U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-9385
BULL RUN CORPORATION
(Name of small business issuer in its charter)
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GEORGIA 91-1117599
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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4370 PEACHTREE ROAD, N.E., ATLANTA, GA 30319
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (404) 266-8333
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [ ]
The issuer's revenues for its most recent fiscal year were $24,654,000.
The aggregate market value of the voting stock held by nonaffiliates of the
issuer (12,381,469 shares) on February 28, 1997 was $37,144,407, based on the
closing price thereof on The Nasdaq Stock Market.
The number of shares outstanding of the issuer's Common Stock, par value
$.01 per share, as of February 28, 1997 was 21,302,217.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference:
Documents Form 10-KSB Reference
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1996 Annual Report to Shareholders Part II, Items 6 and 7
Proxy Statement dated March 18, 1997 Part III, Items 9, 10, 11 and 12
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BULL RUN CORPORATION
FORM 10-KSB INDEX
PART I
PAGE
ITEM 1. Description of Business.......................................... 3
ITEM 2. Description of Property.......................................... 7
ITEM 3. Legal Proceedings................................................ 8
ITEM 4. Submission of Matters to a Vote of Security Holders.............. 8
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters........ 8
ITEM 6. Management's Discussion and Analysis or Plan of Operations....... 8
ITEM 7. Financial Statements............................................. 8
ITEM 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................ 9
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.............. 9
ITEM 10. Executive Compensation........................................... 9
ITEM 11. Security Ownership of Certain Beneficial Owners and
Management..................................................... 9
ITEM 12. Certain Relationships and Related Transactions................... 9
PART IV
ITEM 13. Exhibits and Reports on Form 8-K................................. 10
Signatures....................................................... 13
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Bull Run Corporation (the "Company"), a Georgia corporation, was
originally incorporated under the laws of the State of Washington under the name
of Bull Run Gold Mines, Ltd. The Company changed its name and state of
incorporation in December 1992, relocating its corporate office to Atlanta.
Prior to selling its interest in a joint venture in November 1990 for $6,000,000
in cash and the discharge of its outstanding debt, the Company was a mineral
resource company which had been engaged in the business of developing and mining
in Nevada through the joint venture with another mining company.
In November 1994, the Company acquired by merger (the "Merger")
Datasouth Computer Corporation ("Datasouth"). 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 the Company.
In May 1993, the Company, through its then 43.6%-owned affiliate,
Datasouth, acquired approximately 21% of the outstanding class A common stock of
Gray Communications Systems, Inc. ("Gray"). Since then the Company has
accumulated additional Gray class A common stock through both market and private
transactions. In 1996, Gray consummated a public offering of 3.5 million shares
of its class B common stock. Due to the dilutive effect of the public offering,
the Company's ownership was reduced to 15.5% of the total outstanding Gray
common stock as of December 31, 1996, representing 25.1% of the voting power.
Parties affiliated with the Company, including officers and directors of the
Company and companies of which they are principal shareholders and/or executive
officers, owned an additional 14.4% of Gray's outstanding common stock as of
December 31, 1996, representing an additional 23.3% voting interest in Gray. The
Company also owns shares of series A and series B preferred stock of Gray and
warrants to purchase additional Gray class A common stock.
Gray is a Southeast United States communications company located in
Albany, Georgia which operates: (i) two NBC-affiliated television stations -
WALB-TV in Albany, Georgia; and WJHG-TV in Panama City, Florida; (ii) five
CBS-affiliated television stations - WCTV-TV in Tallahassee, Florida; WVLT-TV in
Knoxville, Tennessee; WKYT-TV in Lexington, Kentucky; WYMT-TV in Hazard,
Kentucky; and WRDW-TV in Augusta, Georgia; (iii) three daily newspapers, THE
ALBANY HERALD in Albany, Georgia; THE ROCKDALE CITIZEN in Conyers, Georgia; and
THE GWINNETT DAILY POST in Lawrenceville, Georgia; (iv) two advertising weekly
shoppers in Southwest Georgia and North Florida; (v) Satellite Production
Services, a satellite and production business in Tallahassee, Florida; and (vi)
PortaPhone Paging, a communications and paging business in the Southeast. Gray
has also entered into an agreement to purchase Gulflink Communications, Inc., a
transportable satellite business in Baton Rouge, Louisiana, and has signed a
letter of intent to purchase the assets of WITN-TV, the NBC affiliate in the
Greenville-Washington-New Bern, North Carolina market. Gray generated revenue of
$79.3 million in 1996 and had total assets of approximately $300 million as of
such date. J. Mack Robinson, the Company's Chairman of the Board, Robert S.
Prather, Jr., the Company's President, CEO and a director, and Hilton H. Howell,
Jr., the Company's Vice President, Secretary and a director, are members of
Gray's Board of Directors. Mr. Robinson and Mr. Prather are currently Gray's
interim President and CEO, and interim Executive Vice President - Acquisitions,
respectively, as a result of the unexpected death of Gray's President in
September 1996.
In 1995, the Company acquired 50% of the outstanding common stock of
Capital Sports
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Properties, Inc. ("CSP"). In 1996, the Company acquired an additional 1.5% of
CSP's outstanding common stock. CSP's assets consist of all of the outstanding
8% cumulative preferred stock of Host Communications, Inc. ("HCI") and
approximately 48.9% of HCI's outstanding common stock as of December 31, 1996.
During 1995 and 1996, the Company acquired HCI common stock in a series of
transactions, resulting in direct ownership of approximately 4.5% of HCI's
outstanding common stock as of December 31, 1996. When combined with the
Company's pro rata ownership of HCI common stock through CSP, the Company has an
aggregate ownership of 29.7% of HCI common stock as of December 31, 1996,
effectively making it HCI's largest stockholder. HCI, based in Lexington,
Kentucky, provides multimedia, promotional marketing and event management
services to universities, athletic conferences and associations, the most
prominent of which is the National Collegiate Athletic Association ("NCAA(R)").
HCI reported total revenue of $41.4 million for its most recently completed
fiscal year ended June 30, 1996 and total assets of $29.2 million as of such
date.
In 1995, the Company purchased, for $650,000, convertible preferred
stock of Universal Sports America, Inc. ("USA"), representing 13.3% of USA's
outstanding preferred stock. The preferred stock owned by the Company is
convertible into USA common stock, representing approximately 3% of USA's
outstanding common stock after giving effect to such conversion. USA offers
corporate sponsorships, advertising and other promotional opportunities
involving college athletics and participatory sporting events, such as the
Hoop-It-Up(TM) 3-on-3 basketball tournaments. HCI owns approximately 33.8% of
USA's outstanding common stock. Mr. Prather is a director of HCI, CSP and USA.
PRINCIPAL PRODUCTS AND MARKETS
The Company, 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 vertical markets such as transportation/travel, healthcare and
manufacturing/distribution. 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. The printer business is
not seasonal to any significant degree.
The Company's impact printers compete in the medium and high speed
(i.e., 300 to 600 characters per second, or "cps") 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. Datasouth currently
manufactures three dot matrix product families: Documax(R), Performax and the XL
line. 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 cps and generate bar codes,
OCR and industrial graphics as well. In 1996, the Company began shipping a 600
cps version of Documax. The Performax line is a family of high speed wide
carriage serial impact dot matrix printers which operate at speeds up to 622
cps. 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 cps.
The Company also provides a line of portable and desktop thermal
printers. These are used primarily for printing one packing or shipping label at
a time, with the ability to use a label stock which has no silicone coated
liner. The "liner-free" stock offers 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. In 1994, the Company introduced the
"FreeLiner(TM)," its first line of portable thermal printers, and commenced
shipments of a desktop version of the printer, the "FreeLiner DT" in
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1995. In 1996, the Company began shipments of the "WinLiner," its first
internally developed and manufactured thermal printer, a portable 2-inch wide
printer targeted at label and receipt applications which also take advantage of
"liner-free" label adaptations.
The Company announced in February 1997 that it had been awarded a
contract by SABRE Travel Information Network(R) to develop and manufacture a new
airline ticket printer. The development is expected to be completed in late
1997. The Company anticipates that this printer, which uses thermal printing
technology, will be small, easy to use, and have a simpler design than currently
available airline ticket printers, thus requiring less maintenance. Additional
information concerning the Company's airline ticket printer is set forth under
the caption "Sales and Distribution" below in this Item 1.
COMPETITION
Competition in the computer printer industry is generally quite intense
and some of the Company's competitors have greater financial and other
resources. As the printer market continues to segment by speed, application and
technology, the Company 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. The Company believes that its products do not
generally compete in "mass market" dot matrix and thermal printer applications.
The Company'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
The Company's printer manufacturing capabilities provide a strategic
advantage over most competitors. Focusing on customer response time and high
quality customer service, it can provide quick, on-time product delivery while
maintaining low finished goods inventories by scheduling product configuration
each day. All assemblies, including PC boards assembled by the Company, and raw
materials, are pulled through to replenish stock consumed, 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 the Company to quote delivery
in a much shorter period than many of its competitors.
The Company's manufacturing operation assembles products in accordance
with its designs and specifications. It utilizes components and sub-assemblies
procured from outside suppliers, some of which produce parts from tooling
designed and owned by the Company. Most of the materials, components and
subassemblies are available from a variety of sources and are generally not
subject to significant price volatility. Although the Company has not
experienced any 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. The Company utilizes automated component
insertion, wave soldering and automated test equipment to reduce labor costs
while maintaining high quality. The Company verifies the quality of its products
by thorough testing at various stages of the assembly process.
WARRANTY AND SERVICE
The Company 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. The Company has a technical support staff
accessible to all customers through a toll-free telephone number, as well
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as through the Company's Internet Website.
The Company's warranty experience over the past three years has ranged
from approximately .3% to .4% of revenue. Total warranty expense for 1996, 1995
and 1994 was approximately $104,000, $88,000 and $78,000, respectively.
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. During 1996, finished product sales to distributors
represented 31% of total revenue, and finished product sales to major accounts
represented 46%, compared to 35% and 44% in 1995, respectively.
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 the Company's products. They sell principally to large industrial
companies, hospitals, banks, government agencies, educational institutions,
airlines, rental car companies and travel agencies.
Since 1993, the Company has been supplying Documax printers to SABRE(R)
under a five year contract. The contract is, however, cancelable at any time by
SABRE. Moreover, SABRE is under no contractual obligation to purchase any
minimum number of printers from Datasouth during the term of the contract. Sales
to SABRE were approximately $7,200,000 in 1996, $7,800,000 in 1995 and
$4,800,000 in 1994, representing 30%, 30% and 22% of total sales from
Datasouth's printer operations, respectively.
As mentioned above under "Principal Products and Markets," the Company
is currently developing a new airline ticket printer. As the travel market
embraces a number of new technologies such as Internet reservation booking and
electronic ticketing, it is essential to have cost-effective equipment in place
at travel agency locations. This new ticket printer will provide an attractively
priced alternative to traditional printers and will be affordable for even small
travel agencies as SABRE continues its global expansion. Additionally, it will
target satellite ticket printing applications in remote locations, such as
corporate offices and hotels/motels. The Company believes that the engineering
and design work for the new printer will be completed in late 1997, and sales of
the printer will begin making a meaningful revenue contribution to the Company
in 1998.
The Company intends to continue aggressively pursuing new major account
business in 1997, while maintaining and strengthening relationships with key
distributors.
BACKLOG
The Company 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, the Company'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.
As of December 31, 1996, the Company had unfilled cancelable purchase
orders with an aggregate selling price of approximately $1,821,000, compared
with $755,000 and $3,150,000 as of December 31, 1995 and 1994, respectively.
ADVERTISING AND PROMOTION
The Company participates in numerous regional, national, and
international trade shows
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and actively promotes its products through direct mail, telemarketing and co-op
advertising arrangements with distributors. It also advertises its products in
publications serving the industrial markets targeted by its products.
Advertising costs were approximately $227,000, $198,000 and $244,000 in 1996,
1995 and 1994, respectively.
RESEARCH AND DEVELOPMENT
The Company employs over 20 engineers, technicians and support
personnel to engage in basic and applied research. In 1996, the Company released
a new 600 cps version of its Documax printer and an internally-developed
portable thermal printer, the "WinLiner." In 1997, the primary focus of the
Company's engineering team will be the development of a new ATB2 airline ticket
printer, designed in conjunction with SABRE, which is expected to be completed
in the fourth quarter of 1997. 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. As opportunities arise, new markets and technologies will also be
explored in conjunction with strategic business partners such as SABRE, where
the Company believes it can add value through design, manufacturing or
distribution capabilities.
Total research and development expense was $1,568,000, $1,872,000, and
$1,515,000 in 1996, 1995 and 1994, respectively.
PATENTS, TRADEMARKS AND RELATED CONTRACTS
The Company's business is not dependent upon the existence of any
patents, trademarks or related contracts.
EMPLOYEES
As of December 31, 1996, the Company had 120 full-time employees, most
of whom 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.
Management believes that its relationship with employees is good.
EXPORT SALES
Sales to non-domestic customers, located principally in Western Europe,
Southeast Asia and South America, totaled approximately $2,954,000 in 1996,
$2,361,000 in 1995, and $1,700,000 in 1994.
ITEM 2. DESCRIPTION OF PROPERTY
The Company'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, the Company's Chairman of the Board.
The lease expires in December 2002, subject to several renewal options on the
part of the Company.
Datasouth's administrative offices and operations are located in
Charlotte, North Carolina in approximately 60,000 square feet of fully-utilized
leased facilities. Although present facilities are suitable and adequate for its
current needs, the Company 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 1998 having
a three year renewal option, and additional office and warehousing space is
leased through December 1997. The Company expects that the lease expiring in
1997 will be renewed at terms similar to the existing lease.
The Company anticipates that its current office space will be suitable
for its anticipated
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needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock, par value $.01 per share (the "Common
Stock"), 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. Such prices
reflect interdealer prices without adjustments for retail markups, markdowns or
commissions.
1996 HIGH LOW
First Quarter 2.94 2.44
Second Quarter 3.44 2.44
Third Quarter 2.88 2.13
Fourth Quarter 2.81 2.06
1995
First Quarter 2.56 1.63
Second Quarter 3.19 2.03
Third Quarter 4.25 2.75
Fourth Quarter 4.00 2.56
HOLDERS
As of February 28, 1997, there were 3,114 holders of record of Common
Stock.
DIVIDENDS
It is the present policy of the Company's Board of Directors to retain
all earnings to finance the development and growth of the Company's business.
The Company has never declared or paid a cash dividend on its Common Stock. The
Company's future dividend policy will depend upon its earnings, capital
requirements, financial condition and other relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The information required by this item is set forth under the captions
"Bull Run Corporation - Management's Discussion and Analysis" and "Datasouth
Computer Corporation - Management's Discussion and Analysis" on pages 20 through
23 and page 36 in the Company's 1996 Annual Report, which is incorporated herein
by reference.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth on pages
24 through 34 and pages 37 through 40 in the Company's 1996 Annual Report, and
the supplementary data
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required by this item is set forth under the caption "Selected Quarterly
Financial Data (Unaudited)" on pages 12 and 35 in the Company's 1996 Annual
Report, which is incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Except for the information stated below, the information required by
this item is set forth under the caption "Election of Directors - General" on
pages 3 and 4, and under the caption "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" on page 4 of the Company's Proxy Statement
dated March 18, 1997, which is incorporated herein by reference.
In addition to Messrs. Prather, Howell and Robinson listed above, the
Company has the following executive officer:
FREDERICK J. ERICKSON, 38, has been Vice President - Finance, Treasurer and
Chief Financial Officer of the Company since 1994; Executive Vice President -
Finance & Administration of Datasouth since March 1997; Vice President - Finance
& Administration of Datasouth from 1993 to March 1997; and Chief Financial
Officer, Treasurer and Secretary of Datasouth since 1993. He was employed by
Coopers & Lybrand from 1981 to 1993 as a certified public accountant.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is set forth under the captions
"Executive Compensation," "Long Term Incentive Plans," "Employee Incentive
Plans" and "Employment Arrangements" on pages 5 and 6 of the Company's Proxy
Statement dated March 18, 1997, which is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth under the caption
"Election of Directors" on pages 3 and 4 of the Company's Proxy Statement dated
March 18, 1997, which is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the caption
"Certain Relationships and Related Transactions" on page 7 of the Company's
Proxy Statement dated March 18, 1997, which is incorporated herein by reference.
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PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Documents filed as part of this Report
(1) Financial Statements and Related Independent Auditors' Reports:
The following consolidated financial statements of the Company
and Independent Auditors' Report are incorporated by reference
in Item 7 from the Company's 1996 Annual Report:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1996
and 1995
Consolidated Statements of Income for the
years ended December 31, 1996, 1995 and 1994
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1996, 1995 and
1994
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Supplementary Data, Selected Quarterly Financial
Data (Unaudited)
The following consolidated financial statements of Datasouth
and Independent Auditors' Report are incorporated by reference
in Item 7 from the Company's 1996 Annual Report:
Independent Auditors' Report
Consolidated Statement of Income for the period
January 1, 1994 through November 29, 1994
Consolidated Statement of Cash Flows for the period
January 1, 1994 through November 29, 1994
Notes to Consolidated Financial Statements
Supplementary Data, Selected Quarterly Financial
Data (Unaudited)
Independent Auditors' Report on the financial statements of
Capital Sports Properties, Inc. as of June 30, 1996 and
December 31, 1995, and the six months ended June 30, 1996 and
each of the years in the two year period ended December 31,
1995 on page F-1 of this report
Independent Auditors' Report on the consolidated financial
statements of Host Communications, Inc. as of June 30, 1996 and
1995 and for the years then ended on page F-2 of this report
(2) List of Executive Compensation Plans and Contracts
Employment Agreement - Robert S. Prather, Jr.
Employment Agreement - James W. Busby
Employment Agreement - Frederick J. Erickson
1994 Long Term Incentive Program
Non-Employee Directors' 1994 Stock Option Plan
Datasouth Employee Incentive Plan
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(3) Exhibits
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Exhibit
Numbers Description
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(2.1) Agreement and Plan of Merger dated June 6, 1994 (b)
(2.2) Certificate of Merger of Datasouth Computer Corporation into Datasouth Computer
Corporation (formerly, BRC Acquisition Corporation) dated November 29, 1994 (b)
(3.1) Articles of Incorporation (b)
(3.2) Certificate of Amendment to Articles of Incorporation, filed November 29, 1994 (b)
(3.3) By-laws of the Registrant (b)
(10.1) Employment Agreement - Robert S. Prather, Jr. (k)
(10.2) Employee Agreement - James W. Busby (e)
(10.3) Employee Agreement - Frederick J. Erickson (e)
(10.4) 1994 Long Term Incentive Plan (b)
(10.5) Non-Employee Directors' 1994 Stock Option Plan (b)
(10.6) 1987 Non-Qualified Stock Option Plan (d)
(10.7) Employee Incentive Plans (h)
(10.8) Lease Agreement between Delta Life Insurance Company and Bull Run Corporation
dated as of January 1, 1993 (a)
(10.9) Lease Agreements between Hans L. Lengers and Datasouth Computer Corporation
dated November 27, 1981 (e)
(10.10) Loan Agreement between Bull Run Corporation and Bank South, N.A., dated
March 29, 1995 (f)
(10.11) First Modification of Loan Agreement between Bull Run Corporation and Bank South,
N.A., dated January 3, 1996 (g)
(10.12) Second Modification of Loan Agreement between Bull Run Corporation and
NationsBank, N.A. (South), dated September 24, 1996 (j)
(10.13) Third Modification of Loan Agreement between Bull Run Corporation and NationsBank,
N.A. (South), dated January 27, 1997 (k)
(10.14) First Term Note dated January 3, 1996 (g)
(10.15) Second Term Note dated January 3, 1996 (g)
(10.16) Third Term Loan Note dated September 24, 1996 (k)
(10.17) Revolving Credit Note dated January 27, 1997 (k)
(10.18) Credit Agreement between Datasouth Computer Corporation and Wachovia Bank of
North Carolina, N.A. dated April 3, 1996 (i)
(10.19) Gray Communications Systems, Inc. Warrant dated September 24, 1996 (487,500
shares) (k)
(10.20) Gray Communications Systems, Inc. Warrant dated September 24, 1996 (250,000
shares) (k)
(11) Computation of Earnings per Share (k)
(12) 1996 Annual Report to Shareholders (k)
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Exhibit
Numbers Description
(21) List of Subsidiaries of Registrant (h)
(23.1) Consent of Ernst & Young LLP (k)
(23.2) Consent of KPMG Peat Marwick LLP (k)
(23.3) Consent of KPMG Peat Marwick LLP (k)
(27) Financial Data Schedule (k)
(99) Proxy Statement dated March 18, 1997 (k)
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(a) Incorporated by reference to Form 10-KSB Annual Report for the year
ended December 31, 1992*
(b) Incorporated by reference to Form S-4, Registration Statement,
effective November 3, 1994
(c) Incorporated by reference to Form 10-KSB Annual Report for the
year ended December 31, 1993*
(d) Incorporated by reference to Form 10-K Annual Report for the
year ended December 31, 1988
(e) Incorporated by reference to Form 10-KSB Annual Report for the
year ended December 31, 1994*
(f) Incorporated by reference to Form 8-K Current Report dated as of
March 29, 1995*
(g) Incorporated by reference to Form 8-K Current Report dated as of
January 3, 1996*
(h) Incorporated by reference to Form 10-KSB Annual Report for the
year ended December 31, 1995*
(i) Incorporated by reference to Form 10-QSB/A-1 Quarterly Report for
the period ended March 31, 1996*
(j) Incorporated by reference to Form 10-QSB Quarterly Report for the
period ended September 30, 1996*
(k) Filed herewith
* Commission file number 0-9385
(b) Reports on Form 8-K
None
12
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SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 24, 1997.
BULL RUN CORPORATION
BY: /s/ ROBERT S. PRATHER, JR.
Robert S. Prather, Jr.
President and Chief Executive Officer
Signature Title Date
/s/ ROBERT S. PRATHER, JR. President, Chief MARCH 24, 1997
Robert S. Prather, Jr. Executive Officer and
Director
(Principal Executive
Officer)
/s/ GERALD N. AGRANOFF Director MARCH 24, 1997
Gerald N. Agranoff
/s/ JAMES W. BUSBY Director MARCH 24, 1997
James W. Busby
/s/ FREDERICK J. ERICKSON Vice President - MARCH 24, 1997
Frederick J. Erickson Finance and
Treasurer
(Principal Accounting
and Financial Officer)
/s/ HILTON H. HOWELL, JR. Vice President, MARCH 24, 1997
Hilton H. Howell, Jr. Secretary and Director
/s/ ALEX C. RITCHIE Director MARCH 24, 1997
Alex C. Ritchie
/s/ J. MACK ROBINSON Chairman of the Board MARCH 24, 1997
J. Mack Robinson
13
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement"), dated as of January 1, 1997,
between Bull Run Corporation, a Georgia corporation (the "Company"), and Robert
S. Prather, Jr. ("Executive").
WHEREAS, the Company is desirous of employing Executive to further the
business purposes of the Company; and
WHEREAS, the Company is desirous of being employed by the Company on
the terms provided herein:
NOW, THEREFORE, the Company and Executive agree as follows:
1. Employment. The Company hereby agrees to employ Executive as
President and Chief Executive Officer of the Company, and Executive hereby
agrees to accept such employment and perform the duties of the office of
President and Chief Executive Officer of the Company. Executive shall report to
and be under the direction and control of the Board of Directors of the Company,
and shall have the usual and necessary authority, duties and responsibilities of
President and Chief Executive Officer of the Company. In addition, Executive
shall have such other authority, duties and responsibilities as may from time to
time be prescribed by the Board of Directors. Executive shall devote
substantially all his business time and attention to the business of the Company
and its parent and subsidiaries (if any) and to promoting their best interests,
and shall not during the term of this Agreement be engaged in any other business
activity, whether or not such business activity is pursued for gain, profit or
other pecuniary advantage; provided, however, that, subject to Section 10
hereof, this shall not be construed as preventing Executive (a) from investing
his assets in such form or manner as will not require any services on the part
of Executive in the operation of the affairs of the companies in which such
investments are made, (b) engaging in charitable or other activities which do
not conflict with the activities of the Company, or (c) acting as a director of
companies which are not competitors of the Company. The Company shall furnish
Executive with a private office, secretarial help and other facilities and
services as are suitable to his position and adequate for the performance of his
duties in accordance with the provisions of this Agreement. In addition, the
Company shall provide Executive with such executive perquisites as it normally
provides to the President of the Company consistent with past practices.
2. Term of Employment. Subject to the provisions for termination
hereinafter provided, the term of this Agreement shall be from the date of this
Agreement until December 31, 1999.
3. Place of Performance. In connection with his employment by the
Company, Executive shall be based at the Company's principal executive offices;
provided, however, that Executive shall not be required to perform his duties
for more than thirty (30) working days in any year, or more than ten (10)
consecutive days at one time, at any office located in any place other than the
greater metropolitan area of Atlanta, Georgia.
4. Compensation and Expenses.
(a) During the period of Executive's employment hereunder, the
Company shall pay to Executive a salary at a rate of not less than $325,000 per
year, payable in accordance with the normal payroll practice of the Company
(subject to income tax, social security tax and other applicable withholdings).
Executive's salary shall be reviewed by the Board of Directors of the Company or
the proper committee thereof at intervals not greater than twelve months to
determine what adjustment, if any, should be made, consideration being given to
the scope of his responsibilities and the performance of his duties. Upon such
review, Executive's salary may, but need not, be increased, but shall not be
reduced without Executive's consent.
(b) In addition to his salary, Executive may also be paid such
bonuses and other compensation, if any, as may from time to time be determined
by the Board of Directors of the Company, taking into account, among other
factors, the Company's and the Executive's performance.
(c) During the term of this Agreement, the Company shall reimburse
Executive for all reasonable travel and other business expenses reasonably
necessary and appropriate for the performance of his duties hereunder, provided
that Executive submits receipts or other expense records to the Company in
accordance with the Company's general reimbursement policy then in effect for
executives and other employees of the Company.
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<PAGE>
(d) During the term of this Agreement, the Company shall furnish
Executive with an automobile. The Company shall pay for all reasonable expenses
of obtaining, maintaining and operating any such automobile, including lease
payments, insurance, maintenance, car phone, gas and oil.
5. Employee Benefit Plans.
(a) During the term of Executive's employment under this
Agreement, Executive shall be entitled to participate in all employee benefit
plans in effect for executives of the Company during the term of this Agreement
and shall be provided with an annual physical examination and up to $4,000
annual reimbursement for medical benefits and deductibles not covered by the
Company's benefit plans.
(b) During the term of Executive's employment, Executive shall be
entitled to reasonable vacations consistent with overall Company policy and
commensurate with his position and responsibilities, as well as paid holidays
given by the Company to its employees.
6. Offices.
Executive agrees to serve, if elected or appointed thereto, as an
officer or director of any of the Company's subsidiaries.
7. Termination.
(a) Death. Executive's employment hereunder shall terminate upon
his death.
(b) Disability. If, as a result of Executive's incapacity due to
physical or mental illness ("Disability"), Executive shall be unable to
substantially perform his duties hereunder at the Company's principal executive
offices for six (6) consecutive months, then Executive shall be deemed to be
permanently disabled and the Company shall give Executive Notice of Termination
(as hereinafter defined).
(c) Cause. The Company may terminate Executive's employment
hereunder for Cause. For the purpose of this Agreement, the Company shall have
"Cause" to terminate Executive's employment hereunder upon (i) the failure by
Executive to substantially perform his duties hereunder (other than any such
failure resulting from incapacity due to physical or mental illness) or repeated
refusal by Executive to obey reasonable and lawful orders of the Board of
Directors of the Company, which orders are consistent with then established
policies of the Company and with the position, status, duties and office of
Executive, provided that such failure or refusal has, or is likely to have, a
material adverse effect on the business of the Company, or (ii) the engaging by
Executive in malfeasance or acts of moral turpitude materially and substantially
injurious to the Company or the engaging by Executive in any act prohibited by
Section 10 hereof. Executive shall not be deemed to have been terminated for
Cause unless and until there shall have been delivered to Executive a copy of a
resolution, duly adopted by a majority of all of the Directors of the Company,
finding that in the good faith opinion of the Board, Executive was guilty of
conduct set forth above in clause (i) or (ii) of the preceding sentence, and
specifying the particulars thereof in detail.
(d) Notice of Termination. Any purported termination by the
Company pursuant to subsection (b) or (c) shall be communicated by written
Notice of Termination to the Executive. For purposes of this Agreement, a
"Notice of Termination" shall mean a notice that shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision indicated.
(e) Date of Termination. The effective date of termination
shall be:
(i) If Executive's employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided that
Executive shall not have returned to the performance of his duties on a
full-time basis during such thirty (30) day period, in which event such
Notice of Termination
will be void);
(ii) If Executive's employment is terminated pursuant to
paragraph (c) above, the date specified in the Notice of Termination;
or
(iii) If Executive's employment is terminated for any other
reason, the date on which a Notice of Termination is given.
(f) Termination by Executive. Executive may terminate his
employment effective upon written notice to the Company in the event of a
material breach by the Company of this Agreement.
8. Compensation Upon Termination or During Disability.
(a) If Executive's employment shall be terminated by reason of his
death, the
2
<PAGE>
Company shall pay to his estate, the salary which would otherwise be
payable to Executive up to the end of the month in which his death occurs and
for the twelve (12) months after the month in which his death occurs.
(b) During any period that Executive fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness, Executive
shall continue to receive his full salary at the rate then in effect for the
greater of one (1) year or such period until his permanent disability status is
established pursuant to subsection 7(b) hereof. Thereafter, Executive's
compensation shall be in accordance with such long-term disability plans of the
Company as may then be in effect.
(c) If Executive is terminated for Cause he shall receive only his
salary to the Date of Termination.
(d) If, in breach of this Agreement, the Company shall terminate
Executive's employment other than pursuant to subsections 8(a), (b) or (c)
hereof, or if Executive terminates his employment pursuant to Section 7(g), then
such termination shall nevertheless be effective, but the Company shall continue
to pay Executive his full salary pursuant to subsection 4(a) hereof through the
end of the term of this Agreement and, to the extent permitted by applicable
law, shall pay to the executive all benefits under the Company's employee
benefit plans that have accrued to executive, but were unpaid, through the
effective date of termination and cause all stock options (if any) issued to
Executive by the Company that are outstanding on the effective date of
termination to vest in full as of the effective date of termination, and
Executive shall have the right to full health benefit coverage under the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"); provided,
however, that if Executive is ineligible for coverage under COBRA, the Company
shall provide equivalent coverage to Executive at a cost to Executive no greater
than that under COBRA, but only to the extent that Executive is not covered
under any other health benefit plan.
9. Successors; Binding Agreement.
The rights and obligations of the Company under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of
the Company, and all rights of Executive hereunder shall inure to the benefit of
and be enforceable by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
10. Covenants.
(a) Executive agrees that during the term of this Agreement and
for a period of one (1) year from the termination of Executive's employment with
the Company (unless such termination is the result of a breach of the Agreement
by the Company), whether or not such termination occurs at the end of the term
of this Agreement, he will not, directly or indirectly, enter into any business
competitive with that of the Company or of any of its affiliates, or work in or
render any service or assistance to any person or entity that is engaged
primarily in a business that is competitive with that of the Company; provided,
however, that the ownership of less than five percent of an issue of the capital
stock of a publicly held company if such issue of capital stock is traded on a
national securities exchange or NASAQ shall not be deemed a violation of this
Section 10(a). Executive further agrees that he will not, directly or
indirectly, solicit any of the Company's management employees to work for him
or any competitor of the Company.
(b) Executive hereby recognizes that the value of the Confidential
Information disclosed by the Company to Executive in the course of his
engagement with the Company is attributable substantially to the fact that such
Confidential Information is maintained by the Company and its Affiliates in the
strictest confidentiality and secrecy and would be unavailable to others without
the expenditure of substantial time, effort or money. Executive, therefore,
covenants and agrees to keep strictly secret and confidential the Confidential
Information of the Company in accordance with the following provisions of this
Section 10(b). Executive covenants and agrees to safeguard the Confidential
Information of the Company disclosed to or otherwise acquired by Executive in
the course of his engagement with the Company and to prevent the disclosure or
other dissemination thereof to any third party, or the use thereof by any
Competitive Business or Competitive Business Enterprise. In implementation of
the foregoing, Executive shall not disclose any of the Confidential Information
of the Company to any employee or consultant except those for whom disclosure
is necessary for the effective performance of their responsibilities as
employees or consultants and, in each case, only to the
3
<PAGE>
extent required for such effective performance of responsibilities by employees
or consultants to whom such disclosure is made pursuant to this Section 10(b).
