<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1996
REGISTRATION NO. 333-4338
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------------
GRAY COMMUNICATIONS SYSTEMS, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
GEORGIA 4833 58-0285030
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code Number)
organization)
</TABLE>
126 NORTH WASHINGTON STREET
ALBANY, GEORGIA 31701
(912) 888-9390
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
SUBSIDIARY GUARANTOR REGISTRANTS
<TABLE>
<CAPTION>
EXACT NAME OF
SUBSIDIARY GUARANTOR PRIMARY STANDARD I.R.S
REGISTRANT AS INDUSTRIAL EMPLOYER
SPECIFIED IN ITS STATE OF CLASSIFICATION IDENTIFICATION
CHARTER INCORPORATION CODE NUMBER NUMBER
- - - --------------------- ------------ ----------------- ------------
<S> <C> <C> <C>
The Albany Herald
Publishing Company,
Inc................. Georgia 2711 58-1020695
The Rockdale Citizen
Publishing
Company............. Georgia 2711 58-2113856
WALB-TV, Inc......... Georgia 4833 58-1048743
WJHG-TV, Inc......... Georgia 4833 59-1233914
Gray Real Estate &
Development
Company............. Georgia 6519 58-1653626
<CAPTION>
EXACT NAME OF
SUBSIDIARY GUARANTOR PRIMARY STANDARD I.R.S
REGISTRANT AS INDUSTRIAL EMPLOYER
SPECIFIED IN ITS STATE OF CLASSIFICATION IDENTIFICATION
CHARTER INCORPORATION CODE NUMBER NUMBER
- - - --------------------- ------------ ----------------- ------------
<S> <C> <C> <C>
Gray Kentucky
Television, Inc..... Georgia 4833 61-1267738
The Southwest Georgia
Shopper, Inc........ Georgia 2741 58-2135527
WRDW-TV, Inc......... Georgia 4833 58-2165671
KTVE Inc............. Arkansas 4833 71-0327940
</TABLE>
--------------------------
WILLIAM A. FIELDER, III
126 NORTH WASHINGTON STREET
ALBANY, GEORGIA 31701
(912) 434-8732
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
Henry O. Smith III, Esq. Daniel J. Zubkoff, Esq.
Proskauer Rose Goetz & Mendelsohn LLP Cahill Gordon & Reindel
1585 Broadway 80 Pine Street
New York, New York 10036 New York, New York 10005
(212) 969-3000 (212) 701-3000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVENESS OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
- - - ----------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
- - - ----------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CROSS-REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
----------------------------------------------------- -----------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Outside Front Cover Page of Prospectus and Outside
Front Cover Page of Prospectus....................... Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................... Inside Front Cover Page; Available Information
3. Summary Information, Risk Factors and Ratio of Prospectus Summary; Risk Factors; Selected Historical
Earnings to Fixed Charges............................ Financial Data
4. Use of Proceeds...................................... Prospectus Summary; The Phipps Acquisition, the KTVE
Sale and the Financing
5. Determination of Offering Price...................... Not Applicable
6. Dilution............................................. Not Applicable
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered........... Outside Front Cover Page; Description of the Notes
10. Interests of Named Experts and Counsel............... Not Applicable
11. Information with Respect to the Registrant........... Prospectus Summary; The Phipps Acquisition, the KTVE
Sale and the Financing; Capitalization; Pro Forma
Financial Data; Selected Historical Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Security Ownership of Certain Beneficial
Owners and Management; Certain Relationships and
Related Transactions; Description of Certain
Indebtedness
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities....................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION
DATED MAY 13, 1996
GRAY
COMMUNICATIONS SYSTEMS, INC.
$150,000,000
% SENIOR SUBORDINATED NOTES DUE 2006
INTEREST PAYABLE AND
ISSUE PRICE: %
The % Senior Subordinated Notes due 2006 (the "Notes") are being offered
(this "Offering") by Gray Communications Systems, Inc. (the "Company").
Concurrently herewith, the Company is offering (the "Concurrent Offering")
3,500,000 shares of its Class B Common Stock, no par value (the "Class B Common
Stock"). The Concurrent Offering is being made by separate prospectus. The
closing of this Offering is conditioned upon the consummation of the Concurrent
Offering.
The Notes will be guaranteed, jointly and severally, fully and unconditionally
by: Gray Kentucky Television, Inc., Gray Real Estate & Development Company, KTVE
Inc., The Albany Herald Publishing Company, Inc., The Rockdale Citizen
Publishing Company, The Southwest Georgia Shopper, Inc., WALB-TV, Inc., WJHG-TV,
Inc. and WRDW-TV, Inc. (collectively, the "Subsidiary Guarantors"). The
Subsidiary Guarantors constitute all of the Company's operating subsidiaries.
The Company expects to use the net proceeds of this Offering, together with the
proceeds of the Concurrent Offering and certain other funds, to consummate the
Phipps Acquisition (as defined) and to repay certain indebtedness. If the Phipps
Acquisition is not consummated prior to , 1996, the Company will be
required to redeem (the "Special Redemption") the Notes on or prior to
, 1996 (the "Special Redemption Date") at a redemption price (the
"Special Redemption Price") equal to 101% of the principal amount of the Notes
plus accrued and unpaid interest to the Special Redemption Date. At any time
prior to , 1996, if the Phipps Acquisition has not been consummated,
the Company may, at its option, redeem the Notes, in whole but not in part, at a
redemption price equal to 101% of the principal amount thereof plus accrued and
unpaid interest to the date fixed for redemption.
The Notes mature on , 2006, unless previously redeemed. Interest on
the Notes is payable semiannually on and , commencing
, 1996. The Notes are redeemable, in whole or in part, at the option
of the Company at any time on or after , 2001, at the redemption
prices set forth herein, plus accrued and unpaid interest to the date fixed for
redemption. In addition, at any time prior to 1999, the Company, at
its option, may redeem up to 35% of the aggregate principal amount of the Notes
originally issued with the cash proceeds received by the Company from one or
more Public Equity Offerings (as defined), other than the Concurrent Offering,
at any time or from time to time, at a redemption price equal to % of the
principal amount thereof, plus accrued and unpaid interest to the date fixed for
redemption; PROVIDED, HOWEVER, that at least $97.5 million in aggregate
principal amount of the Notes remain outstanding immediately after any such
redemption. Upon a Change of Control (as defined), the Company has the
obligation to offer to purchase all outstanding Notes at a price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest to the date of
purchase.
The Notes are general unsecured obligations of the Company and are subordinated
in right of payment to all existing and future Senior Debt (as defined) of the
Company, including all indebtedness of the Company under the Senior Credit
Facility (as defined). The Subsidiary Guarantees (as defined) are general
unsecured obligations of the Subsidiary Guarantors and are subordinated in right
of payment to all existing and future Guarantor Senior Debt (as defined) of the
Subsidiary Guarantors. As of December 31, 1995, on a pro forma basis after
giving effect to this Offering, the Concurrent Offering and the other
transactions described herein, the Company would have had approximately $39.3
million of Senior Debt outstanding.
SEE "RISK FACTORS" ON PAGE 15 FOR A DISCUSSION OF CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) COMPENSATION (2) COMPANY (3)
<S> <C> <C> <C>
- - - ---------------------------------------------------------------------------------------------------------------------
Per Note % % %
- - - ---------------------------------------------------------------------------------------------------------------------
Total $ $ $
- - - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company and the Subsidiary Guarantors have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
The Notes are being offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to approval of
certain legal matters by Cahill Gordon & Reindel, counsel for the Underwriters,
and certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the Notes will be made against payment therefor on or
about , 1996, at the offices of J.P. Morgan Securities Inc., 60 Wall
Street, New York, New York.
J.P. MORGAN & CO.
ALLEN & COMPANY
INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
, 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Company or by any of the Underwriters. This Prospectus does
not constitute an offer to sell, or a solicitation of an offer to buy, the Notes
in any jurisdiction to any person to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the date hereof.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information........................... 3
Prospectus Summary.............................. 4
Risk Factors.................................... 15
The Phipps Acquisition, the KTVE Sale
and the Financing........................... 21
Capitalization.................................. 24
Pro Forma Financial Data........................ 25
Selected Historical Financial Data.............. 31
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 33
<CAPTION>
PAGE
<S> <C>
Business........................................ 43
Management...................................... 69
Security Ownership of Certain Beneficial
Owners and Management....................... 75
Certain Relationships and Related Transactions.. 76
Description of Certain Indebtedness............. 78
Description of the Notes........................ 79
Underwriting.................................... 100
Legal Matters................................... 100
Experts......................................... 100
Index to Consolidated Financial Statements...... F-1
</TABLE>
2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act. This Prospectus does not contain all of
the information set forth in the Registration Statement and the schedules and
exhibits thereto. For further information with respect to the Company and the
Notes, reference is hereby made to the Registration Statement and to the
schedules and exhibits thereto. Statements contained in this Prospectus as to
the contents of any contract or other document referred to herein are not
necessarily complete and where such contract or other document is an exhibit to
the Registration Statement, each such statement is qualified in all respects by
the provisions of such exhibit, to which reference is hereby made for a full
statement of the provisions thereof.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such Registration Statements, reports, proxy statements and other
information filed by the Company with the Commission may be inspected and copied
at the public reference facilities of the Commission at its principal office at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Commission's regional offices at Seven World Trade Center, 13th Floor,
New York, New York 10048 and at Room 3190, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60061. Copies of each such document may be
obtained at prescribed rates from the Public Reference Section of the Commission
at its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. The Company is required under the terms of the Indenture to furnish
the holders of the Notes with copies of the annual reports and other reports and
information required by Sections 13 and 15(d) of the Exchange Act for so long as
any Notes remain outstanding.
The Company currently has outstanding Class A common stock, no par value (the
"Class A Common Stock"), which is listed on the New York Stock Exchange (the
"NYSE"). Reports, proxy statements and other information concerning the Company
can be inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005. Prior to the closing of the Concurrent Offering, the Company intends to
amend its Articles of Incorporation in order to provide that holders of the
Class B Common Stock will be entitled to one vote per share and holders of the
Class A Common Stock will be entitled to 10 votes per share.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING INFORMATION IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED HEREIN, UNLESS THE CONTEXT
OTHERWISE REQUIRES, THE "COMPANY" MEANS GRAY COMMUNICATIONS SYSTEMS, INC. AND
ITS SUBSIDIARIES. THE COMPANY HAS NOT YET CONSUMMATED THE PHIPPS ACQUISITION OR
THE KTVE SALE (AS DEFINED). HOWEVER, EXCEPT WITH RESPECT TO HISTORICAL FINANCIAL
STATEMENTS AND UNLESS THE CONTEXT INDICATES OTHERWISE, THE PHIPPS BUSINESS (AS
DEFINED) IS INCLUDED IN, AND KTVE (AS DEFINED) IS EXCLUDED FROM, THE DESCRIPTION
OF THE COMPANY. SEE "THE PHIPPS ACQUISITION, THE KTVE SALE AND THE FINANCING."
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION GRANTED BY THE COMPANY TO THE UNDERWRITERS
IN THE CONCURRENT OFFERING IS NOT EXERCISED. ALL INFORMATION IN THIS PROSPECTUS
HAS BEEN ADJUSTED TO GIVE EFFECT TO A 3-FOR-2 SPLIT OF THE CLASS A COMMON STOCK,
EFFECTED IN THE FORM OF A STOCK DIVIDEND DECLARED ON OCTOBER 2, 1995. UNLESS
OTHERWISE INDICATED, ALL STATION RANK, IN-MARKET SHARE AND TELEVISION HOUSEHOLD
DATA IN THIS PROSPECTUS ARE DERIVED FROM THE NIELSEN STATION INDEX, VIEWERS IN
PROFILE, DATED NOVEMBER 1995, AS PREPARED BY A.C. NIELSEN COMPANY ("NIELSEN").
THE COMPANY
The Company owns and operates seven network-affiliated television stations in
medium-size markets in the southeastern United States, six of which are ranked
number one in their respective markets. Five of the stations are affiliated with
the CBS Television Network, a division of CBS, Inc. ("CBS") and two are
affiliated with the NBC Television Network, a division of the National
Broadcasting Company, Incorporated ("NBC"). The Company also owns and operates
three daily newspapers, two weekly, advertising only publications ("shoppers"),
and a paging business, all located in the Southeast. The Company derives
significant operating advantages and cost saving synergies through the size of
its television station group and the regional focus of its television and
publishing operations. These advantages and synergies include (i) sharing
television production facilities, equipment and regionally oriented programming,
(ii) the ability to purchase television programming for the group as a whole,
(iii) negotiating network affiliation agreements on a group basis and (iv)
purchasing newsprint and other supplies in bulk. In addition, the Company
believes that its regional focus can provide advertisers with an efficient
network through which to advertise in the fast-growing Southeast.
In 1993, after the acquisition of a large block of Class A Common Stock by a new
investor, the Company implemented a strategy to foster growth through strategic
acquisitions. Since 1994, the Company's significant acquisitions have included
three television stations and two newspapers, all located in the Southeast. As a
result of the Company's acquisitions and in support of its growth strategy, the
Company has added certain key members of management and has greatly expanded its
operations in the television broadcasting and newspaper publishing businesses.
In January 1996, the Company acquired (the "Augusta Acquisition") WRDW-TV
("WRDW"), a CBS affiliate serving Augusta, Georgia (the "Augusta Business"). In
December 1995, the Company entered into an asset purchase agreement to acquire
(the "Phipps Acquisition") two CBS-affiliated stations, WCTV-TV ("WCTV") serving
Tallahassee, Florida/Thomasville, Georgia and WKXT-TV ("WKXT") in Knoxville,
Tennessee, a satellite broadcasting business and a paging business
(collectively, the "Phipps Business"). The Company believes that the Phipps
Acquisition will further enhance the Company's position as a major regional
television broadcaster and is highly attractive for a number of reasons,
including (i) the stations' strategic fit in the Southeast, (ii) WCTV's leading
station market position and WKXT's significant growth potential, (iii) strong
station broadcast cash flows, (iv) opportunities for revenue growth utilizing
the Company's extensive management expertise with medium-size stations and (v)
opportunities for synergies between WCTV and WKXT and the Company's existing
stations with regard to revenue enhancement and cost controls. The consummation
of the Phipps Acquisition is currently expected to occur by September 1996.
In March 1996, the Company entered into a non-binding letter of intent to sell
(the "KTVE Sale") KTVE-TV ("KTVE") serving Monroe, Louisiana/El Dorado, Arkansas
for approximately $9.5 million in cash plus the amount of the accounts
receivable on the date of the closing, which is expected to occur by September
1996.
For the year ended December 31, 1995, on a pro forma basis, the Company had net
revenues, Media Cash Flow (the sum of broadcast cash flow, publishing cash flow
and paging cash flow) and operating cash flow of
4
<PAGE>
$90.6 million, $30.3 million and $28.1 million, respectively, of which 70.5%,
87.9% and 94.9% were broadcast related. Furthermore, net revenues, Media Cash
Flow and operating cash flow on a pro forma basis for the year ended December
31, 1995 increased 148.2%, 188.4% and 227.8%, respectively, from the historical
amounts for the year ended December 31, 1994.
The following table sets forth certain information for each of the Company's
television stations.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1995
-----------------------
PRO FORMA
IN-MARKET PERCENTAGE
STATION SHARE NET OF
RANK OF REVENUES COMPANY
NETWORK YEAR DMA CHANNEL/ IN HOUSEHOLDS (IN NET
STATION AFFILIATION MARKET ACQUIRED RANK(1) FREQUENCY DMA(2) VIEWING TV THOUSANDS) REVENUES(3)
- - - -------- ------------ ---------------- -------- ------- ---------- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WKYT CBS Lexington, KY 1994 68 27/UHF(4) 1 33% $15,553 17.2%
WYMT CBS Hazard, KY 1994 68 57/UHF(4) 1(5) 24 3,721 4.1
WRDW CBS Augusta, GA 1996 111 12/VHF 1 36 8,888 9.8
WALB (6) NBC Albany, GA 1954 152 10/VHF 1 80 9,445 10.4
WJHG (6) NBC Panama City, FL 1960 159 7/VHF 1 53 3,843 4.3
PHIPPS ACQUISITION
WKXT CBS Knoxville, TN 62 8/VHF 3 22 9,269 10.2
WCTV CBS Tallahassee, FL/ 116 6/VHF 1 60 11,862 13.1
Thomasville, GA
</TABLE>
- - - ------------------------------
(1) Ranking of designated market area as defined by Nielsen ("DMA") served by a
station among all DMAs is measured by the number of television households
within the DMA based on the November 1995 Nielsen estimates.
(2) Represents station rank in DMA as determined by November 1995 Nielsen
estimates of the number of television sets tuned to the Company's station
as a percentage of the number of television stations in use in the market
for the Sunday through Saturday 6 a.m. to 2 a.m. time period.
(3) Pro forma percentage of Company net revenues after giving effect to the
Augusta Acquisition, the KTVE Sale and the Phipps Acquisition.
(4) All stations in the market are UHF stations.
(5) The market area served by WYMT is an 18-county trading area, as defined by
Nielsen, and is included in the Lexington, Kentucky DMA. WYMT's station
rank is based upon its position in the 18-county trading area.
(6) The Company will be required to divest WALB and WJHG in connection with the
Phipps Acquisition under current Federal Communications Commission ("FCC")
regulations. For a discussion of the Company's plans, see "Risk Factors-FCC
Divestiture Requirement" and "The Phipps Acquisition, the KTVE Sale and the
Financing."
The Company's three newspapers, THE ALBANY HERALD, THE ROCKDALE CITIZEN and the
GWINNETT DAILY POST and two shoppers, had net revenues of $21.9 million for the
year ended December 31, 1995 and represented 24.1% of the Company's pro forma
net revenues for such year. The satellite broadcasting business and paging
business, which are a part of the Phipps Business, represented 1.4% and 5.4%,
respectively, of the Company's pro forma net revenues for the year ended
December 31, 1995.
BUSINESS STRATEGY
The Company's business strategy includes the following key elements:
- STRONG LOCAL PRESENCE. Each of the Company's television stations seeks
to achieve a distinct identity through its emphasis on local programming. A
key objective is to build audience loyalty through the development of a
strong local news franchise. Strong local news generates high viewership and
results in higher ratings both for programs preceding and following the
news, which increases revenues and Media Cash Flow.
- REGIONAL FOCUS. The Company believes its regional focus has competitive
advantages, including the ability to purchase and produce programming that
can be used by multiple Company-owned stations as well as the opportunity to
sell advertising on multiple stations as a single buy. In addition, the
proximity of the Company's operations allows the sharing of equipment,
management and marketing expertise.
- TARGETED MARKETING. The Company seeks to increase its advertising
revenues and Media Cash Flow by expanding existing relationships with local
and national advertisers and by attracting new advertisers through targeted
marketing techniques and carefully tailored programming. The Company works
closely with advertisers to develop advertising campaigns that match
specifically targeted audience segments including sponsoring and staging
various special events such as fishing tournaments, boat shows and bridal
expositions.
5
<PAGE>
- COST CONTROLS. Through its strategic planning and annual budgeting
processes, the Company continually seeks to identify and implement cost
savings opportunities at each of its stations and publications in order to
increase Media Cash Flow. The Company's ownership of multiple stations and
publications also benefits each operation in negotiating favorable terms
with programming syndicators, newsprint suppliers, national sales
representatives and other vendors.
- SELECTIVE ACQUISITIONS. The Company has focused on acquiring television
stations where the Company believes there is the potential for improvements
in revenue share, audience share and cost control. The Company focuses on
southeastern markets of medium size because the Company believes these
markets offer superior opportunities in terms of projected population and
economic growth, leading to higher advertising and circulation revenues. In
assessing acquisitions, the Company targets stations and publications where
it sees specific opportunities for revenue enhancement while controlling
expenditures, utilizing management's significant experience with local and
national advertising sales and in operating similar businesses. In
appropriate circumstances, the Company will dispose of assets that it deems
non-essential to its operating or growth strategy.
THE PHIPPS ACQUISITION, THE KTVE SALE AND THE FINANCING
The Company has entered into an agreement to acquire WCTV and WKXT, a satellite
broadcasting business and a paging business in the Southeast. The purchase price
for the Phipps Acquisition is approximately $185 million, including fees,
expenses and working capital and other adjustments. The consummation of the
Phipps Acquisition is expected to occur by September 1996.
The Company has entered into a non-binding letter of intent to sell KTVE for
approximately $9.5 million in cash plus the amount of the accounts receivable on
the date of the closing (estimated to be approximately $750,000), to the extent
collected by the buyer, to be paid to the Company within 150 days following the
date of closing. The closing of the KTVE Sale is expected to occur by September
1996. For the year ended December 31, 1995, KTVE had net revenues and Media Cash
Flow of $4.2 million and $916,000, respectively. See "Risk Factors-Possible Non-
Consummation of the KTVE Sale."
In addition to the consummation of the Phipps Acquisition and the KTVE Sale, the
Company intends to implement a financing plan (the "Financing") to increase
liquidity and improve operating and financial flexibility. Pursuant to the
Financing, the Company will (i) repay approximately $38.8 million aggregate
principal amount of outstanding indebtedness under its senior secured bank
credit facility (the "Senior Credit Facility"), together with accrued interest
thereon and to revise the terms thereof, (ii) issue $10 million liquidation
preference of its Series A preferred stock (the "Series A Preferred Stock") in
exchange for its outstanding $10 million aggregate principal amount 8%
subordinated note (the "8% Note") issued to Bull Run Corporation ("Bull Run"), a
principal shareholder of the Company, (iii) issue to certain affiliates $10
million liquidation preference of its Series B preferred stock (the "Series B
Preferred Stock" and together with the Series A Preferred Stock, the "Preferred
Stock") with warrants to purchase up to shares representing 11.3% of the
outstanding Class A Common Stock for cash proceeds of $10 million and (iv)
revise the terms of its $25.0 million principal amount senior note due 2003 (the
"Senior Note"). The cash required for the consummation of the Phipps
Acquisition, the repayment of indebtedness and related transaction costs will be
provided by the net proceeds of this Offering, the Concurrent Offering, the sale
of the Series B Preferred Stock and the warrants and the KTVE Sale. For a
description of the Senior Credit Facility, the Senior Note and the Preferred
Stock, see "Description of Certain Indebtedness" and "Certain Relationships and
Related Transactions-Issuances of Preferred Stock." The consummation of this
Offering is conditioned upon the consummation of the Financing and the
Concurrent Offering but is not conditioned upon the consummation of the Phipps
Acquisition or the KTVE Sale. However, the Notes are subject to a mandatory
redemption on the Special Redemption Date at the Special Redemption Price if the
Phipps Acquisition is not consummated prior to , 1996. See "Description
of the Notes-Redemption-Special Redemption."
6
<PAGE>
The following table sets forth the estimated sources and uses of funds relating
to the KTVE Sale, the Phipps Acquisition and the Financing:
SOURCES OF FUNDS:
<TABLE>
<CAPTION>
----------
(IN MILLIONS) AMOUNT
----------
<S> <C>
The Notes offered hereby $150.0
The Concurrent Offering 66.5
Sale of Series B Preferred Stock and Warrants 10.0
The KTVE Sale 9.5
----------
Total $236.0
----------
----------
</TABLE>
USES OF FUNDS:
<TABLE>
<CAPTION>
----------
(IN MILLIONS) AMOUNT
----------
<S> <C>
Consummation of Phipps Acquisition $185.0
Repay indebtedness under the Senior Credit Facility (1) 38.8
Fees and expenses (2) 12.2
----------
Total $236.0
----------
----------
</TABLE>
- - - ------------------------------
(1) Borrowings under the Senior Credit Facility bear interest at formula rates
based upon the applicable London inter-bank offered rate ("LIBOR") or prime
rate at the time of borrowing plus a fixed spread and have a final maturity
of 2003.
(2) Fees and expenses include underwriting costs for the Notes and the
Concurrent Offering, fees payable in connection with the amendment of the
Senior Credit Facility and legal, accounting and other transaction fees.
Does not include estimated taxes of $2.8 million with respect to the KTVE
Sale.
THE OFFERING
<TABLE>
<S> <C>
SECURITIES OFFERED.......................... $150,000,000 aggregate principal amount of %
Senior Subordinated Notes due 2006.
MATURITY DATE............................... , 2006.
INTEREST PAYMENT DATES...................... and , commencing , 1996.
SPECIAL REDEMPTION BY THE COMPANY........... If the Phipps Acquisition is not consummated
prior to , 1996, the Company will be
required to redeem (the "Special Redemption")
the Notes on or prior to , 1996 (the
"Special Redemption Date") at a redemption
price (the "Special Redemption Price") equal
to 101% of the principal amount of the Notes
plus accrued and unpaid interest to the
Special Redemption Date. At any time prior to
, 1996, if the Phipps Acquisition
has not been consummated, the Company may, at
its option, redeem the Notes, in whole but not
in part, at a redemption price equal to 101%
of the principal amount thereof plus accrued
and unpaid interest to the date fixed for
redemption. Prior to the consummation of the
Phipps Acquisition, the net proceeds of this
Offering, together with an amount sufficient
to permit the Company to redeem the Notes on
the Special Redemption Date at the Special
Redemption Price, will be held by and pledged
to the Trustee for the benefit of the holders
of the Notes and the obligation of the Company
to consummate the Special Redemption will be
secured by such funds (the "Trust Funds").
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
OPTIONAL REDEMPTION BY THE COMPANY.......... The Notes will be redeemable, in whole or in
part, at the option of the Company at any time
on or after , 2001, at the
redemption prices set forth herein, plus
accrued and unpaid interest to the date fixed
for redemption. In addition, at any time prior
to , 1999, the Company, at its
option, may redeem up to 35% of the aggregate
principal amount of the Notes originally
issued with the cash proceeds received by the
Company from one or more Public Equity
Offerings, other than the Concurrent Offering,
at any time or from time to time, at a
redemption price equal to % of the principal
amount thereof, plus accrued and unpaid
interest to the date fixed for redemption;
PROVIDED, HOWEVER, that at least $97.5 million
in aggregate principal amount of the Notes
remain outstanding immediately after any such
redemption.
CHANGE OF CONTROL OFFER..................... Upon a Change of Control, the Company has the
obligation to offer to purchase all the
outstanding Notes at a price equal to 101% of
the principal amount thereof, plus accrued and
unpaid interest to the date of purchase.
OFFERS TO PURCHASE.......................... In the event of certain asset sales, the
Company will be required to offer to
repurchase the Notes at 100% of their
principal amount plus accrued and unpaid
interest, if any, to the date of repurchase
with the net proceeds of such asset sales.
SUBORDINATION............................... The Notes will be general unsecured
obligations of the Company and will be
subordinated in right of payment to all
existing and future Senior Debt of the
Company, including all indebtedness of the
Company under the Senior Credit Facility. As
of December 31, 1995, on a pro forma basis
after giving effect to this Offering, the
Concurrent Offering, and the application of
the net proceeds therefrom, and to the Augusta
Acquisition, the KTVE Sale, the Financing and
the Phipps Acquisition, the Company would have
had approximately $39.3 million of Senior Debt
outstanding.
SUBSIDIARY GUARANTEES....................... The Notes will be guaranteed, jointly and
severally, fully and unconditionally, on a
senior subordinated basis by the Subsidiary
Guarantors (the "Subsidiary Guarantees"). The
obligations of any Subsidiary Guarantor with
respect to its Subsidiary Guarantee will be
subordinated in right of payment, to the same
extent as the obligations of the Company in
respect of the Notes, to all existing and
future Guarantor Senior Debt of such
Subsidiary Guarantor, which will include any
guarantee by such Subsidiary Guarantor of the
Company's indebtedness under the Senior Credit
Facility.
PRINCIPAL COVENANTS......................... The Indenture for the Notes (the "Indenture")
will impose certain limitations on the ability
of the Company and its subsidiaries to, among
other things, incur additional indebtedness,
pay dividends or make certain other
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
restricted payments, consummate certain asset
sales, enter into certain transactions with
affiliates, incur indebtedness that is
subordinate in right of payment to any Senior
Debt or Guarantor Senior Debt and senior in
right of payment to the Notes or any
Subsidiary Guarantee, incur liens, impose
restrictions on the ability of a subsidiary to
pay dividends or make certain payments to the
Company, merge or consolidate with any other
person or sell, assign, transfer, lease,
convey or otherwise dispose of all or
substantially all of the assets of the
Company.
USE OF PROCEEDS............................. The Company intends to use the proceeds from
the sale of the Notes, together with the
proceeds of the Concurrent Offering and the
other proceeds of the Financing and the KTVE
Sale, to (i) consummate the Phipps
Acquisition, (ii) repay indebtedness under the
Senior Credit Facility and (iii) pay related
fees and expenses. However, in the event the
Phipps Acquisition is not consummated prior to
, 1996, the Company will be
obligated to redeem the Notes. See "The Phipps
Acquisition, the KTVE Sale and the Financing"
and "Description of the
Notes-Redemption-Special Redemption."
</TABLE>
RISK FACTORS
See "Risk Factors" for a discussion of certain information that should be
considered by prospective investors.
RECENT DEVELOPMENTS
The Company recently reported that its revenues for the quarter ended March 31,
1996 increased to $17.0 million, or 29%, from $13.2 million for the year earlier
quarter. The Company's operating income for the quarter ended March 31, 1996
increased to $2.7 million, or 34%, from $2.0 million for the year earlier
quarter. The Company's net income for the quarter ended March 31, 1996 decreased
to $355,000, or $0.08 per share, from $404,000, or $0.09 per share, for the year
earlier quarter. The increase in revenues was attributable to (i) the inclusion
in 1996 of the operations of WRDW, which was acquired by the Company in January
1996, (ii) increases in broadcast revenue attributable to local and political
advertising and a sports programming joint venture which covered the University
of Kentucky's NCAA basketball championship and (iii) increases in the newspaper
operations' classified advertising, circulation and special events revenue. Net
income was adversely affected by interest expense which increased to $2.1
million, or 57%, for the quarter ended March 31, 1996, from $1.4 million for the
quarter ended March 31, 1995, primarily as a result of additional indebtedness
incurred in connection with the Augusta Acquisition.
------------------------
The Company was incorporated in Georgia in 1897. The principal executive offices
of the Company are located at 126 North Washington Street, Albany, Georgia
31701, telephone number (912) 888-9390.
9
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA
The following table sets forth (i) unaudited condensed consolidated historical
financial information of the Company and certain data derived therefrom and (ii)
unaudited condensed pro forma combined financial information of the Company and
certain data derived therefrom. The unaudited condensed pro forma combined
financial statements of the Company give effect to the Augusta Acquisition, the
KTVE Sale, the Concurrent Offering, the Phipps Acquisition, the Financing and
this Offering as if such transactions had occurred as of January 1, 1995 with
respect to the statement of operations and data derived therefrom for the year
ended December 31, 1995 and as of December 31, 1995 with respect to the balance
sheet data.
The Augusta Acquisition and the Phipps Acquisition are reflected using the
purchase method of accounting for business combinations. The pro forma financial
information is provided for comparative purposes only and does not purport to be
indicative of the results that actually would have been obtained if the events
set forth above had been effected on the dates indicated or of those results
that may be obtained in the future. The pro forma financial statements are based
on preliminary estimates of values and transaction costs. The actual recording
of the transactions will be based on final appraisals, values and transaction
costs. Accordingly, the actual recording of the transactions can be expected to
differ from these pro forma financial statements.
<TABLE>
<CAPTION>
---------------------
YEAR ENDED DECEMBER
31, 1995
---------------------
HISTORICAL PRO FORMA
(IN THOUSANDS EXCEPT RATIOS AND PER SHARE DATA) COMPANY COMBINED
--------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Broadcasting (less agency commissions) $ 36,750 $ 63,874
Publishing 21,866 21,866
Paging -- 4,897
--------- ----------
Total revenues 58,616 90,637
Total expenses 51,756 75,496
--------- ----------
Operating income 6,860 15,141
Miscellaneous income (expense), net 143 36
--------- ----------
Income before interest expense and income taxes 7,003 15,177
Interest expense 5,438 21,131
--------- ----------
Income (loss) before income taxes 1,565 (5,954)
Income tax expense (benefit) 634 (2,018)
--------- ----------
Net income (loss) 931 (3,936)
Preferred stock dividends -- 1,400
--------- ----------
Net income (loss) available to common stockholders $ 931 $ (5,336)
--------- ----------
--------- ----------
Average shares outstanding 4,481 7,854
--------- ----------
Earnings (loss) per common share $ 0.21 $ (0.68)
--------- ----------
--------- ----------
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficiency) $ (221) $ 2,633
Total assets 78,240 301,400
Total debt 54,325 189,253
Total stockholders' equity $ 8,986 $ 92,612
OTHER DATA:
Media Cash Flow (1) $ 15,559 $ 30,345
Operating cash flow (2) 13,309 28,094
EBITDA (3) 13,140 28,134
Capital expenditures $ 3,280 $ 6,390
Ratio of Media Cash Flow to interest expense 2.9 1.4
Ratio of operating cash flow to interest expense 2.4 1.3
Ratio of total debt to Media Cash Flow 3.5 6.2
Ratio of total debt to operating cash flow 4.1 6.7
Ratio of earnings to fixed charges (4) 1.3 --
</TABLE>
- - - ------------------------------
(1) Media Cash Flow represents operating income plus depreciation and
amortization (including amortization of program license rights), non-cash
compensation and corporate overhead, less payments of program license
liabilities.
(2) Operating cash flow represents operating income plus depreciation,
amortization (including amortization of program license rights) and non-cash
compensation less payments for program license liabilities.
10
<PAGE>
(3) EBITDA represents operating income plus (i) depreciation and amortization
(excluding amortization of program license rights) and (ii) non-cash
compensation paid in common stock (excluding such payments made to the
401(k) plan). EBITDA is presented not as a measure of operating results, but
rather to provide additional information related to the Company's ability to
service debt. EBITDA should not be considered as an alternative to either
(x) operating income determined in accordance with generally accepted
accounting principles ("GAAP") as an indicator of operating performance or
(y) cash flows from operating activities (determined in accordance with
GAAP) as a measure of liquidity.
(4) For purposes of this item "fixed charges" represent interest, the interest
element of rental expense, capitalized interest and amortization of debt
issuance costs and "earnings" represent net income (loss) before income
taxes, discontinued operations, extraordinary items, cumulative effect of
change in accounting principles and fixed charges. Pro forma combined
earnings would be insufficient to cover fixed charges by $6 million.
11
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
GRAY COMMUNICATIONS SYSTEMS, INC. AND SUBSIDIARIES
Set forth below are certain selected historical consolidated financial data of
the Company. This information should be read in conjunction with the
consolidated financial statements of the Company and related notes thereto
appearing elsewhere herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Results of Operations of the
Company." The selected consolidated financial data for, and as of the end of,
each of the years in the four-year period ended December 31, 1995 are derived
from the audited consolidated financial statements of the Company. The selected
consolidated financial data for, and as of the year ended December 31, 1991 are
derived from unaudited financial statements since the Company had a June 30
fiscal year end.
<TABLE>
<CAPTION>
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
(IN THOUSANDS EXCEPT RATIOS AND PER SHARE DATA) 1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues:
Broadcasting (less agency commissions) $13,553 $15,131 $15,004 $22,826 $36,750
Publishing 8,968 9,512 10,109 13,692 21,866
----------- ----------- ----------- ----------- -----------
Total revenues 22,521 24,643 25,113 36,518 58,616
Expenses:
Broadcasting 9,672 9,753 10,029 14,864 23,202
Publishing 6,444 6,752 7,662 11,198 20,016
Corporate and administrative 1,889 2,627 2,326 1,959 2,258
Depreciation 1,487 1,197 1,388 1,745 2,633
Amortization of intangible assets 14 44 177 396 1,326
Non-cash compensation paid in common stock -- -- -- 80 2,321
----------- ----------- ----------- ----------- -----------
Total expenses 19,506 20,373 21,582 30,242 51,756
----------- ----------- ----------- ----------- -----------
Operating income 3,015 4,270 3,531 6,276 6,860
Miscellaneous income (expense), net 778 (1,519) 202 189 143
----------- ----------- ----------- ----------- -----------
Income from continuing operations before interest 3,793 2,751 3,733 6,465 7,003
expense and income taxes
Interest expense 787 1,486 985 1,923 5,438
----------- ----------- ----------- ----------- -----------
Income from continuing operations before income taxes 3,006 1,265 2,748 4,542 1,565
Income tax expense 1,156 869 1,068 1,776 634
----------- ----------- ----------- ----------- -----------
Income from continuing operations 1,850 396 1,680 2,766 931
Discontinued business:
Income (loss) from operations of discontinued (90) (129) 48 -- --
business, net of applicable income tax expense
(benefit) of ($55), ($79) and $30, respectively
Gain on disposal of discontinued business, net of -- -- 818 -- --
applicable income tax expense of $501
----------- ----------- ----------- ----------- -----------
Net income $1,760 $267 $2,546 $2,766 $931
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficiency) $6,740 $2,976 $2,579 $1,075 $(221)
Total assets 31,548 24,173 21,372 68,789 78,240
Total debt 20,378 12,412 7,759 52,940 54,325
Total stockholders' equity $5,853 $4,850 $7,118 $5,001 $8,986
OTHER DATA:
Media Cash Flow (1) $6,405 $8,079 $7,371 $10,522 $15,559
Operating cash flow (2) 4,516 5,452 5,044 8,567 13,309
EBITDA (3) 4,516 5,512 5,095 8,498 13,140
Capital expenditures $2,235 $2,216 $2,582 $1,768 $3,280
Ratio of Media Cash Flow to interest expense 8.1 5.4 7.5 5.5 2.9
Ratio of operating cash flow to interest expense 5.7 3.7 5.1 4.5 2.4
Ratio of total debt to Media Cash Flow 3.2 1.5 1.1 5.0 3.5
Ratio of total debt to operating cash flow 4.5 2.3 1.5 6.2 4.1
Ratio of earnings to fixed charges (4) 4.7 1.8 3.4 3.1 1.3
</TABLE>
- - - ------------------------------
(1) Media Cash Flow represents operating income plus depreciation and
amortization (including amortization of program license rights), non-cash
compensation and corporate overhead, less payments of program license
liabilities.
(2) Operating cash flow represents operating income plus depreciation,
amortization (including amortization of program license rights) and non-
cash compensation less payments for program license liabilities.
12
<PAGE>
(3) EBITDA represents operating income plus (i) depreciation and amortization
(excluding amortization of program license rights) and (ii) non-cash
compensation paid in common stock (excluding such payments made to the
401(k) plan). EBITDA is presented not as a measure of operating results,
but rather to provide additional information related to the Company's
ability to service debt. EBITDA should not be considered as an alternative
to either (x) operating income determined in accordance with GAAP as an
indicator of operating performance or (y) cash flows from operating
activities (determined in accordance with GAAP) as a measure of liquidity.
(4) For purposes of this item, "fixed charges" represent interest, the interest
element of rental expense, capitalized interest and amortization of debt
issuance costs and "earnings" represent net income (loss) before income
taxes, discontinued operations, extraordinary items, cumulative effect of
change in accounting principles and fixed charges.
13
<PAGE>
THE PHIPPS BUSINESS
Set forth below are certain selected historical financial data of the Phipps
Business. This information should be read in conjunction with the Financial
Statements of the Phipps Business and related notes thereto appearing elsewhere
herein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Results of Operations of the Phipps Business." The
selected financial data for, and as of the end of, each of the years in the
three-year period ended December 31, 1995 are derived from the audited financial
statements of the Phipps Business. The selected financial data for, and as of
the end of, each of the years ended December 31, 1991 and 1992 are derived from
the unaudited accounting records of the Phipps Business.
<TABLE>
<CAPTION>
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
(IN THOUSANDS EXCEPT RATIOS) 1991 1992(1) 1993 1994 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA: (unaudited)
Operating revenues:
Broadcasting (less agency commission) $10,492 $14,523 $19,460 $21,524 $22,424
Paging 3,369 3,646 3,788 4,277 4,897
------------ ------------ ------------ ------------ ------------
Total revenues 13,861 18,169 23,248 25,801 27,321
Expenses:
Broadcasting 5,298 7,518 10,734 10,211 10,487
Paging 2,356 2,298 2,529 2,764 3,052
Management fee 579 973 2,462 2,486 3,280
Depreciation and amortization 1,513 1,734 2,836 2,672 3,120
------------ ------------ ------------ ------------ ------------
Total expenses 9,746 12,523 18,561 18,133 19,939
------------ ------------ ------------ ------------ ------------
Operating income 4,115 5,646 4,687 7,668 7,382
Miscellaneous income (expense), net 5 8 16 666 12
------------ ------------ ------------ ------------ ------------
Income before interest expense and minority
interests 4,120 5,654 4,703 8,334 7,394
Interest expense 162 442 632 480 499
------------ ------------ ------------ ------------ ------------
Income before minority interests 3,958 5,212 4,071 7,854 6,895
Minority interests -- 331 140 635 547
------------ ------------ ------------ ------------ ------------
Net income $ 3,958 $ 4,881 $ 3,931 $ 7,219 $ 6,348
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Supplemental unaudited pro forma information:
(2)
Net income, as above $ 3,958 $ 4,881 $ 3,931 $ 7,219 $ 6,348
Pro forma provision for income tax expense 1,504 1,855 1,500 2,743 2,413
------------ ------------ ------------ ------------ ------------
Pro forma net income $ 2,454 $ 3,026 $ 2,431 $ 4,476 $ 3,935
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital $ 595 $ 615 $ 1,127 $ 1,421 $ 2,622
Total assets 8,931 25,068 24,819 25,298 27,563
Total debt 1,388 7,697 6,542 6,065 4,810
Minority interests -- 1,154 824 728 586
Owner's equity $ 6,351 $13,276 $14,306 $15,465 $18,794
OTHER DATA:
Media Cash Flow (3) $ 6,207 $ 7,968 $10,466 $12,983 $13,696
Operating cash flow (4) 5,628 6,994 8,003 10,498 10,416
EBITDA (5) 5,627 7,380 7,523 10,340 10,502
Capital expenditures $ 1,009 $ 2,258 $ 3,538 $ 3,353 $ 3,188
</TABLE>
- - - ------------------------------
(1) Includes the acquisition of a majority interest in WKXT in July 1992, which
was accounted for using the purchase method of accounting.
(2) John H. Phipps, Inc. and its subsidiaries file a consolidated federal income
tax return and separate state tax returns. Income tax expense for the Phipps
Business is not presented in the financial statements as such amounts are
computed and paid by John H. Phipps, Inc. Pro forma federal and state income
taxes for the Phipps Business are calculated on a pro forma, separate return
basis.
(3) Media Cash Flow represents operating income plus depreciation, amortization
(including amortization of program license rights) and corporate overhead,
less payments of program license liabilities.
(4) Operating cash flow represents operating income plus depreciation and
amortization (including amortization of program license rights) less
payments for program license liabilities.
(5) EBITDA represents operating income plus depreciation and amortization
(excluding amortization of program license rights). EBITDA is presented not
as a measure of operating results, but rather to provide additional
information related to the Company's ability to service debt. EBITDA should
not be considered as an alternative to either (x) operating income
determined in accordance with GAAP as an indicator of operating performance
or (y) cash flows from operating activities (determined in accordance with
GAAP) as a measure of liquidity.
14
<PAGE>
RISK FACTORS
IN ADDITION TO CONSIDERING THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS,
PROSPECTIVE PURCHASERS OF THE NOTES SHOULD CONSIDER CAREFULLY THE FOLLOWING
FACTORS BEFORE DECIDING TO INVEST IN THE NOTES.
SUBSTANTIAL LEVERAGE. The Company will have substantial indebtedness upon the
consummation of this Offering and the Concurrent Offering. As of December 31,
1995, on a pro forma basis after giving effect to the Augusta Acquisition, the
KTVE Sale, the Concurrent Offering, the Financing, the Phipps Acquisition and
this Offering, the Company and the Subsidiary Guarantors, on a consolidated
basis, would have had outstanding $189.3 million of indebtedness, of which $39.3
million would have ranked senior to the Notes, and shareholders' equity of $92.6
million, with the ability, subject to certain limitations described herein, to
incur approximately $41.7 million of additional indebtedness pursuant to the
Senior Credit Facility, none of which could have been borrowed thereunder due to
the covenant restrictions contained in the Senior Credit Facility. As part of
the Financing and as a condition of this Offering, the Company will amend or
replace the Senior Credit Facility and the Company is currently engaged in
negotiations with certain institutional lenders with respect thereto. See
"Description of Certain Indebtedness." On a pro forma basis after giving effect
to the Augusta Acquisition, the KTVE Sale, the Concurrent Offering, the
Financing, the Phipps Acquisition and this Offering for the year ended December
31, 1995, the Company's pro forma combined earnings would have been insufficient
to cover fixed charges by $6.0 million. In addition, upon the consummation of
this Offering, the Company will issue Series A and Series B Preferred Stock
having annual dividend requirements of $800,000 and $600,000, respectively,
which in the case of the Series B Preferred Stock, may, at the option of the
Company, be paid in shares of Series B Preferred Stock. See "Certain
Relationships and Related Transactions-- Issuances of Preferred Stock."
