Appraisal Rights. Such Subject Stockholder hereby
waives any rights of appraisal or rights to dissent from the Merger that such
Subject Stockholder may have, to the extent that any rights of appraisal or
dissent are applicable.
(d) Additional Shares. Such Subject Stockholder shall promptly
notify Parent and Bull Run of the number of any new shares of Company Common
Stock or Company Preferred Stock acquired by such Subject Stockholder after the
date hereof.
(e) Stop Transfer Order. In furtherance of this Agreement,
concurrently herewith, such Subject Stockholder shall and hereby does authorize
the Company's counsel to notify the Company's transfer agent that there is a
stop transfer order with respect to all of the Existing Shares held as of the
date hereof (and that this Agreement places limits on the voting and transfer of
such Existing Shares).
4
<PAGE> 5
5. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
(b) Binding Agreement. This Agreement and the obligations hereunder
shall attach to each Subject Stockholder's Shares and shall be binding upon any
Person or entity to which legal or beneficial ownership of each Subject
Stockholder's Shares shall pass, whether by operation of law or otherwise,
including, without limitation, such Subject Stockholder's administrators or
successors. Notwithstanding any transfer of Shares, the transferor shall remain
liable for the performance of all obligations of the transferor under this
Agreement.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party; provided,
however, that each of Parent, Bull Run and Merger Sub may assign all of its
rights hereunder to any direct or indirect wholly owned subsidiary of Parent to
which it has assigned all of its rights under the Merger Agreement.
(d) Amendments. This Agreement may not be amended, changed,
supplemented or otherwise modified or terminated, except upon the execution and
delivery of a written agreement executed by the parties hereto.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service providing proof of delivery. All
communications hereunder shall be delivered to the respective parties at the
following addresses or the addresses set forth on the signature pages hereto:
If to Parent, Bull
Run or Merger Sub: Bull Run Corporation
4370 Peachtree Road, NE
Atlanta, GA 30319
Attention: Robert S. Prather
Facsimile: (404) 261-9607
with a copy to: Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Attention: Henry O. Smith III, Esq.
Facsimile: (212) 969-2900
5
<PAGE> 6
If to any
Subject
Stockholder: to the address set forth on the signature page for
such Subject Stockholder attached hereto.
copies to: David, Goodman & Madole
Two Lincoln Center
5420 LBJ Freeway
Suite 1200
Dallas, Texas 75240
Attention: Bret A. Madole, Esq.
Facsimile: (972) 404-0516
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal, or unenforceable provision or portion of any provision had never been
contained herein.
(g) Specific Performance. Each of the Subject Stockholders
recognizes and acknowledges that a breach by it of any covenants or agreements
contained in this Agreement will cause Parent and Bull Run to sustain damages
for which they would not have an adequate remedy at law for money damages and,
therefore, in the event of any such breach, Parent and Bull Run shall be
entitled to the remedy of specific performance of such covenants and agreements
and injunctive and other equitable relief in addition to any other remedy to
which they may be entitled, at law or in equity.
(h) Further Assurances. From time to time, at the other party's
request and without further consideration, each party hereto shall execute and
deliver such additional documents and take all such further action as may be
necessary or desirable to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement.
(i) No Third Party Beneficiaries. This Agreement is not intended to
be for the benefit of, and shall not be enforceable by, any person or entity who
or which is not a party hereto; provided, however, that in the event of a
Subject Stockholder's death, the benefits and obligations of such Subject
Stockholder hereunder shall inure to his or her successors and heirs.
6
<PAGE> 7
(j) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
the principles of conflicts of law thereof.
(k) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(l) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but all of which, taken
together, shall constitute one and the same agreement. This Agreement shall not
be effective as to any party hereto until such time as this Agreement or a
counterpart thereof has been executed and delivered by each party hereto.
(m) Confidentiality; Press Releases. Each Subject Stockholder shall
keep confidential all information obtained by it with respect to Parent, Bull
Run, Merger Sub, the Merger Agreement or the transactions contemplated by the
Merger Agreement, and will use such information solely in connection with the
transactions contemplated by the Merger Agreement and this Agreement. If the
transactions contemplated by the Merger Agreement and this Agreement are not
consummated, each Subject Stockholder shall, upon request, return to Parent,
Bull Run and Merger Sub or destroy (and certify to Parent, Bull Run and Merger
Sub that he has so destroyed), without retaining a copy thereof, any schedules,
documents or other written information, and any reports, notes, computer files
or other evidence, whether written or electronic, that reflect, refer to or
contain such information. Without limiting the generality of the foregoing, no
Subject Stockholder shall make any press release or other public statements with
respect to the Merger Agreement or the transactions contemplated by the Merger
Agreement, including the Mergers, and shall not issue any such press release or
make any such public statement, without the prior written consent of Parent,
Bull Run and Merger Sub (which may be given or withheld in their respective sole
discretion). Notwithstanding the foregoing, no Subject Stockholder shall be
required to keep confidential or return any information which (a) is required to
be disclosed by law, pursuant to an order or request of a judicial authority or
Governmental Entity having competent jurisdiction (provided the Subject
Stockholder seeking to disclose such information provides Parent, Bull Run and
Merger Sub with at least five business days prior written notice thereof), or
(b) which can be shown to have been generally available to the public otherwise
than as a result of a breach of this Agreement.