The obligations undertaken by Executive pursuant to this Section 10(b) shall not
apply to any Confidential Information which hereafter shall become published or
otherwise generally available to the public, except in consequence of a willful
or negligent act or admission by Executive or his Affiliates, or employees in
contravention of the obligations hereinabove set forth in this Section 10(b),
and such obligations shall, as so limited, survive expiration or termination of
this Agreement.
(c) Executive shall not, during or after the term of this
Agreement, make any statement or do any act which will disparage or injure the
goodwill or reputation of the Company of its Affiliates. Executive and the
Company mutually agree that Executive's obligations contained in this Section 10
are reasonable and necessary for the protection of the Company and are of a
special and unique character which gives them a particular value, and that the
Company cannot be reasonably or adequately compensated in damages in an action
at law in the event Executive breaches such obligations. Executive therefore
expressly agrees that, in addition to any other rights or remedies which the
Company may possess, the Company shall be entitled to injunctive and other
equitable relief to prevent a breach of this Section 10 by Executive, including
a temporary restraining order or temporary injunction from any court of
competent jurisdiction restraining any threatened or actual violation, and
Executive consents to the entry of such an order and injunctive relief and
waives the making of a bond as a condition for obtaining such relief. Such right
shall be cumulative and in addition to any other legal or equitable rights and
remedies the Company may have.
(d) As used in this Section 10, the following terms shall have the
following respective meanings:
(i) "Affiliate" means any person or entity controlling,
controlled by or under common control with another person or entity
through any means; and
(ii) "Confidential Information" means all information not in
the public domain relating to the business of the Company, its
subsidiaries or affiliated entities, or relating to its employees,
accounts, suppliers or operations.
11. Notice.
For the purpose of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered, if personally delivered, or three (3) days
after being mailed by United States registered mail, return receipt requested,
postage prepaid, addressed as follows:
If to Executive:
Robert S. Prather, Jr.
1843 West Wesley Road
Atlanta, Georgia 30327
If to the Company:
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
Attention: Corporate Secretary
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
12. Miscellaneous.
No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by Executive and such officer as may be specifically designated by the
Board of Directors of the Company. No waiver by either party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of
4
<PAGE>
Georgia.
13. Counterparts.
This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Severability.
If in any jurisdiction, any provision of this Agreement or its
application to any party or circumstance is restricted, prohibited or
unenforceable, such provision shall, as to such jurisdiction, be ineffective
only to the extent of such restriction, prohibition or unenforceability, without
invalidating the remaining provisions hereof and without affecting the validity
or enforceability of such provision in any other jurisdiction or its application
to other parties or circumstances. In addition, if any one or more of the
provisions contained in this Agreement shall for any reason in any jurisdiction
be held to be excessively broad as to time, duration, geographical scope,
activity or subject, it shall be construed, by limiting and reducing it, so as
to be enforceable to the extent compatible with the applicable law of such
jurisdiction as it shall then appear.
IN WITNESS WHEREOF, this Agreement has been executed by the Company and
Executive as of the date written above.
BULL RUN CORPORATION
By: /s/ J. MACK ROBINSON
Title: Chairman
/s/ ROBERT S. PRATHER, JR.
ROBERT S. PRATHER, JR.
5
EXHIBIT 10.13
THIRD MODIFICATION OF LOAN AGREEMENT
THIS MODIFICATION is made as of this 27th day of January, 1997, by and
between BULL RUN CORPORATION, a Georgia corporation ("Borrower"), and
NATIONSBANK, N.A. (SOUTH), a Georgia banking corporation, successor by merger to
Bank South ("Lender").
STATEMENT OF FACTS
Lender and Borrower are parties to that certain Loan Agreement, dated
as of March 29, 1995, as amended by the First Modification of Loan Agreement,
dated as of January 3, 1996, and the Second Modification of Loan Agreement,
dated as of September 24, 1996 (the "Loan Agreement"), pursuant to which Lender
has agreed to make one or more loans from time to time to the Borrower in
accordance with the terms and conditions thereof. Lender and Borrower desire to
modify the Loan Agreement in order to increase the revolving credit loan from
$2,000,000 to $3,500,000, and in certain other respects in accordance with the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, the covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, Borrower and Lender do
hereby agree that all capitalized terms used herein shall have the meanings
ascribed thereto in the Loan Agreement as amended hereby (except as otherwise
expressly defined or limited herein) and do hereby further agree as follows:
STATEMENT OF TERMS
1. AMENDMENT OF LOAN AGREEMENT. Subject to the fulfillment of the
conditions precedent to the effectiveness of this Modification which are set
forth below, Section 1.01 of the Loan Agreement is hereby amended by deleting
from Section 1.01 the term "Revolving Credit Maximum Availability," and by
substituting in lieu thereof the following new definition of such term:
"Revolving Credit Maximum Availability" shall mean $3,500,000
(as such amount may be adjusted from time to time pursuant to this
Agreement).
2. NO OTHER AMENDMENTS. Except for the amendment expressly set forth
and referred to in Section 1 above, the Loan Agreement shall remain unchanged
and in full force and effect and are hereby in all respects ratified and
confirmed. Nothing in this Modification or any of the other Supplemental Credit
Documents (as defined below) is intended, or shall be construed, to constitute a
novation or an accord and satisfaction of any of the Obligations or to modify,
affect or impair the perfection or continuity of Lender's security interests in,
security titles to or other Liens on any Collateral for the Obligations.
3. REPRESENTATIONS AND WARRANTIES. To induce Lender to enter into this
Modification, the Borrower does hereby warrant, represent and covenant to Lender
that: (a) each representation or warranty of the Borrower set forth in the Loan
Agreement is hereby restated and reaffirmed as true and correct on and as of the
date hereof as if such representation or warranty were made on and as of the
date hereof (except to the extent that any such representation or warranty
expressly relates to a prior specific date or period), and no Default or Event
of Default has occurred and is continuing as of this date under the Loan
Agreement as amended by this Modification; and (b) each of the Borrower, the
Guarantor and the Partnership has the power and is duly authorized to enter
into, deliver and perform the Supplemental Credit Documents to which it is a
party, and each of the Supplemental Credit Documents is the legal, valid and
binding obligation of each Credit Party enforceable against such Credit Party in
accordance with its terms.
4. REFERENCE TO AND EFFECT ON THE CREDIT DOCUMENTS. Upon the
effectiveness of this
<PAGE>
Modification, on and after the date hereof each reference in the Loan Agreement
to "this Agreement," "hereunder," "hereof" or words of like import referring to
the Loan Agreement, and each reference in the other Credit Documents to "the
Loan Agreement," "thereunder," "thereof" or words of like import referring to
the Loan Agreement, shall mean and be a reference to the Loan Agreement as
amended hereby.
5. REIMBURSEMENT OF COSTS AND EXPENSES. The Borrower hereby agrees to
reimburse Lender on demand for all costs (including reasonable attorneys' fees)
incurred by Lender in negotiating, documenting and consummating this
Modification, the other documents referred to herein, and the transactions
contemplated hereby and thereby.
6. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS MODIFICATION. The
effectiveness of this Modification and the amendments provided in Section 1
above are subject to the truth and accuracy in all material respects of the
representations and warranties of the Borrower contained in Section 3 above and
to the fulfillment of the following additional conditions precedent (all
documents described below shall be in form and substance satisfactory to Lender,
and the documents described in paragraph (a) below are herein collectively
called the Supplemental Credit Documents.):
(a) Lender shall have received one or more duly executed
counterparts of this Modification and the Revolving Credit Note;
(b) Lender shall have received a duly executed Guarantor
Reaffirmation and Consent to Third Modification of Loan Agreement from
the Guarantor, a duly executed Partnership Reaffirmation and Consent to
Third Modification of Loan Agreement from the Partnership, and a duly
executed Purchaser Consent to Third Modification of Loan Agreement from
the Purchaser; and
(c) Lender shall have received a duly executed and completed
Federal Reserve Form U-1 relating to the Revolving Credit Loan.
7. COUNTERPARTS. This Modification may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which
when taken together shall constitute one and the same instrument.
8. GOVERNING LAW. This Modification shall be governed by, and construed
in accordance with, the internal laws of the State of Georgia applicable to
contracts made and performed in such state.
IN WITNESS WHEREOF, the parties hereto have caused this Modification to
be duly executed and delivered as of the day and year specified at the beginning
hereof.
BORROWER:
BULL RUN CORPORATION
By: /s/ ROBERT S. PRATHER, JR.
Robert S. Prather, Jr., President
LENDER:
NATIONSBANK, N.A. (SOUTH)
By: /s/ SCOTT E. REED
Scott E. Reed, Senior Vice President
EXHIBIT 10.16
THIRD TERM LOAN NOTE
$5,000,000 SEPTEMBER 24, 1996
FOR VALUE RECEIVED, the undersigned, BULL RUN CORPORATION, a Georgia
corporation (the "Borrower"), hereby promises to pay to the order of
NATIONSBANK, N.A. (SOUTH), a Georgia banking corporation successor by merger to
Bank South (herein, together with any subsequent holder hereof, called the
"Lender"), the principal sum of FIVE MILLION AND NO/100 DOLLARS ($5,000,000), or
the outstanding principal amount of the Third Term Loan made to the Borrower by
the Lender pursuant to the Loan Agreement referred to below, which principal sum
shall be payable (i) in installments on the due dates and in the amounts set
forth in the Loan Agreement or (ii) on any earlier date on which all amounts
outstanding under this Third Term Loan Note (this "Note") have become due and
payable pursuant to the provisions of Section 9.02 of the Loan Agreement. The
Borrower likewise promises to pay interest on the outstanding principal balance
of the Third Term Loan made by the Lender to the Borrower, at such interest
rates, payable at such times, and computed in such manner, as are specified in
the Loan Agreement in strict accordance with the terms thereof.
This Note is issued pursuant to, and is the Third Term Loan Note
referred to in the Loan Agreement dated as of March 29, 1995, between the
Borrower and the Lender as amended by the First Modification of Loan Agreement
dated as of January 3, 1996, between Borrower and Lender and the Second
Modification of Loan Agreement dated as of the date hereof between Borrower and
Lender (as the same may be further amended or supplemented from time to time,
the "Loan Agreement"), and the Lender is and shall be entitled to all benefits
thereof and of all the other Credit Documents executed and delivered to the
Lender in connection therewith. Terms defined in the Loan Agreement are used
herein with the same meaning. The Loan Agreement, among other things, contains
provisions for acceleration of the maturity hereof upon the happening of certain
Events of Default, provisions relating to prepayments on account of principal
hereof prior to the maturity hereof, and provisions for post-default interest
rates.
The Borrower agrees to make payments of principal and interest hereon
on the dates and in the amounts specified in the Loan Agreement in strict
accordance with the terms thereof.
In case an Event of Default shall occur and be continuing, the
principal and all accrued interest of this Note may automatically become, or may
be declared, immediately due and payable in the manner and with the effect
provided in the Loan Agreement. The Borrower agrees to pay, and save the Lender
harmless against any liability for the payment of, all costs and expenses,
including actual and reasonable attorneys' fees, arising in connection with the
enforcement by the Lender of any of its rights or remedies under this Note or
the Loan Agreement.
This Note has been delivered in Atlanta, Georgia, and the rights and
obligations of the Lender and the Borrower hereunder shall be construed in
accordance with and governed by the laws of the State of Georgia (without giving
effect to its conflicts of law rules).
The Borrower expressly waives any presentment, demand, protest or
notice in connection with this Note, whether now or hereafter required by
applicable law. This Note is intended to be an instrument under seal.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed,
sealed and delivered by its duly authorized officer as of the date first above
written.
BULL RUN CORPORATION
(CORPORATE SEAL)
By: /s/ ROBERT S. PRATHER, JR.
Robert S. Prather, Jr., President
EXHIBIT 10.17
REVOLVING CREDIT NOTE
$3,500,000 JANUARY 27, 1997
FOR VALUE RECEIVED, the undersigned BULL RUN CORPORATION, a Georgia
corporation (the "Borrower"), hereby promises to pay to the order of NATIONS
BANK, N.A. (SOUTH), successor by merger to Bank South, N.A. (herein, together
with any subsequent holder hereof, called the "Lender"), the principal sum of
THREE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($3,500,000), or the
aggregate outstanding principal amount of the Revolving Credit Loans made to the
Borrower by Lender pursuant to the Loan Agreement referred to below, which
principal sum shall be payable on the earlier of (i) the Revolving Credit
Facility Expiration Date set forth in the Loan Agreement or (ii) the date on
which all amounts outstanding under this Revolving Credit Note (the "Note") have
become due and payable pursuant to the provisions of Section 9.02 of the Loan
Agreement. The Borrower likewise promises to pay interest on the outstanding
principal balance of each Revolving Credit Loan made by the Lender to the
Borrower, at such interest rates, payable at such times, and computed in such
manner, as are specified in the Loan Agreement in strict accordance with the
terms thereof.
This Note is issued pursuant to, and is the Revolving Credit Note
referred to in, the Loan Agreement dated as of March 29, 1995, between Borrower
and Lender, as amended by the First Modification of Loan Agreement dated as of
January 3, 1996, between Borrower and Lender, the Second Modification of Loan
Agreement dated as of September 24, 1996 between Borrower and Lender and the
Third Modification of Loan Agreement dated as of the date hereof between
Borrower and Lender (as the same may be amended from time to time, the "Loan
Agreement"), and the Lender is and shall be entitled to all benefits thereof and
of all the other Credit Documents executed and delivered to the Lender in
connection therewith. Terms defined in the Loan Agreement are used herein with
the same meaning. The Loan Agreement, among other things, contains provisions
for acceleration of the maturity hereof upon the happening of certain Events of
Default, provisions relating to repayments on account of principal hereof prior
to the maturity hereof, and as provisions for post-default interest rates.
The Borrower agrees to make payments of principal and interest hereon
on the dates and in the amounts specified in the Loan Agreement in strict
accordance with the terms thereof.
In case an Event of Default shall occur and be continuing, the
principal and all accrued interest of this Note may automatically become, or may
be declared, immediately due and payable in the manner and with the effect
provided in the Loan Agreement. The Borrower agrees to pay, and save the Lender
harmless against any liability for the payment of, all costs and expenses,
including actual and reasonable attorneys' fees, arising in connection with the
enforcement by the Lender of any of its rights or remedies under this Note or
the Loan Agreement.
This Note has been delivered in Atlanta, Georgia, and the rights and
obligations of the Lender and the Borrower hereunder shall be construed in
accordance with and governed by the laws of the State of Georgia (without giving
effect to its conflicts of law rules).
The Borrower expressly waives any presentment, demand, protest or
notice in connection with this Note, whether now or hereafter required by
applicable law. This Note is intended to be an instrument under seal.
THIS NOTE IS MADE AND GIVEN IN REPLACEMENT OF THAT CERTAIN PROMISSORY
NOTE EXECUTED ON SEPTEMBER 24, 1996 IN THE ORIGINAL PRINCIPAL AMOUNT OF
$2,000,000, ISSUED BY THE BORROWER TO THE LENDER, AND IS NOT INTENDED TO BE A
NOVATION.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed,
sealed and
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delivered by its duly authorized officer as of the date first above written.
BULL RUN CORPORATION
(CORPORATE SEAL)
By: /s/ ROBERT S. PRATHER, JR.
Robert S. Prather, Jr., President
EXHIBIT 10.19
NEITHER THIS WARRANT, NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE HEREOF, HAVE BEEN REGISTERED FOR OFFER OR SALE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, THE GEORGIA SECURITIES ACT OF 1973
OR ANY OTHER APPLICABLE SECURITIES LAWS. THIS WARRANT HAS BEEN ISSUED
OR SOLD, AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF WILL BE ISSUED OR SOLD, IF AT ALL, IN RELIANCE UPON EXEMPTIONS
CONTAINED IN SUCH LAWS FOR TRANSACTIONS NOT INVOLVING ANY PUBLIC
OFFERING INCLUDING, BUT NOT LIMITED TO, PARAGRAPH (13) OF CODE SECTION
10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973. THIS WARRANT HAS BEEN
ACQUIRED, AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF WILL BE ACQUIRED, IF AT ALL, FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED, HYPOTHECATED, PLEDGED OR DISPOSED OF IN ANY MANNER EXCEPT
IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER SUCH LAWS OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH LAWS.
GRAY COMMUNICATIONS SYSTEMS, INC.
Warrant
GRAY COMMUNICATIONS SYSTEMS, INC., a Georgia corporation (the
"Company"), hereby certifies that, for value received, BULL RUN CORPORATION, a
Georgia corporation (together with its registered or authorized assigns, the
"Holder"), is entitled, subject to the terms hereof, to purchase from the
Company upon surrender of this Warrant (this "Warrant") at any time during the
period described in Section 2 hereof, Four Hundred Eighty-Seven Thousand Five
Hundred (487,500) shares of Common Stock (as defined below) of the Company (the
"Warrant Shares") (as adjusted from time to time as provided in this Warrant),
at the Warrant Exercise Price (as defined below) per share.
DEFINITIONS
SECTION 1. (a) Definitions. The following words and terms
as used in this Warrant shall have the following meanings:
"Affiliate" means, with respect to a Person, any other Person
that, directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such first Person.
"Business Day" means a day other than a Saturday, a Sunday, a
day on which banking institutions in the State of Georgia are authorized or
obligated by law or required by executive order to be closed, and a day on which
the New York Stock Exchange is closed.
"Closing Date" means the date on which the Company's 8%
Subordinated Note is exchanged for 1,000 shares of the Preferred Stock in
accordance with the terms of the Preferred Stock Agreement.
"Common Stock," when used with reference to stock of the
Company, means all shares now or hereafter authorized of Class A Common Stock,
no par value, of the Company and stock of any other class of the common equity
of the Company into which such shares may hereafter have been changed and other
rights or securities convertible into shares of Class A Common Stock of the
Company.
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"Conversion Price" means the price per share for which Common
Stock is issuable upon the conversion or exchange of Convertible Securities,
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance of such Convertible Securities,
plus the minimum aggregate amount of additional consideration payable to the
Company upon the conversion or exchange of such Convertible Securities, by (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities.
"Convertible Securities" mean any securities issued by the
Company or an Affiliate which are convertible into or exchangeable for, directly
or indirectly, shares of Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Expiration Date" means January 3, 2006.
"Market Price" of a share of Common Stock on any day means the
average closing price of a share of Common Stock for the twenty (20) consecutive
trading days preceding such day on the principal national securities exchange on
which the shares of Common Stock are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, the average
of the reported bid and asked prices during such 10 trading day period in the
over-the-counter market as furnished by the National Quotation Bureau, Inc., or,
if such firm is not then engaged in the business of reporting such prices, as
furnished by any similar firm then engaged in such business selected by the
Company, or, if there is no such firm, as furnished by any member of the
National Association of Securities Dealers, Inc. selected by the Company or, if
the shares of Common Stock are not publicly traded, the Market Price for such
day shall be the book value of a share of Common Stock of the Company as
disclosed in the last balance sheet of the Company regularly prepared by the
Company.
"Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or any agency or political subdivision thereof) or other
entity of any kind.
"Preferred Stock Agreement" means that certain Preferred Stock
Exchange and Purchase Agreement dated as of September 24, 1996, between the
Company and the above-named Holder.
"Preferred Stock" means the Company's Series A Preferred
Stock, no par value per share, issued to the above-named Holder pursuant to the
Preferred Stock Agreement.
"Registrable Securities" means the Warrant Shares and any
securities issued or issuable upon exercise of this Warrant. As to any
particular Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been distributed to the public pursuant to Rule
144 (or any successor provision) or are saleable pursuant to Rule 144(k) (or any
successor provision) under the Securities Act, (c) they shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration or qualification
of them under the Securities Act or any similar state law then in force, or (d)
they shall have ceased to be outstanding.
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with Sections 20, 21 and 22 hereof,
including, without limitation, all registration and filing fees, all fees and
expenses of complying with securities or blue sky laws, fees and other expenses
associated with filings with the National Association of Securities Dealers,
Inc. (including, if required,
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the reasonable fees and expenses of any "qualified independent underwriter" and
its counsel), all printing expenses, messenger, telephone, duplication, word
processing and delivery expenses incurred by the Company, the fees and
disbursements of counsel for the Company and of its independent public
accountants, the fees and disbursements of counsel retained by the holders of
Registrable Securities, Securities Act liability insurance if the Company so
desires such insurance, rating agency fees and the fees and expenses incurred in
connection with the listing of the securities to be registered on any securities
exchange, fees and disbursements of all independent certified public accountants
including, without limitation, the expenses of any special audits made by such
accountants required by or incident to such performance and compliance, but not
including such holders' proportionate share of underwriting discounts and
commissions.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Strike Price" means the price per share for which Common
Stock is issuable upon the exercise of any rights, options or warrants for the
purchase of Common Stock, determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the grant of such
rights, options or warrants, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of such rights, options
or warrants, by (ii) the total maximum number of shares of Common Stock issuable
upon the exercise of such rights, options or warrants.
"Warrant Exercise Price" initially shall be the Market Price
as of January 3, 1996.
(b) Other Definitional Provisions.
(i) Except as otherwise specified herein, all
references herein (A) to any Person other than the Company shall be deemed to
include such Person's successors and assigns, (B) to the Company shall be deemed
to include the Company's successors and assigns, and (C) to any applicable law
defined or referred to herein shall be deemed references to such applicable law
as the same may have been or may be amended or supplemented from time to time.
(ii) When used in this Agreement, the words "herein",
"hereof" and "hereunder", and words of similar import, shall refer to this
Agreement as a whole and not to any provision of this Agreement, and the words
"Section" and "Exhibit" shall refer to Sections of and Exhibits to this
Agreement unless otherwise specified.
(iii) Whenever the context so requires, the neuter
gender includes the masculine or feminine, and the singular number includes the
plural, and vice versa.
SECTION 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, including, but
not limited to, Sections 19 and 33 hereof, this Warrant may be exercised, in
whole or in part, at any time or from time to time during normal business hours
on or after January 3, 1998 and prior to the close of business on the Expiration
Date. The rights represented by this Warrant may be exercised by the Holder, in
whole or from time to time in part (except that this Warrant shall not be
exercisable as to a fractional share) by (i) delivery of a written notice of
such Holder's election to exercise this Warrant to the Company's office located
at the address set forth in Section 28 hereof, which notice shall specify the
number of Warrant Shares to be purchased, (ii) payment to the Company of an
amount equal to the Warrant Exercise Price multiplied by the number of Warrant
Shares as to which the Warrant is being exercised in cash, by certified or
official bank check or the cancellation of all or any of the shares of the
Preferred Stock, (iii) surrender of this Warrant, properly endorsed, at the
principal office of the Company (or at
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such other agency or office of the Company as the Company may designate by
notice to the Holder), and (iv) if the Warrant Shares issuable upon the exercise
of the rights represented by this Warrant have not been registered under the
Securities Act, delivery to the Company by the Holder of a letter in the form of
Exhibit A hereto; provided, however, that if such Warrant Shares are to be
issued in any name other than that of the registered holder of this Warrant,
such issuance shall be deemed a transfer subject to the provisions of Section
18. In the event of any exercise of the rights represented by this Warrant, a
certificate or certificates for the Warrant Shares so purchased, registered in
the name of, or as directed by, the Holder, shall be delivered to, or as
directed by, such Holder within a reasonable time after such rights shall have
been so exercised. Unless the rights represented by this Warrant shall have
expired or have been fully exercised, the Company shall issue a new Warrant
identical in all respects to the Warrant exercised except it shall represent
rights to purchase the number of Warrant Shares purchasable immediately prior to
such exercise under the Warrant exercised, less the number of Warrant Shares
with respect to which such Warrant was exercised. The entity in whose name any
certificate for Warrant Shares is issued upon the exercise of this Warrant shall
for all purposes be deemed to have become the holder of record of such Warrant
Shares immediately prior to the close of business on the date on which the
Warrant was surrendered and payment of the amount due in respect of such
exercise and any applicable taxes was made, irrespective of the date of delivery
of such share certificate, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Company are properly
closed, such person shall be deemed to have become the holder of such Warrant
Shares at the opening of business on the next succeeding date on which the stock
transfer books are open. If this Warrant is not exercised on or prior to the
Expiration Date, this Warrant shall become void and all rights of the Holder
hereunder shall cease.
(b) Notwithstanding the provisions of Section 2(a) hereof to
the contrary, this Warrant may be exercised, in whole or in part, at any time or
from time to time during normal business hours on or after the date hereof and
prior to the close of business on the Expiration Date upon the occurrence of any
of the following:
(i) any change in control of the Company by any means
whatsoever, including without limitation, by
acquisition of securities, merger, consolidation,
recapitalization or reorganization of the Company;
(ii) any partial or complete liquidation of the Company;
(iii) any sale or disposition of fifty percent (50%) or
more of the assets of the Company;
(iv) any public offering of all or part of any class of
securities issued by the Company pursuant to an
effective registration statement under the Securities
Act, other than a public offering consummated prior
to December 31, 1996;
(v) any tender offer for more than twenty percent (20%)
of any outstanding class of securities issued by the
Company; or
(vi) any sale or other disposition by the Company of
capital stock of the Company constituting (on a
cumulative basis) more than fifty percent (50%) of
the capital stock of the Company then outstanding.
SECTION 3. Covenants. The Company covenants and agrees that
all securities which may be issued upon the exercise of the rights represented
by this Warrant will, upon issuance, be validly issued, fully paid and
nonassessable, free and clear of all taxes, liens, claims and encumbrances. The
Company further covenants and agrees that (i) during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized and reserved a sufficient number of shares of Common Stock
to provide for the exercise of the rights then represented by this Warrant and
(ii) it will, at its expense, use its best efforts to cause such shares to be
listed (subject to issuance or notice of issuance) on all stock exchanges, if
any, on which the Common Stock may become listed during such period.
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SECTION 4. Adjustment of Warrant Exercise Price Upon Stock
Splits, Dividends, Distributions and Combinations. In case the Company shall at
any time subdivide its outstanding shares of Common Stock into a greater number
of shares or issue a stock dividend or make a distribution with respect to
outstanding shares of Common Stock or Convertible Securities payable in Common
Stock or in Convertible Securities which are convertible with no additional
consideration into shares of Common Stock, the Warrant Exercise Price in effect
immediately prior to such subdivision or stock dividend or distribution shall be
proportionately reduced (treating for such purpose any such shares of
Convertible Securities outstanding or payable as being the number of shares of
Common Stock issuable upon their conversion); and conversely, in case the shares
of Common Stock of the Company shall be combined into a smaller number of
shares, the Warrant Exercise Price in effect immediately prior to such
combination shall be proportionately increased.
SECTION 5. Reorganization or Reclassification. In case of any
capital reorganization, or of any reclassification of the capital stock of the
Company (other than a change in par value or from par value to no par value or
from no par value to par value or as a result of a split-up or combination), or
any consolidation or merger of the Company with another corporation, or the sale
of all or substantially all of the assets of the Company shall be effected in a
manner by which the holders of Common Stock shall be entitled to securities or
assets with respect to or in exchange for Common Stock, then this Warrant shall,
after such capital reorganization, reclassification of capital stock, merger or
sale of assets, entitle the Holder hereof to purchase the kind and number of
shares of stock or other securities or property of the Company, or of the
corporation resulting from such consolidation to which the Holder hereof would
have been entitled if it had held the Common Stock issuable upon the exercise
hereof immediately prior to such capital reorganization, reclassification of
capital stock, consolidation, merger or sale. The Company shall not effect any
such capital reorganization, reclassification of capital stock, consolidation,
merger or sale unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting therefrom or the corporation
purchasing such assets shall, by written instrument executed and mailed to the
Holder hereof at the last address of such Holder appearing on the books of the
Company, (i) assume the obligation to deliver to such Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase, and (ii) agree to be bound by all the
terms of this Warrant.
SECTION 6. Anti-Dilution Adjustments.
(a) Issuance of Additional Shares. In case at any time the Company
shall issue or sell any shares of its Common Stock (excluding shares issued upon
the exercise of this Warrant and excluding shares issued in a public offering)
for a consideration per share less than the Market Price on the date of such
issue or sale, the Warrant Exercise Price shall be reduced to the price
determined by multiplying the Warrant Exercise Price in effect immediately prior
to the time of such issue or sale by a fraction, the numerator of which shall be
the sum of (i) the number of shares of Common Stock outstanding immediately
prior to such issue or sale multiplied by the Market Price immediately prior to
such issue or sale plus (ii) the aggregate consideration received by the Company
upon such issue or sale, and the denominator of which shall be the product of
(iii) the total number of shares of Common Stock outstanding immediately after
such issue or sale, multiplied by (iv) the Market Price immediately prior to
such issue or sale.
(b) Issuance of Rights, Options or Warrants. In case at any time the
Company shall grant (whether directly or by assumption in a merger or otherwise)
any rights (other than the rights represented by this Warrant), options or
warrants to subscribe for or to purchase shares of Common Stock, whether or not
such rights, options or warrants are immediately exercisable, and the Strike
Price is less than the Market Price as of the date such rights, options or
warrants are granted, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights, options or warrants shall be deemed
to have been issued at the Strike Price. Except as otherwise provided in
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Section 6(d) below, no adjustments of the Warrant Exercise Price shall be made
upon the actual issuance of the shares of Common Stock underlying such rights,
options or warrants.
(c) Issuance of Convertible Securities. In case at any time the Company
shall issue any Convertible Securities, whether or not the right to convert or
exchange any such Convertible Securities are immediately exercisable, and the
Conversion Price is less than the Market Price as of the date such Convertible
Securities are issued, then the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities shall be
deemed to have been issued at the Conversion Price. Except as otherwise provided
in Section 6(d) below, no adjustments of the Warrant Exercise Price shall be
made upon the actual issuance of the shares of Common Stock underlying such
Convertible Securities.
(d) Change in Strike Price, Conversion Price or Conversion Rate. If (i)
the Strike Price for any right, option or warrant for the purchase of Common
Stock, (ii) the Conversion Price of any Convertible Security or (iii) the rate
at which any Convertible Securities are convertible into or exchangeable for
Common Stock changes at any time (other than by reason of provisions designed to
protect against dilution), the Warrant Exercise Price in effect at the time such
event occurs shall be readjusted to the Warrant Exercise Price which would have
been in effect at such time had such rights, options, warrants or Convertible
Securities still outstanding provided for such changed Strike Price, Conversion
Price or conversion rate, as the case may be, at the time such rights, options
or warrants were initially granted or such Convertible Securities were initially
issued. Upon the expiration of any such right, option or warrant or the
termination of any such right to convert or exchange such Convertible
Securities, the Warrant Exercise Price then in effect shall be increased to the
Warrant Exercise Price which would have been in effect at the time of such
expiration or termination had such right, option, warrant or Convertible
Security, to the extent outstanding immediately prior to such expiration or
termination, never been granted or issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding.
(e) Consideration for Stock. In case any shares of Common Stock or
Convertible Securities or any rights, options or warrants to purchase Common
Stock or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Company therefor, without deducting any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in connection
therewith. In case any shares of Common Stock or Convertible Securities or any
rights, options or warrants to purchase Common Stock or Convertible Securities
shall be issued or sold in whole or in part for consideration other than cash,
the amount of such consideration shall be deemed to be the fair value thereof as
determined by the Board of Directors of the Company, without deducting any
expenses incurred or any underwriting commissions or concessions paid or allowed
by the Company in connection therewith. In the event of any consolidation or
merger of the Company in which the Company is not the surviving corporation or
in the event of any sale of all or substantially all of the assets of the
Company for stock or other securities of any corporation, the Company shall be
deemed to have issued a number of shares of its Common Stock for stock or
securities of the other corporation computed on the basis of the actual exchange
ratio on which the transaction was predicated and for consideration equal to the
fair market value on the date of such transaction of such stock or securities of
the other corporation as determined by the Board of Directors of the Company,
and if any such calculation results in adjustment of the Warrant Exercise Price,
the determination of the number of shares of Common Stock issuable upon exercise
of this Warrant immediately prior to such merger, conversion or sale, for
purposes of Section 5 shall be made after giving effect to such adjustment of
the Warrant Exercise Price.
(f) Exceptions. Notwithstanding anything in this Section 6 to the
contrary, the Company shall not be required to make any adjustment of the
Warrant Exercise Price in connection with (i) the issuance of shares of Common
Stock upon exercise of options granted to management employees of the
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Company pursuant to a stock option plan and (ii) any acquisition in which all or
part of the purchase price is payable in Common Stock or Convertible Securities
and the Company or an Affiliate of the Company is the surviving corporation.
SECTION 7. Record Date. In case the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them (i)
to receive a dividend or other distribution payable in Common Stock or in
Convertible Securities, or (ii) to subscribe for or purchase Common Stock or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
SECTION 8. Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the sale or other disposition of any such
shares shall be deemed an issuance thereof for the purposes of Section 6.