The Company intends to pursue additional acquisitions of television stations,
publications or related businesses and, in connection therewith, may incur
substantial additional indebtedness or issue substantial additional preferred
stock.
The degree to which the Company will be leveraged could have important
consequences to holders of the Notes, including the following: (i) the Company's
ability to obtain financing in the future for working capital, capital
expenditures and general corporate purposes may be impaired; (ii) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of principal and interest on its indebtedness and the payment of cash
dividends on the Series A Preferred Stock; and (iii) a high degree of leverage
may limit the Company's ability to react to changes in the industry, make the
Company more vulnerable to economic downturns and limit its ability to withstand
competitive pressures.
The Company's ability to pay interest on the Notes and to service its other debt
and dividend obligations will depend upon its future operating performance which
will be affected by prevailing economic conditions and financial and business
factors, many of which are beyond the Company's control. If the Company cannot
generate sufficient cash flow from operations to meet its obligations, then the
Company may be required to restructure or refinance its debt, raise additional
capital or take other actions such as selling assets or reducing or delaying
capital expenditures. There can be no assurance, however, that any of such
actions could be effected on satisfactory terms, if at all, or would be
permitted by the terms of the Senior Credit Facility, the Senior Note, the
Indenture or the Company's other credit arrangements.
Certain of the Company's Senior Debt and the Notes contain restrictive covenants
that, among other things, limit the Company's ability to incur additional
indebtedness, create liens and make investments and capital expenditures. Such
Senior Debt also requires the Company to comply with certain financial ratios
and tests, under which the Company is required to achieve certain financial and
operating results. The Company's ability to meet these financial ratios and
tests may be affected by events beyond its control, and there can be no
assurance that they will be met. In the event of a default under such Senior
Debt, the lenders thereunder may terminate their lending commitments and declare
the indebtedness immediately due and payable, resulting in a default under the
Notes. As a result of the priority afforded the Senior Debt, there can be no
assurance that the Company would have sufficient assets to pay indebtedness then
outstanding thereunder and under the Notes.
SUBORDINATION OF THE NOTES. The Notes will be subordinated in right of payment
to all Senior Debt of the Company. In the event of the bankruptcy, liquidation
or reorganization of the Company, the assets of the Company will be available to
pay obligations on the Notes only after all Senior Debt has been paid in full
and sufficient assets may
15
<PAGE>
not remain to pay amounts due on any or all of the Notes then outstanding.
Similarly, the Subsidiary Guarantees will be subordinated in right of payment to
all Guarantor Senior Debt of the respective Subsidiary Guarantors. In certain
circumstances, provisions of the Senior Debt could prohibit payments of amounts
due to holders of the Notes. As of December 31, 1995, on a pro forma basis after
giving effect to the Augusta Acquisition, the KTVE Sale, the Concurrent
Offering, the Financing, the Phipps Acquisition and this Offering, the Company
and the Subsidiary Guarantors would have had Senior Debt in an aggregate amount
of approximately $39.3 million. Additional Senior Debt may be incurred by the
Company from time to time, subject to certain limitations. See "Description of
the Notes-Covenants-Limitation on Incurrence of Indebtedness."
CONSUMMATION OF THE PHIPPS ACQUISITION PRIOR TO FINAL FCC APPROVAL. If the
requisite FCC approval is obtained, the Company intends to consummate the Phipps
Acquisition prior to the time such approval becomes "final" (that is, during the
time a third party may file a petition for reconsideration of, or the FCC itself
may reconsider, such approval) and the Company may cause the Trustee to release
the proceeds of the Trust Funds (as defined) for such purpose. If any such
appeals are filed, the FCC may, under certain circumstances, reconsider its
approval of the Phipps Acquisition. If any such appeal is successful, the FCC
may impose a variety of remedies, including, among other things, requiring the
Company to divest one or both of the acquired stations.
FCC DIVESTITURE REQUIREMENT. In connection with the Phipps Acquisition, the
Company is seeking FCC approval granting the assignment of the television
broadcast licenses for WCTV, which serves Tallahassee, Florida/Thomasville,
Georgia, and WKXT, which serves Knoxville, Tennessee. The television broadcast
signal of WCTV overlaps with the Company's existing stations, WALB-TV ("WALB")
and WJHG-TV ("WJHG"). Due to such overlap, common ownership of such stations is
prohibited by current FCC regulations. Such regulations will require the Company
to divest its ownership interest in WALB and WJHG in connection with the Phipps
Acquisition. However, these rules may be revised by the FCC upon conclusion of
pending rulemaking proceedings. The Company has applied for six month waivers of
such regulations. There can be no assurance that these waivers will be granted.
Opposition to such waiver requests has been filed by a competing television
station in Panama City, Florida. If granted, the waivers will afford the Company
six months to divest WALB and WJHG following the consummation of the Phipps
Acquisition (if such divestiture is necessary in order to comply with FCC rules
in effect at the expiration of the waiver period).
In order to satisfy applicable FCC requirements, the Company, subject to FCC
approval, intends to swap such assets for assets of one or more television
stations of comparable value and with comparable broadcast cash flow in a
transaction qualifying for deferred capital gains treatment under the "like-kind
exchange" provision of Section 1033 of the Internal Revenue Code (the "Code").
If the Company is unable to effect such a swap on satisfactory terms within the
time period granted by the FCC under the waivers, the Company may transfer such
assets to a trust with a view towards the trustee effecting a swap or sale of
such assets. Any such trust arrangement would be subject to the approval of the
FCC. It is anticipated that the Company would be required to relinquish
operating control of such assets to a trustee while retaining the economic risks
and benefits of ownership. If the Company or such trust is required to effect a
sale of WALB, the Company would incur a significant gain and related tax
liability, the payment of which could have a material adverse effect on the
Company's ability to acquire comparable assets without incurring additional
indebtedness. WALB and WJHG accounted for 10.4% and 4.3%, respectively, of the
Company's pro forma total revenues and 16.8% and 1.8%, respectively, of the
Company's pro forma Media Cash Flow for the year ended December 31, 1995. No
assurance can be given that the Company will be able to identify or enter into
arrangements regarding suitable assets for a swap or sale satisfying the FCC
divestiture requirements. In addition, there can be no assurance that the
Company could effect a sale or swap on a timely basis or establish a trust on
satisfactory terms. See "Pro Forma Financial Data" and "Business-Federal
Regulation of the Company's Business."
POSSIBLE NON-CONSUMMATION OF THE PHIPPS ACQUISITION. The consummation of the
Phipps Acquisition, which is anticipated to occur by September 1996, is subject
to certain closing conditions, including receipt of FCC approval. There can be
no assurance that FCC approval will be obtained or that the other closing
conditions will be satisfied or waived. The Notes will be subject to a mandatory
redemption on the Special Redemption Date at the Special Redemption Price if the
Phipps Acquisition is not consummated prior to , 1996. See
"Description of the Notes-Redemption-Special Redemption."
POSSIBLE NON-CONSUMMATION OF THE KTVE SALE. The Company has entered into a
non-binding letter of intent with respect to the KTVE Sale and there can be no
assurance that such letter of intent will lead to a binding agreement
16
<PAGE>
relating to the KTVE Sale. Even if the Company were to enter into a binding
agreement relating to the KTVE Sale, such agreement would be subject to a number
of closing conditions, including receipt of FCC approval. There can be no
assurance that such FCC approval can be obtained or that any other closing
conditions thereto can be satisfied or waived. Neither the consummation of this
Offering nor the release of the Trust Funds is conditioned upon the KTVE Sale.
DEPENDENCE ON ADVERTISING REVENUES; EFFECT OF ECONOMIC CONDITIONS. The
television and newspaper industries are cyclical in nature and are affected by
prevailing economic conditions. Since the Company relies on sales of advertising
time at its television stations and in its publications for substantially all of
its revenues, the Company's operating results are sensitive to general economic
conditions and regional conditions in each of the local markets served by its
television stations and publications. In addition, all of the Company's stations
and publications are located in the Southeast. As a result, the Company's
results of operations may be adversely affected by recessionary economic
conditions either in the Southeast, nationally or, due to the substantial
portion of revenues derived from local advertisers, the local economies in areas
served by its television stations and publications. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
DEPENDENCE ON NETWORK AFFILIATIONS. Five of the Company's television stations
are affiliated with CBS and two are affiliated with NBC. The television
viewership levels for each of the stations are materially dependent upon
programming provided by the network with which each station is affiliated. There
can be no assurance that such programming will achieve or maintain satisfactory
viewership levels in the future. Although the Company expects to continue to be
able to renew these affiliation agreements, no assurance can be given that such
renewals will be obtained. Some of the Company's network affiliation agreements
are to be renewed during the term of the Notes. The non-renewal or termination
of one or more of the Company's stations' network affiliation agreements may
have a material adverse effect on the Company's results of operations. See
"Business-Network Affiliation of the Stations."
COMPETITIVE NATURE OF AND RISK OF CHANGES IN THE TELEVISION INDUSTRY. The
television industry is highly competitive and the Company's stations compete
with other television stations as well as other media for viewers and
advertising revenues, such as newspapers, radio stations, magazines, outdoor
advertising, transit advertising, yellow page directories, direct mail and local
cable systems. During the past decade, the entry of strong independent broadcast
stations and programming alternatives such as cable television, home satellite
delivery, home video and, more recently, direct broadcast satellite ("DBS")
television and video signals delivered over telephone lines have subjected
traditional network-affiliated television stations to new types of competition.
Competition for programming involves negotiating with national program
distributors or syndicators for exclusive rights to broadcast first-run or rerun
packages of programming in a particular DMA.
The ability of each of the Company's stations to generate advertising revenues
is dependent, to a significant degree, upon its audience ratings which, in turn,
are dependent upon successful programming. There can be no assurance that any of
the Company's stations will be able to maintain or increase its current quality
of programming, audience share or advertising revenues. To the extent that
certain of the Company's competitors have, or may in the future obtain, greater
resources than the Company, the Company's ability to compete successfully in its
broadcasting markets may be impeded. See "Business-Competition."
Further advances in technology and changes in the regulatory climate may
increase competition for household audiences, programs and advertisers. In
addition, the Warner Brothers Network ("WB") and the United Paramount Network
("UPN") recently have begun operations. Video compression technology currently
under development, as well as other technological developments, have the
potential to provide vastly expanded programming to highly targeted audiences.
In addition, competition in the television industry in the future may come from
interactive video and data services that may provide two-way interaction. The
Company is unable to predict the effect that these or other technological
changes will have on the television industry or the future results of the
Company's operations.
The FCC has proposed the adoption of rules for implementing advanced (including
high-definition television or HDTV) television service ("ATV") in the United
States. Implementation of ATV will improve the technical quality of television.
Under certain circumstances, however, conversion to ATV operations may reduce a
station's geographical coverage area. While implementation of ATV will impose
additional costs on the Company's television stations providing the new service
primarily due to increased equipment costs, there is a potential for increased
revenues. On July 26, 1995, the FCC announced the issuance of a Note of Proposed
Rule Making ("NPRM") to invite comment
17
<PAGE>
on a broad range of issues related to the implementation of ATV, particularly
the transition to digital broadcasting. The FCC also stated that the NPRM would
be followed by two additional proceedings and that a Final Report and Order
which will launch the ATV system is anticipated sometime in 1997.
The Company cannot predict how the combination of business, regulatory and
technological change will affect the broadcast industry or the Company's results
of operations. See "Business-Federal Regulation of the Company's Business."
COMPETITIVE NATURE OF THE NEWSPAPER INDUSTRY. Revenue in the newspaper industry
is derived primarily from advertising revenue and paid circulation. Competition
for advertising and circulation revenue comes from local and regional
newspapers, radio, broadcast and cable television, direct mail and other
communications and advertising media. The extent and nature of such competition
is in large part determined by the demographics and location of the markets and
the media alternatives in those markets. To the extent that certain of the
Company's competitors have, or may in the future obtain, greater resources than
the Company, the Company's ability to compete successfully in its publishing
markets may be impeded. See "Business-Competition."
The newspaper industry requires the availability of significant quantities of
newsprint. The variability of newsprint costs in recent years has been a
material factor in the profitability of the newspaper industry generally and has
affected the results of the Company's newspaper operations.
REGULATORY MATTERS. The broadcasting and paging industries are subject to
regulation by the FCC under the Communications Act of 1934, as amended (the
"Communications Act") and the Telecommunications Act of 1996 (the
"Telecommunications Act"). Approval by the FCC is required for the issuance,
renewal, transfer or assignment of television station operating licenses. In
particular, the Company's television business is dependent upon its continuing
ability to hold television broadcast licenses from the FCC, which generally are
issued for five-year terms. However, the Telecommunications Act now directs the
FCC to extend the term of television broadcast licenses to eight years for
license applications filed after May 1, 1995. The Company's existing television
station licenses expire between 1997 and 1999. Although in the vast majority of
cases such licenses are renewed by the FCC, there can be no assurance that any
of the Company's television broadcast licenses will be renewed at their
expiration dates for the full terms or at all. The non-renewal or limitation of
one or more of the Company's television broadcast licenses could have a material
adverse effect on the Company. The Telecommunications Act also addresses a wide
variety of matters (including technological changes) that affect the operation
and ownership of the Company's television stations. The Telecommunications Act
eliminates the restrictions on the number of television stations an entity may
own, operate or control and increases the national audience reach limitations to
35%. The FCC has been directed to adopt rules relating to the retention,
modification or elimination of local ownership limitations and spectrum
flexibility, including how to establish and collect fees from broadcasters for
the implementation of ancillary and supplementary services.
The FCC has been directed to revise its rules to permit cross-ownership
interests between a broadcast network and a cable system, and if necessary, to
revise its rules to ensure carriage, channel positioning and non-discriminatory
treatment of non-affiliated broadcast stations by cable systems affiliated with
a broadcast network. The FCC has been directed to review all of its ownership
rules every two years and currently has several broadcast related rulemaking
proceedings underway. There can be no assurance that any such rulemakings or
resulting changes would not materially adversely affect the Company.
The Company's paging operations are also subject to regulation by the FCC. The
FCC licenses granted to the Company are for varying terms of up to 10 years, at
the end of which renewal applications must be approved by the FCC. Although the
Company is unaware of any circumstances which could prevent the grant of renewal
applications, no assurance can be given that any of the Company's licenses will
be free of competing applications or will be renewed by the FCC. Futhermore, the
FCC has the authority to restrict the operation of licensed facilities or to
revoke or modify licenses. See "Business-Federal Regulation of the Company's
Business."
RECENT ACQUISITION OF TELEVISION STATIONS AND PUBLICATIONS. The Company
acquired one newspaper and three shoppers in 1995 and consummated the Augusta
Acquisition in 1996. The Phipps Acquisition and the KTVE Sale are pending and
the Company will be required under current FCC regulations to divest WALB and
WJHG in connection with the Phipps Acquisition. As a result, the majority of the
Company's assets have, or will have been, recently
18
<PAGE>
acquired. Accordingly, there is no meaningful opportunity for prospective
purchasers of the Notes to evaluate the performance of these assets under the
Company's management and there can be no assurance that the Company's operating
strategy can be successfully implemented with respect to its newly acquired
assets. See "Business."
RISK OF INABILITY TO FINANCE CHANGE OF CONTROL OFFER. A Change of Control under
the Indenture would require the Company to refinance substantial amounts of
indebtedness. In the event of a Change of Control, the Company has the
obligation to offer to purchase all the outstanding Notes at a price equal to
101% of the principal amount thereof, plus accrued and unpaid interest to the
date of purchase. On a pro forma basis after giving effect to the Augusta
Acquisition, the KTVE Sale, the Concurrent Offering, the Financing, the Phipps
Acquisition and this Offering, the Company would not have sufficient funds
available to purchase all of the outstanding Notes if they were tendered as a
result of a Change of Control. In addition, covenants in the Senior Credit
Facility would restrict the Company's ability to make any such purchase. In the
event of a Change of Control, there can be no assurance that the Company would
have available, or be able to obtain, sufficient funds through a refinancing of
the Notes to be purchased or otherwise, or that the lenders under the Senior
Credit Facility would permit any such purchase. A Change of Control of the
Company also may cause an acceleration under other Senior Debt (including the
Senior Credit Facility), in which case the subordination provisions of the Notes
would require payment in full of all such accelerated Senior Debt before
repurchase of the Notes. The inability to repay Senior Debt, if accelerated, and
to effect an offer to repurchase the Notes upon a Change of Control would
constitute events of default under the Indenture. Also, the requirement that the
Company offer to repurchase the Notes and the obligation to prepay the amounts
owing under the Company's existing indebtedness and the reduction of the
commitments thereunder to zero in the event of a Change of Control may have the
effect of deterring a third party from acquiring the Company in a transaction
that would constitute a Change of Control. See "Description of the Notes-Change
of Control."
FRAUDULENT CONVEYANCE RISKS. The Company's obligations under the Notes will be
guaranteed, jointly and severally, on a senior subordinated basis by each of the
Subsidiary Guarantors. Various fraudulent conveyance laws have been enacted for
the protection of creditors and may be applied by a court on behalf of any
unpaid creditor or a representative of the Company's creditors in a lawsuit to
subordinate or avoid the Notes or any Subsidiary Guarantee in favor of other
existing or future creditors of the Company or a Subsidiary Guarantor. To the
extent that a court were to find that: (i) the Notes or a Subsidiary Guarantee
was incurred with intent to hinder, delay or defraud any present or future
creditor of the Company or the Subsidiary Guarantor, as the case may be, or
contemplated insolvency with a design to prefer one or more creditors to the
exclusion in whole or in part of others or (ii) the Company or a Subsidiary
Guarantor did not receive fair consideration or reasonably equivalent value for
issuing the Notes or a Subsidiary Guarantee, as the case may be, and the Company
or a Subsidiary Guarantor (a) was insolvent, (b) was rendered insolvent by
reason of the issuance of the Notes or a Subsidiary Guarantee, (c) was engaged
or about to engage in a business or transaction for which the remaining assets
of the Company or such Subsidiary Guarantor constituted unreasonably small
capital to carry on its business, (d) intended to incur, or believed that it
would incur, debts beyond its ability to pay such debts as they mature or (e)
was a defendant in an action for money damages or had a judgment for money
damages docketed against it (if in either case, after final judgment, the
judgment is unsatisfied), then in each such case, a court could avoid or
subordinate the Notes or a Subsidiary Guarantee in favor of other creditors of
the Company or a Subsidiary Guarantor, as the case may be. Among other things, a
legal challenge of the Notes or a Subsidiary Guarantee on fraudulent conveyance
grounds may focus on the benefits, if any, realized by the Company or the
Subsidiary Guarantor as a result of the issuance by the Company of the Notes.
To the extent that any Subsidiary Guarantee were to be avoided as a fraudulent
conveyance or held unenforceable for any other reason, holders of the Notes
would cease to have any claim in respect of such Subsidiary Guarantor and would
be creditors solely of the Company and any Subsidiary Guarantor whose Subsidiary
Guarantee was not avoided or held unenforceable. In such event, the claims of
the holders of the Notes against the issuer of an invalid Subsidiary Guarantee
would be subject to the prior payment of all liabilities of such Subsidiary
Guarantor. There can be no assurance that, after providing for all prior claims,
there would be sufficient assets to satisfy the claims of the holders of the
Notes relating to any voided Subsidiary Guarantee.
Based upon financial and other information currently available to it, the
Company believes that the Notes and the Subsidiary Guarantees are being incurred
for proper purposes and in good faith, and that the Company and each of the
Subsidiary Guarantors (i) is solvent and will continue to be solvent after
issuing the Notes or its Subsidiary
19
<PAGE>
Guarantee, as the case may be, (ii) will have sufficient capital for carrying on
its business after such issuance and (iii) will be able to pay its debts as they
mature. There can be no assurance that the assumptions and methodologies used by
the Company in reaching its conclusions about its solvency would be adopted by a
court or that a court would concur with those conclusions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
VOTING RIGHTS; POSSIBLE ANTI-TAKEOVER EFFECT. Bull Run and its affiliates
collectively beneficially own 48.2% of the outstanding shares of Class A Common
Stock representing approximately 44.7% of the total voting power of the
Company's common stock after giving effect to the Concurrent Offering. In
connection with certain FCC applications, Bull Run and its affiliates have (i)
agreed not to cause more than three of its designees to be elected to the Board
of Directors of the Company, (ii) stated that Bull Run and its affiliates have
acquired the common stock of the Company for investment purposes only and not
with the intent to control the Company and (iii) agreed not to solicit proxies
for votes on matters before the Company's shareholders. However, if such
agreement is terminated for any reason, subject to applicable FCC regulations
that require the FCC's prior consent, Bull Run and its affiliates could
effectively control the election of a majority of the Company's directors and,
thus, the operations and business of the Company as a whole. In addition, such
stockholders may have the ability to prevent certain types of material
transactions, including a change of control of the Company.
The disproportionate voting rights of the Class A Common Stock relative to the
Class B Common Stock may make the Company a less attractive target for a
takeover than it otherwise might be, or render more difficult or discourage a
merger proposal or a tender offer.
POTENTIAL CONFLICTS OF INTEREST. Bull Run is in the business of making
significant investments in existing companies and may from time to time acquire
and hold controlling or noncontrolling interests in broadcasting or
broadcasting-related businesses other than through the Company, some of which
may compete with the Company. Bull Run and its affiliates may from time to time
identify, pursue and consummate acquisitions of television stations or other
broadcasting related businesses that would be complementary to the business of
the Company and therefore such acquisition opportunities will not be available
to the Company. In addition, Bull Run may from time to time identify and
structure acquisitions for the Company and may receive customary finders fees in
connection with such transactions. Certain affiliates of Bull Run have entered,
and in the future may enter, into business relationships with the Company or its
subsidiaries. See "Certain Relationship and Related Transactions."
LACK OF PUBLIC MARKET. There is currently no trading market for the Notes. The
Company does not intend to list the Notes on any securities exchange. The
Company has been advised by the Underwriters that the Underwriters currently
intend to make a market in the Notes; however, the Underwriters are not
obligated to do so and may discontinue any such market making activities at any
time without notice. No assurance can be given as to the development or
liquidity of any trading market for the Notes.
20
<PAGE>
THE PHIPPS ACQUISITION, THE KTVE SALE AND THE FINANCING
THE PHIPPS ACQUISITION
GENERAL
The Company has entered into an agreement (the "Asset Purchase Agreement") to
acquire two CBS-affiliated television stations, WCTV and WKXT, a satellite
broadcasting business and a paging business in the Southeast. The consummation
of the Phipps Acquisition is subject to certain closing conditions, including
FCC approval. The Phipps Acquisition is currently expected to occur by September
1996; however, there can be no assurance that FCC approval will be obtained,
that the other closing conditions will be satisfied or waived or that the Phipps
Acquisition will be consummated. However, the Notes are subject to mandatory
redemption on the Special Redemption Date at the Special Redemption Price if the
Phipps Acquisition is not consummated prior to , 1996. See "Description of
the Notes-Redemption-Special Redemption."
THE ASSET PURCHASE AGREEMENT
On December 15, 1995 the Company entered into the Asset Purchase Agreement,
which provides for the purchase of the Phipps Business from Media Acquisition
Partners, L.P. ("MAP"). The purchase price for the Phipps Acquisition is
approximately $185 million, including fees, expenses and working capital and
certain other adjustments. Upon execution of the Asset Purchase Agreement, the
Company deposited $200,000 with MAP, which will be credited toward the purchase
price or, if the Phipps Acquisition is not consummated, refunded to the Company
net of MAP's out-of-pocket expenses incurred in connection with the transaction.
The parties have agreed that $15 million of the purchase price will be deposited
into an escrow account to fund indemnification payments under the Asset Purchase
Agreement. To the extent not utilized to fund such payments, the escrow funds
shall be released to MAP over a seven-year period.
Pursuant to the Asset Purchase Agreement, the Company will acquire the assets
constituting the Phipps Business and assume certain liabilities relating to the
Phipps Business. MAP has agreed to indemnify the Company for certain liabilities
incurred by the Company relating to the Phipps Business, including taxes,
liabilities relating to certain employee benefit plans, certain environmental
matters and undisclosed liabilities. However, the Asset Purchase Agreement
provides that no party thereto shall be liable for indemnification (which is the
exclusive legal remedy thereunder) in an amount in excess of the balance of
escrowed funds. There can be no assurance that the escrowed funds will be
sufficient to satisfy liabilities of the Phipps Business assumed by the Company.
Simultaneously with the execution of the Asset Purchase Agreement, MAP entered
into agreements (the "Stock Purchase Agreements") to acquire all of the capital
stock of John H. Phipps, Inc. ("Phipps"), which currently owns and operates the
Phipps Business, together with certain limited partnership interests in the
partnership that owns and operates WKXT (the general partner of which is
Phipps), for an aggregate purchase price of approximately $166 million, subject
to working capital and certain other adjustments (of approximately $10 million).
The Company established a $10 million standby letter of credit which may be
drawn upon in full as liquidated damages if the Phipps Acquisition is not
consummated as a result of a default by the Company.
The Asset Purchase Agreement and the Stock Purchase Agreements include
representations and warranties with respect to the condition and operation of
the Phipps Business, covenants as to the conduct of the Phipps Business prior to
the closing and various closing conditions (including approval by the FCC). The
consummation of the Phipps Acquisition is required to occur at least one day
after the closing under the Stock Purchase Agreements. The Indenture provides
that the Trust Funds will be released to the Company on the date of the closing
under the Stock Purchase Agreements.
DIVESTITURE REQUIREMENTS
In connection with the Phipps Acquisition, the Company will be required to
divest WALB and WJHG under current FCC regulations due to common ownership
restrictions on stations with overlapping signals. However, these rules may be
revised by the FCC upon conclusion of pending rulemaking proceedings. In order
to satisfy applicable FCC requirements, the Company, subject to FCC approval,
intends to swap such assets for assets of one or more television stations of
comparable value and with comparable broadcast cash flow in a transaction
qualifying for deferred capital gains treatment under the "like-kind exchange"
provision of Section 1033 of the Code. If the Company is unable to effect such a
swap on satisfactory terms within the time period granted by the FCC under the
waivers, the Company
21
<PAGE>
may transfer such assets to a trust with a view towards the trustee effecting a
swap or sale of such assets. Any such trust arrangement would be subject to the
approval of the FCC. It is anticipated that the Company would be required to
relinquish operating control of such assets to a trustee while retaining the
economic risks and benefits of ownership. If the Company or such trust is
required to effect a sale of WALB, the Company would incur a significant gain
and related tax liability, the payment of which could have a material adverse
effect on the Company's ability to acquire comparable assets without incurring
additional indebtedness. No assurance can be given that the Company will be able
to identify or enter into arrangements regarding suitable assets for a swap or
sale satisfying the FCC divestiture requirements. In addition, there can be no
assurance that the Company could effect a sale or swap on a timely basis or
establish a trust on satisfactory terms.
THE KTVE SALE
The Company has entered into a non-binding letter of intent to sell KTVE, the
Company's NBC-affiliated station serving Monroe, Louisiana and El Dorado,
Arkansas for approximately $9.5 million in cash plus the amount of the accounts
receivable on the date of closing (estimated to be approximately $750,000), to
the extent collected by the buyer, to be paid to the Company within 150 days
following the date of closing. The KTVE Sale is subject to the negotiation,
execution and delivery of a definitive agreement and to the satisfaction of
certain closing conditions to be contained therein, including receipt of FCC
approval of such sale. The closing of the KTVE Sale is expected to occur by
September 1996. See "Risk Factors-Possible Non-Consummation of the KTVE Sale."
THE FINANCING
In addition to the consummation of the Phipps Acquisition and the KTVE Sale, the
Company intends to implement the Financing to increase liquidity and improve
operating and financial flexibility. Pursuant to the Financing, the Company will
(i) repay approximately $38.8 million aggregate principal amount of outstanding
indebtedness under the Senior Credit Facility, together with accrued interest
thereon and to revise the terms thereof, (ii) issue $10 million liquidation
preference of its Series A Preferred Stock in exchange for the 8% Note issued to
Bull Run, (iii) issue to certain affiliates $10 million liquidation preference
of its Series B Preferred Stock with warrants to purchase up to 500,000 shares
representing 11.3% of the outstanding Class A Common Stock for cash proceeds of
$10 million and (iv) revise the terms of the Senior Note. The cash required for
the consummation of the Phipps Acquisition, the repayment of indebtedness and
related transaction costs will be provided by the net proceeds of this Offering,
the Concurrent Offering, the sale of Series B Preferred Stock and the KTVE Sale.
For a description of the Senior Credit Facility, the Senior Note, and the
Preferred Stock, see "Description of Certain Indebtedness" and "Certain
Relationships and Related Transactions-Issuances of Preferred Stock." The
consummation of this Offering is conditioned upon the consummation of the
Financing and the Concurrent Offering but is not conditioned upon the
consummation of the Phipps Acquisition or the KTVE Sale. However, the Notes are
subject to a mandatory redemption on the Special Redemption Date at the Special
Redemption Price if the Phipps Acquisition is not consummated prior to
, 1996. See "Description of the Notes-Redemption-Special
Redemption."
22
<PAGE>
SOURCES AND USES OF FUNDS FOR THE PHIPPS ACQUISITION, THE KTVE SALE AND THE
FINANCING
The following table sets forth the estimated sources and uses of funds relating
to the KTVE Sale, the Phipps Acquisition and the Financing. The actual amounts
of sources and uses of funds may differ at the closing due to, among other
things, the actual amount payable under the Asset Purchase Agreement and the
amount of indebtedness outstanding under the Senior Credit Facility.
<TABLE>
<CAPTION>
------------
SOURCES OF FUNDS AMOUNT
------------
(IN MILLIONS)
<S> <C>
The Notes offered hereby $150.0
The Concurrent Offering 66.5
Sale of Series B Preferred Stock and Warrants 10.0
The KTVE Sale 9.5
------------
TOTAL $236.0
------------
------------
</TABLE>
<TABLE>
<CAPTION>
------------
USES OF FUNDS AMOUNT
------------
(IN MILLIONS)
<S> <C>
Consummation of Phipps Acquisition $185.0
Repay indebtedness under the Senior Credit Facility (1) 38.8
Fees and expenses (2) 12.2
------------
TOTAL $236.0
------------
------------
</TABLE>
- - - ------------------------------
(1) Borrowings under the Senior Credit Facility bear interest at formula rates
based upon the applicable LIBOR or prime rate at the time of borrowing plus
a fixed spread and have a final maturity of 2003.
(2) Fees and expenses include underwriting costs for the Notes and the
Concurrent Offering, fees payable in connection with the amendment of the
Senior Credit Facility and legal, accounting and other transaction fees.
Does not include estimated taxes of $2.8 million with respect to the KTVE
Sale.
23
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the historical consolidated capitalization
of the Company as adjusted to give effect, as of December 31, 1995, to the
Augusta Acquisition and (ii) the historical consolidated capitalization of the
Company as adjusted to give effect, as of December 31, 1995, to the Augusta
Acquisition, the KTVE Sale, the Concurrent Offering, the Financing, the Phipps
Acquisition and this Offering. This table should be read in conjunction with the
consolidated financial statements of the Company, including the notes thereto,
and the Pro Forma Financial Statements and other information contained in this
Prospectus.
<TABLE>
<CAPTION>
--------------------------------
AS OF DECEMBER 31, 1995
PRO FORMA,
PRO FORMA COMBINED
COMPANY AS ADJUSTED
--------------- ---------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C>
LONG-TERM DEBT:
Senior Credit Facility............................ $52,100 $13,300
Senior Note due 2003.............................. 25,000 25,000
The Notes......................................... -- 150,000
The 8% Note....................................... 10,000 --
Other............................................. 953 953
--------------- ---------------
Total long-term debt (including current
portion)....................................... 88,053 189,253
--------------- ---------------
</TABLE>
STOCKHOLDERS' EQUITY:
<TABLE>
<S> <C> <C>
Series A Preferred Stock.......................... -- 10,000
Series B Preferred Stock.......................... -- 10,000
Class A Common Stock, no par value; authorized
10,000,000 shares; pro forma Company and pro
forma as adjusted 5,082,756 shares............... 6,796 6,796
Class B Common Stock, no par value; authorized
10,000,000 shares; pro forma Company no shares;
pro forma as adjusted 3,500,000 shares........... -- 61,050
Retained earnings................................. 8,828 11,404
Treasury stock, 633,180 shares of Class A Common
Stock............................................ (6,638) (6,638)
--------------- ---------------
Total stockholders' equity...................... 8,986 92,612
--------------- ---------------
Total capitalization.............................. $97,039 $281,865
--------------- ---------------
--------------- ---------------
</TABLE>
24
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited condensed combined pro forma financial statements of the
Company give effect to the Augusta Acquisition, the Concurrent Offering, the
KTVE Sale, the Phipps Acquisition, the Financing and this Offering as if such
transactions had occurred as of January 1, 1995 with respect to the statement of
income for the year ended December 31, 1995 and as of December 31, 1995 with
respect to the balance sheet. The Augusta Acquisition and the Phipps Acquisition
are reflected using the purchase method of accounting for business combinations.
The pro forma financial information is provided for comparative purposes only
and does not purport to be indicative of the results that actually would have
been obtained if the events set forth above had been effected on the dates
indicated or of those results that may be obtained in the future. The pro forma
financial statements are based on preliminary estimates of values and
transaction costs. The actual recording of the transactions will be based on
final appraisals, values and transaction costs. Accordingly, the actual
recording of the transactions can be expected to differ from these pro forma
financial statements.
25
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
HISTORICAL PRO FORMA
----------------------- ADJUSTMENTS PRO
AUGUSTA FOR AUGUSTA FORMA CONCURRENT PRO FORMA
COMPANY BUSINESS ACQUISITION COMPANY OFFERING COMPANY
-------- ----------- ----------- -------- ----------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Broadcasting (less agency commissions) $36,750 $8,660 $ 228(1) $45,638 $ -- $45,638
Publishing 21,866 -- -- 21,866 -- 21,866
Paging -- -- -- -- -- --
-------- ----------- ----------- -------- ----------- ------------
Total revenues 58,616 8,660 228 67,504 -- 67,504
Expenses:
Broadcasting 23,202 5,774 228(1) 29,204 -- 29,204
Publishing 20,016 -- -- 20,016 -- 20,016
Paging -- -- -- -- -- --
Corporate and administrative 2,258 -- -- 2,258 -- 2,258
Depreciation 2,633 272 (52)(2) 2,853 -- 2,853
Amortization of intangible assets 1,326 152 769(3) 2,247 -- 2,247
Non-cash compensation paid in common
stock 2,321 -- -- 2,321 -- 2,321
Management fee -- -- -- -- -- --
-------- ----------- ----------- -------- ----------- ------------
Total expenses 51,756 6,198 945 58,899 -- 58,899
-------- ----------- ----------- -------- ----------- ------------
Operating income 6,860 2,462 (717) 8,605 -- 8,605
Miscellaneous income (expense), net 143 (220) 128(4) 51 -- 51
-------- ----------- ----------- -------- ----------- ------------
Income before interest expense, minority
interests and income taxes 7,003 2,242 (589) 8,656 -- 8,656
Interest expense 5,438 -- 3,355(5) 8,793 (5,468) (7) 3,325
-------- ----------- ----------- -------- ----------- ------------
Income (loss) before minority interests
and income taxes 1,565 2,242 (3,944) (137) 5,468 5,331
Minority interests -- -- -- -- -- --
-------- ----------- ----------- -------- ----------- ------------
Income (loss) before income taxes 1,565 2,242 (3,944) (137) 5,468 5,331
Income tax expense (benefit) 634 -- (675) (6) (41) 2,180(6) 2,139
-------- ----------- ----------- -------- ----------- ------------
Net income (loss) 931 2,242 (3,269) (96) 3,288 3,192
Preferred stock dividends -- -- -- -- 1,400(8) 1,400
-------- ----------- ----------- -------- ----------- ------------
Net income (loss) available to common
stockholders $ 931 $2,242 $(3,269) $ (96) $ 1,888 $ 1,792
-------- ----------- ----------- -------- ----------- ------------
-------- ----------- ----------- -------- ----------- ------------
Average shares outstanding (18) 4,481 4,354 7,981
-------- -------- ------------
-------- -------- ------------
Earnings (loss) per share (19) $ 0.21 $ (0.02) $ 0.22
-------- -------- ------------
-------- -------- ------------
<CAPTION>
PRO FORMA PHIPPS PRO FORMA PRO FORMA
KTVE SALE(9) COMPANY BUSINESS ADJUSTMENTS COMBINED(20)
------------ ------------ ----------- ------------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Broadcasting (less agency commissions) $(4,188) $41,450 $22,424 $ -- $63,874
Publishing -- 21,866 -- -- 21,866
Paging -- -- 4,897 -- 4,897
------ ------------ ----------- ------------- ------------
Total revenues (4,188) 63,316 27,321 -- 90,637
Expenses:
Broadcasting (3,313) 25,891 10,487 220(10) 37,177
579(11)
Publishing -- 20,016 -- -- 20,016
Paging -- -- 3,052 -- 3,052
Corporate and administrative -- 2,258 -- -- 2,258
Depreciation (438) 2,415 2,385 (625)(12) 4,175
Amortization of intangible assets -- 2,247 735 3,515(13) 6,497
Non-cash compensation paid in common
stock -- 2,321 -- -- 2,321
Management fee -- -- 3,280 (3,280)(14) --
------ ------------ ----------- ------------- ------------
Total expenses (3,751) 55,148 19,939 409 75,496
------ ------------ ----------- ------------- ------------
Operating income (437) 8,168 7,382 (409) 15,141
Miscellaneous income (expense), net (27) 24 12 -- 36
------ ------------ ----------- ------------- ------------
Income before interest expense, minority
interests and income taxes (464) 8,192 7,394 (409) 15,177
Interest expense -- 3,325 499 (499)(15) 21,131
17,806(16)
------ ------------ ----------- ------------- ------------
Income (loss) before minority interests
and income taxes (464) 4,867 6,895 (17,716) (5,954)
Minority interests -- -- 547 (547)(17) --
------ ------------ ----------- ------------- ------------
Income (loss) before income taxes (464) 4,867 6,348 (17,169) (5,954)
Income tax expense (benefit) (185) 1,954 -- (3,972)(6) (2,018)
------ ------------ ----------- ------------- ------------
Net income (loss) (279) 2,913 6,348 (13,197) (3,936)
Preferred stock dividends -- 1,400 -- -- 1,400
------ ------------ ----------- ------------- ------------
Net income (loss) available to common
stockholders $ (279) $ 1,513 $6,348 $(13,197) $(5,336)
------ ------------ ----------- ------------- ------------
------ ------------ ----------- ------------- ------------
Average shares outstanding (18) 7,981 7,854
------------ ------------
------------ ------------
Earnings (loss) per share (19) $ 0.19 $ (0.68)
------------ ------------
------------ ------------
</TABLE>
26
<PAGE>
The pro forma adjustments to reflect the Augusta Acquisition, the Concurrent
Offering, the KTVE Sale, the Phipps Acquisition, the Financing and this Offering
are as follows:
STATEMENT OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1995
1. Reflects the classification of national sales representative commissions as
an expense consistent with the presentation by the Company.
2. Reflects decreased annual depreciation resulting from the change in asset
lives in connection with the preliminary allocation of the Augusta
Acquisition purchase price to the newly acquired property and equipment, at
fair market value.
3. Reflects annual amortization of $107,000 on the Augusta Business' financing
costs over a seven- year period. Also reflects the annual amortization of
$813,000 on the intangible assets associated with the Augusta Acquisition
over a 40-year period.
4. Reflects the elimination of the corporate allocation to the Augusta
Business by its previous owner which will not be incurred by the Company.
5. Reflects increased annual interest expense of $155,000 due to an interest
rate adjustment on the Senior Note; increased annual interest expense of
$2.4 million on the Senior Credit Facility at LIBOR plus 3.5%, based on an
increase in the debt level subsequent to the Augusta Acquisition; and
annual interest expense of $800,000 on the 8% Note. Three month LIBOR on
January 4, 1996 was approximately 5.625%.
6. Reflects the adjustment of the income tax provision to the estimated
effective tax rate.
7. Reflects decreased annual interest expense of $4.7 million on the Senior
Credit Facility resulting from payment from the proceeds of the Concurrent
Offering of $52.1 million in principal, bearing interest at an estimated
interest rate of 8.96% per annum. Also reflects a reduction of annual
interest expense of $800,000 on the 8% Note which will be converted to
Series A Preferred Stock.
8. Reflects annual dividends on the Company's Series A and Series B Preferred
Stock.
9. Reflects the elimination of the results of operations of KTVE. The pro
forma adjustments exclude an estimated gain of $5.4 million (net of
estimated income taxes of $2.8 million) from the KTVE Sale.
10. Reflects additional accounting and administrative expenses associated with
the Phipps Business.
11. Reflects increased pension expense for the Phipps Business subsequent to
the Phipps Acquisition. Historical pension expense for the Phipps Business
was a credit of $449,000 while pension expense for these operations
subsequent to the Phipps Acquisition is expected to be an expense of
approximately $130,000.
12. Reflects decreased annual depreciation resulting from the change in asset
lives in connection with the newly acquired property and equipment (at fair
market value) of the Phipps Acquisition.
13. Reflects annual amortization of intangible assets associated with the
Phipps Acquisition over a 40-year period.
14. Reflects elimination of the corporate allocation to the Phipps Business.
Such amounts will not be incurred by the Company in connection with its
operations of the Phipps Business.
15. Reflects the elimination of interest expense associated with borrowings of
the Phipps Business which will not be assumed by the Company.
16. Reflects increased annual interest expense of $16.3 million on the Notes,
which includes annual amortization expense of $525,000 resulting from the
transaction costs relating to the issuance of the Notes, increased annual
interest expense of $1.2 million relating to additional borrowings under
the Senior Credit Facility at an estimated interest rate of 8.96% plus
amortization of additional deferred financing costs of $214,000, and
increased annual interest expense of $125,000 due to an interest rate
adjustment from 10.7% to 11.2% on the Senior Note.
17. Reflects the elimination of minority interests associated with the Phipps
Business, because such minority interests will be acquired as a part of the
Phipps Acquisition.
18. Average outstanding shares used to calculate pro forma earnings (loss) per
share are based on weighted average common shares outstanding during the
period, adjusted for the Concurrent Offering.
19. If the issuance of Class B Common Stock and retirement of $52.1 million in
debt under the Senior Credit Facility had taken place at the beginning of
1995, pro forma net income (1995 historical earnings adjusted for interest
expense in connection with the payment under the Senior Credit Facility,
net of income tax) would have been $3.0 million, or $0.38 per share.
20. In connection with the Phipps Acquisition, the Company is seeking FCC
approval of the assignment of the television broadcast licenses for WCTV
and WKXT. Current FCC regulations will require the Company to divest its
ownership interest in WALB and WJHG. In order to satisfy applicable FCC
requirements, the Company, subject to FCC approval, intends to swap such
assets for assets of one or more television stations of comparable value
and with comparable broadcast cash flow in a transaction qualifying for
deferred capital gains treatment under the "like-kind exchange" provision
of Section 1033 of the Code. If the Company is unable to effect such a swap
on satisfactory terms within the time period granted by the FCC, the
Company may transfer such assets to a trust with a view towards the trustee
effecting a swap or sale of such assets. Any such trust arrangement would
be subject to the approval of the FCC. See "Risk Factors--FCC Divestiture
Requirement" and "Business--Federal Regulation of the Company's Business."