(n) Expiration. This Agreement shall expire upon the first to occur
of (i) the USA Effective Time, (ii) the termination of the Merger Agreement in
accordance with the terms thereof or (iii) written notice of termination of this
Agreement by Parent and Bull Run.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
BR HOLDING, INC.
By: /s/ Robert S. Prather, Jr.
-------------------------------------
Name: Robert S. Prather, Jr.
Title: President
BULL RUN CORPORATION
By: /s/ Robert S. Prather, Jr.
-------------------------------------
Name: Robert S. Prather, Jr.
Title: President
USA MERGER SUB, INC.
By: /s/ Robert S. Prather, Jr.
-------------------------------------
Name: Robert S. Prather, Jr.
Title: President
NBC SPORTS VENTURES, INC.
By: /s/ Lauren Donovan
-------------------------------------
Name: Lauren Donovan
Title: Vice President
HOST COMMUNICATIONS, INC.
By: /s/ W. James Host
-------------------------------------
Name: W. James Host
Title: Chief Executive Officer
8
<PAGE> 9
HUNT CAPITAL PARTNERS, L.P. (as successor
by merger to Hunt Capital Group, L.L.C.)
By: HUNT CAPITAL GROUP, L.L.C.
its General Partner
By: J.R. Holland, Jr.
-------------------------------------
Name: J.R. Holland, Jr.
Title: President and Chief Executive Officer
/s/ Robert T. Murphy
----------------------------------------
Robert T. Murphy
/s/ Charles L. Jarvie
----------------------------------------
Charles L. Jarvie
/s/ Douglas T. Jarvie
----------------------------------------
Douglas T. Jarvie
9
<PAGE> 10
Exhibit A
COMMON STOCKHOLDERS
<TABLE>
<CAPTION>
Number of
Name Shares Owned % of Outstanding
- ---- ------------ ----------------
<S> <C> <C>
NBC Sports Ventures, Inc. 384.06 23.4%
Host Communications, Inc. 720.00 43.9%
Robert T. Murphy 280.32 17.1%
Charles L. Jarvie 148.56 9.1%
Douglas T. Jarvie 107.56 6.5%
------- -----
TOTAL 1640.50 100%
======= =====
</TABLE>
A-1
<PAGE> 11
Exhibit B
PREFERRED STOCKHOLDERS
<TABLE>
<CAPTION>
Number of
Name Shares Owned % of Outstanding
- ---- ------------ ----------------
<S> <C> <C>
Hunt Capital Partners, L.P. 425 86.7%
Bull Run Corporation 65 13.3%
--- ------
Total 490 100.0%
--- ------
</TABLE>
B-1
<PAGE> 1
Exhibit 21.1
Subsidiaries of BR Holding, Inc.
Name Jurisdiction of Incorporation
---- -----------------------------
Capital Merger Sub, Inc. Delaware
Datasouth Computer Corporation Delaware
Host Merger Sub, Inc. Kentucky
Bull Run Merger Sub, Inc. Georgia
USA Merger Sub, Inc. Delaware
<PAGE> 1
EXHIBIT 23.2
We consent to the reference to our firm under the captions "Selected Financial
Information of Bull Run" and "Experts" and to the use of our reports dated
February 9, 1999, except as to Notes 4 and 7, as to which the date is March 24,
1999, with respect to the financial statements and schedule included in the
Proxy Statement of Bull Run Corporation that is made a part of the Registration
Statement (Form S-4) and Prospectus of Bull Run Corporation.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
August 5, 1999
<PAGE> 1
EXHIBIT 23.3
We consent to the reference to our firm under the captions "Selected Financial
Information of Capital" and "Experts" and to the use of our report dated March
17, 1999, with respect to the financial statements of Capital Sports Properties,
Inc. included in the Proxy Statement of Bull Run Corporation that is made a part
of the Registration Statement (Form S-4) and Prospectus of Bull Run Corporation.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
August 5, 1999
<PAGE> 1
EXHIBIT 23.4
The Board of Directors
Bull Run Corporation:
We consent (i) to the use of our report, dated February 10, 1997, with respect
to the statements of earnings, changes in stockholders' equity and cash flows of
Capital Sports Properties, Inc. for the six- months ended June 30, 1996 and the
year ended December 31, 1995 included herein (or incorporated herein by
reference) and (ii) to the reference to our firm under the heading "Experts" in
the prospectus.
/s/ KPMG LLP
Stamford, Connecticut
August 5, 1999
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 21, 1998 with respect to the consolidated
financial statements of Host Communications, Inc. for the years ended June 30,
1998 and 1997 included in the Proxy Materials on Schedule 14A of Bull Run
Corporation.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
August 5, 1999
<PAGE> 1
EXHIBIT 23.6
The Board of Directors
Bull Run Corporation:
We consent to the incorporation by reference in the Registration Statement on
Form S-4 of Bull Run Corporation of our report dated October 11, 1996 with
respect to the consolidated statements of earnings, stockholders' equity, and
cash flows of Host Communications, Inc. and subsidiaries for the year ended June
30, 1996, included herein and to the reference to our firm under the heading
"Experts" in the prospectus.