SECTION 9. Certain Events. If any event occurs as to which, in
the opinion of the Board of Directors of the Company, the provisions of Sections
4, 5 or 6 are not strictly applicable or, if strictly applicable, would not
fairly protect the purchase rights of the Holder of this Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors shall make an equitable adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such purchase rights.
SECTION 10. Notice of Adjustment of Warrant Exercise Price.
Upon any adjustment of the Warrant Exercise Price or in the occurrence of any
event which should result in an adjustment to the Warrant Exercise Price, the
Company shall promptly give written notice thereof to the Holder of this
Warrant, which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
SECTION 11. Adjustments.
(a) Computation of Adjustments. Upon each computation of an
adjustment in the Warrant Exercise Price, the Warrant Exercise Price shall be
computed to the nearest cent (i.e., fractions of .5 of a cent, or greater, shall
be rounded to the highest cent) and the shares which may be subscribed for and
purchased upon exercise of this Warrant shall be calculated to the nearest whole
share (i.e., fractions of less than one half of a share, or greater, shall be
treated as being a whole share). No such adjustment shall be made, however, if
the change in the Warrant Exercise Price would be less than $.01 per share, but
any such lesser adjustment shall be made at the time and together with the next
subsequent adjustment which, together with any adjustments carried forward,
shall amount to $.01 per share or more.
(b) Adjustment of Number of Shares. Upon each adjustment of
the Warrant Exercise Price as provided above, the registered holder of this
Warrant shall thereafter be entitled to purchase, at the Warrant Exercise Price
resulting from such adjustment, the number of shares (calculated to the nearest
tenth of a share) obtained by multiplying the Warrant Exercise Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Warrant Exercise Price after such adjustment.
(c) Certain Prohibited Adjustments. Notwithstanding
anything herein to the contrary,
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the Company agrees not to enter into any transaction which would cause an
adjustment of the Warrant Exercise Price to less than the par value of the
Common Stock.
SECTION 12. Fractional Shares. The Company shall not be
required to issue fractional Warrant Shares upon the exercise of this Warrant.
If the Holder would be entitled upon the exercise of any rights evidenced hereby
to receive a fractional interest in a Warrant Share, the Company shall, upon
such exercise, pay in lieu of such fractional interest an amount in cash equal
to the value of such fractional interest, calculated based upon the Market Price
as of the date this Warrant is exercised.
SECTION 13. Notice of Certain Events. In case at any time:
(a) the Company shall pay any dividend upon, or make any
distribution in respect of, its Common Stock;
(b) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(c) there shall be any capital reorganization, or
reclassification of the capital stock, of the Company, or consolidation or
merger of the Company with, or sale of all or substantially all of its assets to
another corporation; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more said cases, the Company shall give notice to the Holder
of the date on which (i) the books of the Company shall close or a record shall
be taken for such dividend, distribution or subscription rights, or (ii) such
reorganization, reclassification, consolidation, merger, sale of assets,
involuntary dissolution, liquidation or winding up shall take place, as the case
may be. Such notice shall be given not less than ten (10) days prior to the
record date or the date on which the transfer books of the Company are to be
closed in respect thereto in the case of an action specified in clause (i) and
at least thirty (30) days prior to the action in question in the case of an
action specified in clause (ii). Notices of regular dividends provided by the
Company in accordance with the requirements of the New York Stock Exchange shall
constitute notice to the Holder of such dividends in accordance with this
Section.
SECTION 14. No Change in Warrant Terms on Adjustment.
Irrespective of any adjustment in the Warrant Exercise Price or the number of
shares of Common Stock issuable upon exercise hereof, this Warrant, whether
theretofore or thereafter issued or reissued, may continue to express the same
Warrant Exercise Price and number of shares as are stated herein and the Warrant
Exercise Price and such number of shares specified herein shall be deemed to
have been so adjusted.
SECTION 15. Taxes. The Company shall pay any tax or taxes
attributable to the issuance of securities issuable upon the exercise of this
Warrant, unless the certificates for such securities are to be issued in a name
other than that of the Holder hereof. The Company shall not be required to pay
any tax or taxes levied or assessed with respect to any transfer of this Warrant
or any Warrant Shares.
SECTION 16. Warrant Holder Not Deemed a Shareholder. No
Holder, as such, of this Warrant shall be entitled to vote or receive dividends
or be deemed a shareholder of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the holder hereof, as
such, any of the rights of a shareholder of the Company or any right to vote,
give or withhold consent to any corporate action (whether any reorganization,
issue of stock, reclassification of stock,
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consolidation, merger, conveyance or otherwise), receive notice of meetings,
receive dividends or subscription rights, or otherwise, prior to the issuance of
record to the Holder of this Warrant of the securities which it is then entitled
to receive upon the due exercise of this Warrant.
SECTION 17. No Limitation on Corporate Action. Except as
otherwise specifically set forth herein, no provisions of this Warrant and no
right or option granted or conferred hereunder shall in any way limit, affect or
abridge the exercise by the Company of any of its corporate rights or powers to
recapitalize, amend its Articles of Incorporation, reorganize, consolidate or
merge with or into another corporation, or transfer all or any part of its
property or assets, or the exercise of any other of its corporate rights and
powers.
SECTION 18. Transfer; Restrictive Legends.
(a) This Warrant may not be transferred or assigned to any
Person without the express written consent of the Company, which consent shall
not be unreasonably withheld, and without complying with the restrictions
contained in Section 33 of this Warrant, if applicable. The Holder shall
indemnify and hold harmless the Company from any transfer or assignment of this
Warrant in violation of the terms hereof or in violation of applicable law.
Further, this Warrant may be transferred separately from the Preferred Stock.
(b) This Warrant is subject to the condition that if at any
time the Board of Directors of the Company determines, in its reasonable
discretion based upon the advice of its securities counsel, that the
registration or qualification of the Registrable Securities is necessary under
any state or federal law as a condition of or in connection with the issuance
and delivery of such securities, the issuance and delivery of such securities
may be withheld unless and until such registration or qualification shall have
been effected. Upon the request of Holder, the Company shall promptly supply to
such Holder all information regarding the Company required to be delivered in
connection with a transfer pursuant to Rule 144 or Rule 144A of the Securities
and Exchange Commission. If a registration statement is not in effect under the
Securities Act or any applicable state securities laws with respect to the
securities, the Board of Directors may require, as a condition of exercise and
as a condition to the issuance and delivery of any such securities, that the
Holder deliver to the Company a letter in the form of Exhibit A hereto, with any
supplemental changes the Board of Directors feels are necessary to comply with
federal and state securities laws. The Company may endorse on certificates
representing such securities such legends referring to the representations and
restrictions contained herein and in such letter, in addition to any other
applicable restrictions on resale as the Company, as it in its discretion shall
deem appropriate.
SECTION 19. Vesting. Notwithstanding anything in Section 2 to
the contrary, this Warrant shall be exercisable only with respect to the number
of Warrant Shares which have vested in accordance with the following schedule:
(i) on the date hereof, three hundred thousand (300,000)
Warrant Shares shall automatically vest; and
(ii) for so long as any of the Preferred Stock remain
outstanding, an additional thirty-seven thousand five hundred (37,500)
Warrant Shares, up to an aggregate of one hundred eighty-seven thousand
five hundred (187,500) Warrant Shares, shall vest on each January 3;
provided, however, that upon the occurrence of an event described in
Section 2(b) hereof, any Warrant Shares not then vested shall immediately vest;
and provided further, that upon any adjustment of the number of Warrant Shares
the Holder is entitled to purchase upon the exercise of this Warrant in
accordance with Section 11(b) hereof, all numerical references to Warrant Shares
contained in this Section 19 shall be proportionately adjusted.
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SECTION 20. Registration on Request of Holder.
(a) At any time within the first five (5) years after the date this
Warrant first becomes exercisable, upon the delivery to the Company of a written
request of the Holder and any holder of Registrable Securities, requesting that
the Company effect a registration under the Securities Act, and specifying the
intended method of disposition thereof, the Company will promptly give written
notice of such requested registration to all other holders of Registrable
Securities, and the Company thereupon on one occasion will use its best efforts
to effect, as expeditiously as possible, a registration under the Securities Act
(in accordance with the intended method of disposition specified in the notice
from the Holder and any holder of Registrable Securities) of all of the
Registrable Securities requested to be registered pursuant to this Section 20.
Notwithstanding the foregoing provisions of this Section 20(a), the Company
shall have no obligation to register any Registrable Securities during any
period of time (not to exceed, in the case of (x) or (y), 60 days or, in the
case of (z), 10 Business Days) when (x) the Company is contemplating a public
offering of its securities and in the judgment of the managing underwriter
thereof (or the Company, if such offering is not underwritten) such filing would
have a material adverse effect on the contemplated offering, (y) the Company is
in possession of material information that it deems advisable not to disclose in
a registration statement, or (z) the Company is engaged in any program for the
repurchase of stock of the Company.
(b) If any requested registration pursuant to this Section 20 is in the
form of an underwritten public offering, the holders of a majority of the
Registrable Securities which are to be registered pursuant to this Section 20
shall have the right to select the manager or co-managers that will administer
the offering, provided that such managers are reasonably satisfactory to the
Company.
(c) The Company's obligation to register Registrable Securities
pursuant to Section 20(a) shall not be deemed satisfied if the registration
statement does not become effective because of a material adverse change in the
Company. In addition, if such registration statement does become effective and
the method of disposition is an underwritten public offering, such obligation
shall not be deemed satisfied if more than fifty percent (50%) of the
Registrable Securities included in such registration statement are not sold
because of a material adverse change in the Company.
(d) From the date of receipt of a notice from the Company pursuant to
Section 20(a) until the completion of the period of distribution of the
registration contemplated therein, the Company will not file with the Commission
any other registration statement with respect to its capital stock, whether for
its own account or that of other security holders, provided that the Company
shall not be prohibited from filing any registration statements on Forms S-4 or
S-8 or any other form which is not available for registering capital stock for
sale to the public. The Company shall be entitled to include in any registration
statement referred to in this Section 20 shares of its capital stock to be sold
by the Company for its own account or by other stockholders of the Company
pursuant to other registration rights agreements, provided the registration
statement relates to an underwritten public offering and in the opinion of the
managing underwriter such inclusion would not adversely affect the marketing of
the securities to be sold by the holders of Registrable Securities.
(e) Notwithstanding anything to the contrary in this Section 20, the
amount of Registrable Securities to be included in an underwritten public
offering may be reduced if and to the extent the managing underwriter shall be
of the opinion that such inclusion would adversely affect the marketing of the
securities to be sold in such underwritten public offering including the price
at which such securities will be sold. If such a determination is made, (i) the
number of equity securities (as defined in the Exchange Act) to be included by
the Company and the number of equity securities to be included by stockholders
other than the holder of Registrable Securities shall be reduced first; and then
(ii) the number of Registrable Securities to be included by the holders thereof
shall be reduced in a manner consistent with the provisions of Section 20(f)
hereof.
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(f) If a requested registration pursuant to this Section 20 (x)
involves an underwritten public offering and the number of Registrable
Securities requested to be included in such registration exceeds the largest
number of Registrable Securities which can be sold as determined by the managing
underwriter pursuant to Section 20(e) (the "Maximum Offering Size"), or (y) the
number of Registrable Securities requested to be included in such registration
statement exceeds the number of Registrable Securities the Company is obligated
to register under Section 20(a), then the Company will include in such
registration the number of Registrable Securities requested to be included pro
rata in proportion to the percentage of Registrable Securities held by the
holders of Registrable Securities requesting registration; provided, however,
that such holders may decide among themselves a different priority.
SECTION 21. Incidental Registration Rights. If the Company at
any time proposes to register any of its equity securities (as defined in the
Exchange Act) under the Securities Act (other than pursuant to a registration
statement on Forms S-4 or S-8, or any successor forms), whether or not for sale
for its own account, and the registration form to be used may be used for the
registration of Registrable Securities, it shall at such time give the Holder
and any holder of Registrable Securities prompt written notice of its intentions
and, upon the written request of any such holder made within twenty (20) days
after the receipt of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such holder and the
intended method of disposition thereof), the Company shall use its best efforts
to effect the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the holders
thereof, to the extent required to permit the disposition (in accordance with
the intended methods thereof as aforesaid) of the Registrable Securities so to
be registered, provided that:
(i) if, at any time after giving written notice of its
intention to register any securities and, prior to the effective date
of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to
register such securities, the Company may, at its election, give
written notice of such determination to each holder of Registrable
Securities and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration
Expenses in connection therewith); and
(ii) if such registration shall be in connection with an
underwritten public offering and the managing underwriters shall advise
the Company in writing that in their opinion the number of Registrable
Securities requested to be included in such registration exceeds the
number of such securities which can be sold in such offering, the
Company shall include in such registration the number (if any) of
Registrable Securities so requested to be included which in the opinion
of such underwriters can be sold and shall not include in such
registration any securities (other than securities being sold by the
Company, which shall have priority in being included in such
registration) so requested to be included other than Registrable
Securities unless all Registrable Securities requested to be so
included are included therein (and if in the opinion of such
underwriters, some but not all of the Registrable Securities may be so
included, all holders of Registrable Securities requested to be
included therein shall share pro rata in the number of shares of
Registrable Securities included in such underwritten public offering on
the basis of the number of Registrable Securities requested to be
included therein), except that, in the case of a registration initially
requested or demanded by a holder or holders of securities other than
Registrable Securities, the holders of the Registrable Securities
requested to be included therein and the holders of such other
securities shall share pro rata (based on the number of shares if the
requested or demanded registration is to cover only Common Stock and,
if not, based on the proposed offering price of the total number of
securities included in such underwritten public offering requested to
be included therein); and the Company shall so provide in any
registration agreement hereinafter entered into with respect to any of
its securities.
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SECTION 22. Registration in General.
(a) Procedures. If and whenever the Company is required to use its best
efforts to effect the registration of any Registrable Securities under the
Securities Act, the Company shall promptly:
(i) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such securities,
make all required filings with the NASD and use best efforts to cause
such registration statement to become effective;
(ii) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement
until such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or
sellers thereof set forth in such registration statement, but in no
event for a period of more than six months after such registration
statement becomes effective;
(iii) furnish to counsel (if any) elected by holders of a
majority (by number of shares) of the Registrable Securities covered by
such registration statement copies of all documents proposed to be
filed with the Securities and Exchange Commission in connection with
such registration, which documents shall be subject to the review of
such counsel;
(iv) furnish to each seller of such securities such number of
conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits,
except that the Company shall not be obligated to furnish any seller of
securities with more than two copies of such exhibits), such number of
copies of the prospectus included in such registration statement
(including such preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request in order to facilitate
the disposition of the securities owned by such seller;
(v) use its best efforts to register or qualify such
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
request, and do any and all other acts and things which may be
necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the securities owned by such
seller, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified, or to consent to
service of process in any such jurisdiction other than process served
in connection with alleged violations by the Company of the securities
laws of such jurisdiction;
(vi) furnish to each seller a signed counterpart,
addressed to the sellers, of
(A) an opinion of counsel for the Company,
dated the effective date of the egistration statement, and
(B) subject to the accountants obtaining the
necessary representations as specified in Statement on
Auditing Standards No. 72, a "comfort" letter signed by the
independent public accountants who have certified the
Company's financial statements included in the registration
statement,
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covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and, in
the case of such accountants' letter, with respect to changes
subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters
delivered to the underwriters in underwritten public offerings of
securities;
(vii) notify each seller of any securities covered by such
registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and at the
request of any such seller prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an
untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange
Commission, and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months, beginning with
the first month after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of section 11(a)
of the Securities Act; and
(ix) use its best efforts to list such securities on any stock
market on which the Common Stock is then listed, if such securities are
not already so listed and if such listing is then permitted under the
rules of such exchange, and to provide a transfer agent and registrar
for such Registrable Securities not later than the effective date of
such registration statement.
The Company may require each seller of any securities as to which any
registration is being effected to furnish to the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing and as shall be required by law
in connection therewith. Each such holder agrees to furnish promptly to the
Company all information required to be disclosed in order to make the
information previously furnished to the Company by such holder not materially
misleading.
By acquisition of Registrable Securities, each holder of such
Registrable Securities shall be deemed to have agreed that upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 22(b)(vii) hereof, such holder shall promptly discontinue such holder's
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 22(b)(vii)
hereof. If so directed by the Company, each holder of Registrable Securities
shall deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such holder's possession of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the period
mentioned in Section 22(b)(ii) hereof shall be extended by the number of days
during the period from and including the date of the giving of such notice to
and including the date when each seller of any Registrable Securities covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by Section 22(b)(vii) hereof.
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(b) Indemnification.
(i) Indemnification by the Company.
The Company shall indemnify and hold harmless each holder of
Registrable Securities, each person who controls such holder of
Registrable Securities within the meaning of either Section 15 of the
Securities Act or Section 20(a) of the Exchange Act and the officers,
directors, employees and agents of each such holder and control Person
(each such Person being sometimes hereinafter referred to as an
"Indemnified Holder") from and against all losses, claims, damages,
liabilities, costs (including costs of preparation and attorneys' fees)
and expenses (including expenses of investigation) arising out of or
based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus or
in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or based upon any omission or alleged
omission to state therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages, liabilities
or expenses arise out of or are based upon any such untrue statement or
omission or allegation thereof based upon information relating to such
Indemnified Holder and furnished in writing to the Company by such
Indemnified Holder expressly for use therein. This indemnity shall be
in addition to any liability which the Company may otherwise have.
If any action or proceeding (including any governmental
investigation or inquiry) shall be brought or asserted against an
Indemnified Holder in respect of which indemnity may be sought from the
Company, such Indemnified Holder shall promptly notify the Company in
writing, and the Company shall, at its expense, assume the defense
thereof, including the employment of counsel satisfactory to such
Indemnified Holder and the payment of all expenses. The failure so to
notify the Company shall not relieve the Company from any obligation or
liability except to the extent (but only to the extent) that it shall
finally be determined by a court of competent jurisdiction (which
determination is not subject to appeal) that the Company has been
materially prejudiced by such failure. Such Indemnified Holder shall
have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Holder unless (A)
the Company has agreed to pay such fees and expenses or (B) the Company
shall have failed promptly to assume the defense of such action or
proceeding or has failed to employ counsel satisfactory to such
Indemnified Holder or (C) the named parties to any such action or
proceeding (including any impleaded parties) include both such
Indemnified Holder and the Company or an Affiliate of the Company, and
there may be one or more defenses available to such Indemnified Holder
which are additional to, or in conflict with, those available to the
Company or such Affiliate (in which case, if such Indemnified Holder
notifies the Company in writing that it elects to employ separate
counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of
such Indemnified Holder, it being understood, however, that the Company
shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one
separate firm of attorneys (together with appropriate local counsel) at
any time for such Indemnified Holder). The Company shall not be liable
for any settlement of any such action or proceeding effected without
its written consent, but if settled with its written consent, or if
there be a final judgment for the plaintiff in any such action or
proceeding, the Company agrees to indemnify and hold harmless such
Indemnified Holders from and against any loss or liability by reason of
such settlement or judgment. Whether or not such defense is assumed by
the Company, no Indemnified Holder shall be subject to any liability
for any settlement made without its consent
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(but such consent shall not be unreasonably withheld). The Company
shall not consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to each Indemnified Holder of a release, in
form and substance satisfactory to the Indemnified Holder, from all
liability in respect of such proceeding for which such Indemnified
Holder would be entitled to indemnification hereunder (whether or not
any Indemnified Holder is a party thereto).
(ii) Indemnification by Holder of Registrable Securities.
Each holder of Registrable Securities agrees to indemnify and
hold harmless the Company, its directors and officers and each Person,
if any, who controls the Company within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Company to such holders, but
only with respect to information relating to such holders furnished in
writing by such holders expressly for use in any registration statement
or prospectus, or any amendment or supplement thereto, or any
preliminary prospectus. In case any action or proceeding shall be
brought against the Company or its directors or officers or any such
controlling person, in respect of which indemnity may be sought against
a holder of Registrable Securities, such holder shall have the rights
and duties given to the Company and the Company or its directors or
officers or such controlling person shall have the rights and duties
given to each holder by the preceding paragraph.
(iii) Contribution
If the indemnification provided for in this Section 22(b) is
unavailable to or insufficient to hold harmless an indemnified party
under Section 22(b)(i) or Section 22(b)(ii) hereof (other than by
reason of exceptions provided in those Sections) in respect of any
losses, claims, damages, liabilities or expenses referred to therein,
then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Holders on the other hand from their sale of Registrable Securities or
if such allocation is not permitted by applicable law, the relative
fault of the Company on the one hand and of the Indemnified Holder on
the other in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative fault of the
Company on the one hand and of the Indemnified Holder on the other
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact relates to information
supplied by the Company or by the Indemnified Holder and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in the second paragraph of Section
22(b)(i), any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or
claim.
The Company and each Holder of Registrable Securities agree
that it would not be just and equitable if contribution pursuant to
this Section 22(b)(iii) were determined by pro rata allocation or by
any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
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misrepresentation.
(c) Expenses. The Company shall pay all Registration Expenses
in connection with each registration of Registrable Securities.
SECTION 23. Lock-Up Agreement. The Holder hereby agrees to
enter into an agreement with the Company, in form and substance reasonably
satisfactory to such Holder, restricting such Holder's ability to sell Warrant
Shares for a period not to exceed one hundred eighty (180) days following any
underwritten public offering of Common Stock pursuant to an effective
registration statement under the Securities Act.
SECTION 24. Exchange of Warrant. This Warrant is exchangeable
upon the surrender hereof by the holder hereof at such office or agency of the
Company, for new warrants of like tenor representing in the aggregate the right
to subscribe for and purchase the number of shares which may be subscribed for
and purchased hereunder from time to time after giving effect to all the
provisions hereof, each of such new warrants to represent the right to subscribe
for and purchase such number of shares as shall be designated by said holder
hereof at the time of such surrender.
SECTION 25. Financial Information. Within one hundred twenty
(120) days after the close of each fiscal year of the Company ending after the
date of the issuance of this Warrant and prior to the Expiration Date, the
Company shall furnish to the Holder the audited consolidated financial
statements of the Company and its consolidated subsidiaries (including balance
sheet and income statements) as at the end of each such fiscal year in
comparative form certified by a firm of independent certified public accountants
of recognized national standing, reasonably acceptable to the Holder and
selected by the Company, which financial statements shall be accompanied by the
opinion of such certified public accountants thereon.
SECTION 26. Lost, Stolen, Mutilated or Destroyed Warrant. If
this Warrant is lost, stolen, mutilated or destroyed, the Company shall, on such
terms as to indemnify or otherwise as it may in its discretion impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed.
SECTION 27. Representation of Holder. The holder of this
Warrant, by the acceptance hereof, represents that it is acquiring this Warrant
for its own account for investment and not with a view to, or sale in connection
with, any distribution hereof or of any of the shares of Common Stock or other
securities issuable upon the exercise thereof, nor with any present intention of
distributing any of the same.
SECTION 28. Notice. All notices, demands and other
communications under this Warrant shall be in writing (which shall include
communications by telex and telecopy) and shall be delivered (a) in person or by
courier or overnight service, (b) mailed by first class registered or certified
mail, postage prepaid, return receipt requested, by prepaid telex or telecopier,
or by hand, courier or overnight service, and (c) be given at the following
respective addresses and telecopier numbers and to the attention of the
following Persons:
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(i) if to the Company, to:
Gray Communications Systems, Inc.
126 North Washington Street
Albany, Georgia 31701
Attn: Mr. William A. Fielder, III
Telecopier No.: (912) 888-9374
with a copy (which shall not constitute notice) to:
Heyman & Sizemore
2300 Cain Tower
229 Peachtree Street, NE
Atlanta, Georgia 30303-1608
Attn: Neal H. Ray, Esq.
Telecopier No.: (404) 521-2838
(ii) if to the Holder hereof, to:
Bull Run Corporation
4370 Peachtree Road
Atlanta, Georgia 30319
Attn: Mr. Robert S. Prather
Telecopier No.: (404) 261-9607
with a copy (which shall not constitute notice) to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: Stephen A. Opler, Esq.
Telecopier No.: (404) 881-4777
or at such other address or telecopier number or to the attention of such other
person as the party to whom such information pertains may hereafter specify for
the purpose in a notice to the other specifically captioned "Notice of Change of
Address", and (d) be effective or deemed delivered or furnished (i) if given by
mail, on the third Business Day after such communication is deposited in the
mail, addressed as above provided, (ii) if given by telecopier, when such
communication is transmitted to the appropriate number determined as above
provided in this Section 28 and the appropriate answer back is received or
receipt is otherwise acknowledged, and (iii) if given by hand delivery or
overnight delivery service when left at the address of the addressee addressed
as above provided, except that notices of a change of address or telecopier
number, shall not be deemed furnished until received.
SECTION 29. Miscellaneous. This Warrant and any term hereof
may be changed, waived, discharged, or terminated only by an instrument in
writing signed by the party or holder hereof
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against whom enforcement of such change, waiver, discharge or termination is
sought. The headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof.
SECTION 30. Remedies. The Company stipulates that the remedies
at law of the Holder in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
SECTION 31. Governing Law. This Warrant shall be governed by
the laws of the State of Georgia, without regard to conflict of laws principles.
SECTION 32. Date. The date of this Warrant is September 24,
1996. This Warrant, in all events, shall be wholly void and of no effect after
the close of business on the Expiration Date, except that notwithstanding any
other provisions hereof, the provisions of Sections 20, 21 and 22 shall continue
in full force and effect after such date as to any Warrant Shares or other
securities issued upon the exercise of this Warrant.
SECTION 33. Certain Limitations on Exercise of Warrant. This
Warrant may not be exercised by the Holder to the extent, but only to the
extent, that the exercise of this Warrant would result in the Holder and its
Affiliates owning more than 49.9% of the outstanding shares of Common Stock, on
a fully diluted basis. In the event the circumstances described in the foregoing
sentence preclude the Holder from exercising any portion of this Warrant, the
Holder may, in accordance with the provisions of Section 18 of this Warrant,
freely sell or otherwise transfer this Warrant to any third party other than a
third party to which the Holder has previously sold, in one or more
installments, an aggregate of twenty-five percent (25%) or more of the
outstanding Common Stock, on a fully diluted basis.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officers and its seal to be hereunto affixed as of
September 24, 1996.
GRAY COMMUNICATIONS SYSTEMS, INC.
By: /s/ J. MACK ROBINSON
Name: J. Mack Robinson
Title: President
ATTEST:
By: ______________________________
Secretary
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EXHIBIT A
Notice of Exercise
[Date]
Gray Communications Systems, Inc.
126 North Washington Street
Albany, Georgia 31701
Attn: Mr. William A. Fielder, III
Re: Exercise of Warrant
Pursuant to the provisions of that certain Warrant to Purchase Common
Stock (the "Warrant") of Gray Communications Systems, Inc., a Georgia
corporation (the "Company"), dated September 24, 1996, Bull Run Corporation, a
Georgia corporation ("Bull Run"), hereby represents, warrants, covenants, and
agrees with the Company as follows:
The shares of common stock of the Company being acquired by
Bull Run pursuant to this exercise of the Warrant (the "Warrant
Shares") will be acquired for its own account without the participation
of any other person, with the intent of holding the Warrant Shares for
investment and without the intent of participating, directly or
indirectly, in a distribution of the Warrant Shares and not with a view
to, or for resale in connection with, any distribution of the Warrant
Shares, nor is Bull Run aware of the existence of any distribution of
the Warrant Shares;
Bull Run is not acquiring the Warrant Shares based upon any
representation, oral or written, by any person with respect to the
future value of, or income from, the Warrant Shares but rather upon an
independent examination and judgment as to the prospects of the
Company;
The Warrant Shares were not offered to Bull Run by means of
publicly disseminated advertisements or sales literature;
Bull Run is able to bear the economic risks of the investment
in the Warrant Shares, including the risk of a complete loss of Bull
Run's investment therein;
Bull Run understands and agrees that the Warrant Shares will
be issued and sold to Bull Run in reliance upon an exemption from, but
without registration under any state law relating to the registration
of securities for sale, and will be issued and sold in reliance on the
exemptions from registration under the Securities Act of 1933 (the
"1933 Act"), provided by Sections 3(b) and/or 4(2) thereof and the
rules and regulations promulgated thereunder;
Except as set forth in Section 18 of the Warrant, the Warrant
Shares cannot be offered for sale, sold or transferred by Bull Run
other than pursuant to: (A) an effective registration under the 1933
Act or in a transaction otherwise in compliance with the 1933 Act; and
(B) evidence reasonably satisfactory to the Company of compliance with
the applicable securities laws of other jurisdictions. The Company
shall be entitled to rely upon an opinion of counsel reasonably
satisfactory to it with respect to compliance with the above laws;
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Except as set forth in Sections 20, 21 and 22 of the Warrant,
the Company will be under no obligation to register the Warrant Shares
or to comply with any exemption available for sale of the Warrant
Shares without registration or filing, and the information or
conditions necessary to permit routine sales of securities of the
Company under Rule 144 of the 1933 Act are not now available and no
assurance has been given that it or they will become available. The
Company is under no obligation to act in any manner so as to make Rule
144 available with respect to the Warrant Shares;
Bull Run has and has had complete access to and the
opportunity to review and make copies of all material documents related
to the business of the Company, including, but not limited to,
contracts, financial statements, tax returns, leases, deeds, and other
books and records. Bull Run has examined such of these documents as it
wished and is familiar with the business and affairs of the Company.
Bull Run realizes that the purchase of the Warrant Shares is a
speculative investment and that any possible profit therefrom is
uncertain;
Bull Run has had the opportunity to ask questions of and
receive answers from the Company and any person acting on its behalf
and to obtain all material information reasonably available with
respect to the Company and its affairs. Bull Run has received all
information and data with respect to the Company which it has requested
and which it has deemed relevant in connection with the evaluation of
the merits and risks of its investment in the Company;
Bull Run has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks
of the purchase of the Warrant Shares hereunder and it is able to bear
the economic risk of such purchase; and
The agreements, representations, warranties, and covenants
made by Bull Run herein extends to and applies to all of the Warrant
Shares. Acceptance by Bull Run of the certificate representing such
Warrant Shares shall constitute a confirmation by Bull Run that all
such agreements, representations, warranties, and covenants made herein
shall be true and correct at that time.
Bull Run understands that the certificates representing the Warrant
Shares shall bear a legend referring to the foregoing covenants, representations
and warranties and restrictions on transfer, and agrees that a legend to that
effect may be placed on any certificate which may be issued to Bull Run as a
substitute for the certificates representing the Warrant Shares.
Very truly yours,
BULL RUN CORPORATION
By:
Its:
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AGREED TO AND ACCEPTED:
GRAY COMMUNICATIONS SYSTEMS, INC.
By:
Title:
Number of Shares
Exercised:
Number of Shares
Remaining: Date:
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EXHIBIT 10.20
NEITHER THIS WARRANT, NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE HEREOF, HAVE BEEN REGISTERED FOR OFFER OR SALE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, THE GEORGIA SECURITIES ACT OF 1973
OR ANY OTHER APPLICABLE SECURITIES LAWS. THIS WARRANT HAS BEEN ISSUED
OR SOLD, AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF WILL BE ISSUED OR SOLD, IF AT ALL, IN RELIANCE UPON EXEMPTIONS
CONTAINED IN SUCH LAWS FOR TRANSACTIONS NOT INVOLVING ANY PUBLIC
OFFERING INCLUDING, BUT NOT LIMITED TO, PARAGRAPH (13) OF CODE SECTION
10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973. THIS WARRANT HAS BEEN
ACQUIRED, AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF WILL BE ACQUIRED, IF AT ALL, FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED, HYPOTHECATED, PLEDGED OR DISPOSED OF IN ANY MANNER EXCEPT
IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER SUCH LAWS OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH LAWS.
GRAY COMMUNICATIONS SYSTEMS, INC.
Warrant
GRAY COMMUNICATIONS SYSTEMS, INC., a Georgia corporation (the
"Company"), hereby certifies that, for value received, BULL RUN CORPORATION, a
Georgia corporation (together with its registered or authorized assigns, the
"Holder"), is entitled, subject to the terms hereof, to purchase from the
Company upon surrender of this Warrant (this "Warrant") at any time during the
period described in Section 2 hereof, Two Hundred Fifty Thousand (250,000)
shares of Common Stock (as defined below) of the Company (the "Warrant Shares")
(as adjusted from time to time as provided in this Warrant), at the Warrant
Exercise Price (as defined below) per share.
DEFINITIONS
SECTION 1. (a) Definitions. The following words and terms as
used in this Warrant shall have the following meanings:
"Affiliate" means, with respect to a Person, any other Person
that, directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such first Person.