Condensed income statement data of WALB and WJHG are as follows:
<TABLE>
<CAPTION>
----------------------
YEAR ENDED
DECEMBER 31, 1995
WALB WJHG
--------- -----------
<S> <C> <C>
Broadcasting revenues $ 9,445 $ 3,843
Expenses 4,650 3,573
--------- -----------
Operating income 4,795 270
Other income 15 60
--------- -----------
Income before income taxes 4,810 330
--------- -----------
Net income $ 2,984 $ 205
--------- -----------
--------- -----------
Media Cash Flow $ 5,103 $ 549
--------- -----------
--------- -----------
</TABLE>
27
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
DECEMBER 31, 1995
HISTORICAL PRO FORMA
---------------------- ADJUSTMENTS
AUGUSTA FOR AUGUSTA PRO FORMA CONCURRENT PRO FORMA
COMPANY BUSINESS ACQUISITION COMPANY OFFERING COMPANY
--------- -------- -------------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash $560 $334 $(334)(1) $560 $18,950(5) $19,510
Trade accounts receivable 9,560 1,748 -- 11,308 -- 11,308
Recoverable income taxes 1,347 -- -- 1,347 -- 1,347
Inventories 553 -- -- 553 -- 553
Current portion of program broadcast
rights 1,153 924 (260)(2) 1,817 -- 1,817
Prepaid expenses and other current
assets 264 55 -- 319 -- 319
--------- -------- -------------- ---------- ---------- ---------
Total current assets 13,437 3,061 (594) 15,904 18,950 34,854
Property and equipment-net 17,017 1,778 402(1) 19,197 -- 19,197
Other assets
Deferred acquisition costs 3,330 -- (1,500)(1) 454 -- 454
(1,376)(3)
Deferred loan costs 1,232 -- 751(3) 1,983 -- 1,983
Goodwill and other intangibles 42,004 4,129 27,652(1) 74,410 -- 74,410
625(3)
Other 1,220 2,571 (2,518)(2) 1,273 -- 1,273
--------- -------- -------------- ---------- ---------- ---------
Total other assets 47,786 6,700 23,634 78,120 -- 78,120
--------- -------- -------------- ---------- ---------- ---------
Total assets $78,240 $11,539 $23,442 $113,221 $18,950 $132,171
--------- -------- -------------- ---------- ---------- ---------
--------- -------- -------------- ---------- ---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Trade accounts payable $3,753 $233 $(233)(1) $3,753 $-- $3,753
Employee compensation and benefits 4,213 -- -- 4,213 -- 4,213
Accrued expenses 561 -- 452(1) 1,013 -- 1,013
Accrued interest 1,064 -- -- 1,064 -- 1,064
Income taxes payable -- -- -- -- -- --
Current portion of broadcast program
obligations 1,205 898 (260)(2) 1,843 -- 1,843
Deferred paging service income -- -- -- -- -- --
Current portion of long-term debt 2,862 -- -- 2,862 -- 2,862
--------- -------- -------------- ---------- ---------- ---------
Total current liabilities 13,658 1,131 (41) 14,748 -- 14,748
Long-term debt 51,463 -- 33,728(4) 85,191 (10,000)(5) 23,091
(52,100)(6)
Deferred credits 4,133 2,681 (2,518)(2) 4,296 -- 4,296
Minority interests -- -- -- -- -- --
Stockholders' equity
Series A Preferred Stock -- -- -- -- 10,000(5) 10,000
Series B Preferred Stock -- -- -- -- 10,000(5) 10,000
Class A Common Stock, no par value 6,796 -- -- 6,796 -- 6,796
Class B Common Stock, no par value -- -- -- -- 61,050(5) 61,050
Retained earnings 8,828 -- -- 8,828 -- 8,828
Net equity of acquired operations -- 7,727 (7,727)(1) -- -- --
--------- -------- -------------- ---------- ---------- ---------
15,624 7,727 (7,727) 15,624 81,050 96,674
Treasury stock (6,638) -- -- (6,638) -- (6,638)
--------- -------- -------------- ---------- ---------- ---------
8,986 7,727 (7,727) 8,986 81,050 90,036
--------- -------- -------------- ---------- ---------- ---------
Total liabilities and stockholders'
equity $78,240 $11,539 $23,442 $113,221 $18,950 $132,171
--------- -------- -------------- ---------- ---------- ---------
--------- -------- -------------- ---------- ---------- ---------
<CAPTION>
KTVE PRO FORMA PHIPPS PRO FORMA PRO FORMA
SALE(7) COMPANY BUSINESS ADJUSTMENTS COMBINED(12)
----------- --------- -------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash $9,500 $29,010 $620 $(185,000)(8) $560
144,750(10)
11,800(11)
(620)(9)
Trade accounts receivable -- 11,308 5,153 -- 16,461
Recoverable income taxes (1,347) -- -- -- --
Inventories -- 553 -- -- 553
Current portion of program broadcast
rights (204) 1,613 919 -- 2,532
Prepaid expenses and other current
assets (33) 286 348 (348)(9) 286
----------- --------- -------- -------------- --------------
Total current assets 7,916 42,770 7,040 (29,418) 20,392
Property and equipment-net (1,748) 17,449 10,493 -- 27,942
Other assets
Deferred acquisition costs -- 454 -- -- 454
Deferred loan costs -- 1,983 -- 5,250(10) 8,733
1,500(11)
Goodwill and other intangibles (2,322) 72,088 9,455 (9,455) (9) 242,048
169,960(8)
Other (17) 1,256 575 -- 1,831
----------- --------- -------- -------------- --------------
Total other assets (2,339) 75,781 10,030 167,255 253,066
----------- --------- -------- -------------- --------------
Total assets $3,829 $136,000 $27,563 $137,837 $301,400
----------- --------- -------- -------------- --------------
----------- --------- -------- -------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Trade accounts payable $-- $3,753 $366 $(366)(9) $3,753
Employee compensation and benefits -- 4,213 -- -- 4,213
Accrued expenses -- 1,013 907 (907)(9) 1,013
Accrued interest -- 1,064 -- -- 1,064
Income taxes payable 1,461 1,461 -- -- 1,461
Current portion of broadcast program
obligations (205) 1,638 922 -- 2,560
Deferred paging service income -- -- 833 -- 833
Current portion of long-term debt -- 2,862 1,390 (1,390)(9) 2,862
----------- --------- -------- -------------- --------------
Total current liabilities 1,256 16,004 4,418 (2,663) 17,759
Long-term debt -- 23,091 3,420 (3,420)(9) 186,391
13,300(11)
150,000(10)
Deferred credits (3) 4,293 345 -- 4,638
Minority interests -- -- 586 (586)(9) --
Stockholders' equity
Series A Preferred Stock -- 10,000 -- -- 10,000
Series B Preferred Stock -- 10,000 -- -- 10,000
Class A Common Stock, no par value -- 6,796 -- -- 6,796
Class B Common Stock, no par value -- 61,050 -- -- 61,050
Retained earnings 2,576 11,404 -- -- 11,404
Net equity of acquired operations -- -- 18,794 (18,794)(8) --
----------- --------- -------- -------------- --------------
2,576 99,250 18,794 (18,794) 99,250
Treasury stock -- (6,638) -- -- (6,638)
----------- --------- -------- -------------- --------------
2,576 92,612 18,794 (18,794) 92,612
----------- --------- -------- -------------- --------------
Total liabilities and stockholders'
equity $3,829 $136,000 $27,563 $137,837 $301,400
----------- --------- -------- -------------- --------------
----------- --------- -------- -------------- --------------
</TABLE>
28
<PAGE>
The pro forma adjustments to reflect the Augusta Acquisition, the Concurrent
Offering, the KTVE Sale, the Phipps Acquisition, the Financing and this Offering
are as follows:
BALANCE SHEET - DECEMBER 31, 1995
1. Reflects the Augusta Acquisition, including a $1.5 million deposit which
was recorded as a deferred acquisition cost by the Company at December 31,
1995. Pursuant to the acquisition agreement, cash balances were retained by
the seller and certain accounts payable were paid prior to closing. The
Company has recorded a preliminary allocation of the purchase price of
$35.9 million to the tangible assets and liabilities based upon estimates
of fair market value at January 4, 1996 as follows:
<TABLE>
<S> <C>
Trade accounts receivable $ 1,748
Current portion of program broadcast rights 924
Prepaid expenses and other current assets 55
Property and equipment 2,180
Goodwill and other intangibles 32,406
Other 2,571
Accrued expenses (452)
Current portion of program broadcast obligations (898)
Deferred credits (2,681)
---------
Purchase price of the Augusta Business including expenses $ 35,853
---------
---------
Historical book value of the Augusta Business $ (7,727)
Assets not acquired and liabilities not assumed -- net 4,280
---------
Net assets acquired (3,447)
Purchase price of Augusta Business 35,853
---------
Goodwill and other intangibles $ 32,406
---------
---------
</TABLE>
The excess of purchase price over amounts allocated to the net tangible
assets will be amortized on a straight-line basis over a 40-year period.
Also reflects the elimination of assets of the Augusta Business which were
not purchased by the Company.
2. Reflects an adjustment in accounting method for recording film exhibition
rights and liabilities to conform to the Company's accounting method.
3. Reflects purchase costs and financing fees and expenses associated with the
Augusta Acquisition which were previously treated as deferred acquisition
costs.
4. Reflects the sale of the 8% Note and additional borrowings of $23.7 million
under the Senior Credit Facility.
5. Reflects the issuance net of fees and expenses of (i) approximately
3,500,000 shares of Class B Common Stock at an estimated $19 per share
pursuant to the Concurrent Offering, (ii) Series A Preferred Stock in
exchange for the 8% Note and (iii) $10 million of Series B Preferred Stock
to certain affiliates of the Company.
6. Reflects a repayment of $52.1 million on the Senior Credit Facility from
funds available subsequent to the Concurrent Offering.
7. Reflects the proposed KTVE Sale for $9.5 million plus the amount of the
accounts receivable on the date of the closing. The transaction is subject
to regulatory approval and is expected to close by September 1996. See
"Risk Factors--Possible Non-Consummation of the KTVE Sale."
29
<PAGE>
8. Reflects the purchase of the Phipps Business and a preliminary allocation
of the purchase price of $185.0 million to the tangible assets and
liabilities based upon estimates of fair market value at December 31, 1995
as follows:
<TABLE>
<S> <C>
Assets acquired and (limitations assumed) in connection with the acquisition of the
Phipp Business are as follows:
Trade accounts receivable $ 5,153
Current portion of program broadcast rights 919
Property and equipment 10,493
Goodwill and other intangibles 169,960
Other 575
Current portion of program broadcast obligations (922)
Deferred paging service income (833)
Deferred credits (345)
----------
Purchase price of Phipps Business including expenses $ 185,000
----------
----------
Historical book value of Phipps Business $ (18,794)
Assets not acquired and liabilities not assumed--net 3,754
----------
Net assets acquired (15,040)
Purchase price of Phipps Business 185,000
----------
Goodwill and other intangibles $ 169,960
----------
----------
</TABLE>
The excess of purchase price over amounts allocated to net tangible assets
will be amortized on a straight-line basis over a 40-year period. The
allocation of the purchase price is subject to adjustment based upon the
results of pending appraisals.
9. Reflects the elimination of certain of the assets and liabilities of the
Phipps Business, which were not included in the Phipps Acquisition.
10. Reflects the issuance of the Notes pursuant to this Offering and fees and
expenses associated with this Offering.
11. Reflects borrowings of $13.3 million under the Senior Credit Facility in
order to complete the Phipps Acquisition and estimated expenses of $1.5
million in connection with the contemplated amendment to the Senior Credit
Facility. See "Description of Certain Indebtedness -- Senior Credit
Facility."
12. In connection with the Phipps Acquisition, the Company is seeking FCC
approval of the assignment of the television broadcast licenses for WCTV
and WKXT. Current FCC regulations will require the Company to divest its
ownership interest in WALB and WJHG. In order to satisfy applicable FCC
requirements, the Company, subject to FCC approval, intends to swap such
assets for assets of one or more television stations of comparable value
and with comparable broadcast cash flow in a transaction qualifying for
deferred capital gains treatment under the "like-kind exchange" provision
of Section 1033 of the Code. If the Company is unable to effect such a swap
on satisfactory terms within the time period granted by the FCC, the
Company may transfer such assets to a trust with a view towards the trustee
effecting a swap or sale of such assets. Any such trust arrangement would
be subject to the approval of the FCC. See "Risk Factors--FCC Divestiture
Requirement" and "Business--Federal Regulation of the Company's Business."
Condensed balance sheets of WALB and WJHG are as follows:
<TABLE>
<CAPTION>
----------------------
YEAR ENDED
DECEMBER 31, 1995
WALB WJHG
--------- -----------
<S> <C> <C>
Current assets $ 1,996 $ 822
Property and equipment 1,806 973
Other assets 67 3
--------- -----------
Total assets $ 3,869 $ 1,798
--------- -----------
--------- -----------
Current liabilities $ 985 $ 447
Other liabilities 227 --
Stockholder's equity 2,657 1,351
--------- -----------
Total liabilities and stockholders equity $ 3,869 $ 1,798
--------- -----------
--------- -----------
</TABLE>
30
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
SELECTED FINANCIAL DATA OF THE COMPANY
Set forth below are certain selected historical consolidated financial data of
the Company. This information should be read in conjunction with the
consolidated financial statements of the Company and related notes thereto
appearing elsewhere herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Results of Operations of the
Company." The selected consolidated financial data for, and as of the end of,
each of the years in the four-year period ended December 31, 1995 are derived
from the audited consolidated financial statements of the Company. The selected
consolidated financial data for, and as of the year ended December 31, 1991 are
derived from unaudited financial statements, since the Company had a June 30
fiscal year end.
<TABLE>
<CAPTION>
-----------------------------------------------------
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA) 1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues:
Broadcasting (less agency commissions) $13,553 $15,131 $15,004 $22,826 $36,750
Publishing 8,968 9,512 10,109 13,692 21,866
--------- --------- --------- --------- ---------
Total revenues 22,521 24,643 25,113 36,518 58,616
Expenses:
Broadcasting 9,672 9,753 10,029 14,864 23,202
Publishing 6,444 6,752 7,662 11,198 20,016
Corporate and administrative 1,889 2,627 2,326 1,959 2,258
Depreciation 1,487 1,197 1,388 1,745 2,633
Amortization of intangible assets 14 44 177 396 1,326
Non-cash compensation paid in common stock -- -- -- 80 2,321
--------- --------- --------- --------- ---------
Total expenses 19,506 20,373 21,582 30,242 51,756
--------- --------- --------- --------- ---------
Operating income 3,015 4,270 3,531 6,276 6,860
--------- --------- --------- --------- ---------
Miscellaneous income (expense), net 778 (1,519) 202 189 143
--------- --------- --------- --------- ---------
Income from continuing operations before interest
expense and income taxes 3,793 2,751 3,733 6,465 7,003
Interest expense 787 1,486 985 1,923 5,438
--------- --------- --------- --------- ---------
Income from continuing operations before income taxes 3,006 1,265 2,748 4,542 1,565
Federal and state income taxes 1,156 869 1,068 1,776 634
--------- --------- --------- --------- ---------
Income from continuing operations 1,850 396 1,680 2,766 931
Discontinued business:
Income (loss) from operations of discontinued
business, net of applicable income tax expense
(benefit) of ($55), ($79) and $30, respectively (90) (129) 48 -- --
Gain on disposal of discontinued business, net of
applicable income tax expense of $501 -- -- 818 -- --
--------- --------- --------- --------- ---------
Net income $ 1,760 $ 267 $ 2,546 $ 2,766 $ 931
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Average outstanding common shares 6,469 4,668 4,611 4,689 4,481
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income from continuing operations per common share $ 0.29 $ 0.09 $ 0.36 $ 0.59 $ 0.21
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cash dividends per common share $ 0.05 $ 0.07 $ 0.07 $ 0.07 $ 0.08
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficiency) $ 6,740 $ 2,976 $ 2,579 $ 1,075 $ (221)
Total assets 31,548 24,173 21,372 68,789 78,240
Total debt 20,378 12,412 7,759 52,940 54,325
Total stockholders' equity $ 5,853 $ 4,850 $ 7,118 $ 5,001 $ 8,986
OTHER DATA:
Media Cash Flow (1) $ 6,405 $ 8,079 $ 7,371 $10,522 $15,559
Operating cash flow (2) 4,516 5,452 5,044 8,567 13,309
EBITDA (3) 4,516 5,512 5,095 8,498 13,140
Capital expenditures $ 2,235 $ 2,216 $ 2,582 $ 1,768 $ 3,280
Ratio of Media Cash Flow to interest expense 8.1 5.4 7.5 5.5 2.9
Ratio of operating cash flow to interest expense 5.7 3.7 5.1 4.5 2.4
Ratio of total debt to Media Cash Flow 3.2 1.5 1.1 5.0 3.5
Ratio of total debt to operating cash flow 4.5 2.3 1.5 6.2 4.1
Ratio of earnings to fixed charges (4) 4.7 1.8 3.4 3.1 1.3
</TABLE>
- - - ------------------------------
(1) Media Cash Flow represents operating income plus depreciation and
amortization (including amortization of program license rights), non-cash
compensation and corporate overhead, less payments of program license
liabilities.
(2) Operating cash flow represents operating income plus depreciation,
amortization (including amortization of program license rights) and
non-cash compensation, less payments for program license liabilities.
(3) EBITDA represents operating income plus (i) depreciation and amortization
(excluding amortization of program license rights) and (ii) non-cash
compensation paid in common stock (excluding stock payments made to the
401(k) plan). EBITDA is presented not as a measure of operating results,
but rather to provide additional information related to the Company's
ability to service debt. EBITDA should not be considered as an alternative
to either (x) operating income determined in accordance with GAAP as an
indicator of operating performance or (y) cash flows from operating
activities (determined in accordance with GAAP) as a measure of liquidity.
(4) For purposes of this item, "fixed charges" represent interest, the interest
element of rental expense, capitalized interest and amortization of debt
issuance costs and "earnings" represent net income (loss) before income
taxes, discontinued operations, extraordinary items, cumulative effect of
change in accounting principles and fixed charges. Pro forma combined
earnings would be insufficient to cover fixed charges by $6 million.
31
<PAGE>
SELECTED FINANCIAL DATA OF THE PHIPPS BUSINESS
Set forth below are certain selected historical financial data of the Phipps
Business. This information should be read in conjunction with the financial
statements of the Phipps Business and related notes thereto appearing elsewhere
herein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations of the Phipps Business." The
selected historical financial data for, and as of the end of, each of the years
in the three-year period ended December 31, 1995 are derived from the audited
financial statements of the Phipps Business. The selected financial data for,
and as of the end of, each of the years ended December 31, 1991 and 1992 are
derived from the unaudited accounting records of the Phipps Business.
<TABLE>
<CAPTION>
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
(IN THOUSANDS EXCEPT RATIOS) 1991 1992(1) 1993 1994 1995
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Operating revenues:
Broadcasting (less agency commissions) $10,492 $14,523 $19,460 $21,524 $22,424
Paging 3,369 3,646 3,788 4,277 4,897
----------- ----------- ----------- ----------- -----------
Total revenues 13,861 18,169 23,248 25,801 27,321
Expenses:
Broadcasting 5,298 7,518 10,734 10,211 10,487
Paging 2,356 2,298 2,529 2,764 3,052
Management fees 579 973 2,462 2,486 3,280
Depreciation and amortization 1,513 1,734 2,836 2,672 3,120
----------- ----------- ----------- ----------- -----------
Total expenses 9,746 12,523 18,561 18,133 19,939
----------- ----------- ----------- ----------- -----------
Operating income 4,115 5,646 4,687 7,668 7,382
Miscellaneous income (expense), net 5 8 16 666 12
----------- ----------- ----------- ----------- -----------
Income before interest expense and minority
interests 4,120 5,654 4,703 8,334 7,394
Interest expense 162 442 632 480 499
----------- ----------- ----------- ----------- -----------
Income before minority interests 3,958 5,212 4,071 7,854 6,895
Minority interests -- 331 140 635 547
----------- ----------- ----------- ----------- -----------
Net income $ 3,958 $ 4,881 $ 3,931 $ 7,219 $ 6,348
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental unaudited pro forma information: (2)
Net income, as above $ 3,958 $ 4,881 $ 3,931 $ 7,219 $ 6,348
Pro forma provision for income tax expense 1,504 1,855 1,500 2,743 2,413
----------- ----------- ----------- ----------- -----------
Pro forma net income $ 2,454 $ 3,026 $ 2,431 $ 4,476 $ 3,935
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital $ 595 $ 615 $ 1,127 $ 1,421 $ 2,622
Total assets 8,931 25,068 25,074 25,298 27,563
Total debt 1,388 7,697 6,542 6,065 4,810
Minority interests -- 1,154 824 728 586
Owner's equity $ 6,351 $13,276 $14,306 $15,465 $18,794
OTHER DATA:
Media Cash Flow (3) $ 6,207 $ 7,968 $10,466 $12,983 $13,696
Operating cash flow (4) 5,628 6,994 8,003 10,498 10,416
EBITDA (5) 5,627 7,380 7,523 10,340 10,502
Capital expenditures $ 1,009 $ 2,258 $3,538 $3,353 $ 3,188
</TABLE>
- - - ------------------------------
(1) Includes the acquisition of a majority interest in WKXT in July 1992, which
was accounted for using the purchase method of accounting.
(2) John H. Phipps, Inc. and its subsidiaries file a consolidated federal income
tax return and separate state tax returns. Income tax expense for the Phipps
Business is not presented in the financial statements as such amounts are
computed and paid by John H. Phipps, Inc. Pro forma federal and state income
taxes for the Phipps Business are calculated on a pro forma, separate return
basis.
(3) Media Cash Flow represents operating income plus depreciation, amortization
(including amortization of program license rights) and corporate overhead
less payments of program license liabilities.
(4) Operating cash flow represents operating income plus depreciation and
amortization (including amortization of program license rights) less
payments for program license liabilities.
(5) EBITDA represents operating income plus depreciation and amortization
(excluding amortization of program license rights). EBITDA is presented not
as a measure of operating results, but rather to provide additional
information related to the Company's ability to service debt. EBITDA should
not be considered as an alternative to either (x) operating income
determined in accordance with GAAP as an indicator of operating performance
or (y) cash flows from operating activities (determined in accordance with
GAAP) as a measure of liquidity.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS OF THE COMPANY
INTRODUCTION
The following analysis of the financial condition and results of operations of
the Company should be read in conjunction with the Company's consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
The Company derives its revenues from its television broadcasting and publishing
operations. As a result of the Kentucky Acquisition (as defined) in 1994, the
proportion of the Company's revenues derived from television broadcasting has
increased and this proportion will continue to increase as a result of the
Augusta Acquisition, which was completed in January 1996, and the Phipps
Acquisition, which is expected to occur by September 1996. As a result of the
higher operating margins associated with the Company's television broadcasting
operations, the profit contribution of these operations as a percentage of
revenues, has exceeded, and is expected to continue to exceed, the profit
contribution of the Company's publishing operations. Set forth below, for the
periods indicated, is certain information concerning the relative contributions
of the Company's television broadcasting and publishing operations.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
---------------------- ---------------------- ----------------------
PERCENT OF PERCENT OF PERCENT OF
(DOLLARS IN THOUSANDS) AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
TELEVISION BROADCASTING
Revenues $15,003.7 59.8% $22,826.4 62.5% $36,750.0 62.7%
Operating income (1) 4,070.6 66.9 6,556.0 78.4 10,585.2 94.1
PUBLISHING
Revenues $10,109.4 40.2% $13,692.0 37.5% $21,866.2 37.3%
Operating income (1) 2,009.1 33.1 1,804.0 21.6 660.2 5.9
</TABLE>
- - - ------------------------
(1) Excludes any allocation of corporate and administrative expenses.
TELEVISION BROADCASTING
Set forth below are the principal types of broadcasting revenues earned by the
Company's television stations for the periods indicated and the percentage
contribution of each to total Company revenues:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
---------------------- ---------------------- ----------------------
PERCENT OF PERCENT OF PERCENT OF
TOTAL TOTAL TOTAL
COMPANY COMPANY COMPANY
(DOLLARS IN THOUSANDS) AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Local $7,312.3 29.2% $12,191.4 33.4% $20,888.1 35.6%
National 6,102.8 24.3 7,804.4 21.4 10,881.1 18.6
Network compensation 1,286.1 5.1 1,297.5 3.5 2,486.8 4.2
Political 17.7 0.1 1,029.0 2.8 1,174.2 2.0
Production and other 284.8 1.1 504.1 1.4 1,319.8 2.3
---------- ---------- ---------- ---------- ---------- ----------
$15,003.7 59.8% $22,826.4 62.5% $36,750.0 62.7%
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
In the Company's broadcasting operations, broadcast advertising is sold for
placement either preceding or following a television stations' network
programming and within local and syndicated programming. Broadcast advertising
is sold in time increments and is priced primarily on the basis of a program's
popularity among the specific audience an advertiser desires to reach, as
measured by Nielsen. In addition, broadcast advertising rates are affected by
the number of advertisers competing for the
33
<PAGE>
available time, the size and demographic makeup of the market served by the
station and the availability of alternative advertising media in the market
area. Broadcast advertising rates are the highest during the most desirable
viewing hours, with corresponding reductions during other hours. The ratings of
a local station affiliated with a major network can be affected by ratings of
network programming.
Most broadcast advertising contracts are short-term, and generally run only for
a few weeks. The Company estimates that approximately 56.5% of the annual gross
revenues of the Company's television stations for the year ended December 31,
1995 were generated from local advertising, which is sold by a station's sales
staff directly to local accounts, and the remainder represents national
advertising, which is sold by a station's national advertising sales
representative. The stations generally pay commissions to advertising agencies
on local, regional and national advertising and the stations also pay
commissions to the national sales representative on national advertising.
Broadcast advertising revenues are generally highest in the second and fourth
quarters of each year, due in part to increases in retail advertising in the
spring and in the period leading up to and including the holiday season. In
addition, broadcast advertising revenues are generally higher during even
numbered election years due to spending by political candidates, which spending
typically is heaviest during the fourth quarter.
The broadcasting operations' primary operating expenses are employee
compensation, related benefits and programming costs. In addition, the
broadcasting operations incur overhead expenses such as maintenance, supplies,
insurance, rent and utilities. A large portion of the operating expenses of the
broadcasting operations is fixed.
PUBLISHING
Set forth below are the principal types of publishing revenues earned by the
Company's publishing operations for the periods indicated and the percentage
contribution of each to total Company revenues.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
---------------------- ---------------------- ----------------------
PERCENT OF PERCENT OF PERCENT OF
TOTAL TOTAL TOTAL
COMPANY COMPANY COMPANY
(DOLLARS IN THOUSANDS) AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Retail advertising $5,734.3 22.8% $7,460.3 20.4% $11,044.2 18.8%
Classified 2,336.5 9.3 3,174.2 8.7 5,323.8 9.1
Circulation 2,011.8 8.0 2,628.9 7.2 3,783.8 6.5
Other 26.8 0.1 428.6 1.2 1,714.4 2.9
---------- ---------- ---------- ---------- ---------- ----------
$10,109.4 40.2% $13,692.0 37.5% $21,866.2 37.3%
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
In the Company's publishing operations, advertising contracts are generally
annual and primarily provide for a commitment as to the volume of advertising
purchased by a customer. The publishing operations' advertising revenues are
primarily generated from retail advertising. As with the broadcasting
operations, the publishing operations' revenues are generally highest in the
second and fourth quarters of each year.
The publishing operations' primary operating expenses are employee compensation,
related benefits and newsprint costs. In addition, publishing operations incur
overhead expenses such as maintenance, supplies, insurance, rent and utilities.
A large portion of the operating expenses of the publishing operations is fixed,
although the Company has experienced significant variability in its newsprint
costs in recent years.
34
<PAGE>
MEDIA CASH FLOW
The following table sets forth certain operating data for both the broadcast and
publishing operations for the years ended December 31, 1993, 1994 and 1995.
<TABLE>
<CAPTION>
----------------------------------
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Operating income $3,530.7 $ 6,276.4 $ 6,859.7
Add:
Amortization of program license rights 924.9 1,218.0 1,647.0
Depreciation and amortization 1,564.8 2,141.6 3,958.9
Corporate overhead 2,326.7 1,958.4 2,258.3
Non-cash compensation and contributions to the Company's 401(k)
plan,
paid in common stock - 109.5 2,612.2
Less:
Payments for program license liabilities (976.2) (1,181.6) (1,776.8)
---------- ---------- ----------
Media Cash Flow (1) $7,370.9 $10,522.3 $15,559.3
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- - - ------------------------
(1) Of Media Cash Flow, $4.9 million, $8.0 million and $13.6 million was
attributable to the Company's broadcasting operations in 1993, 1994 and
1995, respectively.
"Media Cash Flow" is defined as operating income from broadcast and publishing
operations (and includes paging with regard to the Phipps Business) before
income taxes and interest expense, plus depreciation and amortization (including
amortization of program license rights), non-cash compensation and corporate
overhead, less payments for program license liabilities. The Company has
included Media Cash Flow data because such data are commonly used as a measure
of performance for broadcast companies and are also used by investors to measure
a company's ability to service debt. Media Cash Flow is not, and should not be
used as, an indicator or alternative to operating income, net income or cash
flow as reflected in the consolidated financial statements of the Company and is
not a measure of financial performance under GAAP and should not be considered
in isolation or as a substitute for measures of performance prepared in
accordance with GAAP.
ACQUISITIONS
Since 1994, the Company has completed several broadcasting and publishing
acquisitions. The operating results of the Company reflect significant increases
in substantially all line items between the years ended December 31, 1994 and
December 31, 1995. The principal reason for these increases is the acquisition
by the Company in September 1994 of WKYT and WYMT (together, the "Kentucky
Business") for $38.1 million and the assumption of $2.3 million of liabilities
(the "Kentucky Acquisition"). In addition, during 1994 the Company acquired THE
ROCKDALE CITIZEN for approximately $4.8 million (May 1994) and four shoppers for
approximately $1.5 million (October 1994) (collectively the "1994 Publishing
Acquisitions"), and during 1995 the Company acquired the GWINNETT DAILY POST for
approximately $3.7 million (January 1995) and three shoppers for an aggregate
purchase price of approximately $1.4 million (September 1995) (collectively the
"1995 Publishing Acquisitions"). The 1994 Publishing Acquisitions and the 1995
Publishing Acquisitions are collectively referred to as the "Publishing
Acquisitions."
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Total revenues for the year ended December 31, 1995 increased $22.1
million or 60.5% over the year ended December 31, 1994, from $36.5 million to
$58.6 million. This increase was attributable to (i) the effect of owning the
Kentucky Business for all of 1995 versus the last four months of 1994, (ii) the
Publishing Acquisitions and (iii) increases in total revenues of the Company
(excluding the Kentucky Business and the Publishing Acquisitions). The Kentucky
Acquisition and the Publishing Acquisitions accounted for $19.3 million or 87.3%
of the revenue increase.
Broadcast net revenues increased $13.9 million or 61.0% over the prior year,
from $22.8 million to $36.7 million. Revenues generated by the Kentucky
Acquisition accounted for $12.9 million or 92.8% of the increase. On a pro forma
basis, broadcast net revenues for the Kentucky Business for the year ended
December 31, 1995 increased $2.7 million or 16.1% over the year ended December
31, 1994, from $16.6 million to $19.3 million. Broadcast net revenues, excluding
the Kentucky Acquisition, increased 6.1% or $1.0 million over the prior year.
Approximately $889,000 and $304,000 of the $1.0 million increase in total
broadcast net revenues, excluding the Kentucky Acquisition, were due to higher
local and national advertising spending, respectively.
35
<PAGE>
Approximately $417,000 of the $1.0 million increase in total broadcast net
revenues, excluding the Kentucky Acquisition, is a result of higher network
compensation negotiated by the Company with CBS and NBC, respectively. These
increases were offset by a $617,000 decrease in political advertising revenues
associated with cyclical political activity.
Publishing revenues increased $8.2 million or 59.7% over the prior year, from
$13.7 million to $21.9 million. Approximately $6.4 million or 77.8% of the
increase was due to the Publishing Acquisitions. Publishing revenues, excluding
the Publishing Acquisitions, increased $1.8 million or 15.5% over the prior
year. Advertising and circulation revenue, excluding the Publishing
Acquisitions, comprised approximately $885,000 and $511,000, respectively, of
the revenue increase. This increase in circulation revenue can be attributed
primarily to price increases over the prior year. This increase in classified
advertising, excluding the Publishing Acquisitions, was primarily the result of
rate and linage increases. Approximately $417,000 of the revenue increase,
excluding the Publishing Acquisitions, was the result of higher special events
and commercial printing revenues.
OPERATING EXPENSES. Operating expenses for the year ended December 31, 1995
increased $21.5 million or 71.1% over the year ended December 31, 1994, from
$30.2 million to $51.7 million, primarily due to the Kentucky Acquisition and
the Publishing Acquisitions.
Broadcasting expenses increased $8.3 million or 56.1% over the prior year, from
$14.9 million to $23.2 million. The increase was attributable primarily to the
Kentucky Acquisition. On a pro forma basis, broadcast expenses for the Kentucky
Business for the year ended December 31, 1995 increased $1.5 million or 14.3%
over the year ended December 31, 1994, from $10.7 million to $12.2 million. The
increase in broadcast expenses for the Kentucky Business can be attributed
primarily to increased payroll related costs and sales commissions. Broadcasting
expenses, excluding the Kentucky Acquisition, remained relatively constant
primarily as a result of lower syndicated film programming costs offset by
higher payroll related costs.
Publishing expenses increased $8.8 million or 78.7% over the prior year, from
$11.2 million to $20.0 million. Approximately $7.1 million or 80.6% of the
increase was due to the Publishing Acquisitions. Publishing expenses, excluding
the Publishing Acquisitions, increased $1.7 million or 18.5%, primarily due to a
40% increase in newsprint cost, increased payroll related costs and product
delivery and promotion costs.
Corporate and administrative expenses increased $300,000 or 15.3% over the prior
year, from $2.0 million to $2.3 million. This increase was attributable
primarily to the amendment of an employment agreement with the Company's former
chief executive officer, which resulted in a $440,000 charge to expense.
Depreciation of property and equipment and amortization of intangible assets was
$3.9 million for the year ended December 31, 1995, compared to $2.1 million for
the prior year, an increase of $1.8 million or 84.9%. This increase was
primarily the result of higher depreciation and amortization costs related to
the Kentucky Acquisition and the Publishing Acquisitions.
Non-cash compensation paid in Class A Common Stock resulted from the Company's
employment agreements with its current President and its former chief executive
officer. The current President's employment agreement provides him with 122,034
shares of Class A Common Stock if his employment continues until September 1999.
The Company will recognize $1.2 million of compensation expense for this award
ratably over such five-year period. This agreement resulted in a charge to
expense of $240,000 for the year ended December 31, 1995 as compared to $80,000
for the year ended December 31, 1994. In addition, the Company awarded 150,000
shares of Class A Common Stock, pursuant to the amended employment agreement
with its former chief executive officer, which resulted in an expense of $2.1
million, all of which was recognized in 1995.
INTEREST EXPENSE. Interest expense increased $3.5 million or 182.8%, from $1.9
million for the year ended December 31, 1994 to $5.4 million for the year ended
December 31, 1995. This increase was attributable primarily to increased levels
of debt resulting from the financing of the Kentucky Acquisition and the
Publishing Acquisitions. The Company entered into a $25 million notional amount
five year interest rate swap agreement on June 2, 1995, to effectively convert a
portion of its floating rate debt to a fixed rate basis. Most of the Company's
outstanding debt under the Senior Credit Facility is subject to this interest
rate swap. The Company recorded approximately $34,000 of interest expense
relative to the interest rate swap in 1995. The effective interest rate of the
Senior Credit Facility and interest rate swap at December 31, 1995 was
approximately 8.64% and 9.10%, respectively.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
REVENUES. Total revenues for the year ended December 31, 1994 increased $11.4
million or 45.4% over the year ended December 31, 1993, from $25.1 million to
$36.5 million. Excluding the Kentucky Acquisition and the 1994 Publishing
Acquisitions, the increase was $3.1 million or 12.3%.
36
<PAGE>
Broadcast net revenues increased $7.8 million or 52.1% over the prior year, from
$15.0 million to $22.8 million. Broadcast net revenues, excluding the Kentucky
Acquisition, increased 9.8% or $1.5 million over the prior year. The Kentucky
Acquisition contributed $6.3 million to this increase. Excluding the Kentucky
Acquisition, approximately $921,000 of the $1.5 million increase was a result of
higher levels of political advertising spending due to cyclical election
activity in the Company's broadcast markets. Excluding the Kentucky Acquisition,
local and national advertising contributed an additional $668,000 to the revenue
increase. These increases were offset by decreased network compensation related
to the preemption of network programming in favor of local advertising.
Publishing revenues increased $3.6 million or 35.4% over the prior year, from
$10.1 million to $13.7 million. The 1994 Publishing Acquisitions contributed
$2.0 million to this increase. Publishing revenues, excluding the 1994
Publishing Acquisitions, increased $1.6 million over the prior year. Advertising
and circulation revenues comprised $833,000 and $436,000, respectively, of the
revenue increase. Special events and commercial printing services accounted for
$344,000 of the revenue increase.
OPERATING EXPENSES. Operating expenses for the year ended December 31, 1994
increased $8.7 million or 40.1% over the year ended December 31, 1993, from
$21.6 million to $30.3 million, attributable primarily to the Kentucky
Acquisition and the 1994 Publishing Acquisitions.
Broadcasting expenses increased $4.8 million or 48.2% over the prior year, from
$10.0 million to $14.8 million primarily due to the Kentucky Acquisition.
Broadcasting expenses, excluding the Kentucky Acquisition, increased
approximately $1.0 million, or 10.0%, over the prior year from $10.0 million to
$11.0 million. This increase was attributable to increased payroll related costs
associated with improvement of news programming, costs associated with coverage
of the 1994 flood in Albany, Georgia and other costs related to on-air product
upgrades at the stations.
Publishing expenses increased $3.5 million or 46.1% over the prior year, from
$7.7 million to $11.2 million primarily as a result of the 1994 Publishing
Acquisitions. Publishing expenses, excluding the 1994 Publishing Acquisitions,
increased approximately $1.6 million or 20.9% during the year ended December 31,
1994, as compared to the prior year. This increase was primarily attributable to
an 11.9% increase in newsprint usage, payroll related costs and other product
improvement costs associated with format changes and expanded market coverage of
THE ALBANY HERALD.
Corporate and administrative expenses decreased $368,000 or 15.8% during the
year ended December 31, 1994, from $2.3 million to $1.9 million. This decrease
can be attributed to lower professional fees and related expenses.
Depreciation of property and equipment and amortization of intangible assets was
$2.2 million for the year ended December 31, 1994 compared to $1.6 million for
the prior year, an increase of $577,000 or 36.9%. This increase was due
principally from the depreciation and amortization expense related to the assets
acquired in the Kentucky Acquisition and 1994 Publishing Acquisitions.
INTEREST EXPENSE. Interest expense was $1.9 million for the year ended December
31, 1994 compared to $985,000 for the prior year, an increase of $938,000 or
95.3%. This increase was due primarily to increased levels of debt resulting
from the financing of the Kentucky Acquisition and the 1994 Publishing
Acquisitions. At December 31, 1993 and 1994 the Company's outstanding debt was
$7.3 million and $52.9 million, respectively.
RESULTS OF OPERATIONS OF THE PHIPPS BUSINESS
INTRODUCTION
The following analysis of the financial condition and results of operations of
the Phipps Business should be read in conjunction with the Phipps Business's
consolidated financial statements and notes thereto included elsewhere in this
Prospectus.
The Phipps Business derives its revenues from its television broadcasting
operations which consist of two CBS-affiliated television stations serving
Tallahassee, Florida/Thomasville, Georgia and Knoxville, Tennessee, a satellite
broadcasting business based in Tallahassee, Florida and a paging business also
based in Tallahassee, Florida.
37
<PAGE>
Set forth below, for the periods indicated, is certain information concerning
the relative contributions of the Phipps Business's broadcasting (including
satellite broadcasting) and paging operations.
<TABLE>
<CAPTION>
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
-------------------- -------------------- --------------------
PERCENT PERCENT PERCENT
(DOLLARS IN THOUSANDS) AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
TELEVISION BROADCASTING
Revenues $19,460.1 83.7% $21,524.3 83.4% $22,424.1 82.1%
Operating income (1) 6,636.4 92.8 9,297.9 91.6 9,635.3 90.4
PAGING
Revenues $ 3,787.9 16.3% $ 4,276.6 16.6% $ 4,897.5 17.9%
Operating income (1) 512.7 7.2 855.1 8.4 1,026.9 9.6
</TABLE>
- - - ------------------------
(1) Excludes any allocation of corporate and administrative expenses.
TELEVISION BROADCASTING AND PAGING REVENUES
Set forth below are the principal types of broadcast net revenues earned by the
Phipps Business's television stations (including the satellite broadcasting
operation) for the periods indicated and the percentage contribution of each to
the Phipps Business's total revenues.
<TABLE>
<CAPTION>
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
-------------------- -------------------- --------------------
PERCENT PERCENT PERCENT
OF TOTAL OF TOTAL OF TOTAL
REVENUES REVENUES REVENUES
OF PHIPPS OF PHIPPS OF PHIPPS
(DOLLARS IN THOUSANDS) AMOUNT BUSINESS AMOUNT BUSINESS AMOUNT BUSINESS
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
TELEVISION BROADCASTING
Net revenues:
Local $ 9,732.8 41.9% $10,412.2 40.4% $11,149.2 40.8%
National 7,057.2 30.4 7,217.0 27.9 7,844.9 28.7
Network compensation 1,164.6 5.0 1,433.2 5.6 1,740.1 6.4
Political 9.1 0.0 1,147.1 4.4 33.9 0.1
Production and other (1) 1,496.4 6.4 1,314.8 5.1 1,656.0 6.1
--------- --------- --------- --------- --------- ---------
$19,460.1 83.7% $21,524.3 83.4% $22,424.1 82.1%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
- - - ------------------------
(1) Includes satellite broadcasting business.
38
<PAGE>
Set forth below are the principal types of revenues earned by the Phipps
Business's paging operations for the periods indicated and the percentage
contribution of each to the Phipps Business's total revenues.
<TABLE>
<CAPTION>
------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
---------------------- ---------------------- ------------------------
PERCENT OF PERCENT OF PERCENT OF
TOTAL TOTAL TOTAL
REVENUES OF REVENUES OF REVENUES OF
PHIPPS PHIPPS PHIPPS
(DOLLARS IN THOUSANDS) AMOUNT BUSINESS AMOUNT BUSINESS AMOUNT BUSINESS
--------- ----------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
PAGING
Net revenues:
Paging lease and service $3,741.6 16.1 % $4,201.4 16.3 % $5,004.9 18.3 %
Other 46.3 0.2 75.2 0.3 (107.4) (.4 )
--------- ----------- --------- ----------- ---------- -----------
$3,787.9 16.3 % $4,276.6 16.6 % $4,897.5 17.9 %
--------- ----------- --------- ----------- ---------- -----------
--------- ----------- --------- ----------- ---------- -----------
</TABLE>
MEDIA CASH FLOW
The following table sets forth certain operating data for the broadcast and
paging operations for the years ended December 31, 1993, 1994 and 1995.
<TABLE>
<CAPTION>
-------------------------------
YEAR ENDED DECEMBER 31,
(IN THOUSANDS) 1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Operating income $4,686.9 $7,667.6 $7,381.8
Add:
Amortization of program license rights 1,552.4 1,021.4 844.8
Depreciation and amortization 2,836.0 2,672.2 3,120.4
Corporate overhead 2,462.2 2,485.4 3,280.4
Less:
Payments for program license liabilities (1,072.0) (863.3) (931.0)
--------- --------- ---------
Media Cash Flow (1) $10,465.5 $12,983.3 $13,696.4
--------- --------- ---------
--------- --------- ---------
</TABLE>
- - - ------------------------
(1) Of Media Cash Flow, $9.2 million, $11.5 million and $11.9 million was
attributable to the Phipps Business's broadcasting operations in 1993, 1994
and 1995, respectively.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Total revenues for the year ended December 31, 1995 increased $1.5
million or 5.9% over the year ended December 31, 1994, from $25.8 million to
$27.3 million. This increase was attributable to an improvement in local and
national advertising revenue in the broadcasting operations and the
implementation of a reseller program in the paging operations.
Broadcast net revenues increased $900,000 or 4.2% over the prior year, from
$21.5 million to $22.4 million. Approximately $737,000, $628,000, $307,000 and
$341,000 of the increase in total broadcast net revenues was due to higher local
advertising revenue, national advertising revenue, network compensation and
production revenues, respectively, offset by a $1.1 million decrease in
political advertising spending associated with cyclical political activity. In
addition, revenues generated from satellite broadcasting operations increased
due to additional equipment coming on line.
Net paging revenues increased $621,000 or 14.5% over the prior year, from $4.3
million to $4.9 million. The increase was attributable primarily to higher sales
volume generated by a reseller program implemented during 1995.
OPERATING EXPENSES. Operating expenses for the year ended December 31, 1995
increased $1.8 million or 10.0% over the year ended December 31, 1994, from
$18.1 million to $19.9 million. The increase was attributable primarily to
higher payroll and related costs and sales expenses and commissions associated
with higher sales volumes, increased corporate overhead and depreciation and
amortization costs.