Our report refers to a change in the method of accounting for license fee
revenues and rights fee expenses.
/s/ KPMG LLP
Cincinnati, Ohio
August 5, 1999
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm in the headnote to the Selected
Financial Information of Universal and under the caption "Experts" and to the
use of our report dated August 25, 1998 with respect to the consolidated
financial statements of Universal Sports America, Inc. at June 30, 1998 and 1997
and for the two year period ended June 30, 1998 included in the Registration
Statement on Form S-4 and related Prospectus of Bull Run Corporation.
/s/ ERNST & YOUNG LLP
Dallas, Texas
August 5, 1999
<PAGE> 1
EXHIBIT 23.8
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Universal Sports America, Inc.;
We consent to the use herein of our report related to the consolidated financial
statements of Universal Sports America, Inc. and subsidiaries for the year ended
June 30, 1996, and to the references to our firm under the headings "Selected
Financial Information of Universal" and "Experts" in the proxy statement/
prospectus.
KPMG LLP
/s/ KPMG LLP
Dallas, Texas
August 5, 1999
<PAGE> 1
EXHIBIT 23.9
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated January 26, 1999, with respect to the financial
statements and schedule of Gray Communications Systems, Inc. included in the
Proxy Statement of Bull Run Corporation that is made a part of the Registration
Statement (Form S-4) and Prospectus of Bull Run Corporation.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
August 5, 1999
<PAGE> 1
EXHIBIT 23.10
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated October 7, 1998, to the Stockholders of Rawlings Sporting Goods
Company, Inc. included in this Bull Run Corporation Form S-4.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri
August 5, 1999
<PAGE> 1
EXHIBIT 99.1
BULL RUN CORPORATION
PROXY
The undersigned appoints Robert S. Prather, Jr. and Frederick J. Erickson,
and either of them, with power of substitution, to represent and to vote on
behalf of the undersigned all of the shares of Bull Run Corporation ("Bull Run")
which the undersigned is entitled to vote at the annual meeting of stockholders
to be held at Bull Run's offices at 4370 Peachtree Road, N.E., Atlanta, Georgia
on September 14, 1999 at 10:00 A.M. and at any adjournment or adjournments
thereof, hereby revoking all proxies heretofore given with respect to such
stock, upon the following proposals more fully described in the notice of, and
proxy statement and prospectus relating to, the meeting (receipt whereof is
hereby acknowledged).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR (1), (2), (3), (4) AND (5).
Each of proposals (1), (2) and (3) is conditioned upon the other, so that
all three of these proposals must be approved by stockholders or, if one or more
of these proposals are not so approved, none of these three proposals will be
approved.
(1) PROPOSAL TO APPROVE THE CREATION OF A HOLDING COMPANY STRUCTURE FOR
BULL RUN pursuant to an Agreement and Plan of Merger, dated as
of , 1999, by and among BR Holding. Inc., a Georgia
corporation, Bull Run and a wholly owned subsidiary of BR Holding.
Inc.
|_| FOR |_| AGAINST |_| ABSTAIN
(2) PROPOSAL TO APPROVE THE ISSUANCE OF SHARES OF COMMON STOCK OF BR
HOLDING. INC., in accordance with the Agreement and Plan of Merger,
dated as of February 15, 1999, by and among Bull Run, BR Holding,
Inc., Capital Sports Properties. Inc., Host Communications, Inc.,
Universal Sports America, Inc. and three wholly owned subsidiaries
of BR Holding. Inc.
|_| FOR |_| AGAINST |_| ABSTAIN
(3) PROPOSAL TO APPROVE THE AMENDMENT OF THE 1994 LONG-TERM INCENTIVE
PLAN to increase the number of shares issuable thereunder.
|_| FOR |_| AGAINST |_| ABSTAIN
(Continued and to be dated and signed on reverse side)
10
<PAGE> 2
(4) ELECTION OF DIRECTORS
|_| FOR all nominees listed below |_| WITHHOLD AUTHORITY to vote for
(except as marked to the contrary below) all nominees listed below
J. Mack Robinson, Gerald N. Agranoff, James W. Busby, Hilton H. Howell, Jr.
and Robert S. Prather, Jr.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
(5) PROPOSAL TO CONFIRM THE APPOINTMENT OF ERNST & YOUNG LLP as the
independent auditors.
|_| FOR |_| AGAINST |_| ABSTAIN
(6) In their discretion upon such other business and matters or
proposals as may properly come before the meeting.
|_| FOR |_| AGAINST |_| ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS (1), (2), (3), (4) AND (5).
Please sign exactly as your name appears on your stock certificates. When
shares are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
DATED: _______________________ 1999
_________________________________
Signature
_________________________________
Signature if held jointly
Please return in the enclosed
postage paid envelope.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