"Business Day" means a day other than a Saturday, a Sunday, a
day on which banking institutions in the State of Georgia are authorized or
obligated by law or required by executive order to be closed, and a day on which
the New York Stock Exchange is closed.
"Closing Date" means the date on which the Preferred Stock is
purchased in accordance with the terms of the Preferred Stock Agreement.
"Common Stock," when used with reference to stock of the
Company, means all shares now or hereafter authorized of Class A Common Stock,
no par value, of the Company and stock of any other class of the common equity
of the Company into which such shares may hereafter have been changed and other
rights or securities convertible into shares of Class A Common Stock of the
Company.
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"Conversion Price" means the price per share for which Common
Stock is issuable upon the conversion or exchange of Convertible Securities,
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance of such Convertible Securities,
plus the minimum aggregate amount of additional consideration payable to the
Company upon the conversion or exchange of such Convertible Securities, by (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities.
"Convertible Securities" mean any securities issued by the
Company or an Affiliate which are convertible into or exchangeable for, directly
or indirectly, shares of Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Expiration Date" means the tenth anniversary of the date
hereof.
"Market Price" of a share of Common Stock on any day means the
average closing price of a share of Common Stock for the twenty (20) consecutive
trading days preceding such day on the principal national securities exchange on
which the shares of Common Stock are listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, the average
of the reported bid and asked prices during such 10 trading day period in the
over-the-counter market as furnished by the National Quotation Bureau, Inc., or,
if such firm is not then engaged in the business of reporting such prices, as
furnished by any similar firm then engaged in such business selected by the
Company, or, if there is no such firm, as furnished by any member of the
National Association of Securities Dealers, Inc. selected by the Company or, if
the shares of Common Stock are not publicly traded, the Market Price for such
day shall be the book value of a share of Common Stock of the Company as
disclosed in the last balance sheet of the Company regularly prepared by the
Company.
"Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or any agency or political subdivision thereof) or other
entity of any kind.
"Preferred Stock Agreement" means that certain Preferred Stock
Exchange and Purchase Agreement dated as of September 24, 1996, between the
Company and the above-named Holder.
"Preferred Stock" means the Company's Series B Preferred
Stock, no par value per share, issued to the above-named Holder pursuant to the
Preferred Stock Agreement.
"Registrable Securities" means the Warrant Shares and any
securities issued or issuable upon exercise of this Warrant. As to any
particular Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been distributed to the public pursuant to Rule
144 (or any successor provision) or are saleable pursuant to Rule 144(k) (or any
successor provision) under the Securities Act, (c) they shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration or qualification
of them under the Securities Act or any similar state law then in force, or (d)
they shall have ceased to be outstanding.
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with Sections 20, 21 and 22 hereof,
including, without limitation, all registration and filing fees, all fees and
expenses of complying with securities or blue sky laws, fees and other expenses
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associated with filings with the National Association of Securities Dealers,
Inc. (including, if required, the reasonable fees and expenses of any "qualified
independent underwriter" and its counsel), all printing expenses, messenger,
telephone, duplication, word processing and delivery expenses incurred by the
Company, the fees and disbursements of counsel for the Company and of its
independent public accountants, the fees and disbursements of counsel retained
by the holders of Registrable Securities, Securities Act liability insurance if
the Company so desires such insurance, rating agency fees and the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange, fees and disbursements of all independent
certified public accountants including, without limitation, the expenses of any
special audits made by such accountants required by or incident to such
performance and compliance, but not including such holders' proportionate share
of underwriting discounts and commissions.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Strike Price" means the price per share for which Common
Stock is issuable upon the exercise of any rights, options or warrants for the
purchase of Common Stock, determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the grant of such
rights, options or warrants, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of such rights, options
or warrants, by (ii) the total maximum number of shares of Common Stock issuable
upon the exercise of such rights, options or warrants.
"Warrant Exercise Price" initially shall be $24 per share.
(b) Other Definitional Provisions.
(i) Except as otherwise specified herein, all
references herein (A) to any Person other than the Company shall be deemed to
include such Person's successors and assigns, (B) to the Company shall be deemed
to include the Company's successors and assigns, and (C) to any applicable law
defined or referred to herein shall be deemed references to such applicable law
as the same may have been or may be amended or supplemented from time to time.
(ii) When used in this Agreement, the words "herein",
"hereof" and "hereunder", and words of similar import, shall refer to this
Agreement as a whole and not to any provision of this Agreement, and the words
"Section" and "Exhibit" shall refer to Sections of and Exhibits to this
Agreement unless otherwise specified.
(iii) Whenever the context so requires, the neuter
gender includes the masculine or feminine, and the singular number includes the
plural, and vice versa.
SECTION 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, including, but
not limited to, Sections 19 and 33 hereof, this Warrant may be exercised, in
whole or in part, at any time or from time to time during normal business hours
on or after the second anniversary of the date hereof and prior to the close of
business on the Expiration Date. The rights represented by this Warrant may be
exercised by the Holder, in whole or from time to time in part (except that this
Warrant shall not be exercisable as to a fractional share) by (i) delivery of a
written notice of such Holder's election to exercise this Warrant to the
Company's office located at the address set forth in Section 28 hereof, which
notice shall specify the number of Warrant Shares to be purchased, (ii) payment
to the Company of an amount equal to the Warrant Exercise Price multiplied by
the number of Warrant Shares as to
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which the Warrant is being exercised in cash, by certified or official bank
check or the cancellation of all or any of the shares of the Preferred Stock,
(iii) surrender of this Warrant, properly endorsed, at the principal office of
the Company (or at such other agency or office of the Company as the Company may
designate by notice to the Holder), and (iv) if the Warrant Shares issuable upon
the exercise of the rights represented by this Warrant have not been registered
under the Securities Act, delivery to the Company by the Holder of a letter in
the form of Exhibit A hereto; provided, however, that if such Warrant Shares are
to be issued in any name other than that of the registered holder of this
Warrant, such issuance shall be deemed a transfer subject to the provisions of
Section 18. In the event of any exercise of the rights represented by this
Warrant, a certificate or certificates for the Warrant Shares so purchased,
registered in the name of, or as directed by, the Holder, shall be delivered to,
or as directed by, such Holder within a reasonable time after such rights shall
have been so exercised. Unless the rights represented by this Warrant shall have
expired or have been fully exercised, the Company shall issue a new Warrant
identical in all respects to the Warrant exercised except it shall represent
rights to purchase the number of Warrant Shares purchasable immediately prior to
such exercise under the Warrant exercised, less the number of Warrant Shares
with respect to which such Warrant was exercised. The entity in whose name any
certificate for Warrant Shares is issued upon the exercise of this Warrant shall
for all purposes be deemed to have become the holder of record of such Warrant
Shares immediately prior to the close of business on the date on which the
Warrant was surrendered and payment of the amount due in respect of such
exercise and any applicable taxes was made, irrespective of the date of delivery
of such share certificate, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Company are properly
closed, such person shall be deemed to have become the holder of such Warrant
Shares at the opening of business on the next succeeding date on which the stock
transfer books are open. If this Warrant is not exercised on or prior to the
Expiration Date, this Warrant shall become void and all rights of the Holder
hereunder shall cease.
(b) Notwithstanding the provisions of Section 2(a) hereof to
the contrary, this Warrant may be exercised, in whole or in part, at any time or
from time to time during normal business hours on or after the date hereof and
prior to the close of business on the Expiration Date upon the occurrence of any
of the following:
(i) any change in control of the Company by any means
whatsoever, including without limitation, by
acquisition of securities, merger, consolidation,
recapitalization or reorganization of the Company;
(ii) any partial or complete liquidation of the Company;
(iii) any sale or disposition of fifty percent (50%) or
more of the assets of the Company;
(iv) any public offering of all or part of any class of
securities issued by the Company pursuant to an
effective registration statement under the Securities
Act, other than a public offering consummated prior
to December 31, 1996;
(v) any tender offer for more than twenty percent (20%)
of any outstanding class of securities issued by the
Company; or
(vi) any sale or other disposition by the Company of
capital stock of the Company constituting (on a
cumulative basis) more than fifty percent (50%) of
the capital stock of the Company then outstanding
SECTION 3. Covenants. The Company covenants and agrees that
all securities which may be issued upon the exercise of the rights represented
by this Warrant will, upon issuance, be validly issued, fully paid and
nonassessable, free and clear of all taxes, liens, claims and encumbrances. The
Company further covenants and agrees that (i) during the period within which the
rights
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represented by this Warrant may be exercised, the Company will at all times have
authorized and reserved a sufficient number of shares of Common Stock to provide
for the exercise of the rights then represented by this Warrant and (ii) it
will, at its expense, use its best efforts to cause such shares to be listed
(subject to issuance or notice of issuance) on all stock exchanges, if any, on
which the Common Stock may become listed during such period.
SECTION 4. Adjustment of Warrant Exercise Price Upon Stock
Splits, Dividends, Distributions and Combinations. In case the Company shall at
any time subdivide its outstanding shares of Common Stock into a greater number
of shares or issue a stock dividend or make a distribution with respect to
outstanding shares of Common Stock or Convertible Securities payable in Common
Stock or in Convertible Securities which are convertible with no additional
consideration into shares of Common Stock, the Warrant Exercise Price in effect
immediately prior to such subdivision or stock dividend or distribution shall be
proportionately reduced (treating for such purpose any such shares of
Convertible Securities outstanding or payable as being the number of shares of
Common Stock issuable upon their conversion); and conversely, in case the shares
of Common Stock of the Company shall be combined into a smaller number of
shares, the Warrant Exercise Price in effect immediately prior to such
combination shall be proportionately increased.
SECTION 5. Reorganization or Reclassification. In case of any
capital reorganization, or of any reclassification of the capital stock of the
Company (other than a change in par value or from par value to no par value or
from no par value to par value or as a result of a split-up or combination), or
any consolidation or merger of the Company with another corporation, or the sale
of all or substantially all of the assets of the Company shall be effected in a
manner by which the holders of Common Stock shall be entitled to securities or
assets with respect to or in exchange for Common Stock, then this Warrant shall,
after such capital reorganization, reclassification of capital stock, merger or
sale of assets, entitle the Holder hereof to purchase the kind and number of
shares of stock or other securities or property of the Company, or of the
corporation resulting from such consolidation to which the Holder hereof would
have been entitled if it had held the Common Stock issuable upon the exercise
hereof immediately prior to such capital reorganization, reclassification of
capital stock, consolidation, merger or sale. The Company shall not effect any
such capital reorganization, reclassification of capital stock, consolidation,
merger or sale unless prior to the consummation thereof the successor
corporation (if other than the Company) resulting therefrom or the corporation
purchasing such assets shall, by written instrument executed and mailed to the
Holder hereof at the last address of such Holder appearing on the books of the
Company, (i) assume the obligation to deliver to such Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase, and (ii) agree to be bound by all the
terms of this Warrant.
SECTION 6. Anti-Dilution Adjustments.
(a) Issuance of Additional Shares. In case at any time the Company
shall issue or sell any shares of its Common Stock (excluding shares issued upon
the exercise of this Warrant and excluding shares issued in a public offering)
for a consideration per share less than the Market Price on the date of such
issue or sale, the Warrant Exercise Price shall be reduced to the price
determined by multiplying the Warrant Exercise Price in effect immediately prior
to the time of such issue or sale by a fraction, the numerator of which shall be
the sum of (i) the number of shares of Common Stock outstanding immediately
prior to such issue or sale multiplied by the Market Price immediately prior to
such issue or sale plus (ii) the aggregate consideration received by the Company
upon such issue or sale, and the denominator of which shall be the product of
(iii) the total number of shares of Common Stock outstanding immediately after
such issue or sale, multiplied by (iv) the Market Price immediately prior to
such issue or sale.
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(b) Issuance of Rights, Options or Warrants. In case at any time the
Company shall grant (whether directly or by assumption in a merger or otherwise)
any rights (other than the rights represented by this Warrant), options or
warrants to subscribe for or to purchase shares of Common Stock, whether or not
such rights, options or warrants are immediately exercisable, and the Strike
Price is less than the Market Price as of the date such rights, options or
warrants are granted, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights, options or warrants shall be deemed
to have been issued at the Strike Price. Except as otherwise provided in Section
6(d) below, no adjustments of the Warrant Exercise Price shall be made upon the
actual issuance of the shares of Common Stock underlying such rights, options or
warrants.
(c) Issuance of Convertible Securities. In case at any time the Company
shall issue any Convertible Securities, whether or not the right to convert or
exchange any such Convertible Securities are immediately exercisable, and the
Conversion Price is less than the Market Price as of the date such Convertible
Securities are issued, then the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities shall be
deemed to have been issued at the Conversion Price. Except as otherwise provided
in Section 6(d) below, no adjustments of the Warrant Exercise Price shall be
made upon the actual issuance of the shares of Common Stock underlying such
Convertible Securities.
(d) Change in Strike Price, Conversion Price or Conversion Rate. If (i)
the Strike Price for any right, option or warrant for the purchase of Common
Stock, (ii) the Conversion Price of any Convertible Security or (iii) the rate
at which any Convertible Securities are convertible into or exchangeable for
Common Stock changes at any time (other than by reason of provisions designed to
protect against dilution), the Warrant Exercise Price in effect at the time such
event occurs shall be readjusted to the Warrant Exercise Price which would have
been in effect at such time had such rights, options, warrants or Convertible
Securities still outstanding provided for such changed Strike Price, Conversion
Price or conversion rate, as the case may be, at the time such rights, options
or warrants were initially granted or such Convertible Securities were initially
issued. Upon the expiration of any such right, option or warrant or the
termination of any such right to convert or exchange such Convertible
Securities, the Warrant Exercise Price then in effect shall be increased to the
Warrant Exercise Price which would have been in effect at the time of such
expiration or termination had such right, option, warrant or Convertible
Security, to the extent outstanding immediately prior to such expiration or
termination, never been granted or issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding.
(e) Consideration for Stock. In case any shares of Common Stock or
Convertible Securities or any rights, options or warrants to purchase Common
Stock or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Company therefor, without deducting any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in connection
therewith. In case any shares of Common Stock or Convertible Securities or any
rights, options or warrants to purchase Common Stock or Convertible Securities
shall be issued or sold in whole or in part for consideration other than cash,
the amount of such consideration shall be deemed to be the fair value thereof as
determined by the Board of Directors of the Company, without deducting any
expenses incurred or any underwriting commissions or concessions paid or allowed
by the Company in connection therewith. In the event of any consolidation or
merger of the Company in which the Company is not the surviving corporation or
in the event of any sale of all or substantially all of the assets of the
Company for stock or other securities of any corporation, the Company shall be
deemed to have issued a number of shares of its Common Stock for stock or
securities of the other corporation computed on the basis of the actual exchange
ratio on which the transaction was predicated and for consideration equal to the
fair market value on the date of such transaction of such stock or securities of
the other corporation as determined by the Board of
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Directors of the Company, and if any such calculation results in adjustment of
the Warrant Exercise Price, the determination of the number of shares of Common
Stock issuable upon exercise of this Warrant immediately prior to such merger,
conversion or sale, for purposes of Section 5 shall be made after giving effect
to such adjustment of the Warrant Exercise Price.
(f) Exceptions. Notwithstanding anything in this Section 6 to the
contrary, the Company shall not be required to make any adjustment of the
Warrant Exercise Price in connection with (i) the issuance of shares of Common
Stock upon exercise of options granted to management employees of the Company
pursuant to a stock option plan and (ii) any acquisition in which all or part of
the purchase price is payable in Common Stock or Convertible Securities and the
Company or an Affiliate of the Company is the surviving corporation.
SECTION 7. Record Date. In case the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them (i)
to receive a dividend or other distribution payable in Common Stock or in
Convertible Securities, or (ii) to subscribe for or purchase Common Stock or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
SECTION 8. Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the sale or other disposition of any such
shares shall be deemed an issuance thereof for the purposes of Section 6.
SECTION 9. Certain Events. If any event occurs as to which, in
the opinion of the Board of Directors of the Company, the provisions of Sections
4, 5 or 6 are not strictly applicable or, if strictly applicable, would not
fairly protect the purchase rights of the Holder of this Warrant in accordance
with the essential intent and principles of such provisions, then the Board of
Directors shall make an equitable adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such purchase rights.
SECTION 10. Notice of Adjustment of Warrant Exercise Price.
Upon any adjustment of the Warrant Exercise Price or in the occurrence of any
event which should result in an adjustment to the Warrant Exercise Price, the
Company shall promptly give written notice thereof to the Holder of this
Warrant, which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
SECTION 11. Adjustments.
(a) Computation of Adjustments. Upon each computation of an
adjustment in the Warrant Exercise Price, the Warrant Exercise Price shall be
computed to the nearest cent (i.e., fractions of .5 of a cent, or greater, shall
be rounded to the highest cent) and the shares which may be subscribed for and
purchased upon exercise of this Warrant shall be calculated to the nearest whole
share (i.e., fractions of less than one half of a share, or greater, shall be
treated as being a whole share). No such adjustment shall be made, however, if
the change in the Warrant Exercise Price would be less than $.01 per share, but
any such lesser adjustment shall be made at the time and together with the next
subsequent adjustment which, together with any adjustments carried forward,
shall amount to $.01 per share or more.
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(b) Adjustment of Number of Shares. Upon each adjustment of
the Warrant Exercise Price as provided above, the registered holder of this
Warrant shall thereafter be entitled to purchase, at the Warrant Exercise Price
resulting from such adjustment, the number of shares (calculated to the nearest
tenth of a share) obtained by multiplying the Warrant Exercise Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Warrant Exercise Price after such adjustment.
(c) Certain Prohibited Adjustments. Notwithstanding anything
herein to the contrary, the Company agrees not to enter into any transaction
which would cause an adjustment of the Warrant Exercise Price to less than the
par value of the Common Stock.
SECTION 12. Fractional Shares. The Company shall not be
required to issue fractional Warrant Shares upon the exercise of this Warrant.
If the Holder would be entitled upon the exercise of any rights evidenced hereby
to receive a fractional interest in a Warrant Share, the Company shall, upon
such exercise, pay in lieu of such fractional interest an amount in cash equal
to the value of such fractional interest, calculated based upon the Market Price
as of the date this Warrant is exercised.
SECTION 13. Notice of Certain Events. In case at any time:
(a) the Company shall pay any dividend upon, or make any
distribution in respect of, its Common Stock;
(b) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(c) there shall be any capital reorganization, or
reclassification of the capital stock, of the Company, or consolidation or
merger of the Company with, or sale of all or substantially all of its assets to
another corporation; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more said cases, the Company shall give notice to the Holder
of the date on which (i) the books of the Company shall close or a record shall
be taken for such dividend, distribution or subscription rights, or (ii) such
reorganization, reclassification, consolidation, merger, sale of assets,
involuntary dissolution, liquidation or winding up shall take place, as the case
may be. Such notice shall be given not less than ten (10) days prior to the
record date or the date on which the transfer books of the Company are to be
closed in respect thereto in the case of an action specified in clause (i) and
at least thirty (30) days prior to the action in question in the case of an
action specified in clause (ii). Notices of regular dividends provided by the
Company in accordance with the requirements of the New York Stock Exchange shall
constitute notice to the Holder of such dividends in accordance with this
Section.
SECTION 14. No Change in Warrant Terms on Adjustment.
Irrespective of any adjustment in the Warrant Exercise Price or the number of
shares of Common Stock issuable upon exercise hereof, this Warrant, whether
theretofore or thereafter issued or reissued, may continue to express the same
Warrant Exercise Price and number of shares as are stated herein and the Warrant
Exercise Price and such number of shares specified herein shall be deemed to
have been so adjusted.
SECTION 15. Taxes. The Company shall pay any tax or taxes
attributable to the issuance of securities issuable upon the exercise of this
Warrant, unless the certificates for such
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securities are to be issued in a name other than that of the Holder hereof. The
Company shall not be required to pay any tax or taxes levied or assessed with
respect to any transfer of this Warrant or any Warrant Shares.
SECTION 16. Warrant Holder Not Deemed a Shareholder. No
Holder, as such, of this Warrant shall be entitled to vote or receive dividends
or be deemed a shareholder of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the holder hereof, as
such, any of the rights of a shareholder of the Company or any right to vote,
give or withhold consent to any corporate action (whether any reorganization,
issue of stock, reclassification of stock, consolidation, merger, conveyance or
otherwise), receive notice of meetings, receive dividends or subscription
rights, or otherwise, prior to the issuance of record to the Holder of this
Warrant of the securities which it is then entitled to receive upon the due
exercise of this Warrant.
SECTION 17. No Limitation on Corporate Action. Except as
otherwise specifically set forth herein, no provisions of this Warrant and no
right or option granted or conferred hereunder shall in any way limit, affect or
abridge the exercise by the Company of any of its corporate rights or powers to
recapitalize, amend its Articles of Incorporation, reorganize, consolidate or
merge with or into another corporation, or transfer all or any part of its
property or assets, or the exercise of any other of its corporate rights and
powers.
SECTION 18. Transfer; Restrictive Legends.
(a) This Warrant may not be transferred or assigned to any
Person without the express written consent of the Company, which consent shall
not be unreasonably withheld, and without complying with the restrictions
contained in Section 33 of this Warrant, if applicable. The Holder shall
indemnify and hold harmless the Company from any transfer or assignment of this
Warrant in violation of the terms hereof or in violation of applicable law.
Further, this Warrant may be transferred separately from the Preferred Stock.
(b) This Warrant is subject to the condition that if at any
time the Board of Directors of the Company determines, in its reasonable
discretion based upon the advice of its securities counsel, that the
registration or qualification of the Registrable Securities is necessary under
any state or federal law as a condition of or in connection with the issuance
and delivery of such securities, the issuance and delivery of such securities
may be withheld unless and until such registration or qualification shall have
been effected. Upon the request of Holder, the Company shall promptly supply to
such Holder all information regarding the Company required to be delivered in
connection with a transfer pursuant to Rule 144 or Rule 144A of the Securities
and Exchange Commission. If a registration statement is not in effect under the
Securities Act or any applicable state securities laws with respect to the
securities, the Board of Directors may require, as a condition of exercise and
as a condition to the issuance and delivery of any such securities, that the
Holder deliver to the Company a letter in the form of Exhibit A hereto, with any
supplemental changes the Board of Directors feels are necessary to comply with
federal and state securities laws. The Company may endorse on certificates
representing such securities such legends referring to the representations and
restrictions contained herein and in such letter, in addition to any other
applicable restrictions on resale as the Company, as it in its discretion shall
deem appropriate.
SECTION 19. Vesting. Notwithstanding anything in Section 2 to
the contrary, this Warrant shall be exercisable only with respect to the number
of Warrant Shares which have vested in accordance with the following schedule:
(i) on the date hereof, one hundred and fifty thousand
(150,000) Warrant Shares
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shall automatically vest; and
(ii) for so long as any of the Preferred Stock remains
outstanding, an additional twenty thousand (20,000) Warrant Shares, up
to an aggregate of one hundred thousand (100,000) Warrant Shares, shall
vest on each anniversary of the date hereof;
provided, however, that upon the occurrence of an event described in Section
2(b) hereof, any Warrant Shares not then vested shall immediately vest; and
provided further, that upon any adjustment of the number of Warrant Shares the
Holder is entitled to purchase upon the exercise of this Warrant in accordance
with Section 11(b) hereof, all numerical references to Warrant Shares contained
in this Section 19 shall be proportionately adjusted.
SECTION 20. Registration on Request of Holder.
(a) At any time within the first five (5) years after the date this
Warrant first becomes exercisable, upon the delivery to the Company of a written
request of the Holder and any holder of Registrable Securities, requesting that
the Company effect a registration under the Securities Act, and specifying the
intended method of disposition thereof, the Company will promptly give written
notice of such requested registration to all other holders of Registrable
Securities, and the Company thereupon on one occasion will use its best efforts
to effect, as expeditiously as possible, a registration under the Securities Act
(in accordance with the intended method of disposition specified in the notice
from the Holder and any holder of Registrable Securities) of all of the
Registrable Securities requested to be registered pursuant to this Section 20.
Notwithstanding the foregoing provisions of this Section 20(a), the Company
shall have no obligation to register any Registrable Securities during any
period of time (not to exceed, in the case of (x) or (y), 60 days or, in the
case of (z), 10 Business Days) when (x) the Company is contemplating a public
offering of its securities and in the judgment of the managing underwriter
thereof (or the Company, if such offering is not underwritten) such filing would
have a material adverse effect on the contemplated offering, (y) the Company is
in possession of material information that it deems advisable not to disclose in
a registration statement, or (z) the Company is engaged in any program for the
repurchase of stock of the Company.
(b) If any requested registration pursuant to this Section 20 is in the
form of an underwritten public offering, the holders of a majority of the
Registrable Securities which are to be registered pursuant to this Section 20
shall have the right to select the manager or co-managers that will administer
the offering, provided that such managers are reasonably satisfactory to the
Company.
(c) The Company's obligation to register Registrable Securities
pursuant to Section 20(a) shall not be deemed satisfied if the registration
statement does not become effective because of a material adverse change in the
Company. In addition, if such registration statement does become effective and
the method of disposition is an underwritten public offering, such obligation
shall not be deemed satisfied if more than fifty percent (50%) of the
Registrable Securities included in such registration statement are not sold
because of a material adverse change in the Company.
(d) From the date of receipt of a notice from the Company pursuant to
Section 20(a) until the completion of the period of distribution of the
registration contemplated therein, the Company will not file with the Commission
any other registration statement with respect to its capital stock, whether for
its own account or that of other security holders, provided that the Company
shall not be prohibited from filing any registration statements on Forms S-4 or
S-8 or any other form which is not available for registering capital stock for
sale to the public. The Company shall be entitled to include in any registration
statement referred to in this Section 20 shares of its capital stock to be sold
by the Company for its own account or by other stockholders of the Company
pursuant to other registration rights agreements, provided the registration
statement relates to an underwritten public offering and
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in the opinion of the managing underwriter such inclusion would not adversely
affect the marketing of the securities to be sold by the holders of Registrable
Securities.
(e) Notwithstanding anything to the contrary in this Section 20, the
amount of Registrable Securities to be included in an underwritten public
offering may be reduced if and to the extent the managing underwriter shall be
of the opinion that such inclusion would adversely affect the marketing of the
securities to be sold in such underwritten public offering including the price
at which such securities will be sold. If such a determination is made, (i) the
number of equity securities (as defined in the Exchange Act) to be included by
the Company and the number of equity securities to be included by stockholders
other than the holder of Registrable Securities shall be reduced first; and then
(ii) the number of Registrable Securities to be included by the holders thereof
shall be reduced in a manner consistent with the provisions of Section 20(f)
hereof.
(f) If a requested registration pursuant to this Section 20 (x)
involves an underwritten public offering and the number of Registrable
Securities requested to be included in such registration exceeds the largest
number of Registrable Securities which can be sold as determined by the managing
underwriter pursuant to Section 20(e) (the "Maximum Offering Size"), or (y) the
number of Registrable Securities requested to be included in such registration
statement exceeds the number of Registrable Securities the Company is obligated
to register under Section 20(a), then the Company will include in such
registration the number of Registrable Securities requested to be included pro
rata in proportion to the percentage of Registrable Securities held by the
holders of Registrable Securities requesting registration; provided, however,
that such holders may decide among themselves a different priority.
SECTION 21. Incidental Registration Rights. If the Company at
any time proposes to register any of its equity securities (as defined in the
Exchange Act) under the Securities Act (other than pursuant to a registration
statement on Forms S-4 or S-8, or any successor forms), whether or not for sale
for its own account, and the registration form to be used may be used for the
registration of Registrable Securities, it shall at such time give the Holder
and any holder of Registrable Securities prompt written notice of its intentions
and, upon the written request of any such holder made within twenty (20) days
after the receipt of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such holder and the
intended method of disposition thereof), the Company shall use its best efforts
to effect the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the holders
thereof, to the extent required to permit the disposition (in accordance with
the intended methods thereof as aforesaid) of the Registrable Securities so to
be registered, provided that:
(i) if, at any time after giving written notice of its
intention to register any securities and, prior to the effective date
of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to
register such securities, the Company may, at its election, give
written notice of such determination to each holder of Registrable
Securities and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration
Expenses in connection therewith); and
(ii) if such registration shall be in connection with an
underwritten public offering and the managing underwriters shall advise
the Company in writing that in their opinion the number of Registrable
Securities requested to be included in such registration exceeds the
number of such securities which can be sold in such offering, the
Company shall include in such registration the number (if any) of
Registrable Securities so requested to be included which in the opinion
of such underwriters can be sold and shall not include in such
registration any
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<PAGE>
securities (other than securities being sold by the Company, which
shall have priority in being included in such registration) so
requested to be included other than Registrable Securities unless all
Registrable Securities requested to be so included are included therein
(and if in the opinion of such underwriters, some but not all of the
Registrable Securities may be so included, all holders of Registrable
Securities requested to be included therein shall share pro rata in the
number of shares of Registrable Securities included in such
underwritten public offering on the basis of the number of Registrable
Securities requested to be included therein), except that, in the case
of a registration initially requested or demanded by a holder or
holders of securities other than Registrable Securities, the holders of
the Registrable Securities requested to be included therein and the
holders of such other securities shall share pro rata (based on the
number of shares if the requested or demanded registration is to cover
only Common Stock and, if not, based on the proposed offering price of
the total number of securities included in such underwritten public
offering requested to be included therein); and the Company shall so
provide in any registration agreement hereinafter entered into with
respect to any of its securities.
SECTION 22. Registration in General.
(a) Procedures. If and whenever the Company is required to use its best
efforts to effect the registration of any Registrable Securities under the
Securities Act, the Company shall promptly:
(i) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such securities,
make all required filings with the NASD and use best efforts to cause
such registration statement to become effective;
(ii) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement
until such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or
sellers thereof set forth in such registration statement, but in no
event for a period of more than six months after such registration
statement becomes effective;
(iii) furnish to counsel (if any) elected by holders of a
majority (by number of shares) of the Registrable Securities covered by
such registration statement copies of all documents proposed to be
filed with the Securities and Exchange Commission in connection with
such registration, which documents shall be subject to the review of
such counsel;
(iv) furnish to each seller of such securities such number of
conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits,
except that the Company shall not be obligated to furnish any seller of
securities with more than two copies of such exhibits), such number of
copies of the prospectus included in such registration statement
(including such preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request in order to facilitate
the disposition of the securities owned by such seller;
(v) use its best efforts to register or qualify such
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
request, and do any and all other acts and things which may be
necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the
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<PAGE>
securities owned by such seller, except that the Company shall not for
any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified,
or to consent to service of process in any such jurisdiction other than
process served in connection with alleged violations by the Company of
the securities laws of such jurisdiction;
(vi) furnish to each seller a signed counterpart,
addressed to the sellers, of
(A) an opinion of counsel for the Company, dated the
effective date of the registration statement, and
(B) subject to the accountants obtaining the
necessary representations as specified in Statement on
Auditing Standards No. 72, a "comfort" letter signed by the
independent public accountants who have certified the
Company's financial statements included in the registration
statement,
covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and, in
the case of such accountants' letter, with respect to changes
subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters
delivered to the underwriters in underwritten public offerings of
securities;
(vii) notify each seller of any securities covered by such
registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and at the
request of any such seller prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an
untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange
Commission, and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months, beginning with
the first month after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of section 11(a)
of the Securities Act; and
(ix) use its best efforts to list such securities on any stock
market on which the Common Stock is then listed, if such securities are
not already so listed and if such listing is then permitted under the
rules of such exchange, and to provide a transfer agent and registrar
for such Registrable Securities not later than the effective date of
such registration statement.
The Company may require each seller of any securities as to which any
registration is being effected to furnish to the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing and as shall be required by law
in connection therewith. Each such holder agrees to furnish promptly to the
Company all information required to be disclosed in order to make the
information previously furnished to the Company by such
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<PAGE>
holder not materially misleading.
By acquisition of Registrable Securities, each holder of such
Registrable Securities shall be deemed to have agreed that upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 22(b)(vii) hereof, such holder shall promptly discontinue such holder's
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 22(b)(vii)
hereof. If so directed by the Company, each holder of Registrable Securities
shall deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such holder's possession of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the period
mentioned in Section 22(b)(ii) hereof shall be extended by the number of days
during the period from and including the date of the giving of such notice to
and including the date when each seller of any Registrable Securities covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by Section 22(b)(vii) hereof.
(b) Indemnification.
(i) Indemnification by the Company.