Broadcasting expenses increased $276,000 or 2.7% over the prior year, from $10.2
million to $10.5 million. The increase was attributable primarily to higher
payroll and related costs offset by lower syndicated film programming costs.
Paging expenses increased $288,000 or 10.4% over the prior year, from $2.8
million to $3.1 million. The increase was attributable primarily to higher
payroll, sales and operating costs associated with revenue growth.
39
<PAGE>
Corporate and administrative expenses for the year ended December 31, 1995
increased $794,000 or 32.0% over the year ended December 31, 1994, from $2.5
million to $3.3 million. The increase was attributable to higher personnel costs
and overhead allocation.
Depreciation of property and equipment and amortization of intangible assets for
the year ended December 31, 1995 increased $448,000 or 16.8% over the year ended
December 31, 1994, from $2.7 million to $3.1 million. This increase was
primarily the result of higher depreciation costs relating to property and
equipment purchases and higher amortization of intangible assets in connection
with the purchase of certain minority interests of WKXT in Knoxville, Tennessee.
INTEREST EXPENSE. Interest expense remained relatively unchanged from year to
year.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
REVENUES. Total revenues for the year ended December 31, 1994 increased $2.6
million or 11.0% over the year ended December 31, 1993, from $23.2 million to
$25.8 million. This increase was attributable to higher local, national and
political advertising as well as an increase in network compensation. In
addition, paging revenues increased as geographic coverage expanded.
Broadcast net revenues increased $2.1 million or 10.6% over the prior year, from
$19.5 million to $21.5 million. Approximately $679,000 and $160,000 of the $2.1
million increase in total broadcast net revenues is due to higher local and
national advertising spending, respectively. Approximately $269,000 and $1.1
million of the $2.1 million increase is due to higher network compensation and
political advertising revenues associated with cyclical political activity,
respectively, offset by a $182,000 decrease in satellite broadcasting revenues.
Net paging revenues increased $489,000 or 12.9% over the prior year, from $3.8
million to $4.3 million. The increase was attributable primarily to higher sales
volume due to increased geographical coverage.
OPERATING EXPENSES. Operating expenses for the year ended December 31, 1994
decreased $428,000 or 2.3% from the year ended December 31, 1993, from $18.6
million to $18.2 million. The decrease was attributable primarily to lower
syndicated programming costs, offset by slightly higher paging expenses due to
higher sales volume and lower depreciation.
Broadcasting expenses decreased $523,000 or 4.9% from the prior year, from $10.7
million to $10.2 million. The decrease was attributable primarily to the
write-off of certain syndicated programming in 1993 that was not being utilized.
Paging expenses increased $235,000 or 9.3% over the prior year, from $2.5
million to $2.8 million. The increase was attributable primarily to costs
associated with higher sales volume.
Corporate and administrative expenses remained relatively unchanged from year to
year.
Depreciation of property and equipment and amortization of intangible assets for
the year ended December 31, 1994 decreased $164,000 or 5.8% from the year ended
December 31, 1993, from $2.8 million to $2.7 million. This decrease was
primarily the result of the completion of depreciation for certain items of
equipment purchased in 1988.
INTEREST EXPENSE. Interest expense for the year ended December 31, 1994
decreased $152,000 or 24.0% from the year ended December 31, 1993, from $632,000
to $480,000. This decrease was attributable primarily to lower levels of debt
associated with WKXT.
LIQUIDITY AND CAPITAL RESOURCES
Following the consummation of the KTVE Sale, the Phipps Acquisition, the
Financing, the Offering and the Concurrent Offering, the Company will be highly
leveraged. The Company anticipates that its principal uses of cash for the next
several years will be working capital and debt service requirements, cash
dividends, capital expenditures and expenditures related to additional
acquisitions. The Company anticipates that its operating cash flow, together
with borrowings available under the Senior Credit Facility, will be sufficient
for such purposes.
The Company's working capital (deficiency) was $1.1 million and ($221,000) at
December 31, 1994 and 1995, respectively. The working capital of the Phipps
Business was $1.4 million and $2.6 million at December 31, 1994
40
<PAGE>
and 1995, respectively. The Company's cash provided from operations was $5.8
million and $7.6 million for the years ended December 31, 1994 and 1995,
respectively. The Phipps Business's cash provided from operations was $9.8
million and $9.3 million for the years ended December 31, 1994 and 1995,
respectively.
The Company's cash used in investing activities was $42.8 million and $8.9
million in 1994 and 1995, respectively. The change of $(45.9) million from 1993
to 1994 was due primarily to the Kentucky Acquisition and the 1994 Publishing
Acquisitions. The change of $33.9 million from 1994 to 1995 was due primarily to
the Kentucky Acquisition and the 1994 Publishing Acquisitions, partially offset
by the 1995 Publishing Acquisitions and the deferred costs related to the
Augusta Acquisition. The Phipps Business's cash used in investing activities was
$2.5 million and $3.8 million in 1994 and 1995, respectively.
The Company used $4.9 million in cash in 1993, and was provided $37.2 million
and $1.3 million in cash by financing activities in 1994 and 1995, respectively.
The use of cash in 1993 resulted primarily from the repayment of debt while cash
provided by financing activities in 1994 and 1995 was principally due to
increased borrowings in 1994 to finance the Kentucky Acquisition and the 1994
Publishing Acquisitions, as well as increased borrowings in 1995 to finance the
1995 Publishing Acquisitions and the funding of the deposit for the Augusta
Acquisition. Long-term debt was $54.3 million at December 31, 1995. On January
4, 1996, the Company acquired the Augusta Business. The cash consideration of
approximately $35.9 million, including acquisition costs of approximately
$600,000, was financed primarily through long-term borrowings under the Senior
Credit Facility and through the sale of the 8% Note to Bull Run. For the year
ended December 31, 1995, the Augusta Business reported net revenues and
broadcast cash flow of $8.7 million and $2.8 million, respectively. The Phipps
Business used $7.2 million and $4.9 million in cash for financing activities in
1994 and 1995, respectively.
In 1995, the Company made $3.3 million in capital expenditures, relating
primarily to the broadcasting operations and paid $1.8 million for program
broadcast rights. In 1995, the Phipps Business made $3.2 million in capital
expenditures and paid $931,000 for program broadcast rights. The Company
anticipates making $3.0 million in capital expenditures and $2.7 million in
payments for program broadcast rights in 1996. Subsequent to the consummation of
the Phipps Acquisition, the Company anticipates that its annual capital
expenditures will approximate $5 million.
In addition to the consummation of the Phipps Acquisition, the Company intends
to implement the Financing to increase liquidity and improve operating and
financial flexibility. Pursuant to the Financing, the Company will (i) repay
approximately $38.8 million principal amount of outstanding indebtedness under
the Senior Credit Facility, together with accrued interest thereon and to amend
the terms thereof, (ii) issue $10 million liquidation preference of its Series A
Preferred Stock in exchange for the 8% Note issued to Bull Run, (iii) issue to
certain affiliates $10 million liquidation preference of its Series B Preferred
Stock with warrants to purchase up to 500,000 shares representing % of the
outstanding Class A Common Stock for cash proceeds of $10 million and (iv)
revise the terms of the Senior Note. See "The Phipps Acquisition, the KTVE Sale
and the Financing-The Financing."
The Senior Credit Facility is a $55.0 million line of credit available for
working capital requirements and general corporate purposes. The Senior Credit
Facility matures in March 2003, provides for increasing quarterly amortization,
includes certain customary financial covenants and bears interest at a rate of
3.5% over LIBOR, subject to adjustment based on the Company's leverage ratio.
The Senior Credit Facility also requires the Company to use its annual Excess
Cash Flow (as defined) to repay indebtedness thereunder at the end of each year.
As of December 31, 1995, on a pro forma basis after giving effect to the Augusta
Acquisition, the KTVE Sale, the Concurrent Offering, the Phipps Acquisition, the
Financing and this Offering, the Company would have been able to incur
approximately $41.7 million of additional indebtedness pursuant to the Senior
Credit Facility, none of which could have been borrowed thereunder due to the
covenant restrictions contained in the Senior Credit Facility. The Senior Credit
Facility is guaranteed by each of the Company's subsidiaries and is secured by
liens on substantially all of the assets of the Company and its subsidiaries. As
part of the Financing and as a condition of this Offering, the Company will
amend or replace the Senior Credit Facility and the Company is currently engaged
in negotiations with certain institutional leaders with respect thereto. See
"Description of Certain Indebtedness -- The Senior Credit Facility."
The Senior Note provides for semi-annual principal payments of $2.5 million
beginning March 1999. Interest is payable semi-annually in arrears and the
Senior Note, as amended on January 4, 1996, bears interest at 10.7% per annum.
The agreement pursuant to which the Senior Note was issued contains certain
restrictive covenants, which,
41
<PAGE>
among other things, limit capital expenditures and additional indebtedness and
require minimum levels of net worth and cash flows. As part of the Financing,
the Company intends to amend the Senior Note to increase the interest rate to
11.2% per annum and to amend certain covenants. See "Description of Certain
Indebtedness -- The Senior Note."
The Company has entered into a non-binding letter of intent to sell KTVE for
approximately $9.5 million in cash plus the amount of the accounts receivable on
the date of the closing, which is expected to occur by September 1996. The
Company anticipates the taxes for the KTVE Sale will aggregate approximately
$2.8 million.
In connection with the Phipps Acquisition, the Company will be required to
divest WALB and WJHG under current FCC regulations. However, these rules may be
revised by the FCC upon conclusion of pending rulemaking proceedings. In order
to satisfy applicable FCC requirements, the Company, subject to FCC approval,
intends to swap such assets for assets of one or more television stations of
comparable value and with comparable broadcast cash flow in a transaction
qualifying for deferred capital gains treatment under the "like-kind exchange"
provision of Section 1033 of the Code. If the Company is unable to effect such a
swap on satisfactory terms within the time period granted by the FCC under the
waivers, the Company may transfer such assets to a trust with a view towards the
trustee effecting a swap or sale of such assets. Any such trust arrangement
would be subject to the approval of the FCC. It is anticipated that the Company
would be required to relinquish operating control of such assets to a trustee
while retaining the economic risks and benefits of ownership. If the Company or
such trust is required to effect a sale of WALB, the Company would incur a
significant gain and related tax liability, the payment of which could have a
material adverse effect on the Company's ability to acquire comparable assets
without incurring additional indebtedness.
The Company and its subsidiaries file a consolidated federal income tax return
and such state or local tax returns as are required. On a pro forma basis after
giving effect to the Augusta Acquisition, the KTVE Sale, the Concurrent
Offering, the Financing, the Phipps Acquisition and this Offering, the Company
anticipates that it will generate taxable operating losses for the foreseeable
future.
The Company does not believe that inflation in past years has had a significant
impact on the Company's results of operations nor is inflation expected to have
a significant effect upon the Company's business in the near future.
42
<PAGE>
BUSINESS
The Company owns and operates seven network-affiliated television stations in
medium-size markets in the southeastern United States, six of which are ranked
number one in their respective markets. Five of the stations are affiliated with
CBS and two are affiliated with NBC. The Company also owns and operates three
daily newspapers, two shoppers and a paging business, all located in the
Southeast. The Company derives significant operating advantages and cost saving
synergies through the size of its television station group and the regional
focus of its television and publishing operations. These advantages and
synergies include (i) sharing television production facilities, equipment and
regionally oriented programming, (ii) the ability to purchase television
programming for the group as a whole, (iii) negotiating network affiliation
agreements on a group basis and (iv) purchasing newsprint and other supplies in
bulk. In addition, the Company believes that its regional focus can provide
advertisers with an efficient network through which to advertise in the
fast-growing Southeast.
In 1993, after the acquisition of a large block of Class A Common Stock by a new
investor, the Company implemented a strategy to foster growth through strategic
acquisitions. Since 1994, the Company's significant acquisitions have included
three television stations and two newspapers, all located in the Southeast. As a
result of the Company's acquisitions and in support of its growth strategy, the
Company has added certain key members of management and has greatly expanded its
operations in the television broadcasting and newspaper publishing businesses.
In January 1996, the Company acquired WRDW serving Augusta, Georgia. In December
1995, the Company entered into an asset purchase agreement to acquire two
CBS-affiliated stations, WCTV serving Tallahassee, Florida/ Thomasville, Georgia
and WKXT in Knoxville, Tennessee, a satellite broadcasting business and a paging
business. The Company believes that the Phipps Acquisition will further enhance
the Company's position as a major regional television broadcaster and is highly
attractive for a number of reasons, including (i) the stations' the strategic
fit within the Southeast, (ii) WCTV's leading station market position and WKXT's
significant growth potential, (iii) strong station broadcast cash flows, (iv)
opportunities for revenue growth utilizing the Company's extensive management
expertise with medium-size stations and (v) opportunities for synergies between
WCTV and WKXT and the Company's existing stations with regard to revenue
enhancement and cost controls. The consummation of the Phipps Acquisition is
currently expected to occur by September 1996.
In March 1996, the Company entered into a non-binding letter of intent to sell
KTVE serving Monroe, Louisiana/El Dorado, Arkansas for approximately $9.5
million in cash plus the amount of the accounts receivable on the date of the
closing, which is expected to occur by September 1996.
For the year ended December 31, 1995, on a pro forma basis, the Company had net
revenues, Media Cash Flow and operating cash flow of $90.6 million, $30.3
million and $28.1 million, respectively, of which 70.5%, 87.9% and 94.9% were
broadcast related. Furthermore, net revenues, Media Cash Flow and operating cash
flow on a pro forma basis for the year ended December 31, 1995 increased 148.2%,
188.4% and 227.8%, respectively, from the historical amounts for the year ended
December 31, 1994.
The following table sets forth certain information for each of the Company's
television stations.
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
IN-MARKET -------------------------------
SHARE OF PRO FORMA
STATION HOUSEHOLDS PERCENTAGE OF
NETWORK YEAR DMA CHANNEL/ RANK IN VIEWING COMPANY NET
STATION AFFILIATION MARKET ACQUIRED RANK(1) FREQUENCY DMA TV NET REVENUES REVENUES(2)
- - - ------- ----------- ---------------- -------- -------- ---------- ------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
WKYT CBS Lexington, KY 1994 68 27/UHF (3) 1 33% $15,553 17.2%
WYMT CBS Hazard, KY 1994 68 57/UHF (3) 1(4) 24 3,721 4.1
WRDW CBS Augusta, GA 1996 111 12/VHF 1 36 8,888 9.8
WALB(5) NBC Albany, GA 1954 152 10/VHF 1 80 9,445 10.4
WJHG(5) NBC Panama City, FL 1960 159 7/VHF 1 53 3,843 4.3
PHIPPS ACQUISITION
WKXT CBS Knoxville, TN 62 8/VHF 3 22 9,269 10.2
WCTV CBS Tallahassee, FL/ 116 6/VHF 1 60 11,862 13.1
Thomasville, GA
</TABLE>
43
<PAGE>
- - - ------------------------------
(1) Ranking of DMA served by a station among all DMAs is measured by the number
of television households within the DMA based on the November 1995 Nielsen
estimates.
(2) Pro forma percentage of Company net revenues after giving effect to the
Augusta Acquisition, the KTVE Sale and the Phipps Acquisition.
(3) All stations in the market are UHF stations.
(4) The market area served by WYMT is an 18-county trading area, as defined by
Nielsen, and is included in the Lexington, Kentucky DMA. WYMT's station
rank is based upon its position in the 18-county trading area.
(5) The Company will be required to divest WALB and WJHG in connection with the
Phipps Acquisition under current FCC regulations. For a discussion of the
Company's plans, see "Risk Factors-FCC Divestiture Requirement" and "The
Phipps Acquisition, the KTVE Sale and the Financing."
The Company's three newspapers, THE ALBANY HERALD, THE ROCKDALE CITIZEN and the
GWINNETT DAILY POST and two shoppers had net revenues of $21.9 million for the
year ended December 31, 1995 and represented 24.1% of the Company's pro forma
net revenues for such year. The satellite broadcasting business and paging
business, which are part of the Phipps Business, represented 1.4% and 5.4%,
respectively, of the Company's pro forma net revenues for the year ended
December 31, 1995.
The following table sets forth certain information for each of the Company's
publications:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1995
-------------------------
PRO FORMA
PERCENTAGE
OF COMPANY
PUBLISHED NET
PUBLICATION COVERAGE AREA CIRCULATION PER WEEK NET REVENUE REVENUES(1)
- - - ---------------------- ---------------- ------------- --------- ----------- ------------
(IN
THOUSANDS)
<S> <C> <C> <C> <C> <C>
THE ALBANY HERALD 25 counties in 34,000 daily 7 $13,535 14.9%
Southwest 40,000 Sunday
Georgia
THE ROCKDALE CITIZEN 2 counties in 10,000 5 3,854 4.3
Georgia (metro
Atlanta)
GWINNETT DAILY POST 1 county in 13,000 5 2,432 2.7
Georgia (metro
Atlanta)
SOUTHWEST GEORGIA 10 counties in 52,000 1 2,045 2.3
SHOPPERS Southwest
Georgia and 10
counties in
North Florida
</TABLE>
- - - ------------------------------
(1) Pro forma percentage of total revenues of the Company after giving effect
to the Augusta Acquisition, the KTVE Sale and the Phipps Acquisition.
REGIONAL FOCUS
The Company's television stations and publications are all located in the
fast-growing southeastern United States. The Company believes that this regional
focus provides it with significant competitive advantages and has enabled it to
develop an expertise in serving medium-size southeastern markets. As a result of
its ownership of seven network-affiliated television stations in the Southeast,
the Company believes that there are opportunities to sell advertising to certain
sponsors on all or several of its stations as a single buy. Further, the
Company's ownership of multiple publications in several adjacent southeastern
communities provides an attractive and efficient channel through which to sell
local print advertising. The Company capitalizes on its regional presence by
transferring management personnel, equipment, programming and news content among
its stations and publications.
OPERATING STRATEGY
The Company has begun to introduce various operating strategies that have been
successfully implemented at WKYT in Lexington, Kentucky throughout its station
group. The Company's current President served as the general manager of WKYT
from 1989 to 1995 and developed and successfully implemented many of the
strategies being adopted at the Company's other stations. Set forth below are
the Company's operating strategies.
STRONG LOCAL PRESENCE. Each of the Company's television stations seeks to
achieve a distinct local identity principally through the depth and focus of its
local news programming and by targeting specific audience groups with special
programs and marketing events. Each station's local news franchise is the core
component of the Company's strategy to strengthen audience loyalty and increase
revenues and Media Cash Flow for each station. Strong local news generates high
viewership and results in higher ratings both for programs preceding and
following the news. All of the
44
<PAGE>
Company's stations that offer comprehensive local news coverage are the dominant
local broadcast news source. WKXT in Knoxville, Tennessee currently does not
offer significant local news coverage; the Company intends to significantly
expand the news broadcast at this station after the consummation of the Phipps
Acquisition.
Strong local news product also differentiates local broadcast stations from
cable system competitors, which generally do not provide this service. The cost
of producing local news programming generally is lower than other sources of
programming and the amount of such local news programming can be increased or
decreased on very short notice, providing the Company with greater programming
flexibility.
The Company believes that its strong commitment to local broadcasting is
integral to its ability to serve each of the communities in which it operates.
In each of its markets, the Company develops information-oriented programming
which expands the Company's hours of commercially valuable local programming
with relatively small increases in operating expenses. In addition, each station
utilizes special programming and marketing events, such as prime-time
programming of local interest or sponsored community events, to strengthen
community relations and increase advertising revenues. For example, certain of
the Company's stations offer state governor call-in shows, local medical shows
and cover local sporting events. The Company requires its senior staff to become
actively involved in community affairs in an effort to better understand the
issues in each community in which it operates.
A key component of the Company's publishing strategy is an emphasis on strong
local content in its publications. Consequently, the Company focuses on local
news, sports and lifestyle issues in order to foster reader loyalty with the
objective of raising circulation and advertising rates. The Company's
publications also sponsor community events such as bridal expositions with the
objective of strengthening community relationships and building advertising
revenues.
TARGETED MARKETING. The Company seeks to increase its advertising revenues and
Media Cash Flow by expanding existing relationships with local and national
advertisers and by attracting new advertisers through targeted marketing
techniques and carefully tailored programming. The Company works closely with
advertisers to develop advertising campaigns that match specifically targeted
audience segments with the advertisers' overall marketing strategies. With this
information, the Company regularly refines its programming mix among network,
syndicated and locally-produced shows in a focused effort to attract audiences
with demographic characteristics desirable to advertisers. As a result of
implementing this strategy, WKYT's share of advertising dollars exceeded its
in-market share of households viewing television by 15% in 1995.
The Company's success in increasing advertising revenues at both its stations
and publications is also attributable, in part, to the implementation of
training programs for its marketing consultants that focus on innovative sales
techniques, such as events marketing and demographic-specific projects, that
target specific advertisers. The Company trains its marketing consultants to
sell not only advertising spots, but also non-traditional advertising such as
billboards for sponsored sports events and weather forecasts within newscasts.
In addition, performance based compensation arrangements and performance
accountability systems have contributed to the Company's success in increasing
local advertising revenues. The Company has also benefitted from sharing ideas
and information for increasing advertising revenues among its station group and
publications. The Company's targeted marketing focus also includes the following
key elements:
-NON-TRADITIONAL REVENUE SOURCES. The Company uses its stations' and
publications' local promotional power in order to increase revenues from
non-traditional sources by sponsoring and staging various special events,
such as boat shows, fitness shows, bridal expositions and fishing
tournaments. The Company derives revenues through the promotion, production
and advertising sales generated by these events.
-VENDOR MARKETING. The Company engages in targeted vendor marketing whereby
it contacts major vendors that supply a particular store or retail chain,
and the management at a particular store or retail chain in order to
arrange for the vendors to purchase local television advertising. The store
or retail chain in turn agrees to purchase additional products from the
vendor and also benefits from the increased local television advertising
presence. As a result of this vendor marketing, the Company's stations are
able to sell advertising to promote a local retailer, which the local
retailer would not normally have purchased for itself.
COST CONTROLS. Through its strategic planning and annual budgeting processes,
the Company continually seeks to identify and implement cost savings
opportunities at each of its stations and publications in order to increase
Media
45
<PAGE>
Cash Flow. The Company closely monitors expenses incurred by each of its
stations and publications and continually reviews their performance and
productivity. Additionally, the Company seeks to minimize its use of outside
firms and consultants by relying on its in-house production and design
capability.
In order to further reduce costs, the Company capitalizes on its regional focus
through its ability to produce programming at one station which can be used by
many of the Company's other stations. Further, the size of the Company's station
group and its ownership of multiple publications gives it the ability to
negotiate favorable terms with programming syndicators, newsprint suppliers,
national sales representatives and other vendors. For example, the Company
recently entered into a new agreement with its national sales representative,
which significantly reduced the commissions payable by the Company for national
advertising. Due to the proximity of the Company's operations, the Company's
stations and publications share equipment, programming and management expertise.
In addition, each station and publication reduces its corporate overhead costs
by utilizing group benefits such as insurance and employee benefit plans
provided by the Company.
ACQUISITION STRATEGY
The Company focuses on medium-size markets in the Southeast because the Company
believes these markets offer superior opportunities in terms of projected
population and economic growth, leading to higher advertising and circulation
revenues. The Company intends to continue to consider additional acquisitions of
television stations and publications that serve these markets. The Company has
focused on acquiring television stations where it believes there is potential
for improvements in revenue share, audience share and cost control. In assessing
acquisitions, the Company targets stations where it sees specific opportunities
for revenue enhancement utilizing management's significant experience in local
and national advertising sales and in operating similar stations in the
Southeast. In addition, projections of growth in the particular market are taken
into account. The Company also targets stations and publications for which it
can control expenditures as it expands the operation's revenue base. Typical
cost savings arise from (i) reducing staffing levels and sharing management with
other stations and publications, (ii) utilizing in-house production and design
expertise, (iii) substituting more cost effective employee benefit programs,
(iv) reducing travel and other non-essential expenses and (v) optimizing the
purchase of newsprint and other supplies. Other than the Phipps Acquisition, the
Company does not presently have any agreements to acquire any television
stations or publications. See "The Phipps Acquisition, the KTVE Sale and the
Financing." In appropriate circumstances, the Company will dispose of assets
that it deems non-essential to its operating or growth strategy.
[Map of certain states in the southeast United States that sets forth state
capitals and locations of the Company's stations]
TELEVISION BROADCASTING
THE COMPANY'S STATIONS AND THEIR MARKETS
AS USED IN THE TABLES FOR EACH OF THE COMPANY'S STATIONS IN THE FOLLOWING
SECTION (I) "GROSS REVENUES" REPRESENT ALL OPERATING REVENUES EXCLUDING BARTER
REVENUES; (II) "MARKET REVENUES" REPRESENT GROSS ADVERTISING REVENUES, EXCLUDING
46
<PAGE>
BARTER REVENUES, FOR ALL COMMERCIAL TELEVISION STATIONS IN THE MARKET, AS
REPORTED IN INVESTING IN TELEVISION 1995 MARKET REPORT, 4TH EDITION JULY 1995
RATINGS PUBLISHED BY BIA PUBLICATIONS, INC., EXCEPT FOR REVENUES IN WYMT-TV'S
("WYMT") 18-COUNTY TRADING AREA WHICH IS NOT SEPARATELY REPORTED IN SUCH BIA
PUBLICATIONS, INC.'S REPORT; (III) "IN-MARKET SHARE OF HOUSEHOLDS VIEWING
TELEVISION" REPRESENTS THE PERCENTAGE OF THE STATION'S AUDIENCE AS A PERCENTAGE
OF ALL VIEWING BY HOUSEHOLDS IN THE MARKET FROM 6 A.M. TO 2 A.M. SUNDAY THROUGH
SATURDAY, INCLUDING VIEWING OF NON-COMMERCIAL STATIONS, NATIONAL CABLE CHANNELS
AND OUT-OF-MARKET STATIONS BROADCAST OR CARRIED BY CABLE IN THE MARKET; AND (IV)
"STATION RANK IN DMA" IS BASED ON NIELSEN ESTIMATES FOR NOVEMBER OF EACH YEAR
FOR THE PERIOD FROM 6 A.M. TO 2 A.M. SUNDAY THROUGH SATURDAY.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
IN-MARKET
COMMERCIAL STATION SHARE OF
DMA STATIONS RANK IN TELEVISION MARKET REVENUES HOUSEHOLDS
STATION MARKET RANK(1) IN DMA(2) DMA HOUSEHOLDS(3) IN DMA FOR 1995 VIEWING TV
- - - -------- ---------------- ------- ---------- ------- ------------- --------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
WKYT Lexington, KY 68 5 1 387,000 $46,100 33%
WYMT (4) Hazard, KY 68 N/A 1 169,000 4,100 24
WRDW Augusta, GA 111 4 1 221,000 26,300 36
WALB (5) Albany, GA 152 3 1 132,000 12,200 80
WJHG (5) Panama City, FL 159 4 1 110,000 8,500 53
PHIPPS ACQUISITION(6)
WKXT Knoxville, TN 62 4 3 429,000 57,900 22
WCTV Tallahassee, FL/ 116 4 1 210,000 19,900 60
Thomasville, GA
</TABLE>
- - - ------------------------------
(1) Ranking of DMA served by a station among all DMAs is measured by the number
of television households based within the DMA on the November 1995 Nielsen
estimates.
(2) Includes independent broadcasting stations.
(3) Based upon the approximate number of television households in the DMA as
reported by the November 1995 Nielsen index.
(4) The market area served by WYMT is an 18-county trading area, as defined by
Nielsen, and is included in the Lexington, Kentucky DMA. WYMT's station
rank is based upon its position in the 18-county trading area.
(5) The Company will be required to divest WALB and WJHG in connection with the
Phipps Acquisition. For a discussion of the Company's plans, see "Risk
Factors-FCC Divestiture Requirement" and "The Phipps Acquisition, the KTVE
Sale and the Financing."
(6) The closing of the Phipps Acquisition is expected to occur by September
1996.
The following is a description of each of the Company's stations:
WKYT, THE CBS AFFILIATE IN LEXINGTON, KENTUCKY
WKYT, acquired by the Company in September 1994, began operations in 1957.
Lexington, Kentucky is the 68th largest DMA in the United States, with
approximately 387,000 television households and a total population of
approximately 1.1 million. Total Market Revenues in the Lexington DMA in 1995
were approximately $46.1 million, a 6% increase over 1994. WKYT's gross revenues
for the year ended December 31, 1995 were approximately $17.6 million, an
increase of 14.6% from 1994. The Lexington DMA has five licensed commercial
television stations, including WYMT, WKYT's sister station, all of which are
affiliated with major networks. The Lexington DMA also has one public television
station.
The following table sets forth Market Revenues for the Lexington DMA and
in-market share and ranking information for WKYT:
<TABLE>
<CAPTION>
----------------------------------
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Market Revenues in DMA $39,500 $43,500 $46,100
Market Revenues growth over prior year 13% 10% 6%
In-market share of households viewing television 38% 37% 33%
Rank in market 1 1 1
</TABLE>
47
<PAGE>
MARKET DESCRIPTION. The Lexington DMA consists of 38 counties in central and
eastern Kentucky. The Lexington area is a regional hub for shopping, business,
healthcare, education, and cultural activities and has a comprehensive
transportation network and low commercial utility rates. Major employers in the
Lexington area include Toyota Motor Corp., Lexmark International, Inc., GTE
Corporation, Square D Company, Ashland, Inc. and International Business Machines
Corporation. Toyota Motor Corp. operates a large production facility near
Lexington, employing 6,000 people and in May 1995 announced plans to build its
next generation mini-van at this facility. Eight hospitals and numerous medical
clinics are located in Lexington, reinforcing Lexington's position as a regional
medical center. The University of Kentucky which is located in Lexington, is
also a major employer with approximately 10,000 employees, and has a full time
enrollment of approximately 24,000 students. In addition, Lexington is an
international center of the equine industry with the Kentucky Horse Park, a
1,000 acre park that attracts approximately 700,000 visitors annually.
STATION PERFORMANCE. WKYT, which operates on channel 27, is a CBS affiliate.
WKYT can be viewed on 86 cable systems in its DMA and 51 cable systems outside
its DMA. In 1995, WKYT celebrated its 20th consecutive year as the Lexington
DMA's most watched local news program. Every broadcast of "27 Newsfirst"-at 6
a.m., noon, 5 p.m., 5:30 p.m., 6 p.m. and 11 p.m.-continues to be the number one
rated program in its time period. WKYT's news programs also provide support and
coverage of local events through public service announcements, on-air bulletin
boards and special reports, such as CRIMESTOPPERS, 27 ON THE TOWN and HOMETOWN
HEROES. Based on the November 1995 Nielsen index, WKYT is ranked number one in
its market, with a 33% in-market share of households viewing television, which
is five percentage points ahead of the competition. WKYT received 38% of the
Lexington DMA's Market Revenues in 1995. The station attributes its success to
the experience of its senior management and local sales staff, which focus on
developing strong relationships with local advertisers and devoting significant
attention to the quality and content of WKYT's local news programming.
Since the 1970's WKYT has been the flagship station for the University of
Kentucky Sports Network, producing sports events and coaches' shows, such as the
RICK PITINO COACH'S SHOW a half-hour show featuring the University of Kentucky
Basketball coach, that air on a 10-station network across Kentucky. Although
WKYT focuses on the most popular University of Kentucky Wildcat sports,
basketball and football, the station also features other intercollegiate sports,
such as baseball, tennis and swimming/diving.
WKYT has a full mobile production unit that produces a variety of events,
including sports events, beauty pageants and horse racing. In addition, WKYT has
a Doppler Weather Radar System, the latest technology available in weather
forecasting. In 1995, WKYT spent over $1.3 million on capital improvements,
including a complete studio and master control room renovation and the addition
of Maxigrid, an inventory management system.
Cross-promotion and partnerships with radio, newspapers and businesses are a
source of non-traditional revenue as well as a means of community involvement.
WKYT is also party to the first joint venture in the Lexington market through
its production of a 10 p.m. newscast for WDKY-TV, an affiliate of the Fox
Broadcasting Company ("Fox") in Lexington, which provides additional exposure
for the station's news talent as well as a new source of revenue for WKYT.
Local programming produced by WKYT includes SCOTT'S PLACE, a weekly half-hour
children's show which is carried on WALB, WJHG and WRDW, and DIRECTIONS and 27
NEWSMAKERS, two weekly public affairs programs dealing with minority and
government and political issues, respectively. In addition, WKYT also carries
programming provided by CBS and syndicated programming, including OPRAH!,
JEOPARDY!, WHEEL OF FORTUNE and THE ANDY GRIFFITH SHOW.
The Company's President and the current station manager at WALB are both former
members of senior management at WKYT.
WYMT, THE CBS AFFILIATE IN HAZARD, KENTUCKY
WYMT, acquired by the Company in September 1994, began operations in 1985. WYMT
has carved out a niche trading area comprising 18 counties in eastern and
southeastern Kentucky. This trading area is a separate market area of the
Lexington, Kentucky DMA with approximately 169,000 television households and a
total population of approximately 463,000. WYMT is the only commercial
television station in this 18-county trading area. Total Market
48
<PAGE>
Revenues in the 18-county trading area and WYMT's gross revenues in the
18-county trading area in 1995 were approximately $4.1 million, a 9% increase
over 1994. WYMT is the sister station of WKYT and shares many resources and
simulcasts some local programming with WKYT.
The following table sets forth Market Revenues for the 18-county trading area
and ranking information for WYMT (based upon its position in its 18-county
trading area):
<TABLE>
<CAPTION>
----------------------------------
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Market Revenues in the 18-county trading area (1) $3,500 $3,800 $4,100
Market Revenues growth over prior year 12% 8% 9%
In-market share of households viewing television 25% 20% 24%
Rank in market 1 1 1
</TABLE>
(1) Represents the gross revenues of WYMT, which is the only commercial
television station in the 18-county trading area. The Company is unable to
determine the amount of Market Revenue for the 18-county trading area which
may be attributable to other television stations serving the Lexington DMA.
MARKET DESCRIPTION. The mountain region of eastern and southeastern Kentucky
where Hazard is located is on the outer edges of four separate markets:
Bristol-Kingsport-Johnson City, Charleston-Huntington, Knoxville and Lexington.
Prior to 1985, mountain residents relied primarily on satellite dishes and cable
television carrying distant signals for their television entertainment and news.
Established in 1985, WYMT is the only broadcast station which can be received
over the air in a large portion of its 18-county trading area and may now be
viewed on 100 cable systems.
The trading area's economy is centered around coal and related industries and
some light manufacturing. In recent years, the coal industry has undergone a
major restructuring due to consolidation in the industry and advances in
technology. Approximately 10,700 manufacturing jobs exist in the Hazard trading
area, most of which are concentrated in the Cumberland Valley area, a Kentucky
Area Development District located in the southern portion of the 18-county
trading area.
STATION PERFORMANCE. WYMT, which operates on channel 57, is a CBS affiliate.
WYMT is ranked number one, based on November 1995 Nielsen estimates, in its
trading area with a 24% in-market share of households viewing television, which
is nine points ahead of the competition. WYMT's Mountain News at 6:30 a.m., 6
p.m. and 11 p.m. is ranked number one in the 18-county trading area. WYMT's
Mountain News at 6 p.m. is ranked number two in the entire Lexington DMA by
Nielsen, behind only its sister station WKYT. In addition to the Mountain News,
WYMT simulcasts WKYT's 6 a.m., noon, 5 p.m. and 5:30 p.m. newscasts Monday
through Friday, all of which rank number one in the 18-county trading area. WYMT
includes local inserts into these simulcasted news programs in order to add an
enhanced degree of local content. The station attributes its success to its
position as the only commercial broadcaster in the 18-county trading area and to
customer and community loyalty.
WYMT considers its news department to be a key component of its operations. The
station is strategically positioned with a central newsroom in Hazard and two
satellite news bureaus, one in Middlesboro, Kentucky (the Cumberland Valley) and
one in Harold, Kentucky (the Big Sandy region). Microwave links to these
regional news bureaus and to WYMT's sister station WKYT in Lexington, Kentucky,
provide the news operation with the ability to report on, coordinate and share
the latest news information and coverage throughout the mountain region and from
Lexington.
In 1994 WYMT installed a state-of-the-art digital playback system in its master
control room. This new system has allowed WYMT to adopt a computer-based
playback format that has resulted in significant cost savings and an improved
on-air appearance.
Strong local business and general community relations are an important component
of WYMT's success. WYMT continues to develop partnerships with current and
potential new clients through the production of various special annual events
that also serve to strengthen community ties and enhance advertising revenue.
Examples of such events include the Mountain Basketball Classic, the Charity
Golf Classic and the Boat and RV Show.
49
<PAGE>
WRDW, THE CBS AFFILIATE IN AUGUSTA, GEORGIA
WRDW, acquired by the Company in January 1996, began operations in 1954.
Augusta, Georgia is the 111th largest DMA in the United States, with
approximately 221,000 television households and a total population of
approximately 627,000. Total Market Revenues in the Augusta DMA in 1995 were
approximately $26.3 million, a 6% increase over 1994. WRDW's gross revenues for
the year ended December 31, 1995 were approximately $9.6 million, an increase of
5.7% from 1994. The Augusta DMA has four licensed commercial television
stations, all of which are affiliated with a major network. The Augusta DMA also
has two public television stations.
The following table sets forth Market Revenues for the Augusta DMA and in-market
share and ranking information for WRDW:
<TABLE>
<CAPTION>
----------------------------------
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Market Revenues in DMA $22,800 $24,800 $26,300
Market Revenues growth over prior year 8% 9% 6%
In-market share of households viewing television 36% 36% 36%
Rank in market 1 1 1
</TABLE>
MARKET DESCRIPTION. The Augusta DMA consists of 19 counties in eastern Georgia
and western South Carolina, including the cities of Augusta, Georgia and North
Augusta and Aiken, South Carolina. The Augusta, Georgia area is one of Georgia's
major metropolitan/regional centers, with a particular emphasis on health
services, manufacturing and the military. The Federal government employs over
12,500 military and 4,600 civilian personnel at the Department of Energy's
Savannah River Site, a nuclear processing plant, and Fort Gordon, a U.S. Army
military installation. Augusta has eight large hospitals which collectively
employ 20,000 and reinforce Augusta's status as a regional healthcare center.
Augusta is also home to the Masters Golf Tournament, which has been broadcast by
CBS for 41 years.
STATION PERFORMANCE. WRDW, which operates on channel 12, is a CBS affiliate.
Based on November 1995 Nielsen estimates, WRDW is ranked number one in its
market, with a 36% in-market share of households viewing television, which is
one share point ahead of the competition. WRDW also received 36% of the Augusta
DMA's Market Revenues in 1995. WRDW can be viewed on all 29 cable systems in its
DMA and nine cable systems outside of its DMA. Since 1992, WRDW has risen from a
weak second-place ranking to the number one position. WRDW's weekday news
programs at 6 a.m., noon, 5 p.m., 11 p.m., and four weekend slots are ranked
number one in household rating and share. WRDW attributes its number one
position in the market to its strong syndicated programming which leads into and
out of its weekly news programs as well as its expanded local news coverage.
WRDW was also the leader in prime time in the November 1995 Nielsen estimates.
WRDW has positioned itself as "Your 24 Hour News Source" in the DMA. In January
1996, WRDW began providing local cut-ins to the CNN news slots on cable, with
all revenues from commercial inserts going to the station. In addition, as the
local CBS affiliate in the DMA, WRDW produces local Masters programming, such as
THE GREEN JACKET PROGRAM, a show hosted by Paul Davis that includes interviews
with many golf celebrities.
The station also produces its own local programming, including INSIDE
AGRICULTURE, a weekly program and PAINE COLLEGE PRESENTS, a bi-monthly local
public affairs show. In addition to carrying the programming provided by CBS,
WRDW carries syndicated programming including: OPRAH!, INSIDE EDITION, WHEEL OF
FORTUNE and JEOPARDY!
WALB, THE NBC AFFILIATE IN ALBANY, GEORGIA
WALB was founded by the Company and began operations in 1954. Albany, Georgia is
the 152nd largest DMA in the United States with approximately 132,000 television
households and a total population of approximately 380,000. Total Market
Revenues in the Albany DMA in 1995 were approximately $12.2 million, a 5%
increase over 1994. WALB's gross revenues for the year ended December 31, 1995
were approximately $10.5 million, an increase of 3.5% from 1994. The Albany DMA
has three licensed commercial television stations, two of which are affiliated
with major networks. The Albany DMA also has two other public television
stations.
50
<PAGE>
The following table sets forth Market Revenues for the Albany DMA and in-market
share and ranking information for WALB:
<TABLE>
<CAPTION>
----------------------------------
YEAR ENDED DECEMBER 31
(DOLLARS IN THOUSANDS) 1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Market Revenues in DMA $10,900 $11,600 $12,200
Market Revenues growth over prior year 8% 6% 5%
In-market share of households viewing television 81% 80% 80%
Rank in market 1 1 1
</TABLE>
MARKET DESCRIPTION. The Albany DMA, consists of 17 counties in southwest
Georgia. Albany, 170 miles south of Atlanta, is a regional center for
manufacturing, agriculture, education, health care and military service. Leading
employers in the area include: The Marine Corps Logistics Base, Phoebe Putney
Memorial Hospital, The Proctor & Gamble Company, Miller Brewing Company, Cooper
Tire & Rubber Company, Bob's Candies, Coats and Clark Inc., Merck & Co., Inc.,
MacGregor (USA) Inc. and M&M/Mars. Albany State College, Darton College and
Albany Technical Institute are located within this area.
STATION PERFORMANCE. WALB, which operates on channel 10, is the only VHF
station in the Albany DMA and is an NBC affiliate. Based on the November 1995
Nielsen estimates, WALB is ranked number one in its market, with an 80%
in-market share of households viewing television, which is 63 share points ahead
of the competition. WALB has the strongest signal in its DMA and can be viewed
on all of the 26 cable systems in its DMA and 51 cable systems outside of its
DMA. WALB received 86% of the Albany DMA's Market Revenues in 1995.
WALB is known as "South Georgia's Number One News Source." The station's news is
its primary focus. WALB is the number one local news source in all of its time
slots. WALB is the only station in its market with both electronic and satellite
news gathering trucks, allowing the Company to provide live coverage. WALB
broadcasts three hours and 20 minutes of news weekdays and one hour of news each
weekend day.
WALB considers its dedication to the community to be a key component of its
operations. For example, WALB devoted substantial resources in 1994 to expand
its local news coverage and programming. Such investment allowed WALB to provide
the most extensive flood coverage available to viewers during the flood in July
1994, which was one of the largest natural disasters to occur in Georgia in
recent history. This coverage made WALB one of the top-rated stations in the
United States in terms of in-market share of households viewing television in
July 1994, as measured by Nielsen. In addition, the Georgia Broadcasters
Association presented WALB with two of its top awards in 1994: the "1994 TV
Community Service Award" for its dedication to providing local community service
and the "1994 TV Station Promotion of the Year" award for the station's nearly
year long broadcast of its "Learn to Read" program.
The station produces its own local programming including TOWN AND COUNTRY, a
live morning show that travels to various locations in Georgia and DIALOG, a
weekly public affairs show focusing on minority issues. In addition to carrying
programming supplied by NBC, WALB carries syndicated programming, including
OPRAH!, ENTERTAINMENT TONIGHT, THE ANDY GRIFFITH SHOW, MONTEL WILLIAMS, RICKI
LAKE, AMERICAN JOURNAL, and HARD COPY.
The Company will be required to divest this station pursuant to existing FCC
regulations. See "Risk Factors-FCC Divestiture Requirement" and "The Phipps
Acquisition, the KTVE Sale and the Financing."
WJHG, THE NBC AFFILIATE IN PANAMA CITY, FLORIDA
WJHG, acquired by the Company in 1960, began operations in 1953. Panama City,
Florida is the 159th largest DMA in the United States, with approximately
110,000 television households and a total population of approximately 298,000.
Total Market Revenues in the Panama City DMA in 1995 were approximately $8.5
million, a 6% increase over 1994. WJHG's gross revenues for the year ended
December 31, 1995 were approximately $4.3 million, an increase of 7.7% from
1994. The Panama City DMA has four licensed commercial television stations,
three of which are affiliated with major networks. In addition, a CBS signal is
provided by a station in Dothan, Alabama, an adjacent DMA. The Panama City DMA
also has one public television station.
51
<PAGE>
The following table sets forth Market Revenues for the Panama City DMA and
in-market share and ranking information for WJHG:
<TABLE>
<CAPTION>
----------------------------------
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Market Revenues in DMA $7,400 $8,000 $8,500
Market Revenues growth over prior year 11% 8% 6%
In-market share of households viewing television 51% 46% 53%
Rank in market 1 1 1
</TABLE>
MARKET DESCRIPTION. The Panama City DMA consists of nine counties in northwest
Florida. The Panama City market stretches north from Florida's Gulf Coast to
Alabama's southern border. The Panama City economy centers around tourism,
military bases, manufacturing, education and financial services. Panama City is
the county seat and principal city of Bay County. Leading employers in the area
include: Tyndall Air Force Base, the Navy Coastal Systems Station, Sallie Mae
Servicing Corp., Stone Container Corporation, Arizona Chemical Corporation,
Russell Corporation and Gulf Coast Community College. Panama City is also a
spring break destination for college students and drew approximately 550,000
students during 1995.
STATION PERFORMANCE. WJHG, which operates on channel 7, is an NBC affiliate.
Based on November 1995 Nielsen estimates, WJHG is ranked number one in its
market, with a 53% in-market share of households viewing television, which is 17
share points ahead of the competition. WJHG received 50% of the Panama City
DMA's Market Revenues in 1995. WJHG can be viewed on all of the 36 cable systems
in its DMA and on 29 cable systems outside its DMA.
WJHG dominates the Panama City market in all popular news time periods and has
twice the audience viewership at 5 p.m. and 10 p.m. as does the competition.
WJHG also has the number one news ranking in its market at 6:30 a.m., 6 p.m. and
on weekends. WJHG's ratings success in its newscasts have allowed it to increase
its overall unit rates and to negotiate for larger shares of advertisers'
national budgets. WJHG considers its news department to be a key component of
its operations and in 1994, devoted substantial resources to redesign the set,
purchase new cameras, add new graphics, develop a new logo and reformat
newscasts. As part of the continuing growth of its news product, WJHG recently
introduced the first noon newscast in Panama City.
WJHG has also launched a direct mail campaign to attract new advertisers to the
station. As a result of these factors, WJHG increased its gross revenues by 7.7%
in 1995. WJHG is also focusing on other non-traditional revenue sources, such as
developing a health exposition, a children's fair and a wedding show, all of
which are scheduled to occur in 1996.
In addition to carrying programming provided by NBC, WJHG carries syndicated
programming, including WHEEL OF FORTUNE, JEOPARDY!, HARD COPY, MAURY POVICH,
JENNY JONES and RICKI LAKE.
The Company will be required to divest this station pursuant to existing FCC
regulations. See "Risk Factors-FCC Divestiture Requirement" and "The Phipps
Acquisition, the KTVE Sale and the Financing."
WKXT, THE CBS AFFILIATE IN KNOXVILLE, TENNESSEE
WKXT, which will be acquired pursuant to the Phipps Acquisition, began
operations in 1988. Knoxville, Tennessee is the 62nd largest DMA in the United
States, with approximately 429,000 television households and a total population
of approximately 1.1 million. Total Market Revenues in the Knoxville DMA in 1995
were approximately $57.9 million, a 6% increase over 1994. WKXT's gross revenues
for the year ended December 31, 1995 were approximately $10.6 million, an
increase of 2.3% over 1994. The Knoxville DMA has four licensed commercial
television stations, all of which are affiliated with major networks. The
Knoxville DMA also has two public broadcasting stations.
52
<PAGE>
The following table sets forth Market Revenues for the Knoxville DMA and
in-market share and ranking information for WKXT:
<TABLE>
<CAPTION>
----------------------------------
YEAR ENDED DECEMBER 31
(DOLLARS IN THOUSANDS) 1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Market Revenues in DMA $47,900 $54,600 $57,900
Market Revenues growth over prior year 14% 14% 6%
In-market share of households viewing television 24% 23% 22%
Rank in market 3 3 3
</TABLE>
MARKET DESCRIPTION. The Knoxville DMA, consisting of 22 counties in eastern
Tennessee and southeastern Kentucky, includes the cities of Knoxville, Oak Ridge
and Gatlinburg, Tennessee. The Knoxville area is a center for education,
manufacturing, healthcare and tourism. The University of Tennessee's main campus
is located within the city of Knoxville. It employs approximately 6,400 people
and has an enrollment of approximately 26,000 students. Leading manufacturing
employers in the area include: Lockheed Martin Energy Systems, Inc., Levi
Strauss & Company, DeRoyal Industries, Aluminum Company of North America,
Phillips Consumer Electronics North America Corp., Clayton Homes and Sea Ray
Boats, Inc. which employ approximately 26,800 people, collectively. The
Knoxville area also has eight hospitals which employ approximately 16,900
employees. Area tourist attractions are the Great Smokey Mountains National Park
and Dollywood, a country-western theme park sponsored by Dolly Parton. The Great
Smokey Mountains National Park and Dollywood had approximately 9.1 million and
2.2 million visitors, respectively during 1995. Dollywood employs approximately
1,800 people.
STATION PERFORMANCE. WKXT is a CBS affiliate and operates on channel 8. WKXT is
one of three commercial VHF stations in the Knoxville DMA. Based on November
1995 Nielsen estimates, WKXT is ranked third in its market, with a 22% in-market
share of households viewing television. WKXT can be viewed on 52 cable systems
in its DMA and on 15 cable systems outside its DMA. WKXT received 18% of the
Knoxville DMA's Market Revenues in 1995.
WKXT produces only one hour of news each day. The Company plans to implement its
operating strategy at WKXT by developing comprehensive news programming upon
consummation of the Phipps Acquisition.
In addition to carrying network programming supplied by CBS, WKXT carries
syndicated programming including BAYWATCH, NORTHERN EXPOSURE, REGIS & KATHIE
LEE, MAURY POVICH, AMERICAN JOURNAL, ENTERTAINMENT TONIGHT, HARD COPY, and THE
ANDY GRIFFITH SHOW.
WCTV, THE CBS AFFILIATE IN TALLAHASSEE, FLORIDA/THOMASVILLE, GEORGIA
WCTV, which will be acquired pursuant to the Phipps Acquisition, began
operations in 1955. Tallahassee, Florida/ Thomasville, Georgia is the 116th
largest DMA in the United States, with approximately 210,000 television
households and total population of approximately 586,000. Total Market Revenues
in the Tallahassee/Thomasville DMA in 1995 were approximately $19.9 million, a
5% increase over 1994. WCTV's gross revenues for the year ended December 31,
1995 were approximately $13.3 million, an increase of 3.2% over 1994. The
Tallahassee/Thomasville DMA has four licensed commercial television stations,
all of which are affiliated with major networks. The Tallahassee/Thomasville DMA
also has one public station that is owned by the Florida State University Board
of Regents.
The following table sets forth Market Revenues in the Tallahassee/Thomasville
DMA and in-market share and ranking information for WCTV:
<TABLE>
<CAPTION>
----------------------------------
YEAR ENDED DECEMBER 31
(DOLLARS IN THOUSANDS) 1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Market Revenues in DMA $17,200 $18,900 $19,900
Market Revenues growth over prior year 4% 10% 5%
In-market share of households viewing television 64% 65% 60%
Rank in market 1 1 1
</TABLE>
MARKET DESCRIPTION. The Tallahassee/Thomasville DMA, consisting of 18 counties
in the panhandle of Florida and southwest Georgia, includes Tallahassee, the
capital of Florida, and Thomasville, Valdosta and Bainbridge, Georgia. The
Tallahassee/Thomasville economy centers around state and local government as
well as state and local
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universities which include Florida State University, Florida A&M, Tallahassee
Community College and Valdosta State College. Florida State University is the
largest university located in the DMA with total enrollment of approximately
29,000 students. Florida State University's main campus is located within the
city of Tallahassee. State and local government agencies employ approximately
36,700 and 8,500 people, respectively, in the Tallahassee area.
STATION PERFORMANCE. WCTV is a CBS affiliate and operates on channel 6. WCTV is
the only VHF station in the Tallahassee/Thomasville DMA. Based on November 1995
Nielsen estimates, WCTV is ranked number one in its market, with a 60% in-market
share of households viewing television. WCTV can be viewed on 47 cable systems
in its DMA and 32 cable systems outside of its DMA. WCTV received 67% of the
Tallahassee/Thomasville DMA's Market Revenues in 1995.
WCTV considers its news department to be a key component of its operations;
approximately 43% of its employees are devoted to its news department and
approximately 40% of the WCTV's revenues are generated by news programming. The
station attributes its successful news programming in part to its bureaus in
Tallahassee, Valdosta and Thomasville and its news gathering vehicle. WCTV
produces five news programs and six news cut-ins each day which total three and
one-half hours of news per weekday. All news programs are closed-captioned. The
station has the number one in-market share in news at 6 a.m., noon, 5:30 p.m., 6
p.m. and 11 p.m. on weekdays and 6 p.m. and 11 p.m. on weekends.
The station produces the BOBBY BOWDEN SHOW, a coach's show for Florida State
University. In addition to carrying network programming supplied by CBS, WCTV
carries syndicated programming including WHEEL OF FORTUNE, JEOPARDY!, OPRAH! and
SEINFELD.
INDUSTRY BACKGROUND
There are currently a limited number of channels available for broadcasting in
any one geographic area, and the license to operate a television station is
granted by the FCC. Television stations which broadcast over the very high
frequency ("VHF") band (channels 2-13) of the spectrum generally have some
competitive advantage over television stations which broadcast over the
ultra-high frequency ("UHF") band (channels above 13) of the spectrum, because
the former usually have better signal coverage and operate at a lower
transmission cost. However, the improvement of UHF transmitters and receivers,
the complete elimination from the marketplace of VHF-only receivers and the
expansion of cable television systems have reduced the VHF signal advantage.
Television station revenues are primarily derived from local, regional and
national advertising and, to a much lesser extent, from network compensation and
revenues from studio and tower space rental and commercial production
activities. Advertising rates are based upon a variety of factors, including a
program's popularity among the viewers an advertiser wishes to attract, the
number of advertisers competing for the available time, the size and demographic
makeup of the market served by the station and the availability of alternative
advertising media in the market area. Rates are also determined by a station's
overall ratings and in-market share, as well as the station's ratings and share
among particular demographic groups which an advertiser may be targeting.
Because broadcast stations rely on advertising revenues, they are sensitive to
cyclical changes in the economy. The size of advertisers' budgets, which are
affected by broad economic trends, affect the broadcast industry in general and
the revenues of individual broadcast television stations.
All television stations in the country are grouped by Nielsen, a national
audience measuring service, into approximately 210 generally recognized
television markets that are ranked in size according to various formulae based
upon actual or potential audience. Each DMA is an exclusive geographic area
consisting of all counties in which the home-market commercial stations receive
the greatest percentage of total viewing hours. Nielsen periodically publishes
data on estimated audiences for the television stations in the various
television markets throughout the country. The estimates are expressed in terms
of the percentage of the total potential audience in the market viewing a
station (the station's "rating") and of the percentage of households using
television actually viewing the station (the station's "share"). Nielsen
provides such data on the basis of total television households and selected
demographic groupings in the market. Nielsen uses two methods of determining a
station's ability to attract viewers. In larger geographic markets, ratings are
determined by a combination of meters connected directly to selected television
sets and weekly diaries of television viewing, while in smaller markets only
weekly diaries are utilized. All of the Company's stations operate in markets
where only weekly diaries are used.
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Historically, three major broadcast networks, Capital Cities/ABC, Inc. ("ABC"),
NBC and CBS, dominated broadcast television. In recent years, Fox has evolved
into the fourth major network by establishing a network of independent stations
whose operating characteristics are similar to the major network affiliate
stations, although the number of hours of network programming produced by Fox
for its affiliates is less than that of the three major networks. In addition,
UPN and WB recently have been launched as new television networks. An affiliate
of UPN or WB receives a smaller portion of each day's programming from its
network compared to an affiliate of a major network. Currently, UPN and WB
provide 10 and 11.5 hours of programming per week to their affiliates,
respectively.
The affiliation of a station with one of the four major networks has a
significant impact on the composition of the station's programming, revenues,
expenses and operations. A typical affiliate of a major network receives the
majority of each day's programming from the network. This programming, along
with cash payments ("network compensation"), is provided to the affiliate by the
network in exchange for a substantial majority of the advertising time sold
during the airing of network programs. The network then sells this advertising
time and retains the revenues. The affiliate retains the revenues from time sold
during breaks in and between network programs and programs the affiliate
produces or purchases from non-network sources. In acquiring programming to
supplement programming supplied by the affiliated network, network affiliates
compete primarily with other affiliates and independent stations in their
markets. Cable systems generally do not compete with local stations for
programming, although various national cable networks from time to time have
acquired programs that would have otherwise been offered to local television
stations. In addition, a television station may acquire programming through
barter arrangements. Under barter arrangements, which are becoming increasingly
popular with both network affiliates and independents, a national program
distributor may receive advertising time in exchange for the programming it
supplies, with the station paying a reduced fee for such programming.
In contrast to a station affiliated with a network, a fully independent station
purchases or produces all of the programming that it broadcasts, resulting in
generally higher programming costs. An independent station, however, retains its
entire inventory of advertising time and all of the revenues obtained therefrom.
As a result of the smaller amount of programming provided by its network, an
affiliate of UPN or WB must purchase or produce a greater amount of its
programming, resulting in generally higher programming costs. These affiliate
stations, however, retain a larger portion of the inventory of advertising time
and the revenues obtained therefrom compared to stations affiliated with the
major networks.
Through the 1970s, network television broadcasting enjoyed virtual dominance in
viewership and television advertising revenues, because network-affiliated
stations competed only with each other in most local markets. Beginning in the
1980s, this level of dominance began to change as the FCC authorized more local
stations and marketplace choices expanded with the growth of independent
stations and cable television services. See "-Federal Regulation of the
Company's Business."
Cable television systems were first installed in significant numbers in the
1970s and were initially used to retransmit broadcast television programming to
paying subscribers in areas with poor broadcast signal reception. In the
aggregate, cable-originated programming has emerged as a significant competitor
for viewers of broadcast television programming, although no single cable
programming network regularly attains audience levels amounting to more than a
small fraction of any single major broadcast network. The advertising share of
cable networks increased during the 1970s and 1980s as a result of the growth in
cable penetration (the percentage of television households which are connected
to a cable system). Notwithstanding such increases in cable viewership and
advertising, over-the-air broadcasting remains the dominant distribution system
for mass market television advertising.
NEWSPAPER PUBLISHING
The Company owns and operates five publications comprising three newspapers and
two shoppers, all located in the Southeast.
THE ALBANY HERALD
THE ALBANY HERALD, located in Albany, Georgia, is the only seven-day-a-week
newspaper that serves southwestern Georgia. The Company changed THE ALBANY
HERALD from an afternoon newspaper to a morning newspaper in 1993 and improved
its graphics and layout. These changes enabled the Company to increase THE
ALBANY HERALD's newsstand and subscription prices as well as its advertising
rates, resulting in an increase of revenues from $10.1
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million in 1993 to $13.5 million in 1995, a 33.8% increase. The Company intends
to increase selectively the price and advertising rates of THE ALBANY HERALD in
the future. The Albany market has four other daily newspapers with a limited
circulation and market area.
THE ALBANY HERALD also publishes three other weekly editions in Georgia, THE LEE
COUNTY HERALD, THE WORTH COUNTY HERALD and THE CALHOUN-CLAY HERALD, all of which
provide regional news coverage. Other niche publications include (i) FARM AND
PLANTATION, an agricultural paper, (ii) a monthly COUPON CLIPPER, (iii) a
quarterly, direct mail coupon book called CASH CUTTERS, (iv) an annual dining
guide and (v) an annual bridal book. The Company introduced these weeklies and
other niche product publications in order to better utilize THE ALBANY HERALD's
printing presses and infrastructure (such as sales and advertising). THE ALBANY
HERALD cross-merchandises its publications, thereby increasing total revenues
with only a small increase in related expenditures. The Company also seeks to
increase THE ALBANY HERALD's circulation and revenues through its sponsorship of
special events of local interest, such as bass fishing tournaments.
THE ROCKDALE CITIZEN AND THE GWINNETT DAILY POST
THE ROCKDALE CITIZEN and the GWINNETT DAILY POST are five-day-a-week newspapers
that serve communities in the metro Atlanta area with complete local news,
sports and lifestyles coverage together with national stories that directly
impact their local communities.
THE ROCKDALE CITIZEN is located in Conyers, Georgia, the county seat of Rockdale
County, which is 19 miles east of downtown Atlanta. Rockdale County's population
is estimated to be 64,000 in 1996. Conyers is the site of the 1996 Olympic
equestrian competition.
The GWINNETT DAILY POST, which was purchased by the Company in January 1995, is
located north of Atlanta in Gwinnett County, one of the fastest growing areas in
the nation. Gwinnett's population, which has more than doubled during each of
the past two census periods, was estimated at 457,000 in 1995. In September
1995, the Company increased the frequency of publication of the GWINNETT DAILY
POST from three to five days per week in an effort to increase circulation.
The Company's operating strategy with respect to THE ROCKDALE CITIZEN and the
GWINNETT DAILY POST is to increase circulation by improving the print quality,
increasing the local news content and increasing its telemarketing and
promotional efforts. The Company has hired a new president of publishing for THE
ROCKDALE CITIZEN and the GWINNETT DAILY POST in order to implement its operating
strategy at these newspapers.
SOUTHWEST GEORGIA SHOPPER
The Southwest Georgia Shopper, Inc., prints and distributes two shoppers, which
are direct mailed and rack distributed throughout north Florida and southwest
Georgia. These two shoppers represent a consolidation of the seven shoppers that
the Company purchased in 1994 and 1995. The Company believes that print quality
is an important criterion to advertisers and consumers and, since their
acquisition, the Company has accordingly improved the graphics of the shoppers.
INDUSTRY BACKGROUND
Newspaper publishing is the oldest segment of the media industry and, as a
result of the focus on local news, newspapers in general, remain one of the
leading media for local advertising. Newspaper advertising revenues are cyclical
and have generally been affected by changes in national and regional economic
conditions. Financial instability in the retail industry, including bankruptcies
of large retailers and consolidations among large retail chains has recently
resulted in reduced retail advertising expenditures. Classified advertising,
which makes up approximately one-third of newspaper advertising expenditures,
can be affected by an economic slowdown and its effect on employment, real
estate transactions and automotive sales. However, growth in housing starts and
automotive sales, although cyclical in nature, generally provide continued
growth in newspaper advertising expenditures.
PAGERS AND PAGING SERVICES
THE COMPANY'S PAGING BUSINESS
The Company's paging business is based in Tallahassee, Florida and operates in
contiguous parts of Alabama, Florida and Georgia. The Company offers five basic
paging services: (i) tone-only; (ii) tone and voice; (iii) digital display; (iv)
alphanumeric display; and (v) tone or digital display in conjunction with voice
message storage and retrieval. A
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subscriber to the Company's paging services either owns a pager, thereby paying
solely for the use of the Company's paging services, or leases a pager, thereby
paying a periodic charge for both the pager and the paging services. Of the
Company's approximately 41,000 pagers in service, approximately 72% are owned
and maintained by subscribers ("COAM") with the remainder being leased. In
recent years, prices for pagers have fallen considerably, and thus there has
been a trend toward subscriber ownership of pagers, allowing the Company to
maintain lower inventory and fixed asset levels. COAM customers historically
stay on service longer, thus enhancing the stability of the subscriber base and
earnings. The Company is focusing its marketing efforts on increasing its base
of COAM users.
The Company's goal is to increase the number of pagers in service, revenues and
cash flow from operations by implementing a plan that focuses on improved
operating methods and controls and innovative marketing programs. The Company's
paging business has grown in recent years by: (i) increasing the number of
business customers; (ii) expanding its resale program; (iii) increasing its
retail operations; and (iv) increasing geographical coverage.
INDUSTRY BACKGROUND.
Paging is a method of wireless communication which uses an assigned radio
frequency to contact a paging subscriber within a designated service area. A
subscriber carries a pager which receives messages by the broadcast of a radio
signal. To contact a subscriber, a message is usually sent by placing a
telephone call to the subscriber's designated telephone number. The telephone
call is received by an electronic paging switch which generates a signal that is
sent to radio transmitters in the subscriber's service area. The transmitters
broadcast a coded signal that is unique to the pager carried by the subscriber
and alerts the subscriber through a tone or vibration that there is a voice,
numeric, alphanumeric or other message. Depending upon the topography of the
service area, the operating radius of a radio transmitter typically ranges from
three to 20 miles.
Three tiers of carriers have emerged in the paging industry: (i) large
nationwide providers serving multiple markets throughout the United States; (ii)
regional carriers, like the Company's paging business, which operate in regional
markets such as several contiguous states in one geographic region of the United
States; and (iii) small, single market operators. The Company believes that the
paging industry is undergoing consolidation.
The paging industry has traditionally marketed its services through direct
distribution by sales representatives. In recent years, additional channels of
distribution have evolved, including: (i) carrier-operated retail stores; (ii)
resellers, who purchase paging services on a wholesale basis from carriers and
resell those services on a retail basis to their own customers; (iii)
independent sales agents who solicit customers for carriers and are compensated
on a commission basis; and (iv) retail outlets that often sell a variety of
merchandise, including pagers and other telecommunications equipment.
SATELLITE BROADCASTING
The Company's satellite broadcasting business provides broadcast and production
services through mobile and fixed production units as well as C-band and Ku-band
satellite transmission facilities. Clients include The Walt Disney Company, The
Golf Channel, USA Network, Turner Broadcasting System, CBS, ABC, PGA Tour
Productions and The Children's Miracle Network.
COMPETITION
TELEVISION INDUSTRY
Competition in the television industry exists on several levels: competition for
audience, competition for programming (including news) and competition for
advertisers. Additional factors that are material to a television station's
competitive position include signal coverage and assigned frequency. The
broadcasting industry is faced continually with technological change and
innovation, the possible rise in popularity of competing entertainment and
communications media and governmental restrictions or actions of federal
regulatory bodies, including the FCC and the Federal Trade Commission, any of
which could have a material effect on the Company's operations. In addition,
since early 1994, there have been a number of network affiliation changes in
many of the top 100 television markets. As a result, the major networks have
sought longer terms in their affiliation agreements with local stations and
generally have increased the compensation payable to the local stations in
return for such longer term agreements. During the same time period, the rate of
change of ownership of local television stations has increased over past
periods.
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AUDIENCE. Stations compete for audience on the basis of program popularity,
which has a direct effect on advertising rates. A substantial portion of the
daily programming on each of the Company's stations is supplied by the network
with which each station is affiliated. During those periods, the stations are
totally dependent upon the performance of the network programs to attract
viewers. There can be no assurance that such programming will achieve or
maintain satisfactory viewership levels in the future. Non-network time periods
are programmed by the station with a combination of self-produced news, public
affairs and other entertainment programming, including news and syndicated
programs purchased for cash, cash and barter, or barter only.
Independent stations, whose number has increased significantly over the past
decade, have also emerged as viable competitors for television viewership
shares. In addition, UPN and WB have been launched recently as new television
networks. The Company is unable to predict the effect, if any, that such
networks will have on the future results of the Company's operations.
In addition, the development of methods of television transmission of video
programming other than over-the-air broadcasting, and in particular cable
television, has significantly altered competition for audience in the television
industry. These other transmission methods can increase competition for a
broadcasting station by bringing into its market distant broadcasting signals
not otherwise available to the station's audience and also by serving as a
distribution system for non-broadcast programming. Through the 1970s, television
broadcasting enjoyed virtual dominance in viewership and television advertising
revenues because network-affiliated stations competed only with each other in
most local markets. Although cable television systems initially retransmitted
broadcast television programming to paying subscribers in areas with poor
broadcast signal reception, significant increases in cable television
penetration in areas that did not have signal reception problems occurred
throughout the 1970s and 1980s. As the technology of satellite program delivery
to cable systems advanced in the late 1970s, development of programming for
cable television accelerated dramatically, resulting in the emergence of
multiple, national-scale program alternatives and the rapid expansion of cable
television and higher subscriber growth rates. Historically, cable operators
have not sought to compete with broadcast stations for a share of the local news
audience. Recently, however, certain cable operators have elected to compete for
such audiences and the increased competition could have an adverse effect on the
Company's advertising revenues.
Other sources of competition include home entertainment systems (including video
cassette recorder and playback systems, video discs and television game
devices), "wireless cable" services, satellite master antenna television
systems, low power television stations, television translator stations and, more
recently, DBS video distribution services, which transmit programming directly
to homes equipped with special receiving antennas, and video signals delivered
over telephone lines. Public broadcasting outlets in most communities compete
with commercial television stations for audience but not for advertising
dollars, although this may change as the United States Congress considers
alternative means for the support of public television.
Further advances in technology may increase competition for household audiences
and advertisers. Video compression techniques are expected to reduce the
bandwidth required for television signal transmission. These compression
techniques, as well as other technological developments, are applicable to all
video delivery systems, including over-the-air broadcasting, and have the
potential to provide vastly expanded programming to highly targeted audiences.
Reduction in the cost of creating additional channel capacity could lower entry
barriers for new channels and encourage the development of increasingly
specialized "niche" programming. This ability to reach very narrowly defined
audiences is expected to alter the competitive dynamics for advertising
expenditures. In addition, competition in the television industry in the future
may come from interactive video and information and data services that may be
delivered by commercial television stations, cable television, DBS, multipoint
distribution systems, multichannel multipoint distribution systems or other
video delivery systems. The Company is unable to predict the effect that these
or other technological changes will have on the broadcast television industry or
the future results of the Company's operations.
PROGRAMMING. Competition for programming involves negotiating with national
program distributors or syndicators that sell first-run and rerun packages of
programming. Each station competes against the broadcast station competitors in
its market for exclusive access to off-network reruns (such as ROSEANNE) and
first-run product (such as
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ENTERTAINMENT TONIGHT). Cable systems generally do not compete with local
stations for programming, although various national cable networks from time to
time have acquired programs that would have otherwise been offered to local
television stations. Competition exists for exclusive news stories and features
as well.
ADVERTISING. Advertising rates are based upon the size of the market in which
the station operates, a program's popularity among the viewers that an
advertiser wishes to attract, the number of advertisers competing for the
available time, the demographic makeup of the market served by the station, the
availability of alternative advertising media in the market area, aggressive and
knowledgeable sales forces and the development of projects, features and
programs that tie advertiser messages to programming. Advertising revenues
comprise the primary source of revenues for the Company's stations. The
Company's stations compete for such advertising revenues with other television
stations and other media in their respective markets. Typically, independent
stations achieve a greater proportion of the television market advertising
revenues than network affiliated stations relative to their share of the
market's audience, because independent stations have greater amounts of
available advertising time. The stations also compete for advertising revenues
with other media, such as newspapers, radio stations, magazines, outdoor
advertising, transit advertising, yellow page directories, direct mail and local
cable systems. Competition for advertising dollars in the broadcasting industry
occurs primarily within individual markets.
NEWSPAPER INDUSTRY
The Company's newspapers compete for advertisers with a number of other media
outlets, including magazines, radio and television, as well as other newspapers,
which also compete for readers with the Company's publications. Many of the
Company's newspaper competitors are significantly larger than the Company. The
Company attempts to differentiate its publications from other newspapers by
focusing on local news and local sports coverage in order to compete with its
larger competitors. The Company also seeks to establish its publications as the
local newspaper by sponsoring special events of particular community interest.
PAGING INDUSTRY
The paging industry is highly competitive. Companies in the industry compete on
the basis of price, coverage area offered to subscribers, available services
offered in addition to basic numeric or tone paging, transmission quality,
system reliability and customer service. The Company competes by maintaining
competitive pricing of its product and service offerings, by providing
high-quality, reliable transmission networks and by furnishing subscribers a
superior level of customer service.
The Company's primary competitors include those paging companies that provide
wireless service in the same geographic areas in which the Company operates. The
Company experiences competition from one or more competitors in all locations in
which it operates. Some of the Company's competitors have greater financial and
other resources than the Company.
The Company's paging services also compete with other wireless communications
services such as cellular service. The typical customer uses paging as a low
cost wireless communications alternative either on a stand-alone basis or in
conjunction with cellular services. Future technological developments in the
wireless communications industry and enhancements of current technology,
however, could create new products and services, such as personal communications
services and mobile satellite services, which are competitive with the paging
services currently offered by the Company. Recent and proposed regulatory
changes by the FCC are aimed at encouraging such technological developments and
new services and promoting competition. There can be no assurance that the
Company's paging business would not be adversely affected by such technological
developments or regulatory changes.
NETWORK AFFILIATION OF THE STATIONS
Each of the Company's stations is affiliated with a major network pursuant to an
affiliation agreement. Each affiliation agreement provides the affiliated
station with the right to broadcast all programs transmitted by the network with
which the station is affiliated. In return, the network has the right to sell a
substantial majority of the advertising time during such broadcasts. In exchange
for every hour that a station elects to broadcast network programming, the
network pays the station a specific network compensation payment which varies
with the time of day. Typically, prime-time programming generates the highest
hourly network compensation payments. Such payments are subject to increase or
decrease by the network during the term of an affiliation agreement with
provisions for advance notices and right of termination by the station in the
event of a reduction in such payments.
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The NBC affiliation agreements for WALB and WJHG are renewed automatically every
five years on September 1 unless the station notifies NBC otherwise. The CBS
affiliation agreements for WKYT, WYMT, WRDW, WCTV and WKXT expire on December
31, 2004, December 31, 2004, March 31, 2005, December 31, 1999, and December 31,
1999, respectively.
FEDERAL REGULATION OF THE COMPANY'S BUSINESS
TELEVISION BROADCASTING
EXISTING REGULATION. Television broadcasting is subject to the jurisdiction of
the FCC under the Communications Act and the Telecommunications Act. The
Communications Act prohibits the operation of television broadcasting stations
except under a license issued by the FCC and empowers the FCC, among other
things, to issue, revoke and modify broadcasting licenses, determine the
locations of stations, regulate the equipment used by stations, adopt
regulations to carry out the provisions of the Communications Act and the
Telecommunications Act and impose penalties for violation of such regulations.
The Communications Act prohibits the assignment of a license or the transfer of
control of a licensee without prior approval of the FCC.
LICENSE GRANT AND RENEWAL. Television broadcasting licenses generally are
granted or renewed for a period of five years; recently extended to eight years
by the Telecommunications Act, but may be renewed for a shorter period upon a
finding by the FCC that the "public interest, convenience, and necessity" would
be served thereby. The broadcast licenses for WALB, WJHG, WKYT, WYMT, WRDW, WCTV
and WKXT are effective until April 1, 1997, February 1, 1997, August 1, 1997,
August 1, 1997, April 1, 1997, February 1, 1997 and August 1, 1997,
respectively. The Telecommunications Act requires a broadcast license to be
renewed if the FCC finds that: (i) the station has served the public interest,
convenience and necessity; (ii) there have been no serious violations of either
the Telecommunications Act or the FCC's rules and regulations by the licensee;
and (iii) there have been no other violations, which taken together would
constitute a pattern of abuse. At the time an application is made for renewal of
a television license, parties in interest may file petitions to deny, and such
parties, including members of the public, may comment upon the service the
station has provided during the preceding license term and urge denial of the
application. If the FCC finds that the licensee has failed to meet the
above-mentioned requirements, it could deny the renewal application or grant a
conditional approval, including renewal for a lesser term. The FCC will not
consider competing applications contemporaneously with a renewal application.
Only after denying a renewal application can the FCC accept and consider
competing applications for the license. Although in the vast majority of cases
broadcast licenses are renewed by the FCC even when petitions to deny or
competing applications are filed against broadcast license renewal applications,
there can be no assurance that the Company's stations' licenses will be renewed.
The Company is not aware of any facts or circumstances that could prevent the
renewal of the licenses for its stations at the end of their respective license
terms.
MULTIPLE OWNERSHIP RESTRICTIONS. Currently, the FCC has rules that limit the
ability of individuals and entities to own or have an ownership interest above a
certain level (an "attributable" interest, as defined more fully below) in
broadcast stations, as well as other mass media entities. The current rules
limit the number of radio and television stations that may be owned both on a
national and a local basis. On a national basis, the rules preclude any
individual or entity from having an attributable interest in more than 12
television stations. Moreover, the aggregate audience reach of co-owned
television stations may not exceed 25% of all United States households. An
individual or entity may hold an attributable interest in up to 14 television
stations (or stations with an aggregate audience reach of 30% of all United
States households) if at least two of the stations are controlled by a member of
an ethnic minority. The Telecommunications Act directs the FCC to eliminate the
restriction on the number of television stations which may be owned or
controlled nationally and to increase the national audience reach limitation for
television stations to 35%.
On a local basis, FCC rules currently allow an individual or entity to have an
attributable interest in only one television station in a market. In addition,
FCC rules and the Telecommunications Act generally prohibit an individual or
entity from having an attributable interest in a television station and a radio
station, daily newspaper or cable television system that is located in the same
local market area served by the television station. Proposals currently before
the FCC could substantially alter these standards. For example, in a recently
initiated rulemaking proceeding, the FCC suggested narrowing the geographic
scope of the local television cross-ownership rule (the so-called "duopoly
rule") from Grade B to Grade A contours and possibly permitting some two-station
combinations in certain
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markets. The FCC has also proposed eliminating the TV/radio cross-ownership
restriction (the so-called "one-to-a-market" rule) entirely or at least
exempting larger markets. In addition, the FCC is seeking comment on issues of
control and attribution with respect to local marketing agreements entered into
by television stations. It is unlikely that this rulemaking will be concluded
until late 1996 or later, and there can be no assurance that any of these rules
will be changed or what will be the effect of any such change. The
Telecommunications Act expressly does not prohibit any local marketing
agreements in compliance with FCC regulations. Furthermore, the
Telecommunications Act directs the FCC to conduct a rulemaking proceeding to
determine whether restricting ownership of more than one television station in
the same area should be retained, modified or eliminated. It is the intent of
Congress that if the FCC revises the multiple ownership rules, it should permit
co-located VHF-VHF combinations only in compelling circumstances, where
competition and diversity will not be harmed.
The Telecommunications Act also directs the FCC to extend its one-to-a-market
waiver policy from the top 25 to any of the top 50 markets. In addition, the
Telecommunications Act directs the FCC to permit a television station to
affiliate with two or more networks unless such dual or multiple networks are
composed of (i) two or more of the four existing networks (ABC, CBS, NBC or Fox)
or, (ii) any of the four existing networks and one of the two emerging networks
(UPN or WBN). The Company believes that Congress does not intend for these
limitations to apply if such networks are not operated simultaneously, or if
there is no substantial overlap in the territory served by the group of stations
comprising each of such networks. The Telecommunications Act also directs the
FCC to revise its rules to permit cross-ownership interests between a broadcast
network and a cable system. The Telecommunications Act further authorizes the
FCC to consider revising its rules to permit common ownership of co-located
broadcast stations and cable systems.
Expansion of the Company's broadcast operations in particular areas and
nationwide will continue to be subject to the FCC's ownership rules and any
changes the FCC or Congress may adopt. Any relaxation of the FCC's ownership
rules may increase the level of competition in one or more of the markets in
which the Company's stations are located, particularly to the extent that the
Company's competitors may have greater resources and thereby be in a better
position to capitalize on such changes.
Under the FCC's ownership rules, a direct or indirect purchaser of certain types
of securities of the Company (but not including the Notes offered hereby) could
violate FCC regulations if that purchaser owned or acquired an "attributable" or
"meaningful" interest in other media properties in the same areas as stations
owned by the Company or in a manner otherwise prohibited by the FCC. All
officers and directors of a licensee, as well as general partners, uninsulated
limited partners and stockholders who own five percent or more of the voting
power of the outstanding common stock of a licensee (either directly or
indirectly), generally will be deemed to have an "attributable" interest in the
licensee. Certain institutional investors which exert no control or influence
over a licensee may own up to 10% of the voting power of the outstanding common
stock before attribution occurs. Under current FCC regulations, debt
instruments, non-voting stock, certain limited partnership interests (provided
the licensee certifies that the limited partners are not "materially involved"
in the management and operation of the subject media property) and voting stock
held by minority stockholders in cases in which there is a single majority
stockholder generally are not subject to attribution. The FCC's cross-interest
policy, which precludes an individual or entity from having a "meaningful" (even
though not "attributable") interest in one media property and an "attributable"
interest in a broadcast, cable or newspaper property in the same area, may be
invoked in certain circumstances to reach interests not expressly covered by the
multiple ownership rules.
In January 1995, the FCC released a NPRM designed to permit a "thorough review
of [its] broadcast media attribution rules." Among the issues on which comment
was sought are (i) whether to change the voting stock attribution benchmarks
from five percent to 10% and, for passive investors, from 10% to 20%; (ii)
whether there are any circumstances in which non-voting stock interests, which
are currently considered non-attributable, should be considered attributable;
(iii) whether the FCC should eliminate its single majority shareholder exception
(pursuant to which voting interests in excess of five percent are not considered
cognizable if a single majority shareholder owns more than 50% of the voting
power); (iv) whether to relax insulation standards for business development
companies and other widely-held limited partnerships; (v) how to treat limited
liability companies and other new business forms for attribution purposes; (vi)
whether to eliminate or codify the cross-interest policy; and, (vii) whether to
adopt a new policy which would consider whether multiple "cross interests" or
other significant business relationships (such as time brokerage agreements,
debt relationships or holdings of nonattributable interests), which individually
do not raise
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concerns, raise issues with respect to diversity and competition. It is unlikely
that this inquiry will be concluded until late 1996 at the earliest and there
can be no assurance that any of these standards will be changed. Should the
attribution rules be changed, the Company is unable to predict what, if any,
effect it would have on the Company or its activities. To the best of the
Company's knowledge, no officer, director or five percent stockholder of the
Company currently holds an interest in another television station, radio
station, cable television system or daily newspaper that is inconsistent with
the FCC's ownership rules and policies or with ownership by the Company of its
stations.
ALIEN OWNERSHIP RESTRICTIONS. The Communications Act restricts the ability of
foreign entities or individuals to own or hold interests in broadcast licenses.
Foreign governments, representatives of foreign governments, non-citizens,
representatives of non-citizens, and corporations or partnerships organized
under the laws of a foreign nation are barred from holding broadcast licenses.
Non-citizens, collectively, may directly or indirectly own or vote up to 20% of
the capital stock of a licensee but are prohibited from serving as officers or
directors of such licensee. In addition, a broadcast license may not be granted
to or held by any corporation that is controlled, directly or indirectly, by any
other corporation (i) that has a non-citizen as an officer, (ii) more than
one-fourth of whose directors are non-citizens or (iii) more than one-fourth of
whose capital stock is owned or voted by non-citizens or their representatives
or by foreign governments or their representatives, or by non-U.S. corporations,
if the FCC finds that the public interest will be served by the refusal or
revocation of such license. The Company has been advised that the FCC staff has
interpreted this provision of the Communications Act to require an affirmative
public interest finding before a broadcast license may be granted to or held by
any such corporation and the FCC has made such an affirmative public interest
finding before a broadcast license may be granted to or held by any such
corporation and the FCC has made such an affirmative finding only in limited
circumstances. The Company, which serves as a holding company for wholly-owned
subsidiaries that are licensees for its stations, therefore may be restricted
from having (i) more than one-fourth of its stock owned or voted directly or
indirectly by non-citizens, foreign governments, representatives of non-citizens
or foreign governments, or foreign corporations; (ii) an officer who is a
non-citizen; or (iii) more than one-fourth of its board of directors consisting
of non-citizens.
RECENT DEVELOPMENTS. The FCC recently decided to eliminate the prime time
access rule ("PTAR"), effective August 30, 1996. PTAR currently limits a
station's ability to broadcast network programming (including syndicated
programming previously broadcast over a network) during prime time hours. The
elimination of PTAR could increase the amount of network programming broadcast
over a station affiliated with ABC, NBC, CBS or Fox. Such elimination also could
result in (i) an increase in the compensation paid by the network (due to the
additional prime time during which network programming could be aired by a
network-affiliated station) and (ii) increased competition for syndicated
network programming that previously was unavailable for broadcast by network
affiliates during prime time. The FCC also recently announced that it was
rescinding its remaining financial interest and syndication ("fin\syn") rules.
The original rules, first adopted in 1970, severely restricted the ability of a
network to obtain financial interests in, or participate in syndication of,
prime-time entertainment programming created by independent producers for airing
during the networks' evening schedules. The FCC previously lifted the financial
interest rules and restraints on foreign syndication.
Congress has recently enacted legislation and the FCC currently has under
consideration or is implementing new regulations and policies regarding a wide
variety of matters that could affect, directly or indirectly, the operation and
ownership of the Company's broadcast properties. In addition to the proposed
changes noted above, such matters include, for example, the license renewal
process (particularly the weight to be given to the expectancy of renewal for an
incumbent broadcast licensee and the criteria to be applied in deciding
contested renewal applications), spectrum use fees, political advertising rates,
potential advertising restrictions on the advertising of certain products (beer
and wine, for example), the rules and policies to be applied in enforcing the
FCC's equal employment opportunity regulations, reinstitution of the Fairness
Doctrine (which requires broadcasters airing programming concerning
controversial issues of public importance to afford a reasonable opportunity for
the expression of contrasting viewpoints), and the standards to govern
evaluation of television programming directed toward children and violent and
indecent programming (including the possible requirement of what is commonly
referred to as the "v-chip," which would permit parents to program television
sets so that certain programming would not be accessible by children). Other
matters that could affect the Company's broadcast properties include
technological innovations and
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developments generally affecting competition in the mass communications
industry, such as the recent initiation of direct broadcast satellite service,
and the continued establishment of wireless cable systems and low power
television stations.
The FCC presently is seeking comment on its policies designed to increase
minority ownership of mass media facilities. Congress also recently enacted
legislation that eliminated the minority tax certificate program of the FCC,
which gave favorable tax treatment to entities selling broadcast stations to
entities controlled by an ethnic minority. In addition, a recent Supreme Court
decision has cast doubt upon the continued validity of many of the congressional
programs designed to increase minority ownership of mass media facilities.
DISTRIBUTION OF VIDEO SERVICES BY TELEPHONE COMPANIES. Recent actions by the
FCC, Congress and the courts all presage significant future involvement in the
provision of video services by telephone companies. The Company cannot predict
either the timing or the extent of such involvement.
THE 1992 CABLE ACT. On October 5, 1992, Congress enacted the Cable Television
Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"). The FCC
began implementing the requirements of the 1992 Cable Act in 1993 and final
implementation proceedings remain pending regarding certain of the rules and
regulations previously adopted. Certain statutory provisions, such as signal
carriage, retransmission consent and equal employment opportunity requirements,
have a direct effect on television broadcasting. Other provisions are focused
exclusively on the regulation of cable television but can still be expected to
have an indirect effect on the Company because of the competition between
over-the-air television stations and cable systems.
The signal carriage, or "must carry," provisions of the 1992 Cable Act require
cable operators to carry the signals of local commercial and non-commercial
television stations and certain low power television stations. Systems with 12
or fewer usable activated channels and more than 300 subscribers must carry the
signals of at least three local commercial television stations. A cable system
with more than 12 usable activated channels, regardless of the number of
subscribers, must carry the signals of all local commercial television stations,
up to one-third of the aggregate number of usable activated channels of such
system. The 1992 Cable Act also includes a retransmission consent provision that
prohibits cable operators and other multi-channel video programming distributors
from carrying broadcast stations without obtaining their consent in certain
circumstances. The "must carry" and retransmission consent provisions are
related in that a local television broadcaster, on a cable system-by-cable
system basis, must make a choice once every three years whether to proceed under
the "must carry" rules or to waive that right to mandatory but uncompensated
carriage and negotiate a grant of retransmission consent to permit the cable
system to carry the station's signal, in most cases in exchange for some form of
consideration from the cable operator. Cable systems must obtain retransmission
consent to carry all distant commercial stations other than "super stations"
delivered via satellite.
Under rules adopted to implement these "must carry" and retransmission consent
provisions, local television stations were required to make an initial election
of "must carry" or retransmission consent by June 17, 1993. Stations that failed
to elect were deemed to have elected carriage under the "must carry" provisions.
Other issues addressed in the FCC rules were market designations, the scope of
retransmission consent and procedural requirements for implementing the signal
carriage provisions. Each of the Company's stations elected "must carry" status
on certain cable systems in its DMA. This election entitles the Company's
stations to carriage on those systems until at least December 31, 1996. In
certain other situations, the Company's stations entered into "retransmission
consent" agreements with cable systems. The Company is unable to predict whether
or not these retransmission consent agreements will be extended and, if so, on
what terms.
On April 8, 1993, a special three-judge panel of the U.S. District Court for the
District of Columbia upheld the constitutionality of the "must carry" provisions
of the 1992 Cable Act. However, on June 27, 1994, the United States Supreme
Court in a 5-4 decision vacated the lower court's judgment and remanded the case
to the District Court for further proceedings. Although the Supreme Court found
the "must carry" rules to be content-neutral and supported by legitimate
governmental interests under appropriate constitutional tests, it also found
that genuine issues of material fact still remained that must be resolved in a
more detailed evidentiary record. On December 12, 1995, the United States
District Court for the District of Columbia upheld the "must carry" requirements
compelling cable systems to carry broadcast signals. The cable industry plans to
appeal this decision. In the meantime, however, the FCC's new "must carry"
regulations implementing the 1992 Cable Act remain in effect.