The Company shall indemnify and hold harmless each holder of
Registrable Securities, each person who controls such holder of
Registrable Securities within the meaning of either Section 15 of the
Securities Act or Section 20(a) of the Exchange Act and the officers,
directors, employees and agents of each such holder and control Person
(each such Person being sometimes hereinafter referred to as an
"Indemnified Holder") from and against all losses, claims, damages,
liabilities, costs (including costs of preparation and attorneys' fees)
and expenses (including expenses of investigation) arising out of or
based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus or
in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or based upon any omission or alleged
omission to state therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages, liabilities
or expenses arise out of or are based upon any such untrue statement or
omission or allegation thereof based upon information relating to such
Indemnified Holder and furnished in writing to the Company by such
Indemnified Holder expressly for use therein. This indemnity shall be
in addition to any liability which the Company may otherwise have.
If any action or proceeding (including any governmental
investigation or inquiry) shall be brought or asserted against an
Indemnified Holder in respect of which indemnity may be sought from the
Company, such Indemnified Holder shall promptly notify the Company in
writing, and the Company shall, at its expense, assume the defense
thereof, including the employment of counsel satisfactory to such
Indemnified Holder and the payment of all expenses. The failure so to
notify the Company shall not relieve the Company from any obligation or
liability except to the extent (but only to the extent) that it shall
finally be determined by a court of competent jurisdiction (which
determination is not subject to appeal) that the Company has been
materially prejudiced by such failure. Such Indemnified Holder shall
have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Holder unless (A)
the Company has agreed to pay such fees and expenses or (B) the Company
shall have failed promptly to assume the defense of such action or
proceeding or has failed to employ counsel satisfactory to such
Indemnified Holder or (C) the named parties to any such
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action or proceeding (including any impleaded parties) include both
such Indemnified Holder and the Company or an Affiliate of the Company,
and there may be one or more defenses available to such Indemnified
Holder which are additional to, or in conflict with, those available to
the Company or such Affiliate (in which case, if such Indemnified
Holder notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not
have the right to assume the defense of such action or proceeding on
behalf of such Indemnified Holder, it being understood, however, that
the Company shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (together with appropriate
local counsel) at any time for such Indemnified Holder). The Company
shall not be liable for any settlement of any such action or proceeding
effected without its written consent, but if settled with its written
consent, or if there be a final judgment for the plaintiff in any such
action or proceeding, the Company agrees to indemnify and hold harmless
such Indemnified Holders from and against any loss or liability by
reason of such settlement or judgment. Whether or not such defense is
assumed by the Company, no Indemnified Holder shall be subject to any
liability for any settlement made without its consent (but such consent
shall not be unreasonably withheld). The Company shall not consent to
entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to each Indemnified Holder of a release, in form and
substance satisfactory to the Indemnified Holder, from all liability in
respect of such proceeding for which such Indemnified Holder would be
entitled to indemnification hereunder (whether or not any Indemnified
Holder is a party thereto).
(ii) Indemnification by Holder of Registrable Securities.
Each holder of Registrable Securities agrees to indemnify and
hold harmless the Company, its directors and officers and each Person,
if any, who controls the Company within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Company to such holders, but
only with respect to information relating to such holders furnished in
writing by such holders expressly for use in any registration statement
or prospectus, or any amendment or supplement thereto, or any
preliminary prospectus. In case any action or proceeding shall be
brought against the Company or its directors or officers or any such
controlling person, in respect of which indemnity may be sought against
a holder of Registrable Securities, such holder shall have the rights
and duties given to the Company and the Company or its directors or
officers or such controlling person shall have the rights and duties
given to each holder by the preceding paragraph.
(iii) Contribution
If the indemnification provided for in this Section 22(b) is
unavailable to or insufficient to hold harmless an indemnified party
under Section 22(b)(i) or Section 22(b)(ii) hereof (other than by
reason of exceptions provided in those Sections) in respect of any
losses, claims, damages, liabilities or expenses referred to therein,
then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Holders on the other hand from their sale of Registrable Securities or
if such allocation is not permitted by applicable law, the relative
fault of the Company on the one hand and of the Indemnified Holder on
the other in connection with the statements or omissions
15
<PAGE>
which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the Indemnified
Holder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Indemnified
Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above
shall be deemed to include, subject to the limitations set forth in the
second paragraph of Section 22(b)(i), any legal or other fees or
expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The Company and each Holder of Registrable Securities agree
that it would not be just and equitable if contribution pursuant to
this Section 22(b)(iii) were determined by pro rata allocation or by
any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(c) Expenses. The Company shall pay all Registration Expenses
in connection with each registration of Registrable Securities.
SECTION 23. Lock-Up Agreement. The Holder hereby agrees to
enter into an agreement with the Company, in form and substance reasonably
satisfactory to such Holder, restricting such Holder's ability to sell Warrant
Shares for a period not to exceed one hundred eighty (180) days following any
underwritten public offering of Common Stock pursuant to an effective
registration statement under the Securities Act.
SECTION 24. Exchange of Warrant. This Warrant is exchangeable
upon the surrender hereof by the holder hereof at such office or agency of the
Company, for new warrants of like tenor representing in the aggregate the right
to subscribe for and purchase the number of shares which may be subscribed for
and purchased hereunder from time to time after giving effect to all the
provisions hereof, each of such new warrants to represent the right to subscribe
for and purchase such number of shares as shall be designated by said holder
hereof at the time of such surrender.
SECTION 25. Financial Information. Within one hundred twenty
(120) days after the close of each fiscal year of the Company ending after the
date of the issuance of this Warrant and prior to the Expiration Date, the
Company shall furnish to the Holder the audited consolidated financial
statements of the Company and its consolidated subsidiaries (including balance
sheet and income statements) as at the end of each such fiscal year in
comparative form certified by a firm of independent certified public accountants
of recognized national standing, reasonably acceptable to the Holder and
selected by the Company, which financial statements shall be accompanied by the
opinion of such certified public accountants thereon.
SECTION 26. Lost, Stolen, Mutilated or Destroyed Warrant. If
this Warrant is lost, stolen, mutilated or destroyed, the Company shall, on such
terms as to indemnify or otherwise as it may in its discretion impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed.
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SECTION 27. Representation of Holder. The holder of this
Warrant, by the acceptance hereof, represents that it is acquiring this Warrant
for its own account for investment and not with a view to, or sale in connection
with, any distribution hereof or of any of the shares of Common Stock or other
securities issuable upon the exercise thereof, nor with any present intention of
distributing any of the same.
SECTION 28. Notice. All notices, demands and other
communications under this Warrant shall be in writing (which shall include
communications by telex and telecopy) and shall be delivered (a) in person or by
courier or overnight service, (b) mailed by first class registered or certified
mail, postage prepaid, return receipt requested, by prepaid telex or telecopier,
or by hand, courier or overnight service, and (c) be given at the following
respective addresses and telecopier numbers and to the attention of the
following Persons:
(i) if to the Company, to:
Gray Communications Systems, Inc.
126 North Washington Street
Albany, Georgia 31701
Attn: Mr. William A. Fielder, III
Telecopier No.: (912) 888-9374
with a copy (which shall not constitute notice) to:
Heyman & Sizemore
2300 Cain Tower
229 Peachtree Street, NE
Atlanta, Georgia 30303-1608
Attn: Neal H. Ray, Esq.
Telecopier No.: (404) 521-2838
(ii) if to the Holder hereof, to:
Bull Run Corporation
4370 Peachtree Road
Atlanta, Georgia 30319
Attn: Mr. Robert S. Prather
Telecopier No.: (404) 261-9607
or at such other address or telecopier number or to the attention of such other
person as the party to whom such information pertains may hereafter specify for
the purpose in a notice to the other specifically captioned "Notice of Change of
Address", and (d) be effective or deemed delivered or furnished (i) if given by
mail, on the third Business Day after such communication is deposited in the
mail, addressed as above provided, (ii) if given by telecopier, when such
communication is transmitted to the appropriate number determined as above
provided in this Section 28 and the appropriate answer back is received or
receipt is otherwise acknowledged, and (iii) if given by hand delivery or
overnight
17
<PAGE>
delivery service when left at the address of the addressee addressed as above
provided, except that notices of a change of address or telecopier number, shall
not be deemed furnished until received.
SECTION 29. Miscellaneous. This Warrant and any term hereof
may be changed, waived, discharged, or terminated only by an instrument in
writing signed by the party or holder hereof against whom enforcement of such
change, waiver, discharge or termination is sought. The headings in this Warrant
are for purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
SECTION 30. Remedies. The Company stipulates that the remedies
at law of the Holder in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
SECTION 31. Governing Law. This Warrant shall be governed by
the laws of the State of Georgia, without regard to conflict of laws principles.
SECTION 32. Date. The date of this Warrant is September 24,
1996. This Warrant, in all events, shall be wholly void and of no effect after
the close of business on the Expiration Date, except that notwithstanding any
other provisions hereof, the provisions of Sections 20, 21 and 22 shall continue
in full force and effect after such date as to any Warrant Shares or other
securities issued upon the exercise of this Warrant.
SECTION 33. Certain Limitations on Exercise of Warrant. This
Warrant may not be exercised by the Holder to the extent, but only to the
extent, that the exercise of this Warrant would result in the Holder and its
Affiliates owning more than 49.9% of the outstanding shares of Common Stock, on
a fully diluted basis. In the event the circumstances described in the foregoing
sentence preclude the Holder from exercising any portion of this Warrant, the
Holder may, in accordance with the provisions of Section 18 of this Warrant,
freely sell or otherwise transfer this Warrant to any third party other than a
third party to which the Holder has previously sold, in one or more
installments, an aggregate of twenty-five percent (25%) or more of the
outstanding Common Stock, on a fully diluted basis.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officers and its seal to be hereunto affixed as of
September 24, 1996.
GRAY COMMUNICATIONS SYSTEMS, INC.
By: /s/ J. MACK ROBINSON
Name: J. Mack Robinson
Title: President
ATTEST:
By: ______________________________
Secretary
18
<PAGE>
EXHIBIT A
Notice of Exercise
[Date]
Gray Communications Systems, Inc.
126 North Washington Street
Albany, Georgia 31701
Attn: Mr. William A. Fielder, III
Re: Exercise of Warrant
Pursuant to the provisions of that certain Warrant to Purchase Common
Stock (the "Warrant") of Gray Communications Systems, Inc., a Georgia
corporation (the "Company"), dated September 24, 1996, Bull Run Corporation, a
Georgia corporation ("Bull Run"), hereby represents, warrants, covenants, and
agrees with the Company as follows:
The shares of common stock of the Company being acquired by
Bull Run pursuant to this exercise of the Warrant (the "Warrant
Shares") will be acquired for its own account without the participation
of any other person, with the intent of holding the Warrant Shares for
investment and without the intent of participating, directly or
indirectly, in a distribution of the Warrant Shares and not with a view
to, or for resale in connection with, any distribution of the Warrant
Shares, nor is Bull Run aware of the existence of any distribution of
the Warrant Shares;
Bull Run is not acquiring the Warrant Shares based upon any
representation, oral or written, by any person with respect to the
future value of, or income from, the Warrant Shares but rather upon an
independent examination and judgment as to the prospects of the
Company;
The Warrant Shares were not offered to Bull Run by means of
publicly disseminated advertisements or sales literature;
Bull Run is able to bear the economic risks of the investment
in the Warrant Shares, including the risk of a complete loss of Bull
Run's investment therein;
Bull Run understands and agrees that the Warrant Shares will
be issued and sold to Bull Run in reliance upon an exemption from, but
without registration under any state law relating to the registration
of securities for sale, and will be issued and sold in reliance on the
exemptions from registration under the Securities Act of 1933 (the
"1933 Act"), provided by Sections 3(b) and/or 4(2) thereof and the
rules and regulations promulgated thereunder;
Except as set forth in Section 18 of the Warrant, the Warrant
Shares cannot be offered for sale, sold or transferred by Bull Run
other than pursuant to: (A) an effective registration under the 1933
Act or in a transaction otherwise in compliance with the 1933 Act; and
(B) evidence reasonably satisfactory to the Company of compliance with
the applicable securities laws of other jurisdictions. The Company
shall be entitled to rely upon an opinion of counsel reasonably
satisfactory to it with respect to compliance with the above laws;
1
<PAGE>
Except as set forth in Sections 20, 21 and 22 of the Warrant,
the Company will be under no obligation to register the Warrant Shares
or to comply with any exemption available for sale of the Warrant
Shares without registration or filing, and the information or
conditions necessary to permit routine sales of securities of the
Company under Rule 144 of the 1933 Act are not now available and no
assurance has been given that it or they will become available. The
Company is under no obligation to act in any manner so as to make Rule
144 available with respect to the Warrant Shares;
Bull Run has and has had complete access to and the
opportunity to review and make copies of all material documents related
to the business of the Company, including, but not limited to,
contracts, financial statements, tax returns, leases, deeds, and other
books and records. Bull Run has examined such of these documents as it
wished and is familiar with the business and affairs of the Company.
Bull Run realizes that the purchase of the Warrant Shares is a
speculative investment and that any possible profit therefrom is
uncertain;
Bull Run has had the opportunity to ask questions of and
receive answers from the Company and any person acting on its behalf
and to obtain all material information reasonably available with
respect to the Company and its affairs. Bull Run has received all
information and data with respect to the Company which it has requested
and which it has deemed relevant in connection with the evaluation of
the merits and risks of its investment in the Company;
Bull Run has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks
of the purchase of the Warrant Shares hereunder and it is able to bear
the economic risk of such purchase; and
The agreements, representations, warranties, and covenants
made by Bull Run herein extends to and applies to all of the Warrant
Shares. Acceptance by Bull Run of the certificate representing such
Warrant Shares shall constitute a confirmation by Bull Run that all
such agreements, representations, warranties, and covenants made herein
shall be true and correct at that time.
Bull Run understands that the certificates representing the Warrant
Shares shall bear a legend referring to the foregoing covenants, representations
and warranties and restrictions on transfer, and agrees that a legend to that
effect may be placed on any certificate which may be issued to Bull Run as a
substitute for the certificates representing the Warrant Shares.
Very truly yours,
BULL RUN CORPORATION
By:
Its:
2
<PAGE>
AGREED TO AND ACCEPTED:
GRAY COMMUNICATIONS SYSTEMS, INC.
By:
Title:
Number of Shares
Exercised:
Number of Shares
Remaining: Date:
3
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands, except amounts per share)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
PRIMARY:
Income before extraordinary item and cumulative
effect of accounting change $ 5,877 $ 723 $ 216
Extraordinary loss (295)
Cumulative effect of accounting change (274)
----- ----- ------
Net income $ 5,308 $ 723 $ 216
====== === ===
Primary shares:
Weighted average number of shares outstanding 22,013 22,127 13,350
Assuming exercise of options 932 1,109 184
------ -------- -------
Weighted average number of shares outstanding,
as adjusted 22,945 23,236 13,534
====== ====== ======
Primary earnings per share:
Income before extraordinary item and cumulative
effect of accounting change $ .25 $ .03 $ .02
Extraordinary loss (.01)
Cumulative effect of accounting change (.01)
---- ----- ------
Net income $ .23 $ .03 $ .02
=== === ===
ASSUMING FULL DILUTION:
Income before extraordinary item and cumulative
effect of accounting change $ 5,877 $ 723 $ 216
Extraordinary loss (295)
Cumulative effect of accounting change (274)
----- ---- ----
Net income $ 5,308 $ 723 $ 216
====== === ===
Fully diluted shares:
Weighted average number of shares outstanding 22,013 22,127 13,350
Assuming exercise of options 932 1,151 197
------- -------- ---------
Weighted average number of shares outstanding,
as adjusted 23,945 23,278 13,547
====== ====== ======
Fully diluted earnings per share:
Income before extraordinary item and cumulative
effect of accounting change $ .25 $ .03 $ .02
Extraordinary loss (.01)
Cumulative effect of accounting change (.01)
---- --- ---
Net income $ .23 $ .03 $ .02
=== === ===
</TABLE>
EXHIBIT 12
1996 ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
objective
BULL RUN
INCREASE SHAREHOLDER VALUE
diversity
THROUGH THE ACQUISITION AND
leadership
DEVELOPMENT OF WELL MANAGED
growth
OPERATING COMPANIES HAVING
opportunity
EXCELLENT GROWTH POTENTIAL
(Background photo of clouds and a bull)
<PAGE>
CORPORATION
(Graph appears here with the following plot points.)
BULL RUN CORPORATION
(25.1% voting)
GRAY COMMUNICATIONS SYSTEMS, INC. 15.5%
DATASOUTH COMPUTER CORPORATION 100 %
HOST COMMUNICATIONS, INC. (HCI) 29.7%
UNIVERSAL SPORTS AMERICA, INC. ("USA") 33.8%
LETTER TO STOCKHOLDERS 1
Fellow stockholders of Bull Run Corporation,
1996 was a successful and eventful year for your Company. Each of our
principal operating companies achieved significant milestones which will provide
a foundation for continued growth through the remainder of this century and into
the next.
We are very proud of their accomplishments, made possible through the
dedication of their employees and the quality leadership of their management
teams.
GRAY COMMUNICATIONS SYSTEMS, INC.
Gray Communications Systems, Inc. experienced significant growth in 1996,
and continued its series of acquisitions into 1997. In January 1996, Gray
completed the acquisition of WRDW-TV,the CBS affiliate in Augusta, Georgia, for
$37.2 million. In September 1996, Gray completed the largest acquisition in its
100-year history, a $183.9 million purchase of two CBS television stations,
WCTV-TVin the Tallahassee, Florida / Thomasville, Georgia market and WVLT-TV in
Knoxville, Tennessee; Satellite & Production Services in Tallahassee; and
PortaPhone Paging, a communications and paging business in the Southeast. In
February 1997, Gray signed a letter of intent to purchase WITN-TV, an NBC
affiliate serving the Greenville-Washington-New Bern, North Carolina market.
The completed acquisitions have already contributed significantly to Gray's
operating cash flow, enhancing its position as a major regional television
broadcaster in the growing Southeast markets. Another step toward growth was
taken in January 1997, when Gray announced that it had reached an agreement to
acquire another transportable satellite uplink business, Gulflink
Communications, Inc. headquartered in Baton Rouge, Louisiana, in a transaction
expected to close in April, subject to FCC approval. Combined with Satellite &
Production Services, the resulting entity will be the largest firm of its kind
in the country.
<PAGE>
BULL RUN
In order to finance the September acquisition, Gray completed public
offerings of 3.5 million shares of class B commonstock and $160 million of 10
5/8% senior subordinated notes, resulting in total net proceeds to Gray of over
$220 million.Because of the dilution resulting from the common stock offering,
our Company's common equity ownership of Graywas reduced. As a result, we
recognized a significant gain in our third quarter of $8.2 million, before tax.
We continue to be Gray's largest single shareholder, currently owning 27% of the
outstanding shares of Gray's class A common stock, representing 15.5% of the
total stock ownership of Gray and 25.1% of the voting power. Robinson-Prather
Partnership and affiliates hold an additional 14.4% of Gray's total outstanding
common shares, representing an additional 23.3% voting interest.
We invested an additional $15 million in Gray in 1996, acquiring shares of
Gray's series A and series B preferred stock, plus warrants to purchase
additional Gray class A common shares. Our total cash investment in Gray is now
nearly $30 million.
Just prior to the public offerings, we tragically lost an extraordinary man
in Ralph Gabbard, who suffered a fatal heart attack. Ralph joined Gray in 1994,
becoming its President in 1995. Fortunately, Ralph had assembled an outstanding
group of very capable, talented managers within each of Gray's operating units,
and our Chairman and a Gray director, Mack Robinson, agreed to serve as Gray's
interim President and CEO, and I am serving as interim Executive Vice President.
I can't overstate how well Gray's employees responded in the wake of Ralph's
sudden passing, which I'm sure is a testimony to the outstanding example Ralph
set for them.
DATASOUTH COMPUTER CORPORATION
Datasouth Computer Corporation, our wholly-owned subsidiary, continues to
generate a steady revenue stream, consistently reporting approximately $6
million in sales for the past six consecutive quarters. Even with a decline in
revenue in 1996 from 1995, Datasouth's compounded annual revenue growth rate
since 1992 is 12%.
Datasouth's principal market for heavy-duty dot matrix impact printers is a
mature one; however, our consistent performance puts us in position to
capitalize on opportunities, particularly as competitors exit the market.
Meanwhile, Datasouth's entry into the portable thermal printer market has not
yet resulted in significant market penetration. It has become apparent that the
sales cycle for our thermal products is longer and more complex than the typical
sales cycle within the mature, better-defined market for heavy-duty impact
printers. On a positive note, Datasouth has proven to the marketplace that it
is capable of designing products outside its traditional impact printer market,
resulting in its eligibility for participation in markets with promising growth
potential.
One such market opportunity in which Datasouth will actively participate
was provided by its largest customer, SABRE Travel Information Network(R), which
recently awarded a contract to Datasouth for the development and manufacture of
a new airline ticket printer. Datasouth's proven product design capabilities,
quality manufacturing and outstanding customer support obviously contributed to
its eligibility and the resulting award. The project is expected to be
completed late in 1997, and although requiring a significant amount of
engineering development cost in 1997, it is expected to generate a minimum of
$25 million in revenue over a five year period, with a meaningful impact
beginning in 1998. SABRE(R) has purchased over $20 million in products from
Datasouth since 1993.
Jim Busby, Datasouth's President and one of its founders, recently
announced his retirement effective June 1997. We greatly appreciate Jim's
efforts, and although we will miss Jim's day-to-day involvement, he will
continue to serve on our Board of Directors. We are very fortunate to have
Nick Waller assume Jim's role. Nick has been Datasouth's Chief Operating
Officer for more than ten years, so the change will be virtually transparent
for Datasouth's employees, customers and suppliers.
<PAGE>
CORPORATION
HOST COMMUNICATIONS, INC. / UNIVERSAL SPORTS AMERICA, INC.
Host Communications, Inc. ("HCI") completed a very successful fiscal year
ending June 30, 1996. During the year, HCI joined forces with Streetball Sports
Ventures Partners, L.P., the creator and promoter of the popular Hoop-It-Up(TM)
three-on-three amateur basketball tournament, to create Universal Sports
America, Inc. ("USA"). USA offers corporate sponsors and advertisers the
broadest possible array of sponsorship and promotional opportunities involving
college athletics and participatory sporting events. HCI made two strategic
acquisitions in 1996. AdCraft Sports Marketing, which has had a close working
relationship with the PGA(R) for several years, was added in August. In
December, HCI acquired Wayne Smith Company, a marketing and association
management firm.
Our investment in HCI increased to nearly 30% of HCI's outstanding common
stock this year, primarily as a result of an exercise of warrants in August to
purchase HCI common stock. Our combined cash investment in HCI and USA is now
nearly $12 million. Considering both our direct and indirect investments in
HCI, we are effectively its largest single shareholder.
This past December, HCI received some very exciting news. The NCAA(R),
which has had a business relationship with HCI for 22 years, announced that an
agreement had been reached with HCI providing exclusive rights for NCAA
corporate marketing programs through the year 2002. In exchange for a minimum
$75 million to be paid by HCI over the contract period, HCI was granted the
exclusive rights to NCAA corporate partners' promotional licensing marks,
championship event radio broadcasts, and publication and distribution of
championship event programs and associated materials. This new contract, which
also for the first time provides HCI the exclusive marketing of NCAA fan
festivals run in conjunction with the championship events, takes effect in
September 1997 upon expiration of the current contract.
* * * *
We have been actively repurchasing shares of our own common stock under a
program approved by our Board of Directors in 1994. Due to what we have
perceived to be an undervaluation of the market price of our stock, and in order
to help ensure a liquid market for our stock, we repurchased over 450,000 shares
in 1996, at an average cost of $2.42. In January 1997, we repurchased an
additional 500,000 shares for $2.50 per share. We have also recently completed
a program whereby we offered holders of less than 100 shares an opportunity to
sell their shares back to the Company. Not only did this provide those
shareholders an opportunity to sell their shares at a market price without
incurring the typical costs of sale, but it also enabled the Company to reduce
its recurring shareholder mailing costs.
The accomplishments of 1996 help chart the course for 1997 and into the
next century. I am confident that Bull Run Corporation's --
(1) DIVERSITY of operations -
(2) strong and experienced LEADERSHIP within each of our affiliated
companies -
(3) excellent GROWTH potential - and
(4) OPPORTUNITY derived from recent investments, acquisitions and
business alliances-
will continue to provide value to you, our valued shareholders.
Sincerely,
/s/ Robert S. Prather, Jr.
Robert S. Prather, Jr.
President and CEO
<PAGE>
BULL RUN
Bull Run Corporation was originally Bull Run Gold Mines, Ltd., a mining
resource company which ultimately sold its mining interests in November 1990.
Following the acquisition of approximately 30% of the Company by Robinson-
Prather Partnership in July 1992, it changed its name to Bull Run Corporation
upon reincorporating in Georgia in December 1992. In 1993, the Company began a
series of acquisitions and equity investments, which include or involve the
principal operating companies under the Bull Run umbrella - Datasouth Computer
Corporation, Gray Communications Systems, Inc. and Host Communications, Inc. /
Universal Sports America, Inc. These companies offer Bull Run and its
stockholders diversity, leadership, growth and opportunity.
DATASOUTH (DATASOUTH LOGO)
COMPUTER
CORPORATION
Datasouth Computer Corporation ("Datasouth"), Bull Run's wholly-owned
subsidiary, designs, manufactures and markets heavy-duty dot matrix and thermal
printers for industrial applications. Datasouth sells its products through a
network of approximately 60 distributors worldwide and direct to high volume
major accounts primarily in the transportation/travel, healthcare and
manufacturing/distribution industries.
Based in Charlotte, North Carolina, Datasouth has historically targeted the
heavy-duty, multipart forms segment of the serial matrix impact printer market.
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 also provides a line of portable and desktop thermal printers,
used primarily for printing one packing or shipping label at a time, with the
ability to use a label stock which has no silicone coated liner. The "liner-
free" stock offers 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.
Datasouth's manufacturing capabilities provide a strategic advantage over
most competitors. Focusing on customer response time and high quality customer
service, Datasouth can provide quick, on-time product delivery while maintaining
low finished goods inventories by scheduling product configuration each day to
meet changing order requirements. All assemblies, including PC boards assembled
by Datasouth, and raw materials are pulled through to replenish stock consumed,
thereby eliminating unnecessary inventories and scheduling. Datasouth's
warranty expense is well under 1% of revenue, evidencing Datasouth's quality
workmanship and designs.
This year the primary focus of Datasouth's engineering team will be the
development of a new airline ticket printer, designed in conjunction with SABRE
Travel Information Network(R), Datasouth's largest customer. As the travel
market embraces a number of new technologies such as Internet reservation
booking and electronic ticketing, it is essential to have cost-effective
equipment in place at travel agency locations. This new ticket printer will
provide an attractively priced alternative to traditional printers and will be
affordable for even small travel agencies as SABRE(R) continues its global
expansion. Additionally, it will target satellite ticket applications in remote
locations such as corporate offices and hotel/motels. Expected to be completed
in late 1997, the ticket printer should begin making a meaningful revenue
contribution in 1998.
4
<PAGE>
CORPORATION
GRAY
COMMUNICATIONS
SYSTEMS, INC. (GRAY COMMUNICATIONS, INC. LOGO)
Gray Communications Systems, Inc. ("Gray") is a 100-year old Southeast
United States communications company headquartered in Albany, Georgia. Gray's
class A and class B common stocks are traded on the New York Stock Exchange
under the symbols "GCS" and "GCS.B", respectively. Bull Run currently owns 27%
of Gray's outstanding class A common stock, representing 15.5% of the total
common stock ownership of Gray and 25.1% of the voting power.
Gray operates seven television stations - WKYT-TV, the CBS affiliate in
Lexington, Kentucky and the exclusive station for University of Kentucky sports,
ranked number one in its market; WYMT-TV, a CBS affiliate in Hazard, Kentucky
acquired by Gray along with WKYT-TV in September 1994, ranked number one in its
market; WRDW-TV, a CBS affiliate located in Augusta, Georgia acquired in January
1996; WCTV-TV, a CBS affiliate, currently the Tallahassee, Florida /
Thomasville, Georgia market leader, acquired in September 1996; WVLT-TV
(formerly WKXT-TV), a CBS affiliate in Knoxville, Tennessee, acquired with WCTV-
TVin September 1996; WALB-TV, an NBC affiliate established over 40 years ago,
the Albany, Georgia market leader; and, WJHG-TV, an NBC affiliate, currently the
Panama City, Florida market leader.
Gray also operates three daily newspapers - The Albany Herald, established
in 1891, a Southwest Georgia daily newspaper having a circulation of
approximately 33,000 daily and approximately 39,000 on Sundays; The Rockdale
Citizen, acquired by Gray in May 1994, a Conyers, Georgia daily newspaper
established in 1953, having a circulation of approximately 10,000; and, The
Gwinnett Daily Post, acquired by Gray in January 1995, a daily newspaper in
Lawrenceville, Georgia having a circulation of 13,000 in the fast growing
Gwinnett County market. In addition, Gray publishes advertising weekly shoppers
in Southwest Georgia and North Florida, having a total circulation of 52,000.
Gray also acquired two new businesses in September 1996, Satellite &
Production Services in Tallahassee, and PortaPhone Paging, a communications and
paging business in the Southeast. In January 1997, Gray announced that it had
reached an agreement to acquire another transportable satellite uplink business,
Gulflink Communications, Inc., headquarted in Baton Rouge, Louisiana, in a
transaction expected to close in April 1997, subject to FCC approval. Then in
February 1997, Gray announced it had signed a letter of intent to acquire the
assets of WITN-TV, the NBC affiliate serving the Greenville-Washington-New Bern,
North Carolina market.
HOST
COMMUNICATIONS, INC. (HOST COMMUNICATIONS, INC. LOGO)
Privately-held Host Communications, Inc. ("HCI"), based in Lexington,
Kentucky, provides multimedia, promotional marketing and event management
services to universities, athletic conferences and associations, the most
prominent of which is the National Collegiate Athletic Association ("NCAA(R)").
As of December 31, 1996, Bull Run effectively owned 29.7% of HCI's common stock
and 51.5% of HCI's outstanding preferred stock. Most of Bull Run's investment
in HCI is held through its 51.5%-owned affiliate, Capital Sports Properties,
Inc., whose assets consist solely of HCI common stock and HCI preferred stock.
5
<PAGE>
BULL RUN
HCI'S OPERATIONS INCLUDE:
SPORTS MARKETING - HCI manages the production, sales and syndication of
basketball and football radio and television, as well as the publishing and
printing of award-winning sports magazines for an impressive list of client
universities and conferences. AdCraft Sports Marketing ("AdCraft"), acquired by
HCI in August 1996, provides HCI established relationships with the principal
associations of coaches, athletic directors and sports information directors,
the Sears Collegiate Champions ProgramTM and the Professional Golfers'
Association of America ("PGA of America(R)"). HCI recently reached a new five-
year agreement with the NCAA, an HCI client since 1975, for the exclusive rights
to NCAA corporate partners' promotional licensing marks, championship radio
broadcasts, publication and distribution of championship event programs and
associated materials, as well as exclusive marketing rights to market NCAA fan
festivals in conjunction with championship events. This agreement becomes
effective in September 1997 upon the expiration of the current NCAA contract.
AUDIO / VIDEO SERVICES - HCI's MainStreet Productions operates recording
studios equipped to handle live broadcast productions and soundtracks for radio,
video and multi-range presentations such as the "NCAA Today" broadcasts on ESPN,
producing video presentations from concept to completion. AdCraft, the official
video production company of the PGA of America, has been producing videos for
the PGA(R) since 1988.
PUBLISHING AND PRINTING - Among the 400-plus annual publications produced by
HCI are NCAA basketball championship programs, including the high-profile NCAA
Men's and Women's Final Four(R) programs. HCI's electronic publishing system
provides creative flexibility and immediate response capabilities, and its
printing operation offers the newest technological advances in print
production, including computerized typesetting, cameras and stripping
equipment. HCI provides services to over 600 clients annually, including Bull
Run, Datasouth and Gray, ranging from graphic design, typesetting and image
assembly, to printing and binding. Such services were provided to Bull Run in
connection with the printing of this 1996 Annual Report.
ASSOCIATION MANAGEMENT - HCI manages the affairs of the National Tour
Association, a group of travel and tour professionals, by providing services in
the areas of marketing, publishing, government affairs, business, education and
membership growth. Since the December 1996 acquisition of Wayne Smith Company,
a marketing and association management firm, HCI provides similar services to
clients such as the International Spa and Fitness Association, National
Limousine Association and United Motor Coach Association. HCI also offers
customized association management services ranging from specialized consulting
to full service management.
UNIVERSAL SPORTS
AMERICA, INC. (UNIVERSAL SPORTS AMERICA, INC. LOGO)
In October 1995, HCI and Streetball Sports Ventures Partners, L.P.
("Streetball(TM)") joined forces by forming Universal Sports America, Inc.