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The 1992 Cable Act also codified the FCC's basic equal employment opportunity
("EEO") rules and the use of certain EEO reporting forms currently filed by
television broadcast stations. In addition, pursuant to the 1992 Cable Act's
requirements, the FCC has adopted new rules providing for a review of the EEO
performance of each television station at the mid-point of its license term (in
addition to renewal time). Such a review will give the FCC an opportunity to
evaluate whether the licensee is in compliance with the FCC's processing
criteria and notify the licensee of any deficiency in its employment profile.
Among the other rulemaking proceedings conducted by the FCC to implement
provisions of the 1992 Cable Act have been those concerning cable rate
regulation, cable technical standards, cable multiple ownership limits and
competitive access to programming.
Among other provisions, the Telecommunications Act redefines the term "cable
system" as "a facility that serves subscribers without using any public right of
way." It eliminates a single subscriber's ability to initiate a rate complaint
proceeding at the FCC and allows a cable operator to move any service off the
basic tier in its discretion, other than local broadcast signals and access
channels required to be carried on the basic tier.
ADVANCED TELEVISION SERVICE. The FCC has proposed the adoption of rules for
implementing advanced television ("ATV") service in the United States.
Implementation of digital ATV will improve the technical quality of television
signals receivable by viewers and will provide broadcasters the flexibility to
offer new services, including high-definition television ("HDTV"), simultaneous
broadcasting of multiple programs of standard definition television ("SDTV") and
data broadcasting.
The FCC must adopt ATV service rules and a table of ATV allotments before
broadcasters can provide these services enabled by the new technology. On July
28, 1995, the FCC announced the issuance of a NPRM to invite comment on a broad
range of issues related to the implementation of ATV, particularly the
transition to digital broadcasting. The FCC announced that the anticipated role
of digital broadcasting will cause it to revisit certain decisions made in an
earlier order. The FCC also announced that broadcasters will be allowed greater
flexibility in responding to market demand by transmitting a mix of HDTV, SDTV
and perhaps other services. The FCC also stated that the NPRM would be followed
by two additional proceedings and that a Final Report and Order which will
launch the ATV system is anticipated in 1996.
The Telecommunications Act directs the FCC, if it issues licenses for ATV, to
limit the initial eligibility for such licenses to incumbent broadcast
licensees. It also authorizes the FCC to adopt regulations that would permit
broadcasters to use such spectrum for ancillary or supplementary services. It is
expected that the FCC will assign all existing television licensees a second
channel on which to provide ATV simultaneously with their current NTSC service.
It is possible after a period of years that broadcasters would be required to
cease NTSC operations, return the NTSC channel to the FCC, and broadcast only
with the newer digital technology. Some members of Congress have advocated
authorizing the FCC to auction either NTSC or ATV channels; however, the
Telecommunications Act allows the FCC to determine when such licenses will be
returned and how to allocate returned spectrum.
Under certain circumstances, conversion to ATV operations would reduce a
station's geographical coverage area but the majority of stations will obtain
service areas that match or exceed the limits of existing operations. Due to
additional equipment costs, implementation of ATV will impose some near-term
financial burdens on television stations providing the service. At the same
time, there is a potential for increased revenues to be derived from ATV.
Although the Company believes the FCC will authorize ATV in the United States,
the Company cannot predict precisely when or under what conditions such
authorization might be given, when NTSC operations must cease, or the overall
effect the transition to ATV might have on the Company's business.
DIRECT BROADCASTING SATELLITE SYSTEMS. The FCC has authorized DBS, a service
which provides video programming via satellite directly to home subscribers.
Local broadcast stations and broadcast network programming are not carried on
DBS systems. Proposals recently advanced in the Telecommunications Act include a
prohibition on restrictions that inhibit a viewer's ability to receive video
programming through DBS services. The FCC has exclusive jurisdiction over the
regulation of DBS service. The Company cannot predict the impact of this new
service upon the Company's business.
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PAGING
FEDERAL REGULATION. The Company's paging operations are subject to regulation
by the FCC under the Communications Act. The FCC has granted the Company
licenses to use the radio frequencies necessary to conduct its paging
operations. Licenses issued by the FCC to the Company set forth the technical
parameters, such as signal strength and tower height, under which the Company is
authorized to use those frequencies.
LICENSE GRANT AND RENEWAL. The FCC licenses granted to the Company are for
varying terms of up to 10 years, at the end of which renewal applications must
be approved by the FCC. In the past, paging license renewal applications
generally have been granted by the FCC in most cases upon a demonstration of
compliance with FCC regulations and adequate service to the public. Although the
Company is unaware of any circumstances which could prevent the grant of renewal
applications, no assurance can be given that any of the Company's licenses will
be free of competing applications or will be renewed by the FCC. Furthermore,
the FCC has the authority to restrict the operation of licensed facilities or to
revoke or modify licenses. None of the Company's licenses has ever been revoked
or modified involuntarily.
The FCC has enacted regulations regarding auctions for the award of radio
spectrum licenses. Pursuant to such rules, the FCC at any time may require
auctions for new or existing services prior to the award of any license.
Accordingly, there can be no assurance that the Company will be able to procure
additional frequencies, or to expand existing paging networks operating on
frequencies for which the Company is currently licensed into new geographical
areas. In March 1994, the FCC adopted rules pursuant to which the FCC will
utilize competitive bidding to select Commercial Mobile Radio Service ("CMRS")
licensees when more than one entity has filed a timely application for the same
license. These competitive bidding rules could require that FCC licensees make
significant investments in order to obtain spectrum. While the FCC has not yet
applied these rules to paging licenses, it could do so at any time. The Company
also believes that this rule change may increase the number of competitors which
have significant financial resources and may provide an added incentive to build
out their systems quickly.
RECENT DEVELOPMENTS. On February 8, 1996, the FCC announced a temporary
cessation in the acceptance of applications for new paging stations, and placed
certain restrictions on the extent to which current licensees can expand into
new territories on an existing channel. The FCC has initiated an expedited
comment period in which it will consider whether these interim processing
procedures should be relaxed. The FCC is also considering whether CMRS operators
should be obligated to interconnect their systems with others and be prohibited
from placing restrictions on the resale of their services.
The FCC recently adopted rules generally revising the classification of the
services offered by paging companies. Traditionally, paging companies have been
classified either as Private Common Carriers or Private Carrier Paging Operators
or as resellers. Pursuant to the FCC's recently adopted rules, which aim to
reduce the disparities in the regulatory treatment of similar mobile services,
the Company's paging services are or will be classified as CMRS. The Company
believes that such parity will remove certain regulatory advantages which
private carrier paging competitors have enjoyed under the previous
classification scheme, although private carrier paging companies will be subject
to a transition period through August 1996 before these new rules are
applicable.
The recently enacted Telecommunications Act may affect the Company's paging
business. Some aspects of the new statute could have beneficial effect on the
Company's paging business. For example, proposed federal guidelines regarding
antenna siting issues may remove local and state barriers to the construction of
communications facilities, and efforts to increase competition in the local
exchange and interexchange industries may reduce the cost to the Company of
acquiring necessary communications services and facilities. On the other hand,
some provisions relating to common carrier interconnection, telephone number
portability, equal access, the assignment of new area codes, resale requirements
and auction authority may place additional burdens upon the Company or subject
the Company to increased competition.
In addition to regulation by the FCC, paging systems are subject to certain
Federal Aviation Administration regulations with respect to the height,
location, construction, marking and lighting of towers and antennas.
STATE REGULATION. As a result of the enactment by Congress of the Omnibus
Budget Reconciliation Act of 1993, the authority of the states to regulate the
Company's paging operations was severely curtailed as of August 1994. At this
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time the Company is not aware of any proposed state legislation or regulations
which would have a material adverse impact on the Company's paging business.
There can be no assurance, however, that such legislation or regulations will
not be passed in the future.
EMPLOYEES
As of March 1996, the Company (excluding the Phipps Business) had 740 full-time
employees, of which 450 were employees of the Company's stations, 280 were
employees of the Company's publications and 10 were corporate and administrative
personnel. None of the Company's employees are represented by unions. The
Company believes that its relations with its employees are satisfactory.
PROPERTIES
The Company's principal executive offices are located at 126 North Washington
Street, Albany, Georgia 31701, which is owned by The Albany Herald Publishing
Company, Inc. (the "Albany Herald"). The Albany Herald also owns the adjacent
building on the corner of Pine Avenue in Albany. The building located at 126
North Washington Street contains administration, news and advertising offices
and the adjacent buildings located on Pine Avenue contain the printing press and
production facilities, as well as paper storage and maintenance. These buildings
contain approximately 83,000 square feet. In addition, the parking lot for the
employees and customers of THE ALBANY HERALD is located immediately across Pine
Avenue from the administration offices.
The types of properties required to support television stations include offices,
studios, transmitter sites and antenna sites. The types of properties required
to support newspaper publishing include offices, facilities for the printing
press and production and storage. A station's studios are generally housed with
its offices in business districts. The transmitter sites and antenna are
generally located in elevated areas to provide optimal signal strength and
coverage.
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The following table sets forth certain information regarding the Company's
properties.
TELEVISION BROADCASTING
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
STATION/APPROXIMATE
PROPERTY OWNED APPROXIMATE EXPIRATION
LOCATION USE OR LEASED SIZE OF LEASE
- - - ------------------------- ------------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
WKYT
Lexington, KY Office, studio and Owned 34,500 sq. ft. -
transmission tower site building on 20
acres
WYMT
Hazard, KY Office and studio Owned 21,200 sq. ft. -
building
Hazard, KY Transmission tower site Leased - June 2015
Hazard, KY Transmitter building and Owned 1,248 sq. ft. -
improvements
WRDW
North Augusta, SC Office and studio Owned 17,000 sq. ft. -
Transmission tower site Owned 143 acres -
WALB
Albany, GA Office and studio Owned 13,700 sq. ft. -
Albany, GA Transmission tower site Owned 21 acres -
WJHG
Panama City, FL Office and studio Owned 14,000 sq. ft. -
Youngstown, FL Transmission tower site Owned 17 acres -
WKXT
Knoxville, TN Office and studio Owned 18,300 sq. ft. --
Knoxville, TN Transmission tower site Leased Tower space Dec. 1998
WCTV
Tallahassee, FL Office and studio Leased 22,000 sq. ft. Dec. 2014
Metcalf, FL Transmission tower site Owned 182 acres --
</TABLE>
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PUBLISHING
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
OWNED APPROXIMATE EXPIRATION
COMPANY/PROPERTY LOCATION USE OR LEASED SIZE OF LEASE
- - - ----------------------------------- ------------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
The Albany Herald Publishing See above See above See above See above
Company, Inc.
The Rockdale Citizen Publishing
Company
Conyers, GA Offices, printing press Owned 20,000 sq. ft. -
and production facility
for THE ROCKDALE CITIZEN
Lawrenceville, GA Offices and production Leased 11,000 sq. ft. 11/97
facilities of the
GWINNETT DAILY POST
The Southwest Georgia Shoppers Inc.
Tallahassee, FL Offices Owned 5,500 sq. ft. --
</TABLE>
PAGING
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
OWNED APPROXIMATE EXPIRATION
COMPANY/PROPERTY LOCATION USE OR LEASED SIZE OF LEASE
----------------------------------- ------------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Albany GA Office Leased 800 sq. ft. March 1996
Columbus, GA Office Leased 1,000 sq. ft. July 1997
Dothan, AL Office Leased 800 sq. ft. Feb. 1995
Macon, GA Office Leased 1,260 sq. ft. July 1998
Tallahassee, GA Office Leased 2,400 sq. ft. Month to month
Thomasville, GA Office Leased 300 sq. ft. Month to month
Valdosta, GA Office Leased 400 sq. ft. May 1997
Panama City, FL Office Leased 1,050 sq. ft. Jan. 1998
</TABLE>
LEGAL PROCEEDINGS
There is no threatened or pending litigation or proceedings that management
believes will have a material adverse effect, either individually or in the
aggregate, upon the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning each of the directors and
executive officers of the Company and its subsidiaries.
<TABLE>
<CAPTION>
NAME AGE TITLE
- - - ----------------------------------- ----- -----------------------------------
<S> <C> <C>
Ralph W. Gabbard* 50 Director and President of the
Company
William A. Fielder III 37 Vice President and Chief Financial
Officer
Sabra H. Cowart 29 Controller, Chief Accounting
Officer and Assistant Secretary
Robert A. Beizer 56 Vice President for Law and
Development and Secretary
Thomas J. Stultz 44 Vice President
Joseph A. Carriere 62 Vice President-Corporate Sales
William E. Mayher III* 56 Chairman of the Board of Directors
Richard L. Boger*+ 49 Director
Hilton H. Howell, Jr.** 34 Director
Howell W. Newton** 49 Director
Hugh Norton 63 Director
Robert S. Prather, Jr.*+ 51 Director
J. Mack Robinson*+ 72 Director
</TABLE>
- - - ------------------------
* Member of the Executive Committee
** Member of the Audit Committee
+ Member of the Management Personnel Committee
Mr. Gabbard has been President and director of the Company since December 1,
1995. He served as a Vice President of the Company and as President and Chief
Operating Officer of the Company's broadcast operations from September 2, 1994
until his election as President of the Company. He was president and general
manager of Kentucky Central Television, Inc., the former owner of WKYT and WYMT,
from 1982 to 1994. Mr. Gabbard is Chairman of the National Association of
Broadcasters Television Board of Directors and Chairman of the CBS Affiliates
Advisory Board.
Mr. Fielder has been a Vice President and the Chief Financial Officer of the
Company since August 1993. From April 1991 until his appointment as Chief
Financial Officer, he was Controller of the Company. Prior to being appointed
controller of the Company in April 1991, he was employed by Ernst & Young LLP,
an accounting firm, which are the independent auditors of the Company.
Ms. Cowart has been Controller and Chief Accounting Officer of the Company since
April 1995. In February 1996 Ms. Cowart was appointed Assistant Secretary of the
Company. From March 1994 until her appointment as Controller and Chief
Accounting Officer, Ms. Cowart was the corporate accounting manager for the
Company. Prior to joining the Company, she was employed by Deloitte & Touche
LLP, an accounting firm, from 1989 to 1994.
Mr. Beizer has been Vice President for Law and Development and Secretary of the
Company since February 1996. From June 1994 to February 1996, he was of counsel
to Venable, Baetjer, Howard & Civiletti, a law firm, in its regulatory and
legislative practice group. From 1990 to 1994, Mr. Beizer was a partner at the
law firm of Sidley & Austin and was head of its communications practice group in
Washington, D.C. He has represented newspaper and broadcasting companies,
including the Company, before the Federal Communications Commission for over 25
years. He is a past president of the Federal Communications Bar Association and
a member of the ABA House of Delegates.
Mr. Stultz has been a Vice President of the Company and the President of the
Company's publishing division since February 1996. From 1990 to 1995, he was
employed by Multimedia, Inc. as a vice president and from 1988 to 1990, as vice
president of marketing.
Mr. Carriere has been Vice President of Corporate Sales since February 1996.
From November 1994 until his appointment as Vice President, he served as
President and General Manager of KTVE Inc., a subsidiary of the
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Company. Prior to joining the Company in 1994, Mr. Carriere was employed by
Withers Broadcasting Company of Colorado as General Manager from 1991 to 1994.
He has served as a past chairman of the CBS Advisory Board and the National
Association of Broadcasters.
Dr. Mayher has been a surgeon since prior to 1991 and has been a director of the
Company since 1990. He has served as Chairman of the Board of Directors since
August 1993.
Mr. Boger has been the President and chief executive officer of Export Insurance
Services, Inc., an insurance company, and a director of CornerCap Group of
Funds, a "Series" investment company since prior to 1991. He has been a director
of the Company since 1991.
Mr. Howell has been President and Chief Executive Officer of Atlantic American
Corporation, an insurance holding company, since May 1995. He has been Executive
Vice President of Delta Life Insurance Company and Delta Fire & Insurance
Company since 1994, and Executive Vice President of Atlantic American Life
Insurance Company, Bankers Fidelity Life Insurance Company and Georgia Casualty
& Surety Company since 1992. In addition, since 1994, he has served as a Vice
President and Secretary of Bull Run, a designer and manufacturer of dot matrix
printers. He is also a director of the following corporations: Bull Run,
Atlantic American Corporation, Atlantic American Life Insurance Company, Bankers
Fidelity Life Insurance Company, Delta Life Insurance Company, Delta Fire and
Casualty Insurance Company, Georgia Casualty & Surety Company, American Southern
Insurance Company and American Safety Insurance Company. From 1989 to 1991, Mr.
Howell practiced law in Houston, Texas with the law firm of Liddell, Sapp,
Zivley, Hill & LaBoon. He has been a director of the Company since 1993. He is
the son-in-law of J. Mack Robinson.
Mr. Newton has been the President and Treasurer of Trio Manufacturing Co., a
textile manufacturing company, since prior to 1991 and a director of the Company
since 1991.
Mr. Norton has been the President of Norco, Inc., an insurance agency, since
prior to 1991 and a director of the Company since 1987.
Mr. Prather has been the President and chief executive officer of Bull Run since
July 1992 and a director of Bull Run since 1992. Prior to that time, he was
President and chief executive officer of Phoenix Corporation, a steel service
center. Mr. Prather has been a director of the Company since 1993.
Mr. Robinson has been chairman of the board of Bull Run since March 1994,
chairman of the board and President of Delta Life Insurance Company since 1958,
President of Atlantic American Corporation, an insurance holding company, from
1988 until 1995 and chairman of the board of Atlantic American Corporation since
1995. He is also a director of the following corporations: Bull Run, Atlantic
American Life Insurance Company, Bankers Fidelity Life Insurance Company, Delta
Life Insurance Company, Delta Fire and Casualty Insurance Company and Georgia
Casualty & Surety Company and director EMERITUS of Wachovia Corporation. He has
been a director of the Company since 1993.
Each director holds office until the Company's next annual meeting of the
shareholders and until his successor is elected and qualified. Officers are
elected annually by the Board of Directors and hold office at the discretion of
the Board.
EXECUTIVE COMPENSATION
GENERAL. The following table sets forth a summary of the compensation of the
Company's President, its former chief executive officer and the other executive
officers whose total annual compensation exceeded $100,000 during the year ended
December 31, 1995 ("named executives"). Mr. John T. Williams resigned as
President, Chief Executive Officer and director and was replaced by Mr. Ralph W.
Gabbard effective December 1, 1995.
70
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
LONG TERM COMPENSATION
---------------------------------------------
AWARDS
------------------------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
NAME AND ------------------------------- RESTRICTED OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARDS SARS(#) COMPENSATION(1)
- - - ---------------------------------------- ------- --------- --------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
John T. Williams, 1995 $ 285,000 $ - $2,081,250(2) $ - $ 606,266(2)
President, Chief Executive Officer and 1994 286,867 71,910 - - 2,112
Director (2) 1993 258,400 112,500 - - 1,950
Ralph W. Gabbard, 1995(3) 261,000 150,000 - 15,000 12,628
President, Director 1994 77,000 118,941 - 30,509 1,200,000(4)
1993(5) - - - - -
William A. Fielder, III, 1995 105,000 22,050 - 3,000 9,188(6)
Vice President and Chief Financial 1994 95,000 - - - 6,055(6)
Officer 1993 88,161 - - 7,500 6,040(6)
Joseph A. Carriere, 1995 115,000 65,922 - 3,750 878
Vice President Corporate Sales 1994(7) 6,635 - - - -
1993(5) - - - - -
</TABLE>
- - - ------------------------------
(1) All other compensation includes the Company's matching contributions to its
401(k) plan and insurance premiums paid on behalf of the executive officer.
(2) Mr. Williams resigned his position as President, Chief Executive Officer
and director of the Company effective December 1, 1995. Upon his
resignation, his employment agreement with the Company was amended to pay
consulting fees of approximately $596,000 over the two-year period ending
November 1997. Additionally, the Company issued 150,000 shares of Class A
Common Stock to him in accordance with his employment agreement, which was
amended to remove certain restrictions on such shares.
(3) Mr. Gabbard was elected President and director of the Company in December
1995. Prior to this election he served as Vice President of the Company and
President and Chief Operating Officer of the Company's broadcast operations
from September 2, 1994 to December 1995.
(4) Mr. Gabbard has an employment agreement with the Company which provides him
with 122,034 shares of Class A Common Stock if his employment with the
Company continues until September 1999. The Company will recognize
approximately $1.2 million of compensation expense for this award over the
five-year period. Approximately $80,000 and $240,000 of expense was
recorded in 1994 and 1995, respectively.
(5) Not employed by the Company during this year.
(6) All other compensation includes amounts accrued for supplemental retirement
benefits.
(7) Mr. Carriere joined the Company in November 1994 as President and General
Manager of KTVE Inc.
STOCK OPTIONS GRANTED. The following table contains information on stock
options granted to the Company's President and the named executives during the
year ended December 31, 1995. Under the Company's 1992 Long Term Incentive Plan
(the "Incentive Plan") all officers and key employees are eligible for grants of
stock options and other stock-based awards. Options granted are exercisable over
a three year period beginning on the second anniversary of the grant date and
expire one month after termination of employment. The total number of shares of
Class A Common Stock issuable under the Incentive Plan is not to exceed 600,000
shares, subject to adjustment in the event of any change in the outstanding
shares of such stock by reason of a stock dividend, stock split,
recapitalization, merger, consolidation or other similar changes generally
affecting stockholders of the Company.
The Incentive Plan is administered by the members of the Management Personnel
Committee of the Board of Directors (the "Committee") who are not eligible for
selection as participants under the Incentive Plan. The Incentive Plan is
intended to provide additional incentives and motivation for the Company's
employees. The Committee, by majority action thereof, is authorized in its sole
discretion to determine the individuals to whom the benefits will be granted,
the type and amount of such benefits and the terms thereof; and to prescribe,
amend and rescind rules and regulations relating to the Incentive Plan, among
other things.
71
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
----------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES
OPTIONS OF
NUMBER OF GRANTED TO STOCK PRICE
SECURITIES EMPLOYEES EXERCISE APPRECIATION FOR
UNDERLYING IN OR OPTION TERM(1)
OPTIONS FISCAL BASE PRICE EXPIRATION ----------------------
NAME GRANTED YEAR ($/SHARE) DATE 5%($) 10%($)
- - - --------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ralph W. Gabbard 15,000 25.8% $13.33 3/30/00 $55,242 $122,071
William A. Fielder, III 3,000 5.2% $13.33 3/30/00 $11,048 $24,414
Joseph A. Carriere 3,750 6.5% $13.33 3/30/00 $13,811 $30,518
</TABLE>
- - - ------------------------
(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of options immediately prior to the expiration of their term
assuming the specified compounded rates of appreciation (5% and 10%) on the
Class A Common Stock over the term of the options. These numbers are
calculated based on rules promulgated by the Commission and do not reflect
the Company's estimate of future stock price growth. Actual gains, if any,
on stock option exercises and Class A Common Stock holdings are dependent on
the timing of such exercise and the future performance of the Class A Common
Stock. There can be no assurance that the rates of appreciation assumed in
this table can be achieved or that the amounts reflected will be received by
the option holder.
STOCK OPTIONS EXERCISED. The following table sets forth information about
unexercised stock options held by the named executives. No stock options were
exercised by such officers during 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
----------------------------------------------------
VALUE OF UNEXERCISED IN-
NUMBER OF UNEXERCISED THE-MONEY OPTIONS AT FY
OPTIONS AT FY END(#) END($) EXERCISABLE/
NAME EXERCISABLE/UNEXERCISABLE UNEXERCISABLE(1)
- - - ------------------------------ ------------------------- -------------------------
<S> <C> <C>
Ralph W. Gabbard 0/45,509 $0/$318,553
William A. Fielder, III 7,500/3,000 $61,562/$13,625
Joseph A. Carriere 0/3,750 $0/$17,031
</TABLE>
- - - ------------------------
(1) Closing price of Class A Common Stock at December 31, 1995 was $17 7/8 per
share.
SUPPLEMENTAL PENSION PLAN. The Company has entered into agreements with certain
key employees to provide these employees with supplemental retirement benefits.
The benefits are disbursed after retirement in contractually predetermined
payments of equal monthly amounts over the employee's life, or the life of a
surviving eligible spouse for a maximum of 15 years. The Company maintains life
insurance coverage on these individuals in adequate amounts to fund the
agreements.
RETIREMENT PLAN. The Company sponsors a defined benefit pension plan, intended
to be tax qualified, for certain of its employees and the employees of any of
its subsidiaries which have been designated as participating companies under the
plan. A participating employee who retires on or after attaining age 65 and who
has completed five years of service upon retirement may be eligible to receive
during his lifetime, in the form of monthly payments, an annual pension equal to
(i) 22% of the employee's average earnings for the highest five consecutive
years during the employee's final 10 years of employment multiplied by a factor,
the numerator of which is the employee's years of service credited under the
plan before 1994, the denominator of which is the greater of 25 or the years of
service credited under the plan, plus (ii) .9% of the employee's monthly average
earnings for the highest five consecutive years in the employee's final ten
years of employment added to .6% of monthly average earnings in excess of Social
Security covered compensation, and multiplied by the employee's years of service
credited under the plan after 1993, with a maximum of 25 years minus years of
service credited under (i) above. For participants as of December 31,
72
<PAGE>
1993, there is a minimum benefit equal to the projected benefit under (i) at
that time. For purposes of illustration, pensions estimated to be payable upon
retirement of participating employees in specified salary classifications are
shown in the following table:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
----------------------------------------------------------------------
YEARS OF SERVICE
----------------------------------------------------------------------
REMUNERATION(1) 10 15 20 25 30 35
- - - -------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 15,000 $1,326 $1,986 $2,646 $3,306 $3,300 $3,300
25,000 2,210 3,310 4,410 5,510 5,500 5,500
50,000 4,709 6,909 9,109 11,309 11,000 11,000
75,000 7,219 10,519 13,819 17,119 16,500 16,500
100,000 9,729 14,129 18,529 22,929 22,000 22,000
150,000 14,749 21,349 27,949 34,549 33,000 33,000
200,000 18,269 27,069 35,869 44,669 41,067 41,486
250,000 and above 19,622 29,268 38,914 48,560 45,014 45,473
</TABLE>
- - - ------------------------
(1) Five-year average annual compensation
Employees may become participants in the plan, provided that they have attained
age 21 and have completed one year of service. Average earnings are based upon
the salary paid to a participating employee by a participating company. Pension
compensation for a particular year as used for the calculation of retirement
benefits includes salaries, overtime pay, commissions and incentive payments
received during the year and the employee's contribution to the Capital
Accumulation Plan (as defined). Pension compensation for 1995 differs from
compensation reported in the Summary Compensation Table in that pension
compensation includes any annual incentive awards received in 1995 for services
in 1994 rather than the incentive awards paid in 1996 for services in 1995. The
maximum annual compensation considered for pension benefits under the plan in
1995 was $150,000.
As of December 31, 1995, full years of actual credited service in this plan are
Mr. Williams-3 years; Mr. Fielder-4 years; and Mr. Carriere-1 year. Mr. Gabbard
had no full years of credited service under the plan at December 31, 1995.
CAPITAL ACCUMULATION PLAN. Effective October 1, 1994, the Company adopted the
Gray Communications Systems, Inc. Capital Accumulation Plan (the "Capital
Accumulation Plan") for the purpose of providing additional retirement benefits
for substantially all employees. The Capital Accumulation Plan is intended to
meet the requirements of section 401(k) of the Code.
Contributions to the Capital Accumulation Plan are made by the employees of the
Company. The Company matches a percentage of each employee's contribution which
does not exceed 6% of the employee's gross pay. The percentage match is made
with a contribution of Class A Common Stock and is declared by the Board of
Directors before the beginning of each Capital Accumulation Plan year. The
percentage match declared for the year ended December 31, 1995 was 50%. The
Company's matching contributions vest based upon the employees' number of years
of service, over a period not to exceed five years. The Company has registered
150,000 shares of Class A Common Stock for issuance to the Capital Accumulation
Plan.
DIRECTORS' COMPENSATION
Directors who are not employed by the Company receive an annual fee of $6,000.
Nonemployee directors are paid $500 for attendance at meetings of the Board of
Directors and $500 for attendance at meetings of Committees of the Board.
Committee chairmen, not employed by the Company, receive an additional fee of
$800 for each meeting they attend. Any outside director who serves as Chairman
of the Board receives an annual retainer of $12,000. Outside directors are paid
40% of the usual fee arrangement for attending any special meeting of the Board
of Directors or any Committee thereof conducted by telephone.
73
<PAGE>
EMPLOYMENT AGREEMENTS
In May 1992, John T. Williams, former President and Chief Executive Officer of
the Company, entered into an employment agreement with the Company. This
Agreement provided for additional compensation based upon the performance of the
Company's stock price over a five-year period ending in 1997. Under this
agreement, the Company issued 150,000 shares of Class A Common Stock (the
"Common Stock Award"), with certain restrictions, in three separate awards, to
Mr. Williams during 1995. The Company recorded approximately $2.1 million in
compensation expense in 1995 relating to these awards. In December 1995, Mr.
Williams resigned his position as President, Chief Executive Officer and
director of the Company. Upon his resignation, the Company amended his existing
employment agreement to pay him consulting fees of approximately $596,000
through November 1997 and remove certain restrictions on the Common Stock Award,
including among others, a time requirement for continued employment.
Ralph W. Gabbard and the Company entered into an employment agreement, dated
September 3, 1994, for a five year term. The agreement provides for annual
compensation of $250,000 during the term of the agreement (subject to yearly
inflation adjustment) and entitles Mr. Gabbard to certain fringe benefits. In
addition to his annual compensation, Mr. Gabbard is entitled to participate in
an annual incentive compensation plan and the Incentive Plan. Under the annual
incentive compensation plan, Mr. Gabbard is eligible to receive additional
compensation if the operating profits of the broadcasting group of the Company
reaches or exceeds certain goals. Under the Incentive Plan, Mr. Gabbard has
received non-qualified stock options to purchase 30,509 shares of Class A Common
Stock. These options are exercisable over a three year period beginning
September 1996. The exercise price for such options is $9.66. Upon the fifth
anniversary of Mr. Gabbard's employment with the Company, Mr. Gabbard shall
receive 122,034 shares of Class A Common Stock. In February 1996, the Board of
Directors of the Company approved an amendment, effective January 1, 1996, to
increase his base salary from $250,000 to $300,000 and to provide for additional
annual compensation of a minimum of $200,000 if certain operating profit levels
are achieved.
Mr. Gabbard has agreed that during the term of his agreement and for two years
thereafter, he will be subject to certain non-competition provisions.
William A. Fielder, III, Vice President and Chief Financial Officer of the
Company, has an employment agreement with the Company dated April 1991, which
was amended March 1993, to provide for the continuation of his annual salary
(currently $135,000) for a period of one year in the event of termination
without cause.
Robert A. Beizer and the Company entered into an employment agreement dated as
of February 12, 1996, for a two-year term which automatically renews for three
successive one-year periods, subject to certain termination provisions. The
agreement provides that Mr. Beizer shall be employed as Vice President for Law
and Development of the Company, with an initial annual base salary of $200,000
and a grant of options to purchase 15,000 shares of Class A Common Stock with an
exercise price of $19.375 per share under the Incentive Plan at the inception of
his employment. Mr. Beizer's base salary shall be increased yearly, based upon a
cost of living index and he will receive options to purchase 7,000 shares of
Class A Common Stock annually during the term of the agreement. All options
granted are exercisable over a three year period upon the second anniversary of
the grant date. If there is a change of control of the Company, Mr. Beizer will
be paid a lump sum amount equal to his then current base salary for the
remaining term of the agreement and will be granted any remaining stock options
to which he would have been entitled. Mr. Beizer has agreed that during the term
of his agreement and for two years thereafter, he will be subject to certain
non-competition provisions.
74
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to stockholders
who are known by the Company to be the beneficial owners of more than 5% of the
outstanding Class A Common Stock and the number of shares of Class A Common
Stock beneficially owned by directors and named executive officers of the
Company, individually, and all directors and executive officers of the Company
as a group as of April 15, 1996. Except as indicated below, none of such
stockholders own, or have the right to acquire any shares of Class B Common
Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF SHARES BENEFICIALLY
BENEFICIAL OWNER OWNED PERCENT OF CLASS
- - - ------------------------------------------------------------ ------------------------ ------------------------
<S> <C> <C>
Bull Run Corporation (1) 1,211,590 27.1%
George H. Nader (2) 240,899 5.4%
Ralph W. Gabbard 917 *
William A. Fielder III (3) 8,515 *
Sabra H. Cowart 181 *
Robert A. Beizer -- *
Thomas J. Stultz 1,500 *
Joseph A. Carriere 562 *
William E. Mayher III (3) 16,500 *
Richard L. Boger (3) 24,150 *
Hilton H. Howell, Jr. (3)(4)(5)(6) 69,150 1.5%
Howell W. Newton 9,250 *
Hugh Norton 16,500 *
Robert S. Prather, Jr. (3)(4)(7) 30,750 *%
J. Mack Robinson (3)(4)(6)(8) 791,940 17.7%
John T. Williams (9) 78,752 1.8%
All directors and executive officers as a group (14 persons) 1,048,667 23.5%
</TABLE>
- - - ------------------------
* Less than 1%.
(1) Owned by Bull Run through its wholly-owned subsidiary, Datasouth Computer
Corporation. The address of Bull Run is 4370 Peachtree Road, Atlanta,
Georgia 30319.
(2) Mr. Nader's address is P.O. Box 271, 1011 Fifth Avenue, West Point, Georgia
31833.
(3) Includes 7,500 currently exercisable options.
(4) Excludes shares owned by Bull Run. Messrs. Howell, Prather and Robinson are
directors and officers of Bull Run. Messrs. Prather and Robinson are
principal shareholders of Bull Run.
(5) Includes 39,050 shares owned by Mr. Howell's wife, as to which shares Mr.
Howell disclaims beneficial ownership. Excludes 63,000 shares held in trust
for Mr. Howell's wife.
(6) Excludes as to Mr. Howell, and includes as to Mr. Robinson, an aggregate of
297,540 shares owned by certain companies of which Mr. Howell is an officer
and director and Mr. Robinson is an officer, director and a principal or
sole stockholder.
(7) Includes 150 shares owned by Mr. Prather's wife, as to which shares Mr.
Prather disclaims beneficial ownership.
(8) Includes an aggregate of 256,650 shares owned by Mr. Robinson's wife
directly and as trustee for their daughters, as to which shares Mr. Robinson
disclaims beneficial ownership. Mr. Robinson's address is 4370 Peachtree
Road, Atlanta, Georgia 30319.
(9) Mr. Williams resigned his position as President and Chief Executive Officer
of the Company effective December 1, 1995.
75
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Gray Kentucky Television, Inc., a subsidiary of the Company ("Gray Kentucky") is
a party to a University of Kentucky Television Agreement with Host
Communications, Inc. ("Host"), pursuant to which Gray Kentucky is licensed by
Host to broadcast University of Kentucky football and basketball games. In
addition, Gray Kentucky provides Host with production services in connection
with television broadcasts of University of Kentucky football and basketball
games pursuant to a rights sharing agreement. During the year ended December 31,
1995, Gray received approximately $332,000 resulting from these arrangements.
Bull Run currently owns 51.5% of the outstanding common stock of Capital Sports
Properties, Inc. ("CSP"). CSP's assets consist of all of the outstanding
preferred stock of Host and warrants to purchase Host common stock. Bull Run
also owns approximately 9.4% of Host's currently outstanding common shares
directly, thereby giving Bull Run total direct and indirect ownership of Host of
approximately 29.7%, assuming conversion of all currently outstanding
exercisable stock options and warrants for Host common stock. Messrs. Ralph W.
Gabbard and Robert S. Prather, Jr., members of the Company's Board of Directors
are also members of the board of directors of both CSP and Host.
The Company's Board of Directors approved payments to Bull Run of finders fees
for the acquisition of the GWINNETT DAILY POST, the Augusta Acquisition and the
Phipps Acquisition. The Company agreed to pay finders fees of $75,000 and
$360,000 for the acquisition of GWINNETT DAILY POST and Augusta Acquisitions,
respectively. The Board of Directors has agreed to pay a finders fee of 1% of
the proposed purchase price of the Phipps Acquisition for services performed, of
which $550,000 was due and included in accounts payable at December 31, 1995.
On January 3, 1996, Bull Run purchased for $10 million from the Company (i) the
8% Note in the principal amount of $10 million due in January 2005, with
interest payable quarterly beginning March 31, 1996 and (ii) warrants to
purchase 487,500 shares of Class A Common Stock at $17.88 per share, 300,000 of
which are currently fully vested, with the remaining warrants vesting in five
equal annual installments commencing January 3, 1997, provided that the 8% Note
is outstanding. The warrants must be approved by a majority of the Company's
shareholders, which is expected to occur at the Company's next annual meeting of
shareholders. The warrants may not be exercised prior to January 1998 and expire
in January 2006. The Company obtained a "fairness opinion" from The Robinson-
Humphrey Company, Inc., one of the underwriters of this Offering, relative to
the terms and conditions of the 8% Note.
In connection with the issuance by the Company of the $10 million letter of
credit in the Phipps Acquisition, J. Mack Robinson, a director of the Company,
executed a put agreement in favor of the letter of credit issuer, which such
issuer can exercise if the Company defaults on the repayment of any amounts in
accordance with the terms of the letter of credit.
ISSUANCES OF PREFERRED STOCK
As part of the Financing, the 8% Note will be retired and the Company will issue
to Bull Run, in exchange therefor, 1,000 shares of Series A Preferred Stock.
Subject to certain limitations, holders of the Series A Preferred Stock are
entitled to receive, when, as and if declared by the Board of Directors, out of
funds of the Company legally available for payment, cash dividends at an annual
rate of $800 per share. The Series A Preferred Stock has priority as to
dividends over the Common Stock and any other series or class of the Company's
stock which ranks junior as to dividends as to Series A Preferred Stock. In case
of the voluntary or involuntary liquidation, dissolution or winding up of the
Company, holders of the Series A Preferred Stock will be entitled to receive a
liquidation price of $10,000 per share, plus an amount equal to any accrued and
unpaid dividends to the payment date, before any payment or distribution is made
to the holders of Common Stock or any other series or class of the Company's
stock which ranks junior as to liquidation rights to the Series A Preferred
Stock. The Series A Preferred Stock may be redeemed at the option of the
Company, in whole or in part at any time, at $10,000 per share, plus an amount
equal to any accrued and unpaid dividends to the redemption date and such
redemption price may be paid, at the Company's option, in cash or in shares of
Class A Common Stock. The holders of shares of Series A Preferred Stock will not
be entitled to vote on any matter except (i) with respect to the authorization
or issuance of capital stock ranking senior to the Series A Preferred Stock and
with respect to certain amendments to the Company's Articles of Incorporation,
(ii) if the Company shall have failed to declare and pay dividends on the Series
A Preferred Stock for any six quarterly payment periods, in which event the
holders of the Series A Preferred Stock shall be entitled to elect two
76
<PAGE>
additional directors to the Company's Board of Directors until the full
dividends accumulated have been declared and paid and (iii) as required by law.
In addition, without the affirmative vote of the holders of a majority of the
outstanding shares of Series A Preferred Stock, the Company may not authorize or
issue a class or series of, or security convertible into, capital stock ranking
senior to the Series A Preferred Stock as to the payment of dividends or the
distribution of assets, upon liquidation or adversely change the preferences or
powers of the Series A Preferred Stock.
In addition, as part of the Financing, the Company will issue to ,
an affiliate of the Company, for $10 million, 1,000 shares of Series B Preferred
Stock. Subject to certain limitations, holders of the Series B Preferred Stock
are entitled to receive, when, as and if declared by the Board of Directors, out
of funds of the Company legally available for payment, dividends of Series B
Preferred Stock at an annual rate of $600 per share, except that the Company at
its option may pay such dividends in cash or may add the amount of such
dividends to the then effective liquidation price of the Series B Preferred
Stock. The Series B Preferred Stock has priority as to dividends over the Common
Stock and any other series or class of the Company's stock which ranks junior as
to dividends as to the Series B Preferred Stock. In case of the voluntary or
involuntary liquidation, dissolution or winding up of the Company, holders of
the Series B Preferred Stock will be entitled to receive a liquidation price of
$10,000 per share, plus an amount equal to any accrued and unpaid dividends to
the payment date, before any payment or distribution is made to the holders of
Common Stock or any other series or class of the Company's stock which ranks
junior as to liquidation rights to the Series B Preferred Stock. The Series B
Preferred Stock may be redeemed at the option of the Company, in whole or in
part at any time, at $10,000 per share, plus an amount equal to any accrued and
unpaid dividends to the redemption date and such redemption price may be paid,
at the Company's option, in cash or in shares of Class A Common Stock. The
holders of shares of Series B Preferred Stock will not be entitled to vote on
any matter except (i) with respect to the authorization or issuance of capital
stock ranking senior to the Series B Preferred Stock and with respect to certain
amendments to the Company's Articles of Incorporation, (ii) if the Company shall
have failed to declare and pay dividends on the Series B Preferred Stock for any
six quarterly payment periods, in which event the holders of the Series B
Preferred Stock shall be entitled to elect two additional directors to the
Company's Board of Directors until the full dividends accumulated have been
declared and paid and (iii) as required by law. In addition, without the
affirmative vote of the holders of a majority of the outstanding shares of
Series B Preferred Stock, the Company may not authorize or issue a class or
series of, or security convertible into, capital stock ranking senior to the
Series B Preferred Stock as to the payment of dividends or the distribution of
assets, upon liquidation or adversely change the preferences or powers of the
Series B Preferred Stock.
In connection with the issuance of the Series B Preferred Stock as part of the
Financing, (i) the Company will issue to , an affiliate of the Company,
warrants entitling the holder thereof to purchase 500,000 shares of Class A
Common Stock at an exercise price of $24.00 per share of the Class A Common
Stock. Of these warrants, 300,000 will vest upon issuance, with the remaining
warrants vesting in five equal installments commencing on the first anniversary
of the date of issuance. They may not be exercised prior to the second
anniversary of the date of issuance and will expire on the tenth anniversary of
the date of issuance. The exercise price and number of shares issuable upon
exercise of these warrants will be subject to adjustment from time to time upon
the occurrence of certain changes with respect to the Class A Common Stock, such
as stock dividends, stock splits, mergers and similar events. The holder of
these warrants does not have the right to receive dividends or other rights of
shareholders of the Company.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
THE SENIOR CREDIT FACILITY
The Senior Credit Facility provides for borrowings of up to $55 million. Funds
available under the Senior Credit Facility may be used for working capital and
to pay for certain acquisitions and capital expenditures. As part of the
Financing and as a condition of this Offering, the Company will amend or replace
the Senior Credit Facility and the Company is currently engaged in negotiations
with certain institutional lenders with respect thereto.
The Senior Credit Facility is secured by substantially all of the assets of the
Company and is guaranteed jointly and severally by all of the Company's
subsidiaries. Amounts owing under the Senior Credit Facility will be senior in
right of payment to the Notes and are PARI PASSU with the Senior Note. Amounts
borrowed under the Senior Credit Facility bear interest at the LIBOR rate plus a
floating percentage tied to the Company's ratio of total debt to operating cash
flow, which percentage ranges from 3.5% if the Company's ratio of total debt to
operating cash flow is 5.5 to one or greater, to 1.75% if such ratio is 3.25 to
one or less. The Company, at its option, may also utilize a customary prime rate
lending option. Any unused amounts available under the Senior Credit Facility
incur a 0.5% commitment fee.
Availability under the Senior Credit Facility is subject to quarterly reductions
of $750,000 to $2.0 million through September 2002, with two quarterly
installments of $7.0 million payable commencing in December 2002.
The Senior Credit Facility includes a number of covenants requiring the Company
to maintain certain operating ratios, including total debt to operating cash
flow, senior debt to operating cash flow, operating cash flow to interest
expense, operating cash flow to pro forma debt service, and operating cash flow
to trailing fixed charges. The Senior Credit Facility also includes a number of
covenants limiting, among other things, the Company's ability to make capital
expenditures in excess of $2.8 million, pay dividends, make acquisitions and
incur indebtedness, and will include customary events of default. As of December
31, 1995, on a pro forma basis after giving effect to the Augusta Acquisition,
the KTVE Sale, the Concurrent Offering, the Phipps Acquisition, the Financing
and this Offering, the Company would have been able to incur approximately $41.7
million of additional indebtedness pursuant to the Senior Credit Facility, none
of which could have been borrowed thereunder due to the covenant restrictions
contained in the Senior Credit Facility.
The Senior Credit Facility will require the Company at the end of each fiscal
year beginning December 31, 1997 to apply 100% of Excess Cash Flow (as defined)
to permanently reduce indebtedness and availability under the Senior Credit
Facility. "Excess Cash Flow" is defined as operating cash flow (as defined in
the Senior Credit Facility) less the sum of (i) cash tax payments, (ii) capital
expenditures, (iii) cash interest expense, (iv) required principal payments, (v)
permitted dividends on the Company's capital stock, (vi) the change in working
capital and (vii) $1 million.
In addition, the Senior Credit Facility provides that the net proceeds from
sales of assets (excluding sales in the ordinary course of business) must be
used to permanently reduce any outstandings and availability under the Senior
Credit Facility.
THE SENIOR NOTE
On September 2, 1994, the Company issued to an institutional investor the Senior
Note in the principal amount of $25 million. The Senior Note provides for
semi-annual principal payments of $2.5 million begining March 1999. Interest is
payable semi-annually in arrears and the Senior Note, as amended on January 4,
1996, bears interest at 10.7% per annum. The agreement pursuant to which the
Senior Note was issued contains certain restrictive provisions, which, among
other things, limit capital expenditures and additional indebtedness, and
require minimum levels of net worth and cash flows. As part of the Financing,
the Company intends to amend the Senior Note to increase the interest rate to
11.2% per annum and to amend certain covenants.
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DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued under an Indenture (the "Indenture"), to be dated as of
, 1996, by and among the Company, the Subsidiary Guarantors and
, as trustee (the "Trustee"). The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (the "Trust Indenture Act"), as in effect on
the date of the Indenture. The Notes are subject to all such terms, and holders
of Notes are referred to the Indenture and the Trust Indenture Act for a
statement of those terms.
The following is a summary of the material provisions of the Notes and the
Indenture. This summary does not purport to be complete and is subject to the
detailed provisions of, and is qualified in its entirety by reference to, the
Notes and the Indenture. A copy of the proposed form of Indenture has been filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
The definitions of certain terms used in the following summary are set forth
below under "-Certain Definitions." Reference is made to the Indenture for the
full definition of all such terms, as well as any other capitalized terms used
herein for which no definition is provided.
MATURITY AND INTEREST
The Notes will be general unsecured obligations of the Company limited in
aggregate principal amount to $ and will mature on , 2006. Interest
on the Notes will accrue at the rate of % per annum and will be payable
semi-annually in arrears on and in each year, commencing on
, 1996, to holders of record on the immediately preceding
and , respectively. Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from the date of the original issuance of the Notes (the "Issue Date"). Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months.
Principal of, premium, if any, and interest on the Notes will be payable at the
office or agency of the Company maintained for such purpose within the City of
New York or, at the option of the Company, payment of interest may be made by
check mailed to the holders of the Notes at their respective addresses as set
forth in the register of holders of Notes. Until otherwise designated by the
Company, the Company's office or agency in the City of New York will be the
office of the Trustee maintained for such purpose. The Notes will be issued in
fully registered form, without coupons, and in denominations of $1,000 and
integral multiples thereof.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes will be
subordinated in right of payment, to the extent and in the manner provided in
the Indenture, to the prior payment in full in cash, cash equivalents or any
other form acceptable to the holders of Senior Debt, of all Senior Debt of the
Company, whether outstanding on the Issue Date or incurred thereafter. As of
December 31, 1995, after giving pro forma effect to this Offering, the
Concurrent Offering and the application of the net proceeds therefrom, and to
the Augusta Acquisition, the KTVE Sale, the Financing and the Phipps
Acquisition, the Company would have had approximately $39.3 million of Senior
Debt outstanding. The Indenture will, subject to certain financial tests, permit
the Company and its Subsidiaries to incur additional Indebtedness, including
Senior Debt. See "Description of Certain Indebtedness--The Senior Credit
Facility" and "-Covenants-Limitation on Incurrence of Indebtedness."
Upon any payment or distribution of cash, securities or other property of the
Company to creditors upon any liquidation, dissolution or winding up of the
Company, or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property or securities, the holders of
any Senior Debt of the Company will be entitled to receive payment in full, in
cash, cash equivalents or any other form acceptable to the holders of Senior
Debt, of all Obligations due in respect of such Senior Debt before the holders
of the Notes will be entitled to receive any payment or distribution with
respect to the Notes (excluding certain equity or subordinated debt securities).
The Company also may not make any payment upon or in respect of the Notes
(excluding certain equity or subordinated debt securities) if the Trustee has
received written notice (a "Payment Blockage Notice") from the representative of
any holders of Designated Senior Debt that (x) a default in the payment of any
Designated Senior
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Debt has occurred and is continuing (a "Payment Default") or (y) a nonpayment
default has occurred and is continuing with respect to any Designated Senior
Debt (a "Non-Payment Default") that permits the holders of such Designated
Senior Debt to accelerate the maturity thereof. Payments on the Notes shall
resume (and all past due amounts on the Notes, with interest thereon as
specified in the Indenture, shall be paid) (i) in the case of a Payment Default,
on the date on which such Payment Default is cured or waived, and (ii) in the
case of a Non-Payment Default, on the earliest of (a) the date on which such
Non-Payment Default is cured or waived or shall have ceased to exist or the
Designated Senior Debt related thereto shall have been discharged or paid in
full in cash, cash equivalents or any other manner acceptable to the holders of
such Designated Senior Debt, (b) 179 days after the date on which the Payment
Blockage Notice with respect to such default was received by the Trustee and (c)
the date such Payment Blockage Notice is terminated by written notice to the
Trustee from a representative of the holders of the Designated Senior Debt that
gave such Payment Blockage Notice. During any consecutive 365-day period, the
aggregate number of days in which payments due on the Notes may not be made as a
result of Non-Payment Defaults on Designated Senior Debt (a "Payment Blockage
Period") shall not exceed 179 days, only one Payment Blockage Period may be
commenced and there shall be a period of at least 186 consecutive days in each
consecutive 365-day period when such payments are not prohibited. No event or
circumstance that creates a default under any Designated Senior Debt that (i)
gives rise to the commencement of a Payment Blockage Period or (ii) exists at
the commencement of or during any Payment Blockage Period shall be made the
basis for the commencement of any subsequent Payment Blockage Period, whether or
not within a period of 365 consecutive days, unless such default has been cured
or waived for a period of not less than 90 consecutive days following the
commencement of the initial Payment Blockage Period.
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure will constitute an Event of Default
under the Indenture and will enable the holders of the Notes to accelerate the
maturity thereof. See "-Events of Default."
As a result of the subordination provisions described above, in the event of
liquidation or insolvency of the Company, holders of Notes may recover less
ratably than unsubordinated creditors of the Company. In such circumstances,
funds which would otherwise be payable to the holders of the Notes will be paid
to the holders of the Senior Debt to the extent necessary to pay the Senior Debt
in full in cash, cash equivalents or any other manner acceptable to the holders
of such Senior Debt, and the Company may be unable to meet its obligations fully
with respect to the Notes.
The subordination provisions described above will cease to be applicable to the
Notes upon any defeasance or covenant defeasance of the Notes. See
"-Defeasance."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be jointly and severally
guaranteed (the "Subsidiary Guarantees") by the Subsidiary Guarantors. The
obligations of each Subsidiary Guarantor under its Subsidiary Guarantee will be
unconditional and absolute, irrespective of any invalidity, illegality,
unenforceability of any Note or the Indenture or any extension, compromise,
waiver or release in respect of any obligation of the Company or any other
Subsidiary Guarantor under any Note or the Indenture, or any modification or
amendment of or supplement to the Indenture.
The obligations of any Subsidiary Guarantor under its Subsidiary Guarantee will
be subordinated, to the same extent as the obligations of the Company in respect
of the Notes, to the prior payment in full of all Guarantor Senior Debt of such
Subsidiary Guarantor (which will include any guarantee issued by such Subsidiary
Guarantor of any Senior Debt, including Indebtedness represented by guarantees
under the Senior Credit Facility) in cash, cash equivalents or any other manner
acceptable to the holders of such Guarantor Senior Debt. See "-Subordination."
Upon the sale or disposition (whether by merger, stock purchase, asset sale or
otherwise) of a Subsidiary Guarantor (or substantially all of its assets) to an
entity which is not a Subsidiary of the Company, which sale or other disposition
is otherwise in compliance with the Indenture, such Subsidiary Guarantor shall
be deemed released from all its obligations under its Subsidiary Guarantee;
PROVIDED that any such termination shall occur only to the extent
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that all obligations of such Subsidiary Guarantor under all of its guarantees
of, and under all of its pledges of assets or other security interests which
secure, other Indebtedness of the Company shall also terminate upon such
release, sale or transfer.
In addition, each Subsidiary Guarantor may consolidate with or merge into or
sell its assets to the Company or another Subsidiary Guarantor without
limitation. The Indenture will further provide that a Subsidiary Guarantor may
consolidate with or merge into or sell its assets to a corporation other than
the Company or another Subsidiary Guarantor (whether or not affiliated with such
Subsidiary Guarantor, but subject to the provisions described in the immediately
preceding paragraph), provided that (a) if the surviving person is not the
Subsidiary Guarantor, the surviving person agrees to assume such Subsidiary
Guarantor's obligations under its Subsidiary Guarantee and all its obligations
under the Indenture and (b) such transaction does not (i) violate any covenants
set forth in the Indenture or (ii) result in a Default or Event of Default under
the Indenture immediately thereafter that is continuing.
REDEMPTION
SPECIAL REDEMPTION. If the Phipps Acquisition is not consummated prior to
, 1996, the Company will be obligated to redeem the Notes (the
"Special Redemption") on the Special Redemption Date at a redemption price (the
"Special Redemption Price") equal to 101% of the principal amount of the Notes,
plus accrued and unpaid interest to the Special Redemption Date. At any time
prior to , 1996, if the Phipps Acquisition has not been consummated,
the Company may, at its option, on at least five business days notice, redeem
the Notes, in whole but not in part, at a redemption price equal to 101% of the
principal amount thereof plus accrued and unpaid interest to the date fixed for
redemption.
Pursuant to the Indenture, on the Issue Date the Company will deposit with the
Trustee the net proceeds from the sale of the Notes plus an additional amount of
cash in an amount sufficient to consummate the Special Redemption on the Special
Redemption Date at the Special Redemption Price. All amounts so deposited with
the Trustee (collectively, the "Trust Funds") will be pledged to and held by the
Trustee pursuant to the Indenture as security for the Notes. The Indenture will
provide that if, prior to the Special Redemption Date, the Company delivers to
the Trustee the documentation required under the Indenture, then the Trustee
will release the Trust Funds to the Company for application to the concurrent
consummation of the Phipps Acquisition. Upon release of the Trust Funds, all of
the Notes remaining outstanding immediately thereafter will be unsecured
obligations of the Company.
Pending release of the Trust Funds as provided in the Indenture, the Trust Funds
will be invested in cash equivalents and any investment income therefrom will be
available to the Company following release of the Trust Funds. If redemption of
the Notes occurs on or prior to the Special Redemption Date, the Notes will be
redeemed with the Trust Funds and any portion of the Trust Funds not required to
be used for such redemption will be returned to the Company.
OPTIONAL REDEMPTION. Except as set forth under "-Special Redemption" and as
described below, the Notes are not redeemable at the Company's option prior to
, 2001. Thereafter, the Notes will be subject to redemption at the
option of the Company, in whole or in part, at the redemption prices (expressed
as percentages of the principal amount of the Notes) set forth below, plus
accrued and unpaid interest to the date of redemption, if redeemed during the
twelve-month period beginning on of the years indicated below.
<TABLE>
<CAPTION>
-----------
YEAR PERCENTAGE
- - - -------------------------------------------------- -----------
<S> <C>
2001 %
2002 %
2003 %
2004 and thereafter 100.0%
</TABLE>
Notwithstanding the foregoing, at any time prior to , 1999, the
Company, at its option, may redeem up to 35% of the aggregate principal amount
of the Notes originally issued, with the net proceeds of one or more Public
Equity Offerings, other than the Concurrent Offering (including the exercise by
the underwriters of the Concurrent Offering of any over-allotment option granted
by the Company to such underwriters in connection therewith) at a redemption
price equal to % of the principal amount thereof, together with accrued and
unpaid interest to the date of redemption; PROVIDED, HOWEVER, that at least
$97.5 million in aggregate principal amount of the Notes remains outstanding
immediately after any such redemption.
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SELECTION AND NOTICE. If less than all of the Notes are to be redeemed at any
time, selection of the Notes to be redeemed will be made by the Company in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not listed on a
securities exchange, on a pro rata basis, by lot or by any other method as the
Trustee shall deem fair and appropriate; PROVIDED that a redemption pursuant to
the provisions relating to Public Equity Offerings will be on a pro rata basis.
Notes redeemed in part shall only be redeemed in integral multiples of $1,000.
Notices of any redemption (other than a redemption pursuant to the provisions
described under "-Special Redemption") shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each holder of
Notes to be redeemed at such holder's registered address. Notices of any
redemption pursuant to the provisions described under "-Special Redemption"
shall be mailed by first class mail at least five business days before the
redemption date to each holder of Notes to be redeemed at such holder's
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed, and the Trustee shall authenticate and mail to
the holder of the original Note a new Note in principal amount equal to the
unredeemed portion of the original Note promptly after the original Note has
been cancelled. On and after the redemption date, interest will cease to accrue
on Notes or portions thereof called for redemption.
CHANGE OF CONTROL
In the event of a Change of Control (as defined herein), the Company will make
an offer to purchase all of the then outstanding Notes at a purchase price in
cash equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest to the date of purchase, in accordance with the terms set forth
below (a "Change of Control Offer").
Within 30 days following the occurrence of any Change of Control, the Company
shall mail to each holder of Notes at such holder's registered address a notice
stating: (i) that a Change of Control has occurred and that such holder has the
right to require the Company to purchase all or a portion (equal to $1,000 or an
integral multiple thereof) of such holder's Notes at a purchase price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest to the date of purchase (the "Change of Control Purchase Date"), which
shall be a business day, specified in such notice, that is not earlier than 30
days or later than 60 days from the date such notice is mailed, (ii) the amount
of accrued and unpaid interest as of the Change of Control Purchase Date, (iii)
that any Note not tendered will continue to accrue interest, (iv) that, unless
the Company defaults in the payment of the purchase price for the Notes payable
pursuant to the Change of Control Offer, any Notes accepted for payment pursuant
to the Change of Control Offer shall cease to accrue interest on and after the
Change of Control Purchase Date, (v) the procedures, consistent with the
Indenture, to be followed by a holder of Notes in order to accept a Change of
Control Offer or to withdraw such acceptance, and (vi) such other information as
may be required by the Indenture and applicable laws and regulations.
On the Change of Control Purchase Date, the Company will (i) accept for payment
all Notes or portions thereof tendered pursuant to the Change of Control Offer,
(ii) deposit with the paying agent the aggregate purchase price of all Notes or
portions thereof accepted for payment and any accrued and unpaid interest on
such Notes as of the Change of Control Purchase Date, and (iii) deliver or cause
to be delivered to the Trustee all Notes tendered pursuant to the Change of
Control Offer. The paying agent shall promptly mail to each holder of Notes or
portions thereof accepted for payment an amount equal to the purchase price for
such Notes plus any accrued and unpaid interest thereon, and the Trustee shall
promptly authenticate and mail to such holder of Notes accepted for payment in
part a new Note equal in principal amount to any unpurchased portion of the
Notes, and any Note not accepted for payment in whole or in part for any reason
consistent with the Indenture shall be promptly returned to the holder of such
Note. On and after a Change of Control Purchase Date, interest will cease to
accrue on the Notes or portions thereof accepted for payment, unless the Company
defaults in the payment of the purchase price therefor. The Company will
announce the results of the Change of Control Offer to holders of the Notes on
or as soon as practicable after the Change of Control Purchase Date.
The Company will comply with the applicable tender offer rules, including the
requirements of Rule 14e-1 under the Exchange Act, and all other applicable
securities laws and regulations in connection with any Change of Control Offer.
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COVENANTS
LIMITATION ON INCURRENCE OF INDEBTEDNESS. The Indenture will provide that the
Company will not, and will not permit any of its Subsidiaries to, create, incur,
assume or directly or indirectly guarantee or in any other manner become
directly or indirectly liable for ("incur") any Indebtedness (including Acquired
Debt) if, at the time of and immediately after giving pro forma effect to such
incurrence, the Debt to Operating Cash Flow Ratio of the Company and its
Subsidiaries is more than (x) 7.0 to 1.0 if the Indebtedness is incurred prior
to , 1998 or (y) 6.5 to 1.0 if the Indebtedness is incurred on or
after , 1998.
The foregoing limitations will not apply to the incurrence of any of the
following (collectively, "Permitted Indebtedness"):
(i) Indebtedness of the Company incurred under the Senior Credit Facility
in an aggregate principal amount at any time outstanding not to exceed $30.0
million less (A) the aggregate amount of all principal payments made in
respect of any term loans thereunder and (B) the aggregate amount of any
other principal payments thereunder constituting permanent reductions of
such Indebtedness pursuant to and in accordance with the covenant described
under "-Limitation on Asset Sales;"
(ii) Indebtedness of any Subsidiary Guarantor consisting of a guarantee
of Indebtedness of the Company under the Senior Credit Facility;
(iii) Indebtedness of the Company represented by the Notes and
Indebtedness of any Subsidiary Guarantor represented by a Subsidiary
Guarantee;
(iv) Indebtedness owed by any Subsidiary Guarantor to the Company or to
another Subsidiary Guarantor, or owed by the Company to any Subsidiary
Guarantor; PROVIDED that any such Indebtedness shall be held by a Person
which is either the Company or a Subsidiary Guarantor and PROVIDED, FURTHER,
that an incurrence of additional Indebtedness of which is not permitted
under this clause (iv) shall be deemed to have occurred upon either (a) the
transfer or other disposition of any such Indebtedness to a Person other
than the Company or another Subsidiary Guarantor or (b) the sale, lease,
transfer or other disposition of shares of Capital Stock (including by
consolidation or merger) of any such Subsidiary Guarantor to a Person other
than the Company or another Subsidiary Guarantor such that such Subsidiary
Guarantor ceases to be a Subsidiary Guarantor;
(v) Indebtedness of any Subsidiary Guarantor consisting of guarantees of
any Indebtedness of the Company which Indebtedness of the Company has been
incurred in accordance with the provisions of the Indenture;
(vi) Indebtedness arising with respect to Interest Rate Agreement
Obligations incurred for the purpose of fixing or hedging interest rate risk
with respect to any floating rate Indebtedness that is permitted by the
terms of the Indenture to be outstanding; PROVIDED, HOWEVER, that the
notional principal amount of such Interest Rate Agreement Obligation does
not exceed the principal amount of the Indebtedness to which such Interest
Rate Agreement Obligation relates;
(vii) any Indebtedness of the Company or a Subsidiary of the Company
incurred in connection with or given in exchange for the renewal, extension,
substitution, refunding, defeasance, refinancing or replacement of any
Indebtedness of the Company or such Subsidiary permitted to be incurred or
outstanding under the Indenture other than Indebtedness described in clauses
(i), (ii), (iv), (v) and (vi) above or clause (viii) below ("Refinancing
Indebtedness"); PROVIDED that (a) the principal amount of such Refinancing
Indebtedness shall not exceed the principal amount of the Indebtedness so
renewed, extended, substituted, refunded, defeased, refinanced or replaced
(plus the premiums or other payments paid in connection therewith (which
shall not exceed the stated amount of any premium or other payments required
to be paid in connection with such a refinancing pursuant to the terms of
the Indebtedness being renewed, extended, substituted, refunded, defeased,
refinanced or replaced) and the expenses incurred in connection therewith);
(b) with respect to Refinancing Indebtedness of any Indebtedness other than
Senior Debt, the Refinancing Indebtedness shall have a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity
of the Indebtedness being renewed, extended, substituted, refunded,
defeased, refinanced or replaced; and (c) with respect to Refinancing
Indebtedness of Indebtedness other than Senior Debt incurred by (1) the
Company, such
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Refinancing Indebtedness shall rank no more senior, and shall be at least as
subordinated, in right of payment to the Notes as the Indebtedness being
renewed, extended, substituted, refunded, defeased, refinanced or replaced,
and (2) a Subsidiary Guarantor, such Refinancing Indebtedness shall rank no
more senior, and shall be at least as subordinated, in right of payment to
the Subsidiary Guarantee as the Indebtedness being renewed, extended,
substituted, refunded, defeased, refinanced or replaced; and
(viii) Indebtedness of the Company and its Subsidiaries in addition to
that described in clauses (i) through (vii) above, and any renewals,
extensions, substitutions, refundings, refinancings or replacements of such
Indebtedness, so long as the aggregate principal amount of all such
Indebtedness incurred pursuant to this clause (viii) does not exceed $15.0
million at any one time outstanding.
LIMITATION ON RESTRICTED PAYMENTS. The Indenture will provide that the Company
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, make any Restricted Payment, unless at the time of and immediately
after giving effect to the proposed Restricted Payment (with the value of any
such Restricted Payment, if other than cash, to be determined by the Board of
Directors of the Company in good faith and which determination shall be
conclusive and evidenced by a board resolution), (i) no Default or Event of
Default (and no event that, after notice or lapse of time, or both, would become
an "event of default" under the terms of any other Indebtedness of the Company
or its Subsidiaries) shall have occurred and be continuing or would occur as a
consequence thereof, (ii) the Company could incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph under "-Covenants-Limitation on
Incurrence of Indebtedness" and (iii) the aggregate amount of all Restricted
Payments made after the Issue Date shall not exceed the sum of (a) an amount
equal to the Company's Cumulative Operating Cash Flow less 1.4 times the
Company's Cumulative Consolidated Interest Expense, PLUS (b) the aggregate
amount of all net cash proceeds received after the Issue Date by the Company
(but excluding the net cash proceeds received by the Company from the Concurrent
Offering) from the issuance and sale (other than to a Subsidiary of the Company)
of Capital Stock of the Company (other than Disqualified Stock) to the extent
that such proceeds are not used to redeem, repurchase, retire or otherwise
acquire Capital Stock or any Indebtedness of the Company or any Subsidiary of
the Company pursuant to clause (ii) of the next paragraph, PLUS (c) in the case
of the disposition or repayment of any Investment for cash, which Investment
constituted a Restricted Payment made after the Issue Date, an amount equal to
the lesser of the return of capital with respect to such Investment and the cost
of such Investment, in either case, reduced (but not below zero) by the excess,
if any, of the cost of the disposition of such Investment over the gain, if any,
realized by the Company or such Subsidiary in respect of such disposition.
The foregoing provisions will not prohibit, so long as there is no Default or
Event of Default continuing, the following actions (collectively, "Permitted
Payments"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such payment would have
been permitted under the Indenture, and such payment shall be deemed to have
been paid on such date of declaration for purposes of clause (iii) of the
preceding paragraph;
(ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Capital Stock or any Indebtedness of the Company in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Company) of Capital Stock of the Company
(other than any Disqualified Stock);
(iii) the repurchase, redemption or other repayment of any Subordinated
Debt of the Company or a Subsidiary Guarantor in exchange for, by conversion
into or solely out of the proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of Subordinated Debt of the
Company or such Subsidiary Guarantor with a Weighted Average Life to
Maturity equal to or greater than the then remaining Weighted Average Life
to Maturity of the Subordinated Debt repurchased, redeemed or repaid;
(iv) the payment of ordinary dividends by the Company in respect of its
Capital Stock in the ordinary course of business on a basis consistent with
past practice in an aggregate amount not exceeding $1.0 million; and
(v) Restricted Investments received as consideration in connection with
an Asset Sale made in compliance with the Indenture.
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In computing the amount of Restricted Payments for purposes of clause (iii) of
the second preceding paragraph, Restricted Payments made under clauses (iv) and
(v) of the preceding paragraph shall be included and Restricted Payments made
under clauses (i), (ii) and (iii) of the preceding paragraph shall not be
included.
LIMITATION ON ASSET SALES. The Indenture will provide that the Company will
not, and will not permit any of its Subsidiaries to, make any Asset Sale unless
(i) the Company or such Subsidiary, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the fair market value
(determined by the Board of Directors of the Company in good faith, which
determination shall be evidenced by a board resolution) of the assets or other
property sold or disposed of in the Asset Sale, and (ii) at least 75% of such
consideration is in the form of cash or Cash Equivalents; PROVIDED that for
purposes of this covenant "cash" shall include the amount of any liabilities
(other than liabilities that are by their terms subordinated to the Notes or any
Subsidiary Guarantee) of the Company or such Subsidiary (as shown on the
Company's or such Subsidiary's most recent balance sheet or in the notes
thereto) that are assumed by the transferee of any such assets or other property
in such Asset Sale (and excluding any liabilities that are incurred in
connection with or in anticipation of such Asset Sale), but only to the extent
that such assumption is effected on a basis under which there is no further
recourse to the Company or any of its Subsidiaries with respect to such
liabilities.
Notwithstanding clause (ii) above, all or a portion of the consideration for any
such Asset Sale may consist of all or substantially all of the assets or a
majority of the Voting Stock of an existing television business, franchise or
station (whether existing as a separate entity, subsidiary, division, unit or
otherwise) or any business directly related thereto, if after giving effect to
any such Asset Sale and related acquisition of assets or Voting Stock, (x) no
Default or Event of Default shall have occurred or be continuing; and (y) the
Net Proceeds of any such Asset Sale, if any, are applied in accordance with this
covenant.
Within 360 days after any Asset Sale, the Company may elect to apply or cause to
be applied the Net Proceeds from such Asset Sale to (a) permanently reduce any
Senior Debt of the Company or any Guarantor Senior Debt, and/or (b) make an
investment in, or acquire assets directly related to, the business of the
Company and its Subsidiaries existing on the Issue Date. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce Senior
Debt of the Company or any Guarantor Senior Debt or temporarily invest such Net
Proceeds in any manner permitted by the Indenture. Any Net Proceeds from an
Asset Sale not applied or invested as provided in the first sentence of this
paragraph within 360 days of such Asset Sale will be deemed to constitute
"Excess Proceeds" on the 361st day after such Asset Sale.
As soon as practical, but in no event later than 10 business days after any date
(an "Asset Sale Offer Trigger Date") that the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company shall commence an offer to purchase
the maximum principal amount of Notes that may be purchased out of all such
Excess Proceeds (an "Asset Sale Offer") at a price in cash equal to 100% of the
principal amount thereof, plus accrued and unpaid interest to the date of
purchase. To the extent that any Excess Proceeds remain after completion of an
Asset Sale Offer, the Company may use the remaining amount for general corporate
purposes and such amount shall no longer constitute "Excess Proceeds."
Within 30 days following any Asset Sale Offer Trigger Date, the Company shall
mail to each holder of Notes at such holder's registered address a notice
stating: (i) that an Asset Sale Offer Trigger Date has occurred and that the
Company is offering to purchase the maximum principal amount of Notes that may
be purchased out of the Excess Proceeds, at an offer price in cash equal to 100%
of the principal amount thereof, plus accrued and unpaid interest to the date of
purchase (the "Asset Sale Offer Purchase Date"), which shall be a business day,
specified in such notice, that is not earlier than 30 days or later than 60 days
from the date such notice is mailed, (ii) the amount of accrued and unpaid
interest as of the Asset Sale Offer Purchase Date, (iii) that any Note not
tendered will continue to accrue interest, (iv) that, unless the Company
defaults in the payment of the purchase price for the Notes payable pursuant to
the Asset Sale Offer, any Notes accepted for payment pursuant to the Asset Sale
Offer shall cease to accrue interest after the Asset Sale Offer Purchase Date,
(v) the procedures, consistent with the Indenture, to be followed by a holder of
Notes in order to accept an Asset Sale Offer or to withdraw such acceptance, and
(vi) such other information as may be required by the Indenture and applicable
laws and regulations.
On the Asset Sale Offer Purchase Date, the Company will (i) accept for payment
the maximum principal amount of Notes or portions thereof tendered pursuant to
the Asset Sale Offer that can be purchased out of Excess Proceeds
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from such Asset Sale, (ii) deposit with the Paying Agent the aggregate purchase
price of all Notes or portions thereof accepted for payment and any accrued and
unpaid interest on such Notes as of the Asset Sale Offer Purchase Date, and
(iii) deliver or cause to be delivered to the Trustee all Notes tendered
pursuant to the Asset Sale Offer. If less than all Notes tendered pursuant to
the Asset Sale Offer are accepted for payment by the Company for any reason
consistent with the Indenture, selection of the Notes to be purchased by the
Company shall be in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes are
not so listed, on a PRO RATA basis, by lot or by such method as the Trustee
shall deem fair and appropriate; PROVIDED that Notes accepted for payment in
part shall only be purchased in integral multiples of $1,000. The Paying Agent
shall promptly mail to each holder of Notes or portions thereof accepted for
payment an amount equal to the purchase price for such Notes plus any accrued
and unpaid interest thereon, and the Trustee shall promptly authenticate and
mail to such holder of Notes accepted for payment in part a new Note equal in
principal amount to any unpurchased portion of the Notes, and any Note not
accepted for payment in whole or in part shall be promptly returned to the
holder of such Note. On and after an Asset Sale Offer Purchase Date, interest
will cease to accrue on the Notes or portions thereof accepted for payment,
unless the Company defaults in the payment of the purchase price therefor. The
Company will announce the results of the Asset Sale Offer to holders of the
Notes on or as soon as practicable after the Asset Sale Offer Purchase Date.
The Company will comply with the applicable tender offer rules, including the
requirements of Rule 14e-1 under the Exchange Act, and all other applicable
securities laws and regulations in connection with any Asset Sale Offer.
LIMITATION ON LIENS. The Indenture will provide that the Company will not, and
will not permit any Subsidiary Guarantor to, directly or indirectly, create,
incur, assume or suffer to exist any Lien (other than Permitted Liens) on any
asset now owned or hereafter acquired, or any income or profits therefrom or
assign or convey any right to receive income therefrom to secure any
Indebtedness; PROVIDED that in addition to creating Permitted Liens on its
properties or assets, (i) the Company may create any Lien upon any of its
properties or assets (including, but not limited to, any Capital Stock of its
Subsidiaries) if the Notes are equally and ratably secured therewith, and (ii) a
Subsidiary Guarantor may create any Lien upon any of its properties or assets
(including, but not limited to, any Capital Stock of its Subsidiaries) if its
Subsidiary Guarantee is equally and ratably secured therewith; PROVIDED,
HOWEVER, that if (a) the Company creates any Lien on its assets to secure any
Subordinated Indebtedness of the Company, the Lien securing such Subordinated
Indebtedness shall be subordinated and junior to the Lien securing the Notes
with the same or lesser priorities as the Subordinated Indebtedness shall have
with respect to the Notes, and (b) a Subsidiary Guarantor creates any Lien on
its assets to secure any Subordinated Indebtedness of such Subsidiary Guarantor,
the Lien securing such Subordinated Indebtedness shall be subordinated and
junior to the Lien securing the Subsidiary Guarantee of such Subsidiary
Guarantor with the same or lesser priorities as the Subordinated Indebtedness
shall have with respect to the Subsidiary Guarantee of such Subsidiary
Guarantor.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Indenture will provide that the Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Subsidiary of the Company to (i) pay dividends
or make any other distributions to the Company or any other Subsidiary of the
Company on its Capital Stock or with respect to any other interest or
participation in, or measured by, its profits, or pay any Indebtedness owed to
the Company or any other Subsidiary of the Company, (ii) make loans or advances
to the Company or any other Subsidiary of the Company, or (iii) transfer any of
its properties or assets to the Company or any other Subsidiary of the Company
(collectively, "Payment Restrictions"), except for such encumbrances or
restrictions existing under or by reason of (a) the Senior Credit Facility as in
effect on the Issue Date, and any amendments, restatements, renewals,
replacements or refinancings thereof; PROVIDED that such amendments,
restatements, renewals, replacements or refinancings are no more restrictive in
the aggregate with respect to such dividend and other payment restrictions than
those contained in the Senior Credit Facility immediately prior to any such
amendment, restatement, renewal, replacement or refinancing, (b) applicable law,
(c) any instrument governing Indebtedness or Capital Stock of an Acquired Person
acquired by the Company or any of its Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with such acquisition); PROVIDED that such restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Acquired Person, (d) customary non-assignment provisions in leases entered
into in the ordinary course of business and consistent with past practices, (e)
purchase money Indebtedness for property acquired in the ordinary
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course of business that only impose restrictions on the property so acquired,
(f) an agreement for the sale or disposition of the Capital Stock or assets of
such Subsidiary; PROVIDED that such restriction is only applicable to such
Subsidiary or assets, as applicable, and such sale or disposition otherwise is
permitted under the covenant described under "-- Covenants -- Limitation on
Asset Sales"; and PROVIDED, FURTHER, that such restriction or encumbrance shall
be effective only for a period from the execution and delivery of such agreement
through a termination date not later than 270 days after such execution and
delivery, and (g) Refinancing Indebtedness permitted under the Indenture;
PROVIDED that the restrictions contained in the agreements governing such
Refinancing Indebtedness are not more restrictive in the aggregate than those
contained in the agreements governing the Indebtedness being refinanced
immediately prior to such refinancing.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, enter into or suffer
to exist any transaction or series of related transactions (including, without
limitation, the sale, purchase, exchange or lease of assets, property or
services) with any Affiliate of the Company or any beneficial owner of ten
percent or more of any class of Capital Stock of the Company or any Subsidiary
Guarantor unless (i) such transaction or series of transactions is on terms that
are no less favorable to the Company or such Subsidiary, as the case may be,
than would be available in a comparable transaction in arm's-length dealings
with an unrelated third party, and (ii) (a) with respect to any transaction or
series of transactions involving aggregate payments in excess of $1.0 million,
the Company delivers an officers certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (i) above and
such transaction or series of related transactions has been approved by a
majority of the members of the Board of Directors of the Company (and approved
by a majority of the Independent Directors or, in the event there is only one
Independent Director, by such Independent Director), and (b) with respect to any
transaction or series of transactions involving aggregate payments in excess of
$5.0 million, the Company delivers to the Trustee an opinion to the effect that
such transaction or series of transactions is fair to the Company or such
Subsidiary from a financial point of view issued by an investment banking firm
of national standing. Notwithstanding the foregoing, this provision will not
apply to (i) employment agreements or compensation or employee benefit
arrangements with any officer, director or employee of the Company entered into
in the ordinary course of business (including customary benefits thereunder),
(ii) any transaction entered into by or among the Company or any Subsidiary
Guarantor and one or more Subsidiary Guarantors, and (iii) transactions pursuant
to agreements existing on the Issue Date.
LIMITATION ON INCURRENCE OF SENIOR SUBORDINATED INDEBTEDNESS. The Indenture
will provide that (i) the Company will not, directly or indirectly, incur,
create, issue, assume, guarantee or otherwise become liable for any Indebtedness
that is subordinated or junior in right of payment to any Indebtedness of the
Company and senior in any respect in right of payment to the Notes, and (ii) the
Company will not, directly or indirectly, permit any Subsidiary Guarantor to
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinated or junior in right of payment to any
Indebtedness of such Subsidiary Guarantor and senior in any respect in right of
payment to the Subsidiary Guarantee of such Subsidiary Guarantor.
LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK OF SUBSIDIARIES. The Company
(a) will not, and will not permit any Subsidiary of the Company to, transfer,
convey, sell or otherwise dispose of any shares of Capital Stock of such
Subsidiary or any other Subsidiary (other than to the Company or a Subsidiary
Guarantor) except that the Company and any Subsidiary may, in any single
transaction, sell all, but not less than all, of the issued and outstanding
Capital Stock of any subsidiary to any Person, subject to complying with the
provisions of the Indenture applicable to such sale and (b) will not permit any
Subsidiary of the Company to issue shares of its Capital Stock (other than
directors' qualifying shares), or securities convertible into, or warrants,
rights or options to subscribe for or purchase shares of, its Capital Stock to
any Person other than to the Company or a Subsidiary Guarantor.
FUTURE SUBSIDIARY GUARANTORS. The Indenture will provide that the Company shall
cause each Subsidiary of the Company formed or acquired after the Issue Date to
issue a Subsidiary Guarantee and execute and deliver an indenture supplemental
to the Indenture as a Subsidiary Guarantor.
PROVISION OF FINANCIAL STATEMENTS. The Indenture will provide that, whether or
not the Company is then subject to Section 13(a) or 15(d) of the Exchange Act,
the Company will file with the Commission, so long as the Notes are outstanding,
the annual reports, quarterly reports and other periodic reports which the
Company would have been required to file with the Commission pursuant to such
Section 13(a) or 15(d) if the Company were so subject, and
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such documents shall be filed with the Commission on or prior to the respective
dates (the "Required Filing Dates") by which the Company would have been
required so to file such documents if the Company were so subject. The Company
will also in any event (i) within 15 days of each Required Filing Date, (a)
transmit by mail to all holders of Notes, as their names and addresses appear in
the Note register, without cost to such holders and (b) file with the Trustee
copies of the annual reports, quarterly reports and other periodic reports which
the Company would have been required to file with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act if the Company were subject to such
Sections and (ii) if filing such documents by the Company with the Commission is
prohibited under the Exchange Act, promptly upon written request and payment of
the reasonable cost of duplication and delivery, supply copies of such documents
to any prospective holder at the Company's cost.
ADDITIONAL COVENANTS. The Indenture also contains covenants with respect to the
following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in the City of New York; (iii) maintenance of
corporate existence; (iv) payment of taxes and other claims; (v) maintenance of
properties; and (vi) maintenance of insurance.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Indenture will provide that the Company shall not consolidate or merge with
or into (whether or not the Company is the Surviving Person), or, directly or
indirectly through one or more Subsidiaries, sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another Person or Persons unless
(i) the Surviving Person is a corporation organized or existing under the laws
of the United States, any state thereof or the District of Columbia; (ii) the
Surviving Person (if other than the Company) assumes all the obligations of the
Company under the Notes and the Indenture pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee; (iii) at the time of and
immediately after such Disposition, no Default or Event of Default shall have
occurred and be continuing; and (iv) the Surviving Person will (A) have
Consolidated Net Worth (immediately after giving effect to the Disposition on a
pro forma basis) equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the transaction, and (B) at the time of such
Disposition and after giving pro forma effect thereto, the Surviving Person
would be permitted to incur at least $1.00 of additional Indebtedness pursuant
to the first paragraph of the covenant described under "-- Covenants --
Limitation on Incurrence of Indebtedness."
In the event of any transaction (other than a lease) described in and complying
with the conditions listed in the immediately preceding paragraph in which the
Company is not the Surviving Person and the Surviving Person is to assume all
the obligations of the Company under the Notes and the Indenture pursuant to a
supplemental indenture, such Surviving Person shall succeed to, and be
substituted for, and may exercise every right and power of, the Company, and the
Company would be discharged from its obligations under the Indenture and the
Notes; PROVIDED that solely for the purpose of calculating amounts described in
clause (iii) under "-- Covenants -- Limitation on Restricted Payments," any such
Surviving Person shall only be deemed to have succeeded to and be substituted
for the Company with respect to the period subsequent to the effective time of
such transaction (and the Company (before giving effect to such transaction)
shall be deemed to be the "Company" for such purposes for all prior periods).
EVENTS OF DEFAULT
The Indenture will provide that each of the following constitutes an Event of
Default:
(i) a default for 30 days in the payment when due of interest on any Note
(whether or not prohibited by the subordination provisions of the
Indenture);
(ii) a default in the payment when due of principal on any Note (whether
or not prohibited by the subordination provisions of the Indenture), whether
upon maturity, acceleration, optional or mandatory redemption, required
repurchase or otherwise;
(iii) failure to perform or comply with any covenant, agreement or
warranty in the Indenture (other than the defaults specified in clauses (i)
and (ii) above) which failure continues for 30 days after written notice
thereof has been given to the Company by the Trustee or to the Company and
the Trustee by the holders of at least 25% in aggregate principal amount of
the then outstanding Notes;
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(iv) the occurrence of one or more defaults under any agreements,
indentures or instruments under which the Company or any Subsidiary of the
Company then has outstanding Indebtedness in excess of $5.0 million in the
aggregate and, if not already matured at its final maturity in accordance
with its terms, such Indebtedness shall have been accelerated;
(v) except as permitted by the Indenture, any Subsidiary Guarantee
shall for any reason cease to be, or be asserted in writing by any
Subsidiary Guarantor or the Company not to be, in full force and effect and
enforceable in accordance with its terms;
(vi) one or more judgments, orders or decrees for the payment of money
in excess of $5.0 million, either individually or in the aggregate shall be
entered against the Company or any Subsidiary of the Company or any of their
respective properties and which judgments, orders or decrees are not paid,
discharged, bonded or stayed for a period of 60 days after their entry;
(vii) any holder or holders of at least $5.0 million in aggregate
principal amount of Indebtedness of the Company or any Subsidiary of the
Company after a default under such Indebtedness (a) shall notify the Company
or the Trustee of the intended sale or disposition of any assets of the
Company or any Subsidiary of the Company with an aggregate fair market value
(as determined in good faith by the Company's Board of Directors, which
determination shall be evidenced by a board resolution), individually or in
the aggregate, of at least $5.0 million that have been pledged to or for the
benefit of such holder or holders to secure such Indebtedness or (b) shall
commence proceedings, or take any action (including by way of set-off), to
retain in satisfaction of such Indebtedness, or to collect on, seize,
dispose of or apply in satisfaction of such Indebtedness, such assets of the
Company or any Subsidiary of the Company (including funds on deposit or held
pursuant to lock-box and other similar arrangements);
(viii) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the Company
or any Subsidiary of the Company in an involuntary case or proceeding under
any applicable Bankruptcy Law or (b) a decree or order adjudging the Company
or any Subsidiary of the Company bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Subsidiary of the Company under any applicable federal or
state law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Company or any
Subsidiary of the Company or of any substantial part of their respective
properties, or ordering the winding up or liquidation of their affairs, and
any such decree or order for relief shall continue to be in effect, or any
such other decree or order shall be unstayed and in effect, for a period of
60 days; or
(ix) (a) the Company or any Subsidiary of the Company commences a
voluntary case or proceeding under any applicable Bankruptcy Law or any
other case or proceeding to be adjudicated bankrupt or insolvent, (b) the
Company or any Subsidiary of the Company consents to the entry of a decree
or order for relief in respect of the Company or such Subsidiary of the
Company in an involuntary case or proceeding under any applicable Bankruptcy
Law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, (c) the Company or any Subsidiary of the Company
files a petition or answer or consent seeking reorganization or relief under
any applicable federal or state law, (d) the Company or any Subsidiary of
the Company (x) consents to the filing of such petition or the appointment
of or taking possession by, a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or such
Subsidiary of the Company or of any substantial part of their respective
property, (y) makes an assignment for the benefit of creditors or (z) admits
in writing its inability to pay its debts generally as they become due or
(e) the Company or any Subsidiary of the Company takes any corporate action
in furtherance of any such actions in this paragraph (ix).
If any Event of Default (other than as specified in clause (viii) or (ix) of the
preceding paragraph with respect to the Company or any Subsidiary Guarantor)
occurs and is continuing, the Trustee or the holders of at least 25% in
aggregate principal amount of the then outstanding Notes may, and the Trustee at
the request of such holders shall, declare all the Notes to be due and payable
immediately. In the case of an Event of Default arising from the events
specified in clause (viii) or (ix) of the preceding paragraph with respect to
the Company or any Subsidiary Guarantor, the principal of, premium, if any, and
any accrued and unpaid interest on all outstanding Notes shall IPSO FACTO become
immediately due and payable without further action or notice.
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Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. The holders of a majority in aggregate principal
amount of the Notes then outstanding by notice to the Trustee may on behalf of
the holders of all the Notes waive any existing Default or Event of Default and
its consequences under the Indenture except (i) a continuing Default or Event of
Default in the payment of the principal of, or premium, if any, or interest on,
the Notes (which may only be waived with the consent of each holder of Notes
affected), or (ii) in respect of a covenant or provision which under the
Indenture cannot be modified or amended without the consent of the holder of
each Note affected. Subject to certain limitations, holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal, premium or interest) if
it determines that withholding notice is in their interest.