("USA"), thereby offering corporate sponsors and advertisers the broadest array
possible of sponsorship and promotional opportunities involving college
athletics and participatory sporting events. HCI sold certain of its
collegiate sports marketing operations in exchange for a 33.8% interest in the
common stock of USA. Bull Run also directly owns USA preferred stock, which is
convertible to approximately 3% of USA's fully-diluted common stock.
USA'S OPERATIONS INCLUDE:
COLLEGIATE SPORTS - USA provides management and marketing services to
athletic departments and conferences, including the development and marketing of
corporate sponsor programs, providing print, publication, and video production
services (generally outsourced to HCI).
EVENTS - Building on the established success of Streetball's national Hoop-
It-Up(TM) three-on-three basketball tournaments, USA manages and/or operates
participatory sporting events, on the local, collegiate, national and
international levels.
PROPERTIES - USA develops and markets trademarks that currently include the
Historically Black Collegiate Coalition (HBCC(TM)), Pepito Ball(TM), and
Tradition Bowl games, such as the Dr Pepper Red River Shoot-out(TM), the annual
football contest between the University of Texas and the University of Oklahoma.
6
<PAGE>
CORPORATION
(7 LOGOS APPEAR ON THE LEFT-HAND SIDE OF THIS PAGE, TWO EACH OF
A BULL, THE DATASOUTH LOGO, GRAY COMMUNICATIONS SYSTEMS, INC. LOGO,
AND ONE HOST COMMUNICATIONS, INC. LOGO)
ROBERT S. PRATHER, JR. - Bull Run's President and CEO since 1992 , Bob
Prather is currently serving Gray as its interim Executive Vice President -
Acquisitions. He was Vice President of Fuqua Industries from 1971 through 1980,
responsible for the search, analysis and negotiation of approximately 35 Fuqua
acquisitions. He acquired his own business in 1980, a steel fabricator, growing
it internally from $4 million in sales in 1980 to over $75 million in 1992, with
10 years of profitable earnings.
J. MACK ROBINSON - Bull Run's Chairman of the Board, Mack Robinson is
Chairman and President of Delta Life Insurance Company; Chairman of Atlantic
American Corporation, an insurance holding company; and director emeritusof
Wachovia Corporation. He is currently serving Gray as its interim President and
CEO. Over his career, he has started or controlled more than 20 community
banks, a chain of over 100 consumer lending offices, the Rhodes Inc. furniture
chain, life and casualty insurance companies, lumber mills, a pest control
company and a thoroughbred breeding farm.
JAMES W. BUSBY - One of Datasouth's founders in 1977, Jim Busby has been
its President from 1984 through March 1997, heading an organization which has
manufactured an installed base of nearly 230,000 printers in a highly
competitive market. Jim recently announced his retirement from Datasouth after
more than 20 years in the computer printer industry, but will continue as a
member of Bull Run's Board of Directors.
K. NICK WALLER - Datasouth's Chief Operating Officer since 1984 and Chief
Financial Officer from 1982 through 1986, Nick Waller is the architect of
Datasouth's quality-driven, Just-In-Time manufacturing processes. Nick was
named President of Datasouth in March 1997.
THOMAS J. STULTZ - Gray's Publishing Division President since January 1996,
Tom Stultz was a Vice President of Multimedia Newspaper Company since 1988,
having responsibility for developing and coordinating Multimedia's marketing
initiatives and directly supervising several Multimedia daily and non-daily
publications. Tom has over 25 years experience in the newspaper business,
beginning his career as a reporter in 1970.
JOSEPH A. CARRIERE - Gray's Vice President - Television, with Gray since
February 1996 and previously President and General Manager of KTVE-TV, an NBC
affiliate in Monroe, Louisiana. Joe Carriere has a successful track record of
increasing profitability of operations. He is a past Chairman of the CBS
Advisory Board and the National Association of Broadcasters.
W. JAMES HOST - HCI's Chairman and CEO since founding the Company in 1971,
Jim Host is a recognized leader in the collegiate sports marketing field. He is
currently a board member of the National Tourism Organization, a board member of
the Tourism Works for America Council of Washington, D.C., and a member of the
Executive Committee of the National Basketball Hall of Fame.
7
<PAGE>
(Graph appears here with the following information.)
<TABLE>
<CAPTION>
JULY APRIL AUGUST MAY SEPTEMBER OCTOBER NOVEMBER JANUARY JANUARY MARCH OCTOBER NOVEMBER
1992 1993 1993 1994 1994 1994 1994 1995 1995 1995 1995 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
| | | | | |
Bull Run Gray acquires Gray acquires Bull Run makes Bull Run Bull Run
acquires 43.6% The Rockdale weekly initial acquires 50% of acquires USA
of Datasouth Citizen, a daily shoppers in SW investment in Capital Sports convertible
Computer newspaper, for Georgia for Host Properties preferred stock
Corporation for $4.8 million. $1.5 million. Communications, ("CSP"), whose for $650,000.
$7.5 million. Inc. ("HCI") of assets consist
$900,000. solely of
investments in
HCI, for $9.7
million.
JULY APRIL AUGUST MAY SEPTEMBER OCTOBER NOVEMBER JANUARY JANUARY MARCH OCTOBER NOVEMBER
1992 1993 1993 1994 1994 1994 1994 1995 1995 1995 1995 1995
| | | | | |
Robinson- Datasouth Gray acquires Bull Run Gray acquires HCI sells certain
Prather makes initial two CBS affiliates, acquires the Gwinnett operating assets
Partnership investment in WKYT-TV in remaining Daily Post(then to Universal
acquires 30% of Gray Lexington, KY 56.4% of the Gwinnett Sports America,
Bull Run Gold Communications and WYMT-TV Datasouth for Post-Tribune), Inc. ("USA") in
Mines, Ltd.; Systems, Inc. of in Hazard, KY for Bull Run for $3.7 million. return for a
subsequently $11.1 million. $42.5 million. common stock 33.8% common
reincorporated in a transaction equity ownership
in Georgia and valued at $15.2 position.
renamed Bull million.
Run Corporation.
</TABLE>
INVESTED CAPITAL - Since Robinson-Prather Partnership's investment in Bull
Run in July 1992, the Company has consummated several of its own equity
investments and acquisitions, as well as functioned as a provider of services,
including identification, analysis and negotiation, in connection with equity
investments and acquisitions made by its affiliates.
(Graph appears here with the following information.)
TOTAL EQUITY INVESTMENTS AND ACQUISITIONS
BULL RUN DATASOUTH COMPUTER GRAY COMMUNICATIONS
CORPORATION CORPORATION SYSTEMS, INC.
| | |
1993 $7.5 MILLION $11.1 MILLION $1.5 MILLION
1994 $15.2 MILLION $1.2 MILLION $48.8 MILLION
1995 $11.6 MILLION $1.9 MILLION $3.7 MILLION
1996 $15.3 MILLION $0.1 MILLION $221.1 MILLION
8
<PAGE>
(Graph appears here with the following information.)
<TABLE>
<CAPTION>
JANUARY JANUARY AUGUST AUGUST AUGUST SEPTEMBER SEPTEMBER SEPTEMBER DECEMBER JANUARY FEBRUARY FEBRUARY
1996 1996 1996 1996 1996 1996 1996 1996 1996 1997 1997 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
| | | | | |
Bull Run CSP exercises Gray Gray acquires, Gray announces Gray signs letter
acquires, for warrants for consummates for $183.9 agreement to of intent to
$10 million, an approximately public offerings million, CBS purchase Gulflink acquire WITN-
8% subordinated 48% of the of its class B affiliates Communications, TV, the NBC
note from Gray outstanding common stock WCTV-TV in Inc., a affiliate in the
(exchanged in HCI common and 10 5/8% Tallahassee, FL/ transportable Greenville-
September 1996 stock. senior Thomasville, GA satellite uplink Washington-
for Gray series A subordinated and WVLT-TV in business, pending New Bern, NC
preferred stock), notes, resulting Knoxville, TN; a FCC approval. market.
plus warrants to in net proceeds production and
purchase to Gray of over satellite business;
additional Gray $220 million. and a
class A common communications
stock. and paging
business.
JANUARY JANUARY AUGUST AUGUST AUGUST SEPTEMBER SEPTEMBER SEPTEMBER DECEMBER JANUARY FEBRUARY FEBRUARY
1996 1996 1996 1996 1996 1996 1996 1996 1996 1997 1997 1997
| | | | | |
Gray acquires HCI acquires Gray sells KTVE- Bull Run The NCAA(R) Datasouth
WRDW-TV,the AdCraft Sports TV in Monroe, acquires, for $5 announces a 5- announces its
CBS affiliate in Marketing. LA / El Dorado, million, Gray year extension of selection by
Augusta, GA, for AR for $9.5 series B its contract with SABRE Travel
$37.2 million. million. preferred stock HCI; HCI Information
plus warrants to acquires Wayne Network to
purchase Smith Company, design and
additional Gray a marketing and manufacture an
class A common association airline ticket
stock. management firm. printer, expected
to generate
revenue of at least
$25 million.
</TABLE>
OPERATING REVENUE - Since Bull Run's investment in Datasouth and Gray in
1993, operating revenue of each of the companies has achieved significant
compounded annual grouth rates.
OPERATING REVENUE
(Two bar graphs appear here with the following plot points.)
<TABLE>
<CAPTION>
DATASOUTH COMPUTER CORPORATION
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
$15.5 MILLION $15.4 MILLION $16.9 MILLION $21.7 MILLION $26.4 MILLION $23.8 MILLION
CAGR ('92-'96)=11.5%
GRAY COMMUNICATIONS SYSTEMS, INC.
1991 1992 1993 1994 1995 1996
$22.5 MILLION $24.6 MILLION $25.1 MILLION $36.5 MILLION $58.6 MILLION $79.3 MILLION
CAGR ('92-'96)=34.0%
</TABLE>
9
<PAGE>
ADJUSTED ALLOCABLE EARNINGS - Bull Run's aggregate allocable share of its
investees' undistributed earnings, based on Bull Run's economic ownership of
each investee as of the end of each year, has been steadily increasing. The
calculation of allocable undistributed earnings eliminates the impact of
goodwill amortization recognized by Bull Run as required by generally accepted
accounting principles, as well as the after-tax impact of unusual gains
and charges recognized by the investees which can distort the comparability of
their results.
ADJUSTED ALLOCABLE EARNINGS
BULL RUN CORPORATION
DATASOUTH COMPUTER
CORPORATION
INITIAL BULL RUN INVESTMENT - 1993
BULL RUN'S EQUITY OWNERSHIP AS OF DEC. 31
(Graph appears here with the following plot points.)
1993 1994 1995 1996
43.6% 100% 100% 100%
BULL RUN'S ALLOCABLE SHARE OF
UNDISTRIBUTED EARNINGS (IN 000'S)(1)
1993 1994 1995 1996
$(15) $1,021 $1,492 $954
GRAY COMMUNICATIONS
SYSTEMS, INC.
INITIAL BULL RUN INVESTMENT - 1993
BULL RUN'S EQUITY OWNERSHIP AS OF DEC. 31
(Graph appears here with the following plot points.)
1993 1994 1995 1996
9.2% 25.7% 27.2% 15.5%
BULL RUN'S ALLOCABLE SHARE OF
UNDISTRIBUTED EARNINGS (IN 000'S)(1)
(Graph appears here with the following plot points.)
1993 1994 1995 1996
$126 $634 $159 $755
HOST COMMUNICATIONS,
INC.
INITIAL BULL RUN INVESTMENT - 1995
BULL RUN'S EQUITY OWNERSHIP AS OF DEC. 31
(Graph appears here with the following plot points.)
1993 1994 1995 1996
N/A N/A 29.7%(2) 29.7%
BULL RUN'S AGGREGATE SHARE OF
UNDISTRIBUTED EARNINGS (IN 000'S)(1)
(Graph appears here with the following plot points.)
1993 1994 1995 1996
N/A N/A $384 $414
BULL RUN
CORPORATION
BULL RUN'S AGGREGATE ADJUSTED
ALLOCABLE EARNINGS
(Graph appears here with the following plot points.)
1993 1994 1995 1996
$111 $1,655 $2,035 $2,123
MARKET VALUE - Since the investment in Bull Run by Robinson-Prather
Partnership in 1992, market value per share and market capitalization has
increased at a dramatic compounded annual growth rate.
HIGH/LOW CLOSING MARKET
PRICE PER SHARE
BULL RUN CORPORATION
AS OF AND FOR THE YEARS ENDED DECEMBER 31
(Graph appears here with the following plot points.)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
High $0.53 $1.31 $1.94 $1.91 $4.25 $3.44
Low $0.38 $0.38 $0.78 $1.19 $1.63 $2.06
Closing $0.38 $1.19 $1.56 $1.63 $2.89 $2.13
$0.66 (1)
</TABLE>
CAGR (6/30/92-12/31/96)=29.6%
(1) Closing price as of June 30, 1992.
TOTAL MARKET VALUE
BULL RUN CORPORATION
AS OF DECEMBER 31
(Graph appears here with the following plot points.)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
$3.4 million $12.7 million $19.5 million $36.0 million $64.0 million $46.2 million
$6.0 million (1)
CAGR (6/30/92-12/31/96)=56.5%
(1) Total Market value as of June 30, 1992.
10
<PAGE>
Since taking a new direction in July 1992 upon the investment of Robinson-
Prather Partnership, Bull Run Corporation has provided its shareholders
increased value through the acquisition and development of well managed
operating companies having excellent growth potential. Over this period of less
than five years, many milestones have been attained which have contributed to
the Company's dramatic growth. Now, these operating companies have been
presented with their own distinct opportunities which will significantly impact
them for the remainder of this century and into the next.
Datasouth Computer Corporation, Bull Run's wholly-owned subsidiary,
announced that it had reached agreement on a significant new product development
project for SABRE Travel Information Network(R), its largest customer. Although
the development cost to be incurred on the SABRE(R) project will be significant
to Bull Run's 1997 financial results, this project is expected to provide at
least $25 million in revenue over a five year period, having a meaningful
revenue impact beginning in 1998.
In 1996, Gray Communications Systems, Inc. completed the largest
acquisition in its 100-year history. Now with seven television stations under
its management, all but one the leader in its market, Gray has significantly
enhanced its position as a major regional television broadcaster in the growing
Southeast. Gray expects operating cash flow, a popular statistic for measuring
value in the media industry, to increase significantly as a result of the recent
acquisitions. Under current FCC regulations, Gray will be required to divest
its NBC affiliates in Albany, Georgia and Panama City, Florida in 1997. The
FCC's rules are undergoing reexamination and Gray believes that it will
ultimately be able to retain its Panama City station. Gray is currently
pursuing a possible exchange of the Albany station for another station or
stations. Already in 1997, Gray has announced two potential acquisitions.
Subject to FCC approval, Gray will acquire Gulflink Communications, Inc., a
transportable satellite uplink company, in a transaction expected to close in
April. Gray has also signed a letter of intent to acquire WITN-TV, an NBC
affiliate in Eastern North Carolina.
Host Communications, Inc., having completed its investment in Universal
Sports America, Inc., expects to capitalize on that combination of resources to
penetrate new markets and further develop current markets for participatory
events and tournaments. The 1996 acquisitions of AdCraft Sports Marketing and
Wayne Smith Company expand HCI's client base in the areas of sports marketing
and association management. HCI's new five-year contract with the NCAA(R) was
clearly one of its highlights of 1996, further solidifying a 22-year mutually
beneficial partnership. Under this contract, which becomes effective in
September 1997 when the current contract expires, HCI will obtain exclusive
rights to NCAA corporate partners' promotional licensing marks, championship
radio broadcasts, and publication and distribution rights to championship event
programs and associated materials. For the first time, HCI will obtain the
exclusive rights to market NCAA fan festivals run in conjunction with
championship events.
Bull Run Corporation has also been investing in itself, through the
repurchase of its common stock. In 1996, the Company repurchased over 450,000
shares of its stock and repurchased an additional 500,000 shares of its stock in
January 1997. The Company will continue to consider future opportunities to
repurchase additional shares at what it believes to be favorable prices. In
addition, Bull Run and its affiliated companies will continue to pursue
acquisitions and strategic alliances as future opportunities arise.
11
<PAGE>
BULL RUN CORPORATION
</TABLE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING RESULTS FOR THE YEARS ENDED:
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Revenue from printer operations $ 23,810 $ 26,432 $ 2,751
Cost of goods sold 17,170 18,649 1,853
Gross profit 6,640 7,783 898
Other operating revenue 844 721 323 $ 464 $ 146
Operating expenses (6,255) (6,764) (1,174) (595) (710)
Income (loss) from operations 1,229 1,740 47 (131) (564)
Equity in earnings of affiliated companies 1,731 107 266 243
Gain on issuance of common shares by
affiliated company 8,179
Interest and dividend income (expense), net (1,250) (944) (11) 116 294
Income (loss) before income taxes,
extraordinary item and cumulative effect of
accounting change 9,889 903 302 228 (270)
Income tax benefit (provision) (4,012) (180) (86) (48) 54
Income (loss) before extraordinary item and
cumulative effect of accounting change 5,877 723 216 180 (216)
Extraordinary loss (295)
Cumulative effect of accounting change (274)
Net income (loss) $ 5,308 $ 723 $ 216 $ 180 $ (216)
Earnings (loss) per share:
Income (loss) before extraordinary item and
cumulative effect of accounting change $ .25 $ .03 $ .02 $ .01 $ (.02)
Net income (loss) $ .23 $ .03 $ .02 $ .01 $ (.02)
Weighted average shares 22,945 23,236 13,534 12,503 9,993
FINANCIAL POSITION AS OF DECEMBER 31:
1996 1995 1994 1993 1992
Working capital $ 3,990 $ 3,739 $ 4,813 $ 400 $ 6,173
Investment in affiliated companies 53,752 29,246 15,709 7,798
Total assets 67,851 44,300 30,756 8,250 6,297
Long-term obligations 31,364 14,896 2,775
Stockholders' equity 28,318 24,079 23,584 8,151 6,176
Current ratio 2.1 1.9 2.6 8.9 51.9
Book value per share $ 1.30 $ 1.09 $ 1.07 $ 0.65 $ 0.58
</TABLE>
The changes in financial position from 1995 to 1996 were due to the purchase
of $15,000 in Gray preferred stock, as well as the result of an $8,179 increase
in the Company's investment in affiliated companies resulting from Gray's public
offering of its class B common stock. The changes in financial position from
1994 to 1995 were due to the Company's investments in CSP, HCI and USA. The
changes in financial position from 1992 to 1993 to 1994, and the changes in
operating results from 1993 to 1994 to 1995, were due to the investment in a
43.6% interest in Datasouth in 1993 and merger with Datasouth in 1994. No
dividends were declared or paid during the periods presented.
12
<PAGE>
BULL RUN CORPORATION
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
1996
Revenue from printer operations $ 6,044 $ 5,810 $ 5,988 $ 5,968
Gross profit 1,775 1,658 1,597 1,610
Other operating revenue 368 2 473 1
Income before extraordinary item and
cumulative effect of accounting change 49 293 5,480 55
Net income (loss) (225) 293 5,185 55
Earnings per share:
Income before extraordinary item and
cumulative effect of accounting change $ .00 $ .01 $ .24 $ .00
Net income (loss) (.01) .01 .23 .00
1995
Revenue from printer operations $ 7,439 $ 7,132 $ 6,097 $ 5,764
Gross profit 2,278 2,154 1,842 1,509
Other operating revenue 83 351 1 286
Net income 268 376 27 52
Earnings per share $ .01 $ .02 $ .00 $ .00
1994
Revenue from printer operations $ 2,751
Gross profit 898
Other operating revenue $ 62 $ 64 $ 161 36
Net income (loss) (40) (73) 96 233
Earnings (loss) per share $ (.00) $ (.01) $ .01 $ .01
</TABLE>
13
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
(Gray Communications Systems, Inc. Logo)
14
<PAGE>
(Photos pertaining to Gray Communications Systems, Inc.)
<PAGE>
DATASOUTH COMPUTER CORPORATION
(Datasouth Computer Corporation Logo)
<PAGE>
(Photos pertaining to Datasouth Computer Corporation)
<PAGE>
HOST COMMUNICATIONS, INC.
(Host Communications, Inc. Logo)
<Photos pertaining to Host Communications, Inc.>
<PAGE>
BULL RUN CORPORATION
MANAGEMENT'S DISCUSSION
AND ANALYSIS
RESULTS OF OPERATIONS
The consolidated operating results include those of Bull Run Corporation
("Bull Run") and, for the year ended December 31, 1996 and 1995 and the period
November 30, 1994 through December 31, 1994, Datasouth Computer Corporation
("Datasouth", and collectively, with Bull Run, the "Company"), after elimination
of intercompany accounts and transactions. On November 29, 1994, Datasouth was
merged (the "Merger") into a newly-formed wholly-owned subsidiary of Bull Run,
which changed its name to Datasouth Computer Corporation (also referred to
herein as "Datasouth") immediately following the Merger. From January 1, 1994
through November 29, 1994, Bull Run owned 43.6% of the outstanding common stock
of Datasouth. For that period, Bull Run accounted for its investment in
Datasouth under the equity method of accounting whereby Bull Run's proportionate
share of Datasouth's operating results were reported in the Consolidated
Statement of Income under the caption, "Equity in earnings of affiliated
companies".
Total revenue for 1996, primarily from the printer manufacturing
operations of Datasouth, was $24,654,000, compared to $27,153,000 in 1995 and
$3,074,000 in 1994. Revenue from Datasouth's printer operations of $23,810,000
in 1996 represented a 10% decrease from such revenue in 1995 of $26,432,000.
Datasouth's 1995 revenue was 22% greater than its 1994 revenue of $21,746,000,
of which, $2,751,000 was realized in 1994 subsequent to the Merger. Printer
sales to the Company's largest customer were approximately $7.2 million in 1996,
compared to $7.8 million in 1995 and $4.4 million in 1994. Sales to a large
distributor were approximately $1.5 million lower in 1996 than in 1995, as a
result of a significant printer installation project by the distributor's
customer maturing in 1995. Short term revenue trends in the Company's printer
business fluctuate due to variable ordering patterns of these and other large
customers. Despite this volatility, revenue from printer operations has been
relatively consistent over the six successive quarters ended December 31, 1996.
Gross profit from printer operations of 27.9% for 1996 decreased from the 29.4%
realized in 1995, primarily due to a different mix of products sold and greater
manufacturing overhead efficiencies gained in 1995 as a result of higher unit
volumes.
The Company provides consulting services to Gray Communications Systems,
Inc. ("Gray") in connection with Gray's acquisitions 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. Consulting fee
income of $843,000 was recognized in 1996, compared to $719,000 in 1995 and
$100,000 in 1994. Due to the reduction in the Company's equity investment from
27.1% to 15.2% of Gray's outstanding common shares (primarily as a result of
Gray's public offering of stock completed in September 1996 as described below),
$174,000 of previously deferred fees were recognized as consulting fee income in
1996. There can be no assurance that the Company will recognize any consulting
fees in the future.
Royalty income, attributable to an interest in mining properties which was
sold in 1990, were earned by the Company based on quantities of gold processed.
Royalties were insignificant in 1996 and 1995, having decreased from $223,000 in
1994. The Company does not anticipate any royalty income from mining properties
will be received in the future.
20
<PAGE>
BULL RUN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The Company's consolidated operating expenses of $6,255,000 in 1996
represented a $509,000, or 7.5%, decrease from 1995, due to reductions in
certain project-specific research and development expenses and certain general
and administrative expenses. Due to a project to develop a new airline ticket
printer for the Company's largest customer, research and development expenses
are expected to increase at least $600,000 in 1997, compared to 1996. In 1994,
only Datasouth's operating expenses for the period November 30, 1994 through
December 31, 1994 are reflected in the Company's consolidated operating
expenses. Operating expenses include non-cash goodwill amortization associated
with the original investment in Datasouth and subsequent Merger of $292,000 in
1996, $309,000 in 1995 and $25,000 in 1994.
Equity in earnings of affiliated companies, totaling $1,731,000 in 1996
and $107,000 in 1995 included the Company's proportionate share of the earnings
of Gray, Host Communications, Inc. ("HCI") and Capital Sports Properties, Inc.
("CSP"), net of goodwill amortization totaling $487,000 for 1996 and $378,000
for 1995. Approximately $600,000 of the increase from 1995 to 1996 in equity in
earnings of affiliated companies can be attributed to Gray's gain on the sale of
a television station in 1996, and an additional $375,000 of that increase can be
attributed to HCI's gain on the sale of assets to Universal Sports America, Inc.
("USA"). Equity in earnings of affiliated companies of $266,000 in 1994
includes Bull Run's equity in the earnings of Datasouth prior to the Merger.
In 1996, Gray consummated a public offering of 3.5 million shares of its
newly-issued class B common stock at $20.50 per share, resulting in net proceeds
of $67.1 million. As a result of this issuance, the Company's common equity
ownership of Gray was reduced from 27.1% to 15.2%, resulting in a pretax gain
for the Company of approximately $8.2 million (approximately $5.0 million after
tax). This offering also reduced the Company's common equity voting power in
Gray from 27.1% to 25.1%. There is no assurance that such sales of a material
nature will occur in the future.
Interest and dividend income in 1996 of $874,000 was primarily derived
from an 8% Subordinated Note due from Gray in the principal amount of $10
million (the "8% Note") and dividends accrued on the Company's investment in
Gray's series A and series B preferred stock. Interest expense, totaling
$2,124,000 in 1996 and $984,000 in 1995, was incurred primarily in connection
with bank term loans, the proceeds of which were used to finance the Company's
investments in Gray, HCI, CSP and USA.
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 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 such adoption, HCI
recognized a $4,559,000 million charge against its earnings, representing the
after-tax cumulative effect of the accounting change. The Company has reported
9.1% of such charge, or $415,000, less a $141,000 deferred tax benefit, as a
charge against its 1996 earnings.
21
<PAGE>
BULL RUN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
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 the retired debt. The Company
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, 1996, the Company had an Alternative Minimum Tax
("AMT") credit carryforward of $341,000 to reduce regular Federal tax
liabilities in the future. As a result of recognizing approximately $79,000 and
$58,000 in AMT credits in 1996 and 1995, respectively, and a change in judgment
regarding the realizability of the remaining AMT credit carryforward, the
valuation allowance on deferred tax assets was reduced in each of the fourth
quarters of 1996 and 1995, thereby reducing the 1996 and 1995 income tax
provisions by approximately $47,000 and $250,000, respectively, and goodwill by
approximately $131,000 in 1996. In 1995, the Company also utilized a $101,000
research and development credit which was carried forward from prior years.
LIQUIDITY AND CAPITAL RESOURCES
In January 1996, the Company purchased the 8% Note for $10.0 million. In
connection with the purchase of the 8% Note, Gray issued to the Company warrants
to purchase up to 487,500 shares of Gray's class A common stock at $17.88 per
share. 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 $5.0 million, 500 shares of Gray's series B preferred stock
entitling the holder thereof to cumulative dividends of $600 per share.
Dividends on the series B preferred stock are payable in cash or in additional
shares of series B preferred stock, at Gray's option. In connection with the
Company's acquisition of series B preferred stock, Gray issued to the Company
warrants to purchase up to 250,000 shares of Gray's class A common stock at
$24.00 per share. Of the total warrants owned by the Company to purchase
737,500 shares of Gray's class A common stock, 450,000 are fully vested, with
the remaining warrants vesting periodically over five years. Such warrants are
exercisable beginning in January 1998 and expire in 2006.
The Company acquired its initial interests in the outstanding common stock
of HCI and CSP for approximately $10.9 million in 1995, financed primarily with
$13.5 million in bank term loans (the "Loan Agreements"), which also served to
refinance an existing $3.0 million term loan and $900,000 outstanding on a line
of credit. The Company modified its Loan Agreements in connection with the
purchase of the 8% Note and the acquisition of Gray's series B preferred stock
in order to increase its outstanding bank term loan borrowings by $10.0 million
in January 1996 and an additional $5.0 million in September 1996. The bank term
loans, totaling $28.5 million as of December 31, 1996, are payable in monthly
installments of $250,000 beginning February 1999, and bear interest at the
London Interbank Offered Rate ("LIBOR") plus 1.75%.
22
<PAGE>
BULL RUN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The Company has an active stock repurchase program authorized by its Board of
Directors for the repurchase of up to 2,000,000 shares of its common stock.
Repurchases may be made from time to time in the open market or directly from
shareholders at prevailing market prices, and may be discontinued at any time.
During 1996, the Company repurchased 458,000 shares at a total cost of
$1,107,000. In January 1997, an additional 500,000 shares were repurchased
from a director of the Company at a cost of $2.50 per share, the approximate
market value at the time of the repurchase. Since the program's inception in
November 1994, 1,081,000 shares have been repurchased at a total cost of
$2,687,000.
Inventories as of December 31, 1996 decreased to $3,315,000 from
$3,755,000 as of December 31, 1995, due to a reduction in finished goods on
hand. As of December 31, 1996, the Company had open purchase commitments
totaling approximately $5.9 million, primarily for raw materials inventories.
The Company's total working capital of $3,990,000 as of December 31, 1996
increased from $3,739,000 as of December 31, 1995, as a result of replacing a
short-term bank line of credit with a $3.0 million revolving credit facility,
net of the decrease in inventories.
During 1996, and subsequently in January 1997, the Company extended one of
its revolving bank credit facilities until April 1998 and increased the
available borrowings under the facility to $3.5 million. Outstanding borrowings
under the $3.5 million facility, which bears interest at the bank's prime rate,
was $1,499,000 at December 31, 1996. An additional $1,250,000 was borrowed on
this facility in January 1997 to finance the repurchase of 500,000 shares of the
Company's common stock. The Company also has a bank credit facility for
revolving loans of up to $3.0 million through April 1999, bearing interest
principally at LIBOR plus 2.25%, on which $1,865,000 was outstanding as of
December 31, 1996. Although there exists no commitment to repay any amounts
outstanding on the revolving credit facilities during the next twelve months,
the Company estimates the aggregate amount outstanding on the revolving credit
facilities will be reduced by approximately $500,000 during that period, and
accordingly, such amount was recorded as a short-term obligation as of December
31, 1996.
Capital spending for 1997 is expected to be approximately $900,000. The
Company anticipates that its current working capital, funds available under its
revolving credit facilities, quarterly cash dividends on the Gray series A
preferred stock and Gray class A common stock, 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.
23
<PAGE>
BULL RUN CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
December 31
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 81 $ 146
Accounts receivable 4,074 3,909
Inventories 3,315 3,755
Other 198 185
Total current assets 7,668 7,995
Property and equipment, net 2,251 2,512
Investment in affiliated companies 53,752 29,246
Goodwill 3,890 4,314
Other assets 290 233
$ 67,851 $ 44,300
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable and current portion of long-term debt $ 500 $ 1,285
Accounts payable 2,116 1,591
Accrued and other liabilities:
Employee compensation and related taxes 542 569
Income taxes 393
Interest 308 101
Other 212 317
Total current liabilities 3,678 4,256
Long-term debt 31,364 14,896
Deferred income taxes 4,491 1,069
Stockholders' equity:
Common stock, $.01 par value (authorized 100,000
shares; issued 22,325 and 22,280 shares as of
December 31, 1996 and 1995, respectively) 223 223
Additional paid-in capital 20,541 20,503
Treasury stock, at cost (581 and 123 shares as of
December 31, 1996 and 1995, respectively) (1,437) (330)
Retained earnings 8,991 3,683
Total stockholders' equity 28,318 24,079
$ 67,851 $ 44,300
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
BULL RUN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1996 1995 1994
<S> <C> <C> <C>
Revenue from printer operations $ 23,810 $ 26,432 $ 2,751
Cost of goods sold 17,170 18,649 1,853
Gross profit 6,640 7,783 898
Other operating revenue:
Consulting fees 843 719 100
Royalties 1 2 223
844 721 323
Operating expenses:
Research and development 1,568 1,872 140
Selling, general and administrative 4,687 4,892 1,034
6,255 6,764 1,174
Income from operations 1,229 1,740 47
Other income (expense):
Equity in earnings of affiliated companies 1,731 107 266
Gain on issuance of common shares by affiliated
company 8,179
Interest and dividend income 874 40 10
Interest expense (2,124) (984) (21)
Income before income taxes, extraordinary item and
cumulative effect of accounting change 9,889 903 302
Income tax provision 4,012 180 86
Income before extraordinary item and
cumulative effect of accounting change 5,877 723 216
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 $ 5,308 $ 723 $ 216
Earnings per share:
Income before extraordinary item and
cumulative effect of accounting change $ .25 $ .03 $ .02
Extraordinary loss (.01)
Cumulative effect of accounting change (.01)
Net income $ .23 $ .03 $ .02
Weighted average number of common shares outstanding 22,945 23,236 13,534
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
BULL RUN CORPORATION
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN TREASURY RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCK EARNINGS EQUITY
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1993 12,505 $ 125 $ 5,282 $ 0 $ 2,744 $ 8,151
Issuance of shares in
connection with merger 9,632 96 15,121 15,217
Net income 216 216
BALANCES, DECEMBER 31, 1994 22,137 221 20,403 0 2,960 23,584
Purchase of treasury stock (330) (330)
Exercise of stock options 143 2 100 102
Net income 723 723
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
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
BULL RUN CORPORATION
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,308 $ 723 $ 216
Adjustments to reconcile net income to net cash
provided by 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 1 58 5
Depreciation and amortization 950 1,124 92
Equity in earnings of affiliated companies (1,731) (107) (266)
Deferred income taxes 3,553 (211) 63
Change in operating assets and liabilities:
Accounts receivable (166) (158) (217)
Inventories 440 (1,146) (93)
Other current assets 74 (111) 20
Accounts payable and accrued expenses 600 34 349
Accrued income taxes (478) 204 38
Net cash provided by operating activities 1,267 410 207
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash and cash equivalents acquired in merger 632
Sale of marketable securities 500
Capital expenditures (366) (920) (25)
Investment in affiliated companies (5,566) (13,586) (309)
Note purchased from affiliated company (10,000)
Dividends received from affiliate 73 92 27
Net cash provided by (used in) investing activities (15,859) (13,914) 325
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving lines of credit 11,339 12,014
Repayments on revolving lines of credit (10,656) (10,729)
Proceeds from long-term debt 15,000 15,152 3,000
Repayments on long-term debt (3,257) (3,000)
Loan commitment fees (87) (126)
Issuance of common stock 38 102
Repurchase of common stock (1,107) (330)
Net cash provided by financing activities 14,527 12,826 0
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (65) (678) 532
Cash and cash equivalents, beginning of year 146 824 292
CASH AND CASH EQUIVALENTS, END OF YEAR $ 81 $ 146 $ 824
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 1,917 $ 794 $ 153
Income taxes paid (recovered), net 612 187 (14)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
BULL RUN CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Bull Run Corporation ("Bull Run") and, as of
December 31, 1996 and 1995, for the year ended December 31, 1996 and 1995, and
the period November 30, 1994 through December 31, 1994, Datasouth Computer
Corporation ("Datasouth", and collectively, the "Company"), after elimination of
intercompany accounts and transactions. On November 29, 1994, Datasouth was
merged (the "Merger") into a newly-formed wholly-owned subsidiary of Bull Run,
which changed its name to Datasouth Computer Corporation (also referred to
herein as "Datasouth") immediately following the Merger. From January 1, 1994
through November 29, 1994, Bull Run owned 43.6% of the outstanding common stock
of Datasouth.
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.
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 sells computer printers and provides
service worldwide to distributors, value-added resellers and large volume end
users. 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 Communications Systems, Inc. ("Gray"), an investee, for
the performance of services in connection with Gray's acquisitions. As of
December 31, 1996 and 1995, fees of $728 and $670, respectively, were receivable
from Gray. The allowance for doubtful accounts was $45 as of December 31, 1996
and $50 as of December 31, 1995.
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, 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 $590 in 1996, $783 in 1995 and $67 in 1994.
INVESTMENT IN AFFILIATED COMPANIES- Bull Run's investment in Datasouth,
prior to the Merger, was accounted for by the equity method. Since November 30,
1994 (the day after the effective date of the Merger), the Company has accounted
for its investment in Gray by the equity method. The Company accounts for its
investments in Host Communications, Inc. ("HCI") and Capital Sports Properties,
Inc. ("CSP") by the equity method, and its investment in Universal Sports
America, Inc. ("USA") by the cost method. The excess of the Company's
investment over the underlying equity of Gray and HCI, totaling $22,586 as of
December 31, 1996, is being amortized over 40 years, with such amortization
(totaling $487, $378 and $29 in 1996, 1995 and 1994, respectively) 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.
GOODWILL AND OTHER LONG-LIVED ASSETS - Goodwill associated with Bull Run's
initial acquisition of Datasouth's common stock in 1993 and acquisition of the
remaining Datasouth common stock resulting from the Merger in 1994, is being
amortized over 15 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 this review indicates that the assets will not be recoverable,
as determined based on undiscounted estimated cash flows over the remaining
amortization period, the carrying value of the assets would be reduced to their
estimated fair value. Goodwill amortization was $292 in 1996, $309 in 1995 and
$26 in 1994, and accumulated amortization was $627 and $335 as of December 31,
1996 and 1995, respectively.
28
<PAGE>
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. Included in other accrued liabilities is $65 for future warranty
costs as of December 31, 1996 and 1995.
RESEARCH AND DEVELOPMENT - Research and development costs of the printer
operations, including the costs of software developed internally, 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 whose realization is not reasonably
assured.
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.
EARNINGS PER SHARE - Earnings per share is based on the weighted average
number of shares of the Company's common stock and common stock equivalents
(i.e., stock options) outstanding during the period, computed in accordance with
the treasury stock method. In periods where they are anti-dilutive, common
stock equivalents were excluded from the calculation.
2. MERGER AND INVESTMENT IN AFFILIATED COMPANIES
MERGER - On November 29, 1994, Datasouth was merged into a newly-formed
wholly-owned subsidiary of Bull Run through the exchange of three shares of Bull
Run common stock for each share of Datasouth common stock which Bull Run did not
then own. The acquisition was accounted for by the purchase method of
accounting, and accordingly, the purchase price was allocated to the assets
acquired and the liabilities assumed based on the estimated fair values at the
merger date. The excess of purchase price over the estimated fair values of the
net assets acquired was recorded as goodwill. The estimated fair values of
assets and liabilities acquired are summarized as follows:
Cash and marketable securities $ 1,132
Receivables 3,457
Inventories 2,516
Other current assets 76
Property and equipment 2,387
Investment in affiliated company 15,733
Goodwill 4,743
Other assets 166
Current liabilities assumed (2,340)
Long-term debt assumed (3,000)
Deferred income taxes (1,283)
23,587
Less: Investment in 43.6% of Datasouth
immediately prior to the merger (8,370)
Value of shares of Bull Run common stock issued $ 15,217
From April 29, 1993 (the date Bull Run acquired its initial 43.6% ownership
in Datasouth) through November 29, 1994 (the Merger date), Bull Run accounted
for its investment in Datasouth by the equity method.
Datasouth's operating results and Bull Run's equity in earnings of
Datasouth for the period January 1, 1994 through November 29, 1994 follow:
Revenue $ 18,995
Gross profit 5,659
Income from operations 718
Net income 719
Bull Run's equity in earnings of Datasouth $ 294
INVESTMENT IN GRAY AND GAIN ON ISSUANCE OF COMMON SHARES - In September
1996, Gray consummated a public offering of 3.5 million shares of its
newly-issued class B common stock at $20.50 per share, 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
15.5% as of December 31, 1996), resulting in a
29
<PAGE>
pretax gain for the Company of $8,179. Such offering also reduced the
Company's common equity voting power in Gray from 27.1% to 25.1%. Gray is a
Southeast United States communications company that operates two NBC-affiliated
television stations, five CBS-affiliated television stations (two of which were
acquired in September 1996), three daily newspapers, advertising weekly
shoppers, plus a satellite broadcasting operation and a paging business which
were also acquired in September 1996. 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 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 $843, $719 and $100 in
1996, 1995 and 1994, respectively, for services rendered in connection with
certain of Gray's acquisitions. As of December 31, 1996 and 1995, income from
additional consulting fees of $272 and $266, respectively, has been deferred and
will be recognized as Gray amortizes goodwill associated with the 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 487,500 shares of
Gray's class A common stock at $17.88 per share. 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. Dividends on the series B preferred
stock are payable in cash or in additional shares of series B preferred stock,
at Gray's option. In 1996, total dividend income of $293 was recognized by the
Company on Gray series A and B preferred stock. In connection with the Company's
acquisition of series B preferred stock, Gray issued to the Company warrants to
purchase up to 250,000 shares of Gray's class A common stock at $24.00 per
share. Of the total warrants owned by the Company to purchase 737,500 shares of
Gray's class A common stock, 450,000 are fully vested, with the remaining
warrants vesting periodically over five years. Such warrants are exercisable
beginning in January 1998 and expire in 2006.
In September 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 has recognized 15.2% of Gray's charge,
or $480, less a $185 deferred tax benefit, as an extraordinary loss in its 1996
financial statements.
INVESTMENTS IN HCI, CSP AND USA - The Company acquired its initial interests
in the outstanding common stock of HCI and CSP in 1995. In August 1996, CSP
exercised warrants to acquire HCI common shares. As a result, the Company's
direct common equity ownership in HCI, combined with the Company's indirect
common equity ownership in HCI through its investment in CSP, increased from
approximately 9.1% to 29.7%. Additionally, the Company owns indirectly, through
CSP, 51.5% of HCI's 8% series B preferred stock having a face value of $5,000.
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. The Company began accounting for its investments in HCI and
CSP under the equity method in March 1995, when it made its initial investment
in CSP.
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 has reported 9.1% of
such charge, or $415, less a $141 deferred tax benefit, as a charge against its
1996 earnings.
In September 1995, 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, Bull Run 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.
30
<PAGE>
SUMMARIZED AGGREGATE FINANCIAL INFORMATION - The summarized aggregate
financial information of affiliated companies follows:
AGGREGATE FINANCIAL POSITION (REFLECTING GRAY AND CSP AS OF DECEMBER 31,
1996 AND 1995, COMBINED WITH HCI AS OF JUNE 30, 1996, 1995 AND 1994):
1996 1995
Current assets $ 39,062 $ 30,822
Property and equipment 41,184 22,050
Total assets 328,053 103,593
Current liabilities 40,635 29,118
Long-term debt 174,985 51,718
Total liabilities 225,116 87,940
Stockholders' equity 102,937 15,653
AGGREGATE OPERATING RESULTS (REFLECTING GRAY AND CSP FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995, AND 1994, COMBINED WITH HCI FOR THE YEARS ENDED JUNE
30, 1996, 1995 AND 1994):
1996 1995 1994
Operating revenue $ 120,759 $ 105,726 $ 85,260
Income from operations 18,026 9,441 9,901
Net income 3,442 2,196 4,641
Undistributed earnings of investments accounted for by the equity method
amount to approximately $923 as of December 31, 1996.
ESTIMATE OF AGGREGATE FAIR VALUE - As of December 31, 1996, the aggregate
value of the Company's investment in affiliated companies was approximately
$64,000, based on, in the case of Gray, an independent appraisal provided by an
investment banking firm, and in the case of privately-held HCI and CSP, recent
transactions in HCI common stock and management estimates.
PRO FORMA FINANCIAL INFORMATION - The operating results of Datasouth are
included in Bull Run's consolidated results of operations from November 29, 1994
(the date of the Merger). The equity in earnings of HCI and CSP are included in
Bull Run's consolidated results of operations from March 29, 1995 (the date of
the CSP acquisition). The following unaudited pro forma summary presents the
consolidated results of operations for the years ended December 31, 1996, 1995
and 1994 as if the Merger and the CSP and HCI investments had occurred on
January 1, 1994, after giving effect to certain adjustments, including
elimination of Merger expenses, amortization of goodwill, additional interest
expense associated with investment financing, elimination of equity in earnings
of Datasouth and related income tax effects. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the Merger and the acquisitions been effective as
of those dates or of results which may occur in the future.
1995 1994
Revenue from printer operations $ 26,432 $ 21,746
Other operating revenue 721 323
Net income 399 241
Earnings per share $ .02 $ .01
3. INVENTORIES
Inventories related to the Company's printer operations consist of the
following as of December 31:
1996 1995
Raw materials $ 2,356 $ 2,489
Work-in-process 673 617
Finished goods 286 649
$ 3,315 $ 3,755
4. PROPERTY AND EQUIPMENT
The Company's property and equipment consist of the following as of
December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 750 $ 750
Production equipment 2,060 1,991
Research and development equipment 366 219
Office furniture and equipment 477 414
3,653 3,374
Accumulated depreciation and amortization (1,402) (862)
$ 2,251 $ 2,512
</TABLE>
31
<PAGE>
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 1998, having a renewal option for an
additional three year period, and leases additional office and warehouse space
under an operating lease expiring in 1997. The Company's total rental expense
was $309, $317 and $38 in 1996, 1995 and 1994, respectively. The minimum annual
rental commitments under these and other leases with an original lease term
exceeding one year are approximately $305 for 1997, $218 for 1998, and $17 for
each of 1999 through 2002.
5. LONG-TERM DEBT AND NOTE PAYABLE
As of December 31, 1996, long-term debt consists of bank term loans
totaling $28,500 provided under a modified Loan Agreement, plus outstanding
borrowings of $3,364 under two revolving bank credit facilities. As of December
31, 1995, long-term debt consisted of bank term loans totaling $13,500, plus
outstanding borrowings of $1,396 under a revolving bank credit facility. The
carrying amount of long-term debt approximates fair value.
The term loans are payable in aggregate monthly installments of $250
commencing February 1999, with all remaining amounts due in January 2002, and
bear interest at the London Interbank Offered Rate ("LIBOR") plus 1.75% (7.31%
for the 120-day period including December 31, 1996). The loans are
collateralized by common stock and preferred stock of Gray owned by the Company,
warrants to purchase Gray's common stock held by the Company and shares of the
Company's common stock held by a significant shareholder of the Company. The
loan requires adherence to certain financial covenants, the most restrictive of
which requires maintaining a ratio of total liabilities to net worth of less
than 1.8 to 1.0.
In January 1997, one revolving credit facility was modified to provide
available borrowings of up to $3,500 until April 1, 1998, bearing interest at
the bank's prime rate (8.25% as of December 31, 1996), on which $1,499 was
outstanding as of December 31, 1996. In January 1997, an additional $1,250 was
borrowed on this credit facility to finance a repurchase of 500,000 shares of
the Company's common stock. The credit facility is subject to the terms and
conditions of the modified Loan Agreement discussed above. In addition, the
Company has another revolving credit facility for up to $3,000, bearing interest
primarily at LIBOR plus 2.25% (7.75% for the 90 day period including December
31, 1996), expiring April 3, 1999. As of December 31, 1996, $1,865 was
outstanding under this credit facility. Although there exists no commitment to
repay any amounts outstanding on the revolving credit facilities during the next
twelve months, the Company estimates the aggregate amount outstanding on the
revolving credit facilities as of December 31, 1996 will be reduced by
approximately $500 during that period, and accordingly, such amount is presented
as a short-term obligation as of December 31, 1996. As of December 31, 1995,
there was $1,285 outstanding under a line of credit which was replaced in 1996
by the $3,000 revolving credit facility.
6. INCOME TAXES
The Company's income tax provision for the years ending December 31 consists
of the following:
1996 1995 1994
Current:
Federal $ 67 $ 300 $ 21
State 66 91 2
Total - current 133 391 23
Deferred 3,879 (211) 63
Total provision $ 4,012 $ 180 $ 86
Deferred tax liabilities (assets) are comprised of the following as of
December 31:
1996 1995
Property and equipment $ 228 $ 202
Investment in affiliated companies 4,984 1,416
Gross deferred tax liabilities 5,212 1,618
Deferred consulting fee income (92) (90)
Allowance for doubtful accounts (17) (18)
Inventory costs and reserves (154) (124)
Employee benefits (32) (34)
Warranty reserve (25) (24)
Alternative Minimum Tax credit carryforward (341) (432)
Other, net (60) (5)
Gross deferred tax assets (721) (727)
Valuation allowance 0 178
Total deferred taxes, net $ 4,491 $ 1,069
32
<PAGE>
A valuation allowance was provided principally to offset a portion of the
deferred tax asset associated with Alternative Minimum Tax ("AMT") credit
carryforward as of 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. In 1995,
the Company reduced its valuation allowance resulting in a tax benefit of $250.
The principal differences between the federal statutory tax rate and the
effective tax rate are as follows:
1996 1995 1994
Federal statutory tax rate 34.0% 34.0% 34.0%
Realization of Alternative Minimum
Tax credit carryforward (6.4)
Reduction in valuation allowance (0.5) (28.1)
Goodwill amortization 1.0 11.6
Depletion (3.7)
State income taxes, net of federal
benefit 4.6 6.7
Other, net 1.5 2.1 (1.8)
Effective tax rate 40.6% 19.9% 28.5%
7. STOCK OPTIONS
In 1994, the Company adopted the 1994 Long Term Incentive Plan (the "1994
Plan") under which 2,500,000 shares of the Company's common stock have been
reserved for issuance of stock options, restricted stock awards and stock
appreciation rights. Under terms of the Merger with Datasouth, all outstanding
stock options to purchase Datasouth common stock were converted to Bull Run
stock options under the 1994 Plan. 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, 1996 and 1995 were 662,000 and 1,091,000, respectively.
Also in 1994, the Company adopted the Non-Employee Directors' 1994 Stock
Option Plan (the "1994 Directors' Plan") under which 350,000 shares of the
Company's common stock have been reserved for issuance of stock options.
Options under the 1994 Directors' Plan are fully vested when granted. Shares
available for future option grants under the 1994 Director's Plan as of December
31, 1996 and 1995 were 190,000 and 200,000, respectively. The weighted average
fair value of options granted during 1996 was $1.03 per share.
Information with respect to the Company's stock option plans follows:
OPTION OPTION
SHARES PRICE RANGE
Outstanding as of January 1, 1994 225,000 $ 0.42 - $0.75
Grants resulting from Datasouth merger 1,194,000 $ 0.88 - $0.96
Other grants 375,000 $ 1.34 - $1.66
OUTSTANDING AS OF DECEMBER 31, 1994 1,794,000 $ 0.42 - $1.66
Exercised (143,000) $ 0.42 - $0.88
Forfeited (10,000) $ 0.88
OUTSTANDING AS OF DECEMBER 31, 1995 1,641,000 $ 0.75 - $1.66
Grants 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
EXERCISABLE AS OF DECEMBER 31:
1994 834,000 $ 0.42 - $1.66
1995 930,000 $ 0.42 - $1.66
1996 1,120,000 $ 0.75 - $2.44
As of December 31, 1996, the number of outstanding shares under option,
weighted average option exercise price and weighted average remaining option
contractual life is as follows: 150,000 exercisable shares at $.75 per share,
expiring in 0.8 years; 975,000 shares at $.90 per share, expiring in 5.3 years
(585,000 shares of which are exercisable); 375,000 exercisable shares at $1.46
per share, expiring in 6.7 years; and 535,000 shares at $2.64 per share,
expiring in 3.4 years (10,000 shares of which are exercisable.)
33
<PAGE>
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 5.93%, dividend yield of 0.0%, a
volatility factor of .492, and a weighted-average expected life for the options
of four years. Had compensation cost been measured based on the fair value
based accounting of FAS 123, net income would have been $5,225, or $.23 per
share, for 1996. 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
December 31, 1994, its pro forma effect will not be fully reflected until future
years.
8. RETIREMENT PLANS
The Company adopted a 401(k) defined contribution benefit plan effective
with the Merger, 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 $243 in 1996, $255 in 1995 and $40
for the period November 30, 1994 through December 31, 1994.
9. GEOGRAPHIC DATA AND SIGNIFICANT CUSTOMER
Sales to non-domestic customers, located principally in Western Europe,
Southeast Asia and Mexico were $2,954 in 1996, $2,361 in 1995 and $209 for the
period November 30, 1994 through December 31, 1994. A significant amount of
revenue from printer operations is derived from one customer. In 1996, 1995 and
1994, 30%, 30% and 34% of such revenue was attributable to this customer,
respectively.
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
BULL RUN CORPORATION
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of Bull Run
Corporation as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. 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 Host Communications, Inc. ("HCI") and Capital Sports Properties,
Inc. ("CSP") 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 HCI and CSP
for their respective periods ended June 30, is based solely on the reports of
the other auditors. In the consolidated financial statements, the Company's
investment in HCI and CSP is stated at $11,854,000 and $11,165,000 at December
31, 1996 and 1995, respectively; the Company's equity in the net income of HCI
and CSP is stated at $762,000 and $245,000 for the years then ended,
respectively; and the Company's cumulative effect of accounting change
recognized by affiliate 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 1996 and 1995, 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, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the Consolidated Financial Statements, HCI
changed its method of recognizing certain revenue and related expenses.
Atlanta, Georgia /s/ Ernst & Young LLP
February 18, 1997
34
<PAGE>
DATASOUTH COMPUTER CORPORATION
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OPERATING RESULTS FOR THE YEAR ENDED:
<S> <C> <C> <C>
*1994 1993 1992
Revenue from printer operations $ 18,995 $ 16,906 $ 15,369
Cost of goods sold 13,336 12,117 10,830
Gross profit 5,659 4,789 4,539
Operating expenses 4,941 5,031 4,492
Income (loss) from operations 718 (242) 47
Equity in earnings of affiliated company 376 108
Interest income (expense), net (148) 166 590
Income before income taxes 946 32 637
Income tax provision (227) (31)
Net income $ 719 $ 32 $ 606
</TABLE>
*Operating results for the period January 1, 1994 through November 29, 1994,
the effective date of the merger of Datasouth into a wholly-owned subsidiary of
Bull Run Corporation. Subsequent to November 29, 1994, Datasouth's operating
results are consolidated with Bull Run's.
FINANCIAL POSITION AS OF DECEMBER 31:
1993 1992
Working capital $ 4,999 $ 13,322
Investment in affiliated company 11,218
Total assets 21,140 16,933
Long-term obligations 3,000
Stockholders' equity 15,935 15,908
Current ratio 3.3 14.0
The changes in financial position from 1992 to 1993 were the result of
funding the acquisition of a 21% interest in Gray Communications Systems, Inc.
with cash and short-term investments totaling $8,162,000 and $3,000,000 in long-
term debt.
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER (A)
1994:
Revenue $ 5,140 $ 4,228 $ 5,457 $ 4,170
Gross profit 1,530 1,145 1,690 1,294
Net income (loss) 144 (49) 340 284
(a) For the period October 1, 1994 through November 29, 1994.
35
<PAGE>
DATASOUTH COMPUTER CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
ACQUISITION BY BULL RUN CORPORATION
In April 1993, Bull Run Corporation ("Bull Run") acquired a 43.6% interest
in Datasouth Computer Corporation ("Datasouth") from The Cold Heading Company
and related individuals. On November 29, 1994, the remaining 56.4% of Datasouth
was acquired by Bull Run as a result of the merger (the "Merger") of Datasouth
into a newly-formed, wholly-owned subsidiary of Bull Run. Under the terms of
the Merger, each outstanding share of common stock of Datasouth (other than
shares owned by Bull Run, which were cancelled) was converted into the right to
receive three shares of Bull Run's common stock. Since the Merger, Datasouth
has operated as a wholly-owned consolidated subsidiary of Bull Run under the
name "Datasouth Computer Corporation."
RESULTS OF OPERATIONS
Revenue of $18,995,000 for the period January 1, 1994 through November 29,
1994 represented a 12% increase over revenue for the year ended December 31,
1993. The principal factor contributing to the favorable difference was an
increase in sales to a large customer, from approximately $600,000 in 1993 to
approximately $3,900,000 in the period ended November 29, 1994.
Gross profit as a percentage of revenue was 30% in the period ended
November 29, 1994 compared to 28% in 1993. The improvement is principally due
to absorption of fixed overhead costs over greater unit volume during 1994.
Equity in earnings of Gray Communications Systems, Inc. ("Gray") was
$376,000 for the period ended November 29, 1994, reflecting Datasouth's
proportionate share of Gray's reported net income less $224,000 in goodwill
amortization.
Operating expenses were $4,941,000 for the period ended November 29, 1994.
At 26% of total revenue in 1994 compared to 30% in 1993, the 1994 operating
expenses represented a favorable change principally due to nonrecurring
advertising and product development expenses incurred in 1993 related to the
introduction of a new printer line. Operating expenses in 1994 included
$344,000 of costs associated with the Merger.
Interest income decreased to $80,000 in the period ended November 29, 1994
from $267,000 in 1993 due to a reduction in short-term investments. Interest
expense of $228,000 in 1994 resulted primarily from 8% nonconvertible
subordinated debentures totaling $3,000,000, issued to insurance companies
affiliated with Bull Run, in connection with Datasouth's initial investment in
Gray.
LIQUIDITY AND CAPITAL RESOURCES
In the period January 1, 1994 through November 29, 1994, Datasouth acquired
for $939,000, additional shares of Gray common stock, thereby increasing its
equity ownership in Gray to 25.7%.
Datasouth periodically borrowed from a $2,000,000 available
uncollateralized revolving line of credit bearing interest at the bank's prime
lending rate.
Operations and investment income were Datasouth's principal sources of
cash. Datasouth invested excess cash in highly-liquid temporary investments and
marketable securities, in addition to its Gray common stock. Datasouth did not
pay a dividend since its inception.
36
<PAGE>
DATASOUTH COMPUTER CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD JANUARY 1, 1994 THROUGH NOVEMBER 29, 1994
(DOLLARS IN THOUSANDS)
Revenue $ 18,995
Cost of goods sold 13,336
Gross profit 5,659
Operating expenses:
Research and development 1,375
Selling, general and administrative 3,566
4,941
Income from operations 718
Other income (expense):
Equity in earnings of affiliated company 376
Interest income 80
Interest expense (228)
Income before income taxes 946
Income tax provision 227
Net income $ 719
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1994 THROUGH NOVEMBER 29, 1994
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 719
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 686
Equity in earnings of affiliated company (376)
Change in operating assets and liabilities:
Accounts receivable (503)
Inventories 401
Other current assets 12
Accounts payable and accrued expenses 173
Net cash provided by operating activities 1,112
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities 500
Capital expenditures (294)
Investment in affiliated company (939)
Dividends received from affiliated company 41
Net cash used in investing activities (692)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit 4,424
Repayments on line of credit (4,424)
Advances to affiliated company (38)
Issuance of common stock 5
Net cash used in financing activities (33)
NET INCREASE IN CASH AND CASH EQUIVALENTS 387
Cash and cash equivalents, beginning of period 245
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 632
The accompanying notes are an integral part of these consolidated financial
statements.
37
<PAGE>
DATASOUTH COMPUTER CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ACQUISITION BY BULL RUN CORPORATION
Immediately following the approval of the shareholders of Datasouth
Computer Corporation ("Datasouth") and Bull Run Corporation ("Bull Run") on
November 29, 1994, Datasouth was merged (the "Merger") into a newly-formed,
wholly-owned subsidiary of Bull Run (which immediately changed its name to
"Datasouth Computer Corporation") through the exchange of three shares of Bull
Run common stock for each share of Datasouth common stock which Bull Run did not
then own. Prior to the Merger, Bull Run owned approximately 43.6% of the
Datasouth outstanding common stock. The accompanying financial statements
present the results of operations and cash flows for the 1994 period prior to
the Merger. Since the Merger, Datasouth has operated as a wholly-owned
consolidated subsidiary of Bull Run.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Datasouth and its wholly-owned subsidiary,
Datasouth International Sales Corporation, after elimination of intercompany
accounts and transactions.
ACCOUNTS RECEIVABLE - Datasouth sells computer printers and provides
service worldwide to distributors, value-added resellers and large volume end
users. Datasouth performs ongoing credit evaluations of its customers'
financial condition and generally requires no collateral from its customers.
INVENTORIES - Inventories 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, generally from 3 to 7 years. Expenditures for maintenance,
repairs and minor renewals are charged to expense.
INVESTMENT IN AFFILIATED COMPANY - Datasouth's investment in Gray
Communications Systems, Inc. ("Gray") is accounted for by the equity method.
The excess of Datasouth's investment over the underlying equity of the investee,
totaling $10,099 as of November 29, 1994, was being amortized over 40 years.
WARRANTY COSTS- An estimated allowance for future warranty costs based on
past experience is recorded as a charge to cost of goods sold.
RESEARCH AND DEVELOPMENT - Research and development costs, including the
costs of software developed internally, 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. A valuation allowance is recognized on net deferred tax assets whose
realization is not reasonably assured.
SUPPLEMENTAL CASH FLOW INFORMATION - During the period January 1, 1994
through November 29, 1994, interest of $249 was paid. Also, income taxes of $7
were paid, net of tax refunds.
38
<PAGE>
3. OPERATING LEASES
Datasouth leases its main facility under a seven-year operating lease
expiring in 1998 having a renewal option for an additional three year period,
and leases additional office and warehouse space under an operating lease
expiring in 1997. Total rental expense was $277 for the period January 1, 1994
through November 29, 1994.
4. INVESTMENT IN AFFILIATED COMPANY
Datasouth's investment in affiliated company represents its interest in the
common stock of Gray, which owned three VHF NBC-affiliated television stations,
two CBS-affiliated television stations and two daily newspapers as of November
29, 1994.
Summarized operating results of Gray for the period January 1, 1994 through
November 30, 1994 follow:
Operating revenue $ 32,073
Operating expenses 26,265
Income from operations 5,808
Net income 2,781
Gray's common stock is publicly traded on the New York Stock Exchange. As
of November 29, 1994, the fair value of Gray shares owned by Datasouth was
approximately $15,733, based on an independent appraisal of Gray performed by an
investment banking firm.
Datasouth's initial investment in Gray was partially financed with $3,000
in subordinated debentures payable to insurance companies affiliated with Bull
Run. Interest expense associated with this related party financing was $238 in
the period January 1, 1994 through November 29, 1994.
5. INCOME TAXES
The principal differences between the federal statutory tax rate and the
effective tax rate for the period January 1, 1994 through November 29, 1994 were
as follows:
Federal statutory tax rate 34.0%
Nondeductible business expenses 0.6
Nondeductible merger expenses 8.4
Tax benefit of net operating loss and
tax credit carryforward (21.5)
Other, net 2.5
Effective tax rate 24.0%
As of November 29, 1994, Datasouth had a $101 research and development
credit carryforward available to offset future federal tax liabilities and a
valuation allowance of $131 provided to offset net deferred tax assets.
6.RETIREMENT PLANS
Effective January 1, 1994, Datasouth adopted the Datasouth Savings and
Profit-Sharing Plan (the "401(k) Plan"), whereby employees could contribute 1%
to 15% of their gross pay to the 401(k) Plan subject to limitations set forth by
the Internal Revenue Service. Datasouth made matching and discretionary
contributions to the employees' accounts totaling $199 in the period January 1,
1994 through November 29, 1994.
39
<PAGE>
7. STOCK OPTIONS
Datasouth adopted the 1993 Incentive Stock Option Plan (the "Plan") under
which options for Datasouth common stock may be granted to its officers and
employees. Options granted under the Plan were exercisable at the fair market
value of the shares at the date of grant. The options vested 20% per year over
5 years from the date of grant and were exercisable over a period not to exceed
10 years. As of November 29, 1994, 398,000 shares granted under the Plan were
outstanding. Options for 2,000 shares were exercised in 1994 prior to November
29, 1994. In connection with the Merger, all outstanding options for
Datasouth's common stock under the Plan were converted into options for Bull Run
common stock under Bull Run's 1994 Long-Term Incentive Plan.
8. GEOGRAPHIC DATA AND SIGNIFICANT CUSTOMERS
Sales to non-domestic customers, located principally in Western Europe,
Southeast Asia and Mexico, totaled $1,491 for the period January 1, 1994 through
November 29, 1994.
For the period January 1, 1994 through November 29, 1994, approximately 20%
of total revenue was derived from one customer.
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND STOCKHOLDER OF
DATASOUTH COMPUTER CORPORATION
Charlotte, North Carolina
We have audited the accompanying consolidated statements of income and cash
flows of Datasouth Computer Corporation for the period January 1, 1994 through
November 29, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated statements of income and cash flows for
the period January 1, 1994 through November 29, 1994 presents fairly, in all
material respects, the consolidated results of operations and cash flows of
Datasouth Computer Corporation for the period January 1, 1994 through November
29, 1994 in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 22, 1995
40
<PAGE>
DIRECTORS
J. MACK ROBINSON - Chairman of the Board of Bull Run Corporation; Chairman
and President of Delta Life Insurance Company since 1958; Chairman of Atlantic
American Corporation, an insurance holding company, since 1974, and President
from 1988 to 1995; interim President and CEO of Gray Communications Systems,
Inc. and a director; director EMERITUS of Wachovia Corporation.
GERALD N. AGRANOFF - Affiliated with Plaza Securities Company and Edelman
Securities Company L.P., investment firms, since 1982, and currently General
Counsel and a general partner; director of Canal Capital Corporation, Datapoint
Corporation and Atlantic Gulf Communities Corporation; trustee of the Management
Assistance Inc. Liquidating Trust.
JAMES W. BUSBY - President of Datasouth Computer Corporation since 1984 and
one of its founders in 1977.
HILTON H. HOWELL, JR. - Vice President and Secretary of Bull Run
Corporation; President of Atlantic American Corporation since 1995 and Executive
Vice President from 1992 to 1995; Executive Vice President and General Counsel
of Delta Life and Delta Fire & Casualty Insurance Companies since 1991; director
of Gray Communications Systems, Inc.
ROBERT S. PRATHER, JR. - President and Chief Executive Officer of Bull Run
Corporation; interim Executive Vice President - Acquisitions of Gray
Communications Systems, Inc. and a director; director of Host Communications,
Inc., Capital Sports Properties, Inc. and Universal Sports America, Inc.
ALEX C. RITCHIE - Director of Silver Standard Resources, Inc., a mining
company, from which he retired as President in 1984.
OFFICERS
J. MACK ROBINSON - Chairman of the Board
ROBERT S. PRATHER, JR. - President and Chief Executive Officer
HILTON H. HOWELL, JR. - Vice President and Secretary
FREDERICK J. ERICKSON - Vice President - Finance, Treasurer and Chief
Financial Officer
STOCKHOLDER INFORMATION
CORPORATE HEADQUARTERS
Bull Run Corporation
4370 Peachtree Road, N.E.
Atlanta, GA 30319
Phone (404) 266-8333
Fax (404) 261-9607
Internet - http://www.bullruncorp.com
SUBSIDIARIES & AFFILIATES
Datasouth Computer Corporation
4216 Stuart Andrew Boulevard
Charlotte, NC 28217
Phone (704) 523-8500
Fax (704) 525-6104
Internet - http://www.datasouth.com
Gray Communications Systems, Inc.
126 N. Washington Street
Albany, GA 31702
Phone (912) 888-9302
Fax (912) 888-9374
Host Communications, Inc.
546 East Main Street
Lexington, KY 40508
Phone (606) 226-4678
Fax (606) 226-4419
TRANSFER AGENT & REGISTRAR
TranSecurities International, Inc.
2510 N. Pines Road
Spokane, WA 99206-7624
Phone (509) 927-1255
INDEPENDENT AUDITORS
Ernst & Young LLP
Suite 2800
600 Peachtree Street
Atlanta, GA 30308-2215
STOCK EXCHANGE
Bull Run's common stock trades on The Nasdaq Stock
Market under the symbol "BULL".
Gray's common stocks trade on the New York Stock
Exchange under the symbols "GCS" and "GCS.B".
FORM 10-KSB
A copy of the Company's Annual Report on
Form 10-KSB submitted to the U.S. Securities and
Exchange Commission may be obtained by
contacting Investor Relations at the Company's
Corporate Headquarters.
EXHIBIT 23.1
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-91296) pertaining to the Bull Run Corporation 1994 Long Term
Incentive Plan and the Registration Statement (Form S-8 No. 33-91298) pertaining
to the Bull Run Corporation Non-Employee Directors' 1994 Stock Option Plan of
our reports dated February 18, 1997 with respect to the consolidated financial
statements of Bull Run Corporation and our reports dated February 22, 1995 with
respect to the consolidated financial statements of Datasouth Computer
Corporation incorporated by reference in the Annual Report (Form 10-KSB) of Bull
Run Corporation for the year ended December 31, 1996, filed with the Securities
and Exchange Commission.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
March 21, 1997
EXHIBIT 23.2
The Board of Directors
Bull Run Corporation:
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-91296 and 33-91298) on Form S-8 of Bull Run Corporation of our report
dated February 10, 1997 with respect to the balance sheets of Capital Sports
Properties, Inc. as of June 30, 1996 and December 31, 1995, and the related
statements of earnings, changes in stockholders' equity, and cash flows for the
six-months ended June 30, 1996 and each of the years in the two-year period
ended December 31, 1995, which report appears in the December 31, 1996 annual
report on Form 10-KSB of Bull Run Corporation.
/s/ KPMG PEAT MARWICK LLP
Stamford, Connecticut
March 21, 1997
EXHIBIT 23.3
Independent Auditors' Consent
The Board of Directors
Bull Run Corporation:
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-91296 and 33-91298) on Form S-8 of Bull Run Corporation of our report
dated October 11, 1996 with respect to the consolidated balance sheets of Host
Communications, Inc. and subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for the years then ended, which report appears in the December 31, 1996
annual report on Form 10-KSB of Bull Run Corporation.
Our report refers to a change in the method of accounting for license fee
revenues and rights fee expenses.
/s/ KPMG PEAT MARWICK LLP
Cincinnati, Ohio
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 81,291
<SECURITIES> 0
<RECEIVABLES> 4,119,357
<ALLOWANCES> 45,000
<INVENTORY> 3,315,093
<CURRENT-ASSETS> 7,667,787
<PP&E> 3,652,943
<DEPRECIATION> 1,402,327
<TOTAL-ASSETS> 67,851,369
<CURRENT-LIABILITIES> 3,678,229
<BONDS> 0
0
0
<COMMON> 223,247
<OTHER-SE> 28,094,850
<TOTAL-LIABILITY-AND-EQUITY> 67,851,369
<SALES> 23,810,276
<TOTAL-REVENUES> 24,654,666
<CGS> 17,169,915
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,567,798
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,123,856
<INCOME-PRETAX> 8,157,768
<INCOME-TAX> 4,011,749
<INCOME-CONTINUING> 5,877,122
<DISCONTINUED> 0
<EXTRAORDINARY> (295,322)
<CHANGES> (274,248)
<NET-INCOME> 5,307,552
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
EXHIBIT 99
PROXY STATEMENT DATED MARCH 18, 1997
<PAGE>
BULL RUN CORPORATION
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Bull Run Corporation, a Georgia
corporation (the "Company"), will be held at the offices of the Company, 4370
Peachtree Road, N.E., Atlanta, Georgia, on April 22, 1997 at 10:00 A.M. (local
time) for the following purposes:
1. to elect directors;
2. to consider and act upon a proposal to confirm the appointment of Ernst
& Young LLP as the independent auditors of the Company for the year ending
December 31, 1997; and
3. to transact any such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on February 28, 1997
as the record date for determining shareholders entitled to notice of and to
vote at the meeting.
By Order of the Board of Directors
ROBERT S. PRATHER, JR.
PRESIDENT
March 18, 1997
YOUR VOTE IS IMPORTANT
PLEASE MARK, SIGN, AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED SELF-ADDRESSED, STAMPED ENVELOPE.
<PAGE>
BULL RUN CORPORATION
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is being furnished to the shareholders of Bull Run
Corporation (the "Company") in connection with the solicitation of proxies by
the Board of Directors of the Company for use at the annual meeting of
shareholders (the "Annual Meeting") of the Company to be held on April 22, 1997
at 10:00 a.m., local time, at the offices of the Company, 4370 Peachtree Road,
N.E., Atlanta, Georgia and any adjournment or adjournments thereof. This Proxy
Statement, the attached Notice, and the enclosed proxy card are first being
mailed to shareholders of the Company on or about March 19, 1997.
VOTING AND PROXIES
The Board of Directors of the Company has fixed the close of business on
February 28, 1997 as the record date for the determination of shareholders
entitled to notice of and to vote at the Annual Meeting. Accordingly, only
holders of record of shares of common stock, $.01 par value (the "Common
Stock"), of the Company at the close of business on that date will be entitled
to notice of and to vote at the Annual Meeting or any adjournment or
adjournments thereof. At the close of business on such date, there were
21,302,217 shares of Common Stock outstanding.
Each holder of record of shares of Common Stock on the record date is
entitled to cast one vote per share, in person or by properly executed proxy, on
any matter that may properly come before the Annual Meeting. The presence, in
person or by properly executed proxy, of the holders of a majority of the shares
of Common Stock outstanding on the record date is necessary to constitute a
quorum at the Annual Meeting. Shares represented by proxies that withhold
authority to vote for a nominee for director or indicate an abstention or a
"broker non-vote" (i.e., shares represented at the Annual Meeting held by
brokers or shareholder nominees as to which (i) instructions have not been
received from the beneficial owners thereof or persons entitled to vote such
shares and (ii) the broker or nominee does not have discretionary voting power
on a particular matter with respect to such shares) will count as shares present
and entitled to vote for purposes of obtaining a quorum. The affirmative vote of
the holders of a majority of the shares of Common Stock present and voting,
represented in person or by properly executed proxy, at the Annual Meeting is
required to elect directors and confirm the appointment of Ernst & Young LLP as
the independent auditors of the Company for the year ending December 31, 1997.
PROXY VOTING, REVOCATION, AND ABSTENTIONS
All proxies received pursuant to this solicitation will be voted except as
to matters where authority to vote is specifically withheld and, where a choice
is specified as to the proposal, they will be voted in accordance with such
specification. If no instructions are given, the persons named in the proxy
solicited by the Board of Directors of the Company intend to vote for the
election of directors listed herein and for the confirmation of the appointment
of Ernst & Young LLP as the independent auditors of the Company. Abstentions
and broker non-votes are not counted as votes cast on any matter to which they
relate.
The Board of Directors does not know of any matters, other than the matters
described in this Proxy Statement, which are expected to be presented for
consideration at the Annual Meeting. If any other matters are properly
presented at the Annual Meeting, the persons named in the accompanying proxy
will have discretion to vote on such matters in accordance with their best
judgment.
Shareholders who execute proxies may revoke them by giving written notice
to the Secretary of the Company at any time before such proxies are voted.
Attendance at the Annual Meeting will not have the effect of revoking a proxy
unless the shareholder so attending, in writing, so notifies the Secretary of
the Annual Meeting at any time prior to the voting of the proxy.
SOLICITATION
Proxies are being solicited by and on behalf of the Company's Board of
Directors. The Company will bear the expenses of this solicitation, including
the expenses of preparing, printing, and mailing this Proxy Statement. In
addition to solicitation by mail, directors, officers, and regular employees of
the Company (who will not specifically be compensated for such services) may
solicit
1
<PAGE>
proxies by telephone or otherwise. Arrangements will be made with brokerage
houses and other custodians, nominees, and fiduciaries to forward proxies and
proxy material to their principals, and the Company will reimburse them for
their expenses. Mackenzie Partners, Inc. will be paid approximately $4,000,
plus out-of-pocket expenses, to solicit and tabulate proxies for the Company.
PRINCIPAL STOCKHOLDERS
Information regarding persons or groups known by the Company to be the
beneficial owners of more than five percent of the outstanding shares of the
Common Stock as of January 31, 1997 is shown in the following table.
Information concerning such security holdings has been furnished by the holders
thereof to the Company.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF
BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP PERCENT OF CLASS
<S> <C> <C>
Robert S. Prather , Jr. 2,810,598(2)(3) 13.1%
J. Mack Robinson 6,279,656(3)(4) 29.3%
Robinson-Prather Partnership 2,660,598(3) 12.5%
Harriett J. Robinson 6,279,656(3)(4) 29.3%
Harriett J. Robinson, Trustee
Robin M. Robinson Trust 3,060,598(3) 14.4%
Harriett J. Robinson, Trustee
Jill E. Robinson Trust 3,060,598(3) 14.4%
Gulf Capital Services, Ltd. 2,660,598(3) 12.5%
James W . Busby 2,751,862(5) 12.9%
Hilton H. Howell, Jr. 1,625,000(6) 7.6%
William M. Hammock 1,087,150 5.1%
</TABLE>
(1) The address of each of these shareholders is 4370 Peachtree Road, N.E.,
Atlanta, Georgia 30319, except for James W. Busby, whose address is 4216
Stuart Andrew Blvd., Charlotte, North Carolina 28217, and William M.
Hammock, whose address is 12661 Kelly Palm Drive, SW, Fort Myers, Florida
33908.
(2) Includes 150,000 shares which Mr. Prather has the right to acquire through
the exercise of currently exercisable options.
(3) Includes 2,660,598 shares owned by Robinson-Prather Partnership. Robinson-
Prather Partnership is a Georgia general partnership, the general partners
of which are Robert S. Prather, Jr., President, Chief Executive Officer,
and a director of the Company; J. Mack Robinson, a director of the
Company; Harriett J. Robinson (the wife of Mr. Robinson); Harriett J.
Robinson, as trustee for Robin M. Robinson Trust (the "RMR Trust");
Harriett J. Robinson, as trustee for Jill E. Robinson Trust (the "JER
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 of
Common Stock owned by Robinson-Prather Partnership. Each general partner
disclaims beneficial ownership of the shares of Common Stock owned by
Robinson-Prather Partnership, except to the extent of his pecuniary
interest in such shares of Common Stock, which is less than the amount
disclosed.
(4) Includes as to each of J. Mack Robinson and his wife, Harriett J.
Robinson: 886,058 shares owned directly by Mr. Robinson; 233,000 shares
owned directly by Mrs. Robinson; 150,000 shares which Mr. Robinson has the
right to acquire through the exercise of currently exercisable options;
400,000 shares owned directly by the RMR Trust and 400,000 shares owned
directly by the JER Trust, of each of which Mrs. Robinson is the trustee;
and an aggregate of 1,550,000 shares owned by Delta Fire & Casualty
Insurance Co. ("Delta Fire"), Delta Life Insurance Company ("Delta Life"),
Bankers Fidelity Life Insurance Co. ("Bankers Fidelity Life") and Georgia
Casualty & Surety Co. ("Georgia Casualty"), Georgia corporations of each
of which Mr. Robinson is Chairman of the Board, President and/or principal
shareholder (or the subsidiaries of the same). Each of Mr. and Mrs.
Robinson disclaims beneficial ownership of the shares of Common Stock
owned by the RMR Trust, the JER Trust, Delta Fire, Delta Life, Bankers
Fidelity Life, Georgia Casualty and each other.
(5) Includes an aggregate of 62,044 shares owned by Mr. Busby's two children
and 135,000 shares which Mr. Busby has the right to acquire through the
exercise of currently exercisable options.
(6) Includes 75,000 shares which Mr. Howell has the right to acquire through
the exercise of currently exercisable options; and an aggregate of
1,550,000 shares owned by Delta Fire, Delta Life, Bankers Fidelity Life
and Georgia Casualty, Georgia corporations of each of which Mr. Howell is
Executive Vice President. Mr. Howell is married to Robin M. Howell, Mr.
Robinson's daughter and a
2
<PAGE>
beneficiary of the RMR 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, Delta Life, Bankers
Fidelity Life, Georgia Casualty, Robinson-Prather Partnership and the
RMR Trust.
Except as noted in the footnotes above, (i) none of such shares is known by
the Company to be shares with respect to which such beneficial owner has the
right to acquire beneficial ownership and (ii) the Company believes that the
beneficial owners above have sole voting and investment power regarding the
shares shown as being beneficially owned by them.
ELECTION OF DIRECTORS
GENERAL
At the Annual Meeting, six directors are to be elected to hold office
(subject to the Company's by-laws) until the next annual meeting of shareholders
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 Annual Meeting
or, if no substitute is selected by management prior to or at the Annual
Meeting, for a motion to reduce the membership of the Board to the number of
nominees available. Set forth below is certain information concerning each of
the nominees.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
PRINCIPAL OCCUPATION DURING THE PAST YEAR FIRST OWNERSHIP OF PERCENT
FIVE YEARS, ANY OFFICE HELD WITH THE ELECTED COMMON STOCK AS OF OF
NAME AGE COMPANY, AND OTHER DIRECTORSHIPS A DIRECTOR JANUARY 31, 1997 CLASS
<S> <C> <C> <C> <C> <C>
J. Mack Robinson 73 Chairman of the Board since 1994 and Secretary 1992 6,279,656(1)(2)(3) 29.3%
and Treasurer of the Company in 1994; Chairman
of the Board and President of Delta Life 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. ("Gray "), a media
company, since 1993 and interim President and Chief
Executive Officer of Gray since September 1996; director
EMERITUS of Wachovia Corporation, a bank holding company
Gerald N. Agranoff 50 General counsel to and a general partner of Plaza 1990 120,000(1) (4)
Securities Company and Edelman Securities Company,
L.P. (investment firms), having been affiliated with such
companies since 1982; director of Canal Capital
Corporation, Datapoint Corporation, and Atlantic
Gulf Communities Corporation; trustee of the
Management Assistance Inc. Liquidating Trust
James W. Busby 42 President of Datasouth Computer Corporation 1994 2,751,862(1)(5) 12.9%
("Datasouth"), a subsidiary of the Company, from 1984
to 1997; one of the founders of Datasouth in 1977, serving
as Secretary from 1977 until 1984
Hilton H. Howell, Jr. 35 Vice President and Secretary of the Company since 1994 1,625,000(1)(6) 7.6%
1994; President and Chief Executive Officer of Atlantic
American Corporation since 1995 and Executive Vice
President from 1992 to 1995; Executive Vice President
and General Counsel of Delta Life and Delta Fire since
1991; director of Gray since 1993
Robert S. Prather, Jr. 52 President and Chief Executive Officer of the Company 1992 2,810,598(1)(2) 13.1%
since 1992; director of Gray since 1993 and interim Executive
Vice President-Acquisitions since September 1996; Chairman
of the Board of Phoenix Corporation, a steel service center,
from 1980 to 1992
Alex C. Ritchie 80 Retired; director of Silver Standard Resources, Inc., a 1980 205,000(1)(3) (4)
mining company
</TABLE>
3
<PAGE>
(1) Includes, as to each of Messrs. Agranoff and Ritchie, 80,000 shares of
Common Stock; as to each of Messrs. Robinson and Prather, 150,000 shares of
Common Stock; as to Mr. Busby, 135,000 shares of Common Stock; and as to
Mr. Howell, 75,000 shares of Common Stock; which each had the right to
acquire through exercise of currently exercisable options.
(2) Includes 2,660,598 shares owned by Robinson-Prather Partnership. Robinson-
Prather Partnership is a Georgia general partnership, the general partners
of which are Robert S. Prather, Jr., President, Chief Executive Officer,
and a director of the Company; J. Mack Robinson, a director of the Company;
Harriett J. Robinson (the wife of Mr. Robinson); Harriett J. Robinson, as
trustee for the RMR Trust; Harriett J. Robinson, as trustee for the JER
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 of Common Stock owned
by Robinson-Prather Partnership. Each of Messrs. Robinson and Prather
disclaims beneficial ownership of the shares of Common Stock owned by
Robinson-Prather Partnership, except to the extent of his pecuniary
interest in such shares of Common Stock, which is less than the amount
disclosed.
(3) Includes: 886,058 shares owned directly by Mr. Robinson; 233,000 shares
owned directly by Harriett J. Robinson, Mr. Robinson's wife; an aggregate
of 400,000 shares owned directly by the RMR Trust and 400,000 shares owned
directly by the JER Trust, of each of which Mrs. Robinson is the trustee;
and an aggregate of 1,550,000 shares owned by Delta Fire, Delta Life,
Bankers Fidelity Life and Georgia Casualty, 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 of Common Stock owned by the RMR Trust,
the JER Trust, Delta Fire, Delta Life, Bankers Fidelity Life, Georgia
Casualty, and each other.
(4) Less than 1%.
(5) Includes an aggregate of 62,044 shares owned by Mr. Busby's two children.
(6) Includes an aggregate of 1,550,000 shares owned by Delta Fire, Delta Life,
Bankers Fidelity Life, and Georgia Casualty, of each of which Mr. Howell is
Executive Vice President. Mr. Howell is married to Robin M. Howell, Mr.
Robinson's daughter and a beneficiary of the RMR 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, Delta Life,
Bankers Fidelity Life, Georgia Casualty, Robinson-Prather Partnership, and
the RMR Trust.
Except as noted in the footnotes above, (i) none of such shares is known by
the Company to be shares with respect to which such beneficial owner has the
right to acquire such shares and (ii) the Company 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 January 31, 1997, all directors and executive officers of the Company
as a group (seven persons) owned 9,626,748 shares of Common Stock, representing
43.8% of the outstanding shares (including 706,000 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 the Company's
directors and executive officers, and persons who own more than ten percent of
the 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 management's knowledge, based solely on review of the copies of such
reports furnished to the Company and representations that no other reports were
required, during the year ended December 31, 1996 all Section 16(a) filing
requirements applicable to the Company's officers, directors, and greater than
ten percent beneficial owners were met, except that Hilton H. Howell, Jr., an
officer and director of the Company, filed an amended Form 3, Form 4, and Form 5
after the applicable deadlines, disclosing ownership of Common Stock by
companies of which Mr. Howell is an executive officer. Mr. Howell disclaims
beneficial ownership of these shares.
4
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation earned by the Company's
President and Chief Executive Officer and the other executive officers who
earned $100,000 or more for the year ended December 31, 1996 (the "named
executive officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
OTHER RESTRICTED
ANNUAL STOCK LTIP ALL OTHER
PRINCIPAL COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
NAME POSITION YEAR SALARY($) BONUS($) ($) ($) (#) ($) ($)
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert S. Prather, Jr. President and Chief 1996 $299,240 $125,000 $ 7,613(1) 300,000 shares $ 9,000(2)
Executive Officer of 1995 $266,538 $100,000 $ 7,361(1) $ 9,000(2)
the Company 1994 $254,774 $ 50,000 $ 7,361(1) 75,000 shares $ 9,000(2)
James W. Busby President of Datasouth 1996 $139,293 $ 36,127 $ 9,000(2)
1995 $134,049 $ 46,172 $ 9,000(2)
1994 $126,510 $ 32,440 225,000 shares(3) $ 7,591(2)
Frederick J. Erickson Vice President- 1996 $100,005 $ 30,063 $ 7,385(2)
Finance of the Company 1995 $ 96,231 $ 33,086 $ 6,747(2)
and Datasouth 1994 $ 87,278 $ 16,220 90,000 shares(3) $ 5,238(2)
</TABLE>
(1) Consists of automobile allowances and related expenses provided by the
Company.
(2) Consists of employer contributions to the defined contribution retirement
plans.
(3) Options to acquire Common Stock were granted in 1994 at the effective date
of the merger of Datasouth with a wholly-owned subsidiary of the Company,
in exchange for then outstanding options to acquire Datasouth shares. The
Datasouth options were originally granted in 1993.
The following table sets forth information concerning the only grant of
options by the Company to a named executive officer during the year ended
December 31, 1996. The option was granted under the Company's 1994 Long Term
Incentive Plan.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE
NAME GRANTED(#) FISCAL YEAR ($/SH) EXPIRATION DATE
<S> <C> <C> <C> <C>
Robert S. Prather, Jr. 300,000(1) 57.1%(2) $2.68 (1)
</TABLE>
(1) The options vest in 100,000 share annual increments beginning April 23,
1997, and expire in 100,000 share annual increments beginning April 23,
1999.
(2) In 1996, options for 525,000 shares were granted to all employees as a
group.
5
<PAGE>
The following table sets forth certain information concerning unexercised
options held by the named executive officers as of December 31, 1996. No stock
options were exercised by the named executive officers during the year ended
December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTIONS
VALUES
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END (#) FY-END ($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE(1)
Robert S. Prather, Jr. 150,000/300,000 $151,641/$0
James W. Busby 135,000/90,000 $156,938/$104,625
Frederick J. Erickson 36,000/36,000 $45,000/$45,000
(1) Based on the closing price of the Common Stock on December 31, 1996,
$2.13 per share.
LONG TERM INCENTIVE PLANS
Under the Bull Run Corporation 1994 Long Term Incentive Plan (the "1994
Incentive Plan"), 2,500,000 shares of Common Stock are reserved for issuance as
restricted stock awards and for issuance upon the exercise of stock options and
stock appreciation rights. As of December 31, 1996, options for a total of
1,725,000 shares were issued and outstanding under the 1994 Incentive Plan with
an exercise price ranging from $.88 to $2.68 per share. Of the 1,725,000 shares
issuable upon the exercise of outstanding options, 975,000 vest in 20% annual
increments beginning one year following date of grant and are exercisable over a
period not to exceed five to 10 years; 525,000 vest in annual increments of
175,000 each, beginning one year following the date of grant, and expire in
annual increments of 175,000 beginning three years following the date of grant;
and the remaining 225,000 were fully vested at the date of grant. Options for
45,000 shares were exercised in 1996 and options for 96,000 shares were
forfeited due to employee terminations.
The Company's 1987 Non-Qualified Stock Option Plan terminated in 1992.
There are currently outstanding options to purchase 150,000 shares of Common
Stock at an exercise price of $.75 per share.
EMPLOYEE INCENTIVE PLANS
The Company's wholly-owned subsidiary, Datasouth, has employee incentive
plans covering substantially all Datasouth employees. Payments made to
individual employees pursuant to these plans, if any, will vary from year to
year as they will be based on "defined operating profits" (income before income
taxes, investment income, and interest income/expense) of Datasouth. The plans
include one for certain key employees (see "Summary Compensation Table") and one
for all other eligible employees. Total incentive plan compensation was
approximately $183,000 in 1996.
The incentive pool for the plan covering certain key employees is
calculated as a percentage (8.5% in 1996) of "defined operating profits" (as
defined above) less the incentive pool referred to above.
EMPLOYMENT ARRANGEMENTS
Robert S. Prather, Jr. is a party to an employment agreement with the
Company expiring in December 1999, which succeeds a prior employment agreement
which expired in December 1996. Mr. Prather's agreement provides that he will
serve as President and Chief Executive Officer of the Company at an annual
salary of $325,000 ($250,000 under the prior employment agreement), subject to
increase at the discretion of the Board of Directors.
Datasouth has entered into agreements dated March 31, 1994 with James W.
Busby, Datasouth's President and a member of the Company's Board of Directors,
and Frederick J. Erickson, Datasouth's Executive Vice President - Finance &
Administration, Chief Financial Officer, Treasurer, and Secretary. The
agreements are for terms of three years and obligate Datasouth to pay the
executive 100% of his annual base salary for a 12-month period in the event
employment is terminated within 12 months of a change in control of Datasouth.
"Change of control" means (i) acquisition by any person, corporation, or group
of associated persons, excluding affiliates of Datasouth, of beneficial
ownership of an aggregate of more than forty-one percent (41%) of the then
outstanding shares of voting stock of Datasouth, (ii) a merger or consolidation
to which Datasouth is a party and pursuant to which Datasouth is not a surviving
or continuing entity; or (iii) any sale of Datasouth's operating assets that may
affect the employment of such individuals. Furthermore, the agreements obligate
Datasouth to continue to provide medical and dental benefits and life insurance
coverage to such executives for a period of one year following termination. In
March 1997, Datasouth provided Mr. Erickson a new three-year employment
agreement, having terms similar to that of his agreement dated March 31, 1994.
6
<PAGE>
DIRECTORS' COMPENSATION
Robert S. Prather, Jr. and James W. Busby, directors who are also employees
of the Company and Datasouth, respectively, receive no fees for their services
as directors. Directors who are not employees of the Company or its
subsidiaries are paid a fee of $2,250 per quarter for their services as
directors and are reimbursed for their expenses for each meeting attended.
Directors who are not officers or employees of the Company or its subsidiaries
are eligible to receive stock options under the Company's Non-Employee
Directors' 1994 Stock Option Plan (the "1994 Non-Employee Directors' Plan"). In
1996, each of Messrs. Agranoff and Ritchie, directors of the Company, was
granted an option to purchase up to 5,000 shares of Common Stock at an exercise
price of $2.44 per share (the market value of the Common Stock on the date of
grant) under the 1994 Non-Employee Directors' Plan. In 1994, each of Messrs.
Agranoff and Ritchie, was granted an option to purchase up to 75,000 shares of
Common Stock at an exercise price of $1.34 per share (the market value of the
Common Stock on the date of grant) under the 1994 Non-Employee Directors' Plan.
In 1996, each of Messrs. Howell, Prather, and Robinson, directors of the
Company, was each granted an option under the 1994 Incentive Plan to purchase up
to 75,000 shares, 300,000 shares, and 150,000 shares of Common Stock,
respectively, at an exercise price of $2.44, $2.68 and $2.68 per share,
respectively, the market value of the Common Stock on the date of grant (except
for Messrs. Prather and Robinson, whose exercise price is equal to 10% above
such market value). In 1994, each of Messrs. Howell, Prather and Robinson, was
granted an option under the 1994 Incentive Plan to purchase up to 75,000 shares
of Common Stock at an exercise price of $1.66, $1.48 and $1.48 per share,
respectively, the market value of the Common Stock on the date of grant (except
for Messrs. Prather and Robinson, whose exercise price is equal to 10% above
such market value).
BOARD COMMITTEES AND MEMBERSHIP
The Company's Board of Directors 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 the Company's independent auditors, as well as the
Company's accounting principles and system of internal accounting controls, and
to review and approve any transactions between the Company and its directors,
officers, or significant shareholders. The Audit Committee held one meeting
during 1996. The members of the Audit Committee are Messrs. Agranoff and
Ritchie.
The Company's Board of Directors has a Management Compensation and Stock
Option Committee, the purpose of which is to set the compensation of the
Company'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 1996, and its members are Messrs. Agranoff, Ritchie and Robinson.
The Company does not have a nominating committee. The Board of Directors
held three meetings during 1996. During 1996, Mr. Agranoff attended 60% of the
aggregate number of meetings of the Board of Directors and meetings of all
committees of the Board on which he served; each other director attended at
least 75% of the aggregate number of meetings of the Board of Directors and
meetings of all committees of the Board on which such director served.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases office space from Delta Life, a company of which J. Mack
Robinson, a director of the Company, is Chairman of the Board and principal
stockholder. The term of the lease is for 10 years beginning January 1, 1993
and requires total basic rent payments of $164,976 over the 10-year term, plus a
pro rata share of expenses.
In January 1997, the Company purchased under its previously announced Stock
Repurchase Program (the "Program"), 500,000 shares of Common Stock from James W.
Busby, a director of the Company, for $2.50 per share, the market price of the
Common Stock on the date of the purchase. In 1995, the Company purchased under
the Program 35,000 shares of Common Stock from Gerald N. Agranoff, a director of
the Company, for $3.50 per share, the market price of the Common Stock on the
date of the purchase.
CONFIRMATION OF APPOINTMENT OF AUDITORS
The Board of Directors of the Company recommends that the shareholders
confirm the appointment of Ernst & Young LLP to audit the books and accounts of
the Company for the year ending December 31, 1997.
Representatives of Ernst & Young LLP are expected to be available at the
Annual Meeting to respond to appropriate questions and will be given the
opportunity to make a statement if they so desire.
ANNUAL MEETING INFORMATION AND SHAREHOLDER PROPOSALS
Shareholders of the Company wishing to include proposals in the proxy
material in relation to the Annual Meeting of Shareholders to be held in 1998
must submit the same in writing so as to be received at the executive office of
the Company prior to December 15, 1997. Such proposals must also meet the other
requirements of the rules of the Securities and Exchange Commission relating to
shareholders' proposals.
7
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8
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BULL RUN CORPORATION
PROXY
The undersigned appoints Robert S. Prather, Jr. and J. Mack Robinson, and
either of them, with power of substitution, to represent and vote on behalf of
the undersigned all of the shares of Bull Run Corporation (the "Company") which
the undersigned is entitled to vote at the Annual Meeting of Shareholders to be
held at the offices of the Company, 4370 Peachtree Rd., N.E., Atlanta, Georgia
on April 22, 1997 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 relating to, the meeting (receipt whereof is hereby acknowledged).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR (1) AND (2).
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to vote
below except as marked to for all nominees listed below
the contrary below
Gerald N. Agranoff, James W. Busby, Hilton H. Howell, Jr., Robert S. Prather,
Jr., Alex C. Ritchie, and J. Mack Robinson
(Instruction: To withhold authority to vote for any individual nominee write
that nominee's name in the space provided below)
2. PROPOSAL TO CONFIRM THE APPOINTMENT OF ERNST & YOUNG LLP as the independent
auditors of the Company
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion upon such other matters as may properly come before the
meeting.
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.
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: , 1997
Signature
Signature if held jointly
Please return in the enclosed postage
paid envelope.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Capital Sports Properties, Inc.:
We have audited the balance sheets of Capital Sports Properties, Inc. as
of June 30, 1996 and December 31, 1995, and the related statements of
earnings, changes in stockholders' equity and cash flows for the six-months
ended June 30, 1996 and each of the years in the two-year period ended December
31, 1995, not separately presented herein. 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.
as of June 30, 1996 and December 31, 1995, and the results of its operations and
its cash flows for the six-months ended June 30, 1996 and each of the years in
the two-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Stamford, Connecticut
February 10, 1997
F-1
<PAGE>
KPMG Peat Marwick LLP
1600 PNC Center
201 East Fifth Street
Cincinnati, OH 45202
Dayton, OH
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Host Communications, Inc.:
We have audited the consolidated balance sheets of Host Communications, Inc. and
subsidiaries as of June 30, 1996 and 1995, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for the years then
ended, not separately presented herein. 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 Host Communications,
Inc. and subsidiaries at June 30, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended 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 PEAT MARWICK LLP
October 11, 1996
F-2