The Company is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and the Company is required, upon becoming aware
of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
DEFEASANCE
The Company may, at its option and at any time, elect to have the obligations of
the Company discharged with respect to the outstanding Notes and the Subsidiary
Guarantees ("legal defeasance"). Such legal defeasance means that the Company
and the Subsidiary Guarantors shall be deemed to have paid and discharged the
entire indebtedness represented by the outstanding Notes and the Subsidiary
Guarantees and to have satisfied all other obligations under the Notes, the
Subsidiary Guarantees and the Indenture, except for (i) the rights of holders of
the outstanding Notes to receive, solely from the trust fund described below,
payments in respect of the principal of, premium, if any, and interest on such
Notes when such payments are due, (ii) the Company's obligations with respect to
the Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes, and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee under the Indenture and (iv) the
defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company and the
Subsidiary Guarantors released with respect to certain covenants that are
described in the Indenture ("covenant defeasance") and any omission to comply
with such obligations shall not constitute a Default or an Event of Default with
respect to the Notes.
In order to exercise either legal defeasance or covenant defeasance, (i) the
Company shall irrevocably deposit with the Trustee, as trust funds in trust for
the benefit of the holders of the Notes, cash in United States dollars, U.S.
Government Obligations, or a combination thereof, maturing as to principal and
interest in such amounts as will be sufficient, without consideration of any
reinvestment of such interest, in the opinion of a nationally recognized firm of
independent public accountants or a nationally recognized investment banking
firm, to pay and discharge the principal of, premium, if any, and interest on
the outstanding Notes on the stated maturity of such principal or installment of
principal or interest; (ii) in the case of legal defeasance, the Company shall
have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the holders of the Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such legal defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such legal defeasance had not occurred; (iii) in the case of covenant
defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as clauses (viii) and (ix)
under the first paragraph under "-Events of Default" are concerned, at any time
during the period ending on the 91st day after the date of deposit; (v) such
legal defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a Default under, the Indenture or any other material
agreement or instrument to which the Company is a party or by which it is bound;
(vi) the Company shall have delivered to the Trustee an opinion of counsel to
the
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effect that (A) the trust funds will not be subject to any rights of holders of
Senior Debt or Guarantor Senior Debt of any Subsidiary Guarantor, including,
without limitation, those arising under the Indenture, after the 91st day
following the deposit and (B) after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of the Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; (viii) no event or condition shall exist that would prevent
the Company from making payments of the principal of, premium, if any, and
interest on the Notes on the date of such deposit or at any time ending on the
91st day after the date of such deposit; (ix) the Company shall have delivered
to the Trustee an officers' certificate and an opinion of counsel, each stating
that all conditions precedent provided for relating to either the legal
defeasance or the covenant defeasance, as the case may be, have been complied
with; and (x) such deposit shall not violate the provisions described under
"-Subordination."
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving rights
of registration, transfer or exchange of the Notes, as expressly provided for in
the Indenture) as to all outstanding Notes when (i) either (a) all the Notes
theretofore authenticated and delivered (except lost, stolen or destroyed Notes
which have been replaced or paid) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered for cancellation have
become due and payable and the Company has irrevocably deposited or caused to be
deposited with the Trustee an amount in United States dollars sufficient to pay
and discharge the entire indebtedness on the Notes not theretofore delivered to
the Trustee for cancellation, for the principal of, premium, if any, and
interest to the date of payment; (ii) the Company has paid or caused to be paid
all other sums payable under the Indenture by the Company; and (iii) the Company
has delivered to the Trustee an officers' certificate and an opinion of counsel
each stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with and that
such deposit does not violate the provisions described under "-Subordination."
MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture or the Notes may be made by the
Company, the Subsidiary Guarantors and the Trustee with the written consent of
the holders of not less than a majority in aggregate principal amount of the
then outstanding Notes; PROVIDED, HOWEVER, that no such modification or
amendment may, without the consent of the holder of each outstanding Note
affected thereby: (i) change the stated maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount thereof or
the rate of interest thereon or any premium payable upon the redemption thereof,
or change the coin or currency or the manner in which the principal of any Note
or any premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment after the stated maturity
thereof (or, in the case of redemption, on or after the redemption date); (ii)
extend the time for payment of interest on the Notes; (iii) alter the redemption
provisions in the Notes or the Indenture in a manner adverse to any holder of
the Notes; (iv) amend, change or modify the obligation of the Company to make
and consummate a Change of Control Offer in the event of a Change of Control or
modify any of the provisions or definitions with respect thereto; (v) reduce the
percentage in principal amount of outstanding Notes, the consent of whose
holders is required for any amended or supplemental indenture or the consent of
whose holders is required for any waiver of compliance with any provision of the
Indenture or any Default thereunder and their consequences provided for in the
Indenture; (vi) modify any of the provisions of the Indenture relating to any
amended or supplemental indentures requiring the consent of holders or relating
to the waiver of past defaults or relating to the waiver of any covenant, except
to increase the percentage of outstanding Notes required for such actions or to
provide that any other provision of the Indenture cannot be modified or waived
without the consent of the holder of each Note affected thereby; (vii) except as
otherwise permitted under "-Merger, Consolidation and Sale of Assets," consent
to the assignment or transfer by the Company of any of its rights and
obligations under the Indenture; (viii) modify any of the provisions of the
Indenture relating to the subordination of the Notes or the Subsidiary
Guarantees in a manner adverse to the holders of the Notes; (ix) release any
Subsidiary Guarantor from any of its obligations under its Subsidiary Guarantee
other than in accordance with the terms of the
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Indenture; or (x) modify certain provisions of the Indenture with respect to the
redemption of the Notes on or prior to the Special Redemption Date or, on or
prior to the Special Redemption Date, any of the definitions related thereto in
a manner adverse to any holder or Notes.
Notwithstanding the foregoing, without the consent of any holder of Notes, the
Company, the Subsidiary Guarantors and the Trustee may amend or supplement the
Indenture or the Notes to (i) cure any ambiguity, defect or inconsistency, (ii)
provide for uncertificated Notes in addition to or in place of certificated
Notes, (iii) provide for the assumption of the Company's obligations to the
holders of the Notes in the event of any Disposition involving the Company that
is permitted under the provisions of "-Merger, Consolidation and Sale of Assets"
in which the Company is not the Surviving Person, (iv) make any change that
would provide any additional rights or benefits to the holders of the Notes or
does not adversely affect the interests of any holder or (v) comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
THE TRUSTEE
In the event that the Trustee becomes a creditor of the Company, the Indenture
contains certain limitations on the rights of the Trustee to obtain payment of
claims in certain cases or to realize on certain property received in respect of
any such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue as Trustee, or resign.
The holders of a majority in aggregate principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that, in case an Event of Default has
occurred and has not been cured, the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. The Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any holder of Notes,
unless such holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference is
made to the Indenture for the definition of all other terms used in the
Indenture.
"ACQUIRED DEBT" means, with respect to any specified Person, Indebtedness of any
other Person (the "Acquired Person") existing at the time the Acquired Person
merges with or into, or becomes a Subsidiary of, such specified Person,
including Indebtedness incurred in connection with, or in contemplation of, the
Acquired Person merging with or into, or becoming a Subsidiary of, such
specified Person.
"AFFILIATE" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with") of any Person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"ASSET SALE" means (i) any sale, lease, conveyance or other disposition by the
Company or any Subsidiary of the Company of any assets (including by way of a
sale-and-leaseback) other than in the ordinary course of business (provided that
the sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Company shall not be an "Asset Sale" but instead shall be
governed by the provisions of the Indenture described under "-Merger,
Consolidation and Sale of Assets") or (ii) the issuance or sale of Capital Stock
of any Subsidiary of the Company, in each case, whether in a single transaction
or a series of related transactions, to any Person (other than to the Company or
a Subsidiary Guarantor); PROVIDED that the term "Asset Sale" shall not include
any disposition or dispositions during any twelve-month period of assets or
property having a fair market value of less than $250,000 in the aggregate.
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"BANKRUPTCY LAW" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization or
relief of debtors, or any amendment to, succession to or change in any such law.
"CAPITAL LEASE OBLIGATIONS" of any Person means the obligations to pay rent or
other amounts under a lease of (or other Indebtedness arrangements conveying the
right to use) real or personal property of such Person which are required to be
classified and accounted for as a capital lease or liability on the face of a
balance sheet of such Person in accordance with GAAP. The amount of such
obligations shall be the capitalized amount thereof in accordance with GAAP and
the stated maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) corporate stock or other equity participations,
including partnership interests, whether general or limited, of such Person,
including any Preferred Stock.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued or guaranteed
by the United States of America, or any governmental entity or agency or
political subdivision thereof (PROVIDED, that the full faith and credit of the
United States of America is pledged in support thereof) maturing within one year
of the date of purchase; (ii) commercial paper issued by corporations, each of
which shall have a consolidated net worth of at least
$500 million, maturing within 180 days from the date of the original issue
thereof, and rated "P-1" or better by Moody's Investors Service or "A-1" or
better by Standard & Poor's Corporation or an equivalent rating or better by any
other nationally recognized securities rating agency; and (iii) certificates of
deposit issued or acceptances accepted by or guaranteed by any bank or trust
company organized under the laws of the United States of America or any state
thereof or the District of Columbia, in each case having capital, surplus and
undivided profits totalling more than $500 million, maturing within one year of
the date of purchase.
"CHANGE OF CONTROL" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), disregarding the Permitted Holders, becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person or group shall be deemed to have
beneficial ownership of all shares of Capital Stock that such person or
group has the right to acquire regardless of when such right is first
exercisable), directly or indirectly, of more than 35% of the total voting
power represented by the outstanding Voting Stock of the Company;
(b) the Company merges with or into another Person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all
of its assets to any Person, or any Person merges with or into the Company,
in any such event pursuant to a transaction in which the outstanding Voting
Stock of the Company is converted into or exchanged for cash, securities or
other property, other than any such transaction where (x) the outstanding
Voting Stock of the Company is converted into or exchanged for Voting Stock
(other than Disqualified Stock) of the surviving or transferee corporation
and (y) immediately after such transaction no "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act),
disregarding the Permitted Holders, is the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group
shall be deemed to have beneficial ownership of all shares of Capital Stock
that such person or group has the right to acquire regardless of when such
right is first exercisable), directly or indirectly, of more than 35% of the
total voting power represented by the outstanding Voting Stock of the
surviving or transferee corporation;
(c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by the Board of Directors of
the Company or whose nomination for election by the stockholders of the
Company was approved by (x) a vote of at least a majority of the directors
then still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved (as described in this clause (x) or in the following clause (y)) or
(y) Permitted Holders that are "beneficial owners" (as defined in
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Rules 13d-3 and 13d-5 under the Exchange Act) of a majority of the total
voting power represented by the outstanding Voting Stock of the Company)
cease for any reason to constitute a majority of the Board then in office;
or
(d) the Company is liquidated or dissolved or adopts a plan of
liquidation.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any period, the sum of
(i) the interest expense of the Company and its Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP consistently applied,
including, without limitation, (a) amortization of debt discount, (b) the net
payments, if any, under interest rate contracts (including amortization of
discounts), (c) the interest portion of any deferred payment obligation and (d)
accrued interest, plus (ii) the interest component of the Capital Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by the Company
during such period, and all capitalized interest of the Company and its
Subsidiaries plus (iii) cash dividends declared or paid in respect of any
Preferred Stock of the Company and its Subsidiaries during such period, in each
case as determined on a consolidated basis in accordance with GAAP consistently
applied. For purposes of this definition, the amount of any cash dividends
declared or paid will be deemed to be equal to the amount of such dividends
multiplied by a fraction, the numerator of which is one and the denominator of
which is one minus the maximum statutory combined Federal, state, local and
foreign income tax rate then applicable to the Company and its Subsidiaries
(expressed as a decimal between one and zero) on a consolidated basis.
"CONSOLIDATED NET INCOME" means, with respect to any period, the net income (or
loss) of the Company and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP consistently applied, adjusted, to
the extent included in calculating such net income (or loss), by excluding,
without duplication, (i) all extraordinary gains but not losses, (ii) the
portion of net income (or loss) of the Company and its Subsidiaries allocable to
interests in unconsolidated Persons, except to the extent of the amount of
dividends or distributions actually paid to the Company or its Subsidiaries by
such other Person during such period, (iii) net income (or loss) of any Person
combined with the Company or any of its Subsidiaries on a "pooling of interests"
basis attributable to any period prior to the date of combination, (iv) net gain
but not losses in respect of Asset Sales, or (v) the net income of any
Subsidiary to the extent that the declaration of dividends or similar
distributions by that Subsidiary of that income to the Company is not at the
time permitted, directly or indirectly, by operation of the terms of its charter
or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders.
"CONSOLIDATED NET WORTH" means, with respect to any Person on any date, the
equity of the common and preferred stockholders of such Person and its
Subsidiaries as of such date, determined on a consolidated basis in accordance
with GAAP consistently applied.
"CUMULATIVE CONSOLIDATED INTEREST EXPENSE" means, as of any date of
determination, Consolidated Interest Expense from the last day of the month
immediately preceding the Issue Date to the last day of the most recently ended
month prior to such date, taken as a single accounting period.
"CUMULATIVE OPERATING CASH FLOW" means, as of any date of determination,
Operating Cash Flow from the last day of the month immediately preceding the
Issue Date to the last day of the most recently ended month prior to such date,
taken as a single accounting period.
"DEBT TO OPERATING CASH FLOW RATIO" means, with respect to any date of
determination, the ratio of (i) the aggregate principal amount of all
outstanding Indebtedness of the Company and its Subsidiaries as of such date on
a consolidated basis to (ii) Operating Cash Flow of the Company and its
Subsidiaries on a consolidated basis for the four most recent full fiscal
quarters ending on or immediately prior to such date, determined on a pro forma
basis after giving pro forma effect to (i) the incurrence of all Indebtedness to
be incurred on such date and (if applicable) the application of the net proceeds
therefrom, including to refinance other Indebtedness, as if such Indebtedness
was incurred, and the application of such proceeds occurred, at the beginning of
such four-quarter period; (ii) the incurrence, repayment or retirement of any
other Indebtedness by the Company and its Subsidiaries since the first day of
such four-quarter period as if such Indebtedness was incurred, repaid or retired
at the beginning of such four-quarter period (except that, in making such
computation, the amount of Indebtedness under any revolving credit facility
shall be computed based upon the average balance of such Indebtedness at the end
of each month during
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such four-quarter period); (iii) in the case of Acquired Debt, the related
acquisition as if such acquisition had occurred at the beginning of such
four-quarter period; and (iv) any acquisition or disposition by the Company and
its Subsidiaries of any company or any business or any assets out of the
ordinary course of business, or any related repayment of Indebtedness, in each
case since the first day of such four-quarter period, assuming such acquisition
or disposition had been consummated on the first day of such four-quarter
period. In addition, the consolidated net income of a Person with outstanding
Indebtedness or Capital Stock providing for a Payment Restriction which is
permitted to exist by reason of clause (c) of the covenant described under
"-Covenants-Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries" shall not be taken into account in determining whether any
Indebtedness is permitted to be incurred under the Indenture.
"DEFAULT" means any event that is, or after the giving of notice or passage of
time or both would be, an Event of Default.
"DESIGNATED SENIOR DEBT" means (i) any Senior Debt outstanding under the Senior
Credit Facility and (ii) if no Senior Debt is outstanding under the Senior
Credit Facility, any other Senior Debt of the Company permitted to be incurred
under the Indenture the principal amount of which is $50.0 million or more at
the time of the designation of such Senior Debt as "Designated Senior Debt" by
the Company in a written instrument delivered to the Trustee.
"DISPOSITION" means, with respect to any Person, any merger, consolidation or
other business combination involving such Person (whether or not such Person is
the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms
of any security into which it is convertible or for which it is exchangeable),
or upon the happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or is redeemable at the
option of the holder thereof, in whole or in part on or prior to the stated
maturity of the Notes.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FILM CONTRACTS" means contracts with suppliers that convey the right to
broadcast specified films, videotape motion pictures, syndicated television
programs or sports or other programming.
"GAAP" means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"GUARANTEE" by any Person means any obligation, contingent or otherwise, of such
Person guaranteeing any Indebtedness of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, and including, without
limitation, any obligation of such Person (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness or to purchase
(or to advance or supply funds for the purchase of) any security for the payment
of such Indebtedness, (ii) to purchase property, securities or services for the
purpose of assuring the holder of such Indebtedness of the payment of such
Indebtedness, or (iii) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness (and "guaranteed,"
"guaranteeing" and "guarantor" shall have meanings correlative to the
foregoing); PROVIDED, HOWEVER, that the guarantee by any Person shall not
include endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"GUARANTOR SENIOR DEBT" means, with respect to any Subsidiary Guarantor, (i) the
principal of, premium, if any, and interest on and all other monetary
Obligations of every kind or nature due on or in connection with any
Indebtedness of such Subsidiary Guarantor outstanding under or in respect of the
Senior Credit Facility that is permitted to be incurred under the Indenture,
(ii) principal of and premium, if any, and interest on and all other monetary
Obligations of every kind or nature due on or in connection with all
Indebtedness of such Subsidiary Guarantor that is permitted to be incurred under
the Indenture that is not by its terms PARI PASSU with or subordinated to the
Subsidiary Guarantee of such Subsidiary Guarantor, (iii) all Obligations of such
Subsidiary Guarantor with respect to the Indebtedness referred to in the
foregoing classes (i) and (ii), including, in the case of Indebtedness
outstanding under the Senior Credit Facility, Post-Petition Interest, and (iv)
all (including all subsequent) renewals, extensions,
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amendments, refinancings, repurchases or redemptions, modifications,
supplements, replacements, increases or refundings thereof (whether or not
coincident therewith), in whole or in part under one or more agreements or
instruments, that are not prohibited by the Indenture. Notwithstanding the
foregoing, Guarantor Senior Debt shall not include (a) any Indebtedness for
federal, state, local or other taxes, (b) any Indebtedness among or between the
Company, any Subsidiary and/or their Affiliates, (c) any accounts payable or
other liability to trade creditors arising in the ordinary course of business,
(d) any Indebtedness that is incurred in violation of the Indenture, (e)
Indebtedness evidenced by the Subsidiary Guarantee of such Subsidiary Guarantor,
(f) Indebtedness of a Subsidiary Guarantor that is expressly subordinate or
junior in right of payment to any other Indebtedness of such Subsidiary
Guarantor or (g) Indebtedness of such Subsidiary Guarantor representing a
guarantee of Subordinated Debt or Pari Passu Indebtedness.
"INDEBTEDNESS" means, with respect to any Person, without duplication, and
whether or not contingent, (i) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property or services or which is
evidenced by a note, bond, debenture or similar instrument, (ii) all Capital
Lease Obligations of such Person, (iii) all obligations of such Person in
respect of letters of credit or bankers' acceptances issued or created for the
account of such Person, (iv) all Interest Rate Agreement Obligations of such
Person, (v) all liabilities secured by any Lien on any property owned by such
Person even if such Person has not assumed or otherwise become liable for the
payment thereof to the extent of the lesser of (x) the amount of the Obligation
so secured and (y) the fair market value of the property subject to such Lien,
(vi) all obligations to purchase, redeem, retire, or otherwise acquire for value
any Capital Stock of such Person, or any warrants, rights or options to acquire
such Capital Stock, now or hereafter outstanding, (vii) to the extent not
included in (vi), all Disqualified Stock issued by such Person, valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends thereon, and (viii) to the extent not otherwise
included, any guarantee by such Person of any other Person's indebtedness or
other obligations described in clauses (i) through (vii) above. "Indebtedness"
of the Company and its Subsidiaries shall not include current trade payables
incurred in the ordinary course of business and payable in accordance with
customary practices, and non-interest bearing installment obligations and
accrued liabilities incurred in the ordinary course of business which are not
more than 90 days past due. For purposes hereof, the "maximum fixed repurchase
price" of any Disqualified Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Stock as
if such Disqualified Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by the fair market value of, such Disqualified Stock,
such fair market value is to be determined in good faith by the board of
directors of the issuer of such Disqualified Stock.
"INDEPENDENT DIRECTOR" means a director of the Company other than a director (i)
who (apart from being a director of the Company or any Subsidiary) is an
employee, associate or Affiliate of the Company or a Subsidiary or has held any
such position during the previous five years, or (ii) who is a director,
employee, associate or Affiliate of another party to the transaction in
question.
"INSOLVENCY OR LIQUIDATION PROCEEDING" means, with respect to any Person, any
liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"INTEREST RATE AGREEMENT OBLIGATIONS" means, with respect to any Person, the
Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"INVESTMENTS" means, with respect to any Person, all investments by such Person
in other Persons (including Affiliates of such Person) in the form of loans,
guarantees, advances or capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business) purchases or other acquisitions for consideration of Indebtedness,
Capital Stock or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Investments" shall exclude extensions of trade credit (including extensions of
credit in respect of equipment leases) by the Company and its Subsidiaries in
the ordinary course of business in accordance with normal trade practices of the
Company or such Subsidiary, as the case may be.
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"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
any asset and any filing of, or agreement to give, any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"NET PROCEEDS" means, with respect to any Asset Sale by any Person, the
aggregate cash proceeds received by such Person and/or its Affiliates in respect
of such Asset Sale, which amount is equal to the excess, if any, of (i) the cash
received by such Person and/or its Affiliates (including any cash payments
received by way of deferred payment pursuant to, or monetization of, a note or
installment receivable or otherwise, but only as and when received) in
connection with such Asset Sale, over (ii) the sum of (a) the amount of any
Indebtedness that is secured by such asset and which is required to be repaid by
such Person in connection with such Asset Sale, plus (b) all fees, commissions
and other expenses incurred by such Person in connection with such Asset Sale,
plus (c) provision for taxes, including income taxes, attributable to the Asset
Sale or attributable to required prepayments or repayments of Indebtedness with
the proceeds of such Asset Sale, plus (d) a reasonable reserve for the after-tax
cost of any indemnification payments (fixed or contingent) attributable to
seller's indemnities to purchaser in respect of such Asset Sale undertaken by
the Company or any of its Subsidiaries in connection with such Asset Sale plus
(e) if such Person is a Subsidiary of the Company, any dividends or
distributions payable to holders of minority interests in such Subsidiary from
the proceeds of such Asset Sale.
"OBLIGATIONS" means any principal, interest (including, without limitation, in
the case of Senior Debt under the Senior Credit Facility, Post-Petition
Interest), penalties, fees, indemnifications, reimbursement obligations, damages
and other liabilities payable under the documentation governing any
Indebtedness.
"OPERATING CASH FLOW" means, with respect to any period, the Consolidated Net
Income of the Company and its Subsidiaries for such period, plus (i)
extraordinary net losses and net losses realized on any sale of assets during
such period, to the extent such losses were deducted in computing Consolidated
Net Income, plus (ii) provision for taxes based on income or profits, to the
extent such provision for taxes was included in computing such Consolidated Net
Income, and any provision for taxes utilized in computing the net losses under
clause (i) hereof, plus (iii) Consolidated Interest Expense of the Company and
its Subsidiaries for such period, plus (iv) depreciation, amortization and all
other non-cash charges, to the extent such depreciation, amortization and other
non-cash charges were deducted in computing such Consolidated Net Income
(including amortization of goodwill and other intangibles, including Film
Contracts and write-downs of Film Contracts), but excluding any such charges
which represent any accrual of, or a reserve for, cash charges for a future
period, minus (v) any cash payments contractually required to be made with
respect to Film Contracts (to the extent not previously included in computing
such Consolidated Net Income), minus (vi) non-cash items increasing Consolidated
Net Income (to the extent included in computing such Consolidated Net Income).
"PARI PASSU INDEBTEDNESS" means any Indebtedness of the Company or a Subsidiary
Guarantor which ranks PARI PASSU in right of payment with the Notes or the
Subsidiary Guarantee of such Subsidiary Guarantor, as the case may be (whether
or not such Indebtedness is secured by any Lien).
"PERMITTED HOLDERS" means (i) each of J. Mack Robinson and Robert S. Prather,
Jr.; (ii) their spouses and lineal descendants; (iii) in the event of the
incompetence or death of any of the Persons described in clauses (i) and (ii),
such Person's estate, executor, administrator, committee or other personal
representative; (iv) any trusts created for the benefit of the Persons described
in clause (i) or (ii); or (v) any Person controlled by any of the Persons
described in clause (i), (ii), or (iv). For purposes of this definition,
"control," as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through ownership of voting
securities or by contract or otherwise.
"PERMITTED INVESTMENTS" means (i) any Investment in the Company or any
Subsidiary Guarantor; (ii) any Investments in Cash Equivalents; (iii) any
Investment in a Person (an "Acquired Person") if, as a result of such
Investment, (a) the Acquired Person becomes a Subsidiary Guarantor, or (b) the
Acquired Person either (1) is merged, consolidated or amalgamated with or into
the Company or a Subsidiary Guarantor and the Company or such Subsidiary
Guarantor is the Surviving Person, or (2) transfers or conveys substantially all
of its assets to, or is
97
<PAGE>
liquidated into, the Company or a Subsidiary Guarantor; (iv) Investments in
accounts and notes receivable acquired in the ordinary course of business; and
(v) Interest Rate Agreement Obligations permitted pursuant to the second
paragraph of the covenant described under "-Covenants-LIMITATION ON INCURRENCE
OF INDEBTEDNESS".
"PERMITTED LIENS" means (i) Liens on assets or property of the Company that
secure Senior Debt of the Company, either existing on the Issue Date or which
such Senior Debt is permitted to be incurred under the Indenture, and Liens on
assets or property of a Subsidiary Guarantor that secure Guarantor Senior Debt
of such Subsidiary Guarantor, either existing on the Issue Date or which such
Guarantor Senior Debt is permitted to be incurred under the Indenture; (ii)
Liens securing Indebtedness of a Person existing at the time that such Person is
merged into or consolidated with the Company or a Subsidiary of the Company,
PROVIDED that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those of such
Person; (iii) Liens on property acquired by the Company or a Restricted
Subsidiary, PROVIDED that such Liens were in existence prior to the
contemplation of such acquisition and do not extend to any other property; (iv)
Liens in favor of the Company or any Subsidiary of the Company; (v) Liens
incurred, or pledges and deposits in connection with, workers' compensation,
unemployment insurance and other social security benefits, and leases, appeal
bonds and other obligations of like nature incurred by the Company or any
Subsidiary of the Company in the ordinary course of business; (vi) Liens imposed
by law, including, without limitation, mechanics', carriers', warehousemen's,
materialmen's, suppliers' and vendors' Liens, incurred by the Company or any
Subsidiary of the Company in the ordinary course of business; (vii) Liens for ad
valorem, income or property taxes or assessments and similar charges which
either are not delinquent or are being contested in good faith by appropriate
proceedings for which the Company has set aside on its books reserves to the
extent required by GAAP; (viii) Liens securing Senior Debt or Guarantor Senior
Debt under the Senior Credit Facility; and (ix) Liens created under the
Indenture.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"POST-PETITION INTEREST" means, with respect to any Indebtedness of any Person,
all interest accrued or accruing on such Indebtedness after the commencement of
any Insolvency or Liquidation Proceeding against such Person in accordance with
and at the contract rate (including, without limitation, any rate applicable
upon default) specified in the agreement or instrument creating, evidencing or
governing such Indebtedness to the extent the claim for such interest is allowed
as a claim in such Insolvency or Liquidation Proceeding.
"PREFERRED STOCK" as applied to the Capital Stock of any Person, means Capital
Stock of any class or classes (however designated) which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of such Person, over
Capital Stock of any other class of such Person.
"PUBLIC EQUITY OFFERING" means an underwritten public offering of Capital Stock
(other than Disqualified Stock) of the Company subsequent to the Issue Date
(excluding Capital Stock which may be issued upon exercise of any over-allotment
option exercisable after the Issue Date and granted to in connection with the
Concurrent Offering), pursuant to an effective registration statement filed
under the Securities Act, the net proceeds of which to the Company (after
deducting any underwriting discounts and commissions) exceed $25.0 million.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment.
"RESTRICTED PAYMENT" means (i) any dividend or other distribution declared or
paid on any Capital Stock of the Company or any of its Subsidiaries (other than
dividends or distributions payable solely in Capital Stock (other than
Disqualified Stock) of the Company or such Subsidiary or dividends or
distributions payable to the Company or any Subsidiary Guarantor); (ii) any
payment to purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any Subsidiary of the Company or other Affiliate of the
Company (other than any Capital Stock owned by the Company or any Subsidiary
Guarantor); (iii) any payment to purchase, redeem, defease or otherwise acquire
or retire for value any Subordinated Indebtedness prior to the scheduled
maturity thereof; or (iv) any Restricted Investment.
"SENIOR CREDIT FACILITY" means the credit agreement, entered into as of
, 1996, among the Company, the Subsidiaries of the Company named
therein, the lenders named therein and , as Agent, as the same
may be amended, modified, renewed, refunded, replaced or refinanced from time to
time, including (i) any
98
<PAGE>
related notes, letters of credit, guarantees, collateral documents, instruments
and agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time, and (ii)
any notes, guarantees, collateral documents, instruments and agreements executed
in connection with any such amendment, modification, renewal, refunding,
replacement or refinancing.
"SENIOR DEBT" means (i) the principal of, premium, if any, and interest on and
all other monetary Obligations of every kind or nature due on or in connection
with any Indebtedness outstanding under the Senior Credit Facility and the
Senior Note that is permitted to be incurred under the Indenture, (ii) principal
of and premium, if any, and interest on and all other monetary Obligations of
every kind or nature due on or in connection with all Indebtedness that is
permitted to be incurred under the Indenture that is not by its terms PARI PASSU
with or subordinated to the Notes, (iii) all Obligations of the Company with
respect to Indebtedness referred to in the foregoing clauses (i) and (ii),
including, in the case of Indebtedness outstanding under the Senior Credit
Facility and the Senior Note, Post-Petition Interest, and (iv) all (including
all subsequent) renewals, extensions, amendments, refinancings, repurchases or
redemptions, modifications, supplements, replacements, increases or refundings
thereof (whether or not coincident therewith), in whole or in part under one or
more agreements or instruments, that are not prohibited by the Indenture.
Notwithstanding the foregoing, Senior Debt shall not include (a) any
Indebtedness for federal, state, local or other taxes, (b) any Indebtedness
among or between the Company, any Subsidiary of the Company and/or their
Affiliates, (c) any accounts payable or other liability to trade creditors
arising in the ordinary course of business, (d) any Indebtedness that is
incurred in violation of the Indenture, (e) Indebtedness evidenced by the Notes
or (f) Indebtedness of the Company that is expressly subordinate or junior in
right of payment to any other Indebtedness of the Company.
"SUBORDINATED INDEBTEDNESS" means any Indebtedness of the Company or a
Subsidiary Guarantor if the instrument creating or evidencing such Indebtedness
or pursuant to which such Indebtedness is outstanding expressly provides that
such Indebtedness is subordinated in right of payment to the Notes or the
Subsidiary Guarantee of such Subsidiary Guarantor, as the case may be.
"SUBSIDIARY" of any Person means (i) any corporation more than 50% of the
outstanding Voting Stock of which is owned or controlled, directly or
indirectly, by such Person or by one or more other Subsidiaries of such Person,
or by such Person and one or more other Subsidiaries thereof, or (ii) any
limited partnership of which such Person or any Subsidiary of such Person is a
general partner, or (iii) any other Person (other than a corporation or limited
partnership) in which such Person, or one or more other Subsidiaries of such
Person, or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has more than 50% of the outstanding partnership or similar
interests or has the power, by contract or otherwise, to direct or cause the
direction of the policies, management and affairs thereof.
"SUBSIDIARY GUARANTOR" means (i) each Subsidiary of the Company existing on the
Issue Date, (ii) each of the Company's Subsidiaries which becomes a guarantor of
the Notes in compliance with the provisions set forth under "-Covenants-Future
Subsidiary Guarantors," and (iii) each of the Company's Subsidiaries executing a
supplemental indenture in which such Subsidiary agrees to be bound by the terms
of the Indenture.
"VOTING STOCK" means, with respect to any Person, Capital Stock of such Person
of the class or classes pursuant to which the holders thereof have the general
voting power under ordinary circumstances to elect at least a majority of the
board of directors, managers or trustees of such Person (irrespective of whether
or not at the time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency).
"WEIGHTED AVERAGE LIFE TO MATURITY" means, with respect to any Indebtedness at
any date, the number of years obtained by dividing (i) the sum of the products
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required scheduled payment of principal,
including payment as final maturity, in respect thereof, with (b) the number of
years (calculated to the nearest one-twelfth) that will elapse between such date
and the making of such payment, by (ii) the then outstanding aggregate principal
amount of such Indebtedness.
99
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1996 (the "Underwriting Agreement"), J.P. Morgan
Securities Inc. ("J.P. Morgan"), Allen & Company Incorporated ("Allen &
Company"), and The Robinson-Humphrey Company, Inc. ("Robinson-Humphrey," and
collectively with J.P. Morgan and Allen & Company, the "Underwriters") have
severally agreed to purchase from the Company, and the Company has agreed to
sell to them, severally, the principal amount of Notes set forth opposite their
names below. Under the terms and conditions of the Underwriting Agreement, the
Underwriters are obligated to take and pay for the entire principal amount of
the Notes if any Notes are purchased.
<TABLE>
<CAPTION>
------------------
PRINCIPAL AMOUNT
------------------
<S> <C>
J.P. Morgan Securities Inc. $
Allen & Company Incorporated
The Robinson-Humphrey Company, Inc.
------------------
Total $150,000,000
------------------
------------------
</TABLE>
The Underwriters propose initially to offer the Notes directly to the public at
the price set forth on the cover page of this Prospectus and to certain dealers
at such price less a concession not in excess of % of the principal amount of
the Notes. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of % of the principal amount of the Notes to certain
other dealers. After the initial public offering of the Notes, the offering
price and such concession may be changed.
Each of the Company and the Subsidiary Guarantors has agreed, jointly and
severally, to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act.
There is currently no trading market for the Notes. The Company does not intend
to list the Notes on any securities exchange. The Company has been advised by
the Underwriters that the Underwriters currently intend to make a market in the
Notes, however, the Underwriters are not obligated to do so and may discontinue
any such market making activities at any time without notice. No assurance can
be given as to the development or liquidity of any trading market for the Notes.
J.P. Morgan, Allen & Company and Robinson-Humphrey are acting as underwriters in
connection with the Concurrent Offering and will receive customary fees in
connection therewith. Robinson-Humphrey will be rendering investment banking
services with regard to the conversion of the 8% Note to the Series A Preferred
Stock and the Company's sale of the Series B Preferred Stock and warrants and
will receive customary fees in connection therewith. In addition,
Robinson-Humphrey has previously rendered investment banking services to the
Company and certain of its affiliates and received customary fees in connection
therewith.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company by
Proskauer Rose Goetz & Mendelsohn LLP, New York, New York. Certain legal matters
in connection with the offering made hereby will be passed upon for the
Underwriters by Cahill Gordon & Reindel (a partnership including a professional
corporation), New York, New York.
EXPERTS
The consolidated financial statements and schedule of Gray Communications
Systems, Inc. at December 31, 1995 and 1994, and for each of the three years in
the period ended December 31, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The financial statements of WRDW-TV at December 31, 1995 and for the year then
ended appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth
100
<PAGE>
in their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing. The financial statements of WRDW-TV (an operating station of
Television Station Partners, L.P.) at December 31, 1994 and for the years ended
December 31, 1993 and 1994 included in this Prospectus and Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, and
are included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The financial statements and schedule of the Broadcasting and Paging Operations
of John H. Phipps, Inc. at December 31, 1995 and 1994, and for each of the three
years in the period ended December 31, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
101
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
GRAY COMMUNICATIONS SYSTEMS, INC. (THE "COMPANY")
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Auditors...................................................... F-2
Consolidated Balance Sheets at December 31, 1994 and 1995........................... F-3
Consolidated Statements of Income for the years ended December 31, 1993, 1994 and
1995............................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1993, 1994 and 1995................................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995........................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
WRDW-TV (THE "AUGUSTA BUSINESS")
AUDITED FINANCIAL STATEMENTS:
Report of Independent Auditors...................................................... F-23
Balance Sheet at December 31, 1995.................................................. F-24
Statement of Income for the year ended December 31, 1995............................ F-25
Statement of Partnership's Equity for the year ended December 31, 1995.............. F-26
Statement of Cash Flows for the year ended December 31, 1995........................ F-27
Notes to Financial Statements....................................................... F-28
Independent Auditors' Report........................................................ F-31
Balance Sheet at December 31, 1994.................................................. F-32
Statements of Income for the years ended December 31, 1993 and 1994................. F-33
Statements of Partnership's Equity for the years ended December 31, 1993 and 1994... F-34
Statements of Cash Flows for the years ended December 31, 1993 and 1994............. F-35
Notes to Financial Statements....................................................... F-36
BROADCASTING AND PAGING OPERATIONS OF JOHN H. PHIPPS, INC. (THE "PHIPPS BUSINESS")
AUDITED FINANCIAL STATEMENTS:
Report of Independent Auditors...................................................... F-40
Balance Sheets at December 31, 1994 and 1995........................................ F-41
Statements of Income for the years ended December 31, 1993, 1994 and 1995........... F-42
Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995....... F-43
Notes to Financial Statements....................................................... F-44
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Gray Communications Systems, Inc.
We have audited the accompanying consolidated balance sheets of Gray
Communications Systems, Inc. as of December 31, 1994 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, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Gray
Communications Systems, Inc. at December 31, 1994 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, 1995, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Columbus, Georgia
February 14, 1996
F-2
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
--------------------------------
DECEMBER 31,
1994 1995
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets (NOTE C):
Cash and cash equivalents $558,520 $559,991
Trade accounts receivable, less allowance for
doubtful accounts of $694,000 and $450,000,
respectively 8,448,366 9,560,274
Recoverable income taxes -0- 1,347,007
Inventories 368,202 553,032
Current portion of program broadcast rights 1,195,633 1,153,058
Other current assets 247,687 263,600
--------------- ---------------
Total current assets 10,818,408 13,436,962
Property and equipment (NOTES B AND C):
Land 646,562 758,944
Buildings and improvements 8,594,343 8,630,694
Equipment 24,781,964 28,229,255
--------------- ---------------
34,022,869 37,618,893
Allowance for depreciation (17,999,752) (20,601,819)
--------------- ---------------
16,023,117 17,017,074
Other assets (NOTE C):
Deferred acquisition costs (NOTE B) -0- 3,330,481
Deferred loan costs 1,381,908 1,232,261
Goodwill and other intangibles (NOTE B) 38,538,413 42,004,050
Other 2,026,938 1,219,650
--------------- ---------------
41,947,259 47,786,442
--------------- ---------------
$68,788,784 $78,240,478
--------------- ---------------
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $2,114,008 $3,752,742
Employee compensation and benefits 3,150,154 4,213,639
Accrued expenses 512,483 560,877
Accrued interest 985,955 1,064,491
Current portion of program broadcast obligations 1,687,481 1,205,784
Current portion of long term debt 1,293,481 2,861,672
--------------- ---------------
Total current liabilities 9,743,562 13,659,205
Long-term debt (NOTE C) 51,646,265 51,462,645
Other long-term liabilities:
Program broadcast obligations, less current
portion 54,489 109,971
Supplemental employee benefits (NOTE D) 2,343,379 2,212,685
Deferred income taxes (NOTE F) -0- 201,348
Other acquisition related liabilities (NOTES B
AND C) -0- 1,609,026
--------------- ---------------
2,397,868 4,133,030
Commitments and contingencies (NOTES B, C AND H)
Stockholders' equity (NOTES B, C AND E)
Class A Common Stock, no par value; authorized
10,000,000 shares; issued 4,841,785 and
5,082,756 shares, respectively 3,393,747 6,795,976
Retained earnings 8,245,626 8,827,906
--------------- ---------------
11,639,373 15,623,882
Treasury Stock, 663,180 shares, at cost (6,638,284) (6,638,284)
--------------- ---------------
5,001,089 8,985,598
--------------- ---------------
$68,788,784 $78,240,478
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
-------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Operating revenues:
Broadcasting (less agency commissions) $15,003,752 $22,826,392 $36,750,035
Publishing 10,109,368 13,692,073 21,866,220
--------------- --------------- ---------------
25,113,120 36,518,465 58,616,255
Expenses:
Broadcasting 10,028,837 14,864,011 23,201,990
Publishing 7,662,127 11,198,011 20,016,137
Corporate and administrative 2,326,691 1,958,449 2,258,261
Depreciation 1,387,698 1,745,293 2,633,360
Amortization of intangible assets 177,063 396,342 1,325,526
Non-cash compensation paid in common stock (NOTE
D) -0- 80,000 2,321,250
--------------- --------------- ---------------
21,582,416 30,242,106 51,756,524
--------------- --------------- ---------------
3,530,704 6,276,359 6,859,731
Miscellaneous income and expense, net 202,465 188,307 143,612
--------------- --------------- ---------------
3,733,169 6,464,666 7,003,343
Interest expense 984,706 1,922,965 5,438,374
--------------- --------------- ---------------
Income from continuing operations before income
taxes 2,748,463 4,541,701 1,564,969
Federal and state income taxes (NOTE F) 1,068,000 1,776,000 634,000
--------------- --------------- ---------------
INCOME FROM CONTINUING OPERATIONS 1,680,463 2,765,701 930,969
Discontinued business (NOTE I):
Income from operations of discontinued business,
net of applicable income tax expense
of $30,000 48,174 -0- -0-
Gain on disposal of discontinued business, net of
applicable income tax expense of
$501,000 817,717 -0- -0-
--------------- --------------- ---------------
NET EARNINGS $2,546,354 $2,765,701 $930,969
--------------- --------------- ---------------
--------------- --------------- ---------------
Average outstanding common shares 4,610,625 4,689,453 4,481,317
--------------- --------------- ---------------
--------------- --------------- ---------------
Earnings per common share
Continuing operations $.36 $.59 $.21
Discontinued operations .01 -0- -0-
Gain on disposal of discontinued operations .18 -0- -0-
--------------- --------------- ---------------
NET EARNINGS
PER COMMON SHARE $.55 $.59 $.21
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
CLASS A COMMON STOCK RESTRICTED TREASURY STOCK
-------------------------- STOCK -------------------------- RETAINED
SHARES AMOUNT DEFERRALS SHARES AMOUNT EARNINGS TOTAL
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 4,610,625 $1,307,071 $-0- -0- $-0- $3,542,901 $4,849,972
Net income -0- -0- -0- -0- -0- 2,546,354 2,546,354
Cash dividends ($.07 per
share) -0- -0- -0- -0- -0- (307,376) (307,376)
Issuance of Common Stock-
Directors Stock Plan (NOTE E) 3,000 29,000 -0- -0- -0- -0- 29,000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1993 4,613,625 1,336,071 -0- -0- -0- 5,781,879 7,117,950
Net income -0- -0- -0- -0- -0- 2,765,701 2,765,701
Cash dividends ($.07 share) -0- -0- -0- -0- -0- (301,954) (301,954)
Purchase of Common Stock (NOTE
E) -0- -0- -0- (663,180) (6,638,284) -0- (6,638,284)
Issuance of Common Stock
(NOTES B AND G):
401(k) Plan 3,160 32,676 -0- -0- -0- -0- 32,676
Rockdale Acquisition 225,000 2,025,000 -0- -0- -0- -0- 2,025,000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1994 4,841,785 3,393,747 -0- (663,180) (6,638,284) 8,245,626 5,001,089
Net income -0- -0- -0- -0- -0- 930,969 930,969
Cash dividends ($.08 share) -0- -0- -0- -0- -0- (348,689) (348,689)
Issuance of Common Stock
(NOTES B, D, E, AND G):
401(k) Plan 18,354 298,725 -0- -0- -0- -0- 298,725
Directors' Stock Plan 23,500 238,919 -0- -0- -0- -0- 238,919
Non-qualified Stock Plan 5,000 48,335 -0- -0- -0- -0- 48,335
Gwinnett Acquisition 44,117 500,000 -0- -0- -0- -0- 500,000
Restricted Stock Plan 150,000 2,081,250 (2,081,250) -0- -0- -0- -0-
Amortization of Restricted
Stock Plan deferrals -0- -0- 2,081,250 -0- -0- -0- 2,081,250
Income tax benefits relating
to stock plans -0- 235,000 -0- -0- -0- -0- 235,000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1995 5,082,756 $6,795,976 $-0- (663,180) $(6,638,284) $8,827,906 $8,985,598
------------ ------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $2,546,354 $2,765,701 $930,969
Items which did not use (provide)
cash:
Depreciation 1,612,040 1,745,293 2,633,360
Amortization of intangible assets 177,063 396,342 1,325,526
Amortization of program broadcast
rights 924,878 1,217,976 1,647,035
Payments for program broadcast
rights (976,150) (1,181,598) (1,776,796)
Compensation paid in Common Stock -0- 80,000 2,321,250
Supplemental employee benefits (608,729) (454,703) (370,694)
Common Stock contributed to 401(k)
Plan -0- 32,676 298,725
Deferred income taxes 196,000 523,000 863,000
(Gain) loss on asset sales (52,819) (21,419) 1,652
Changes in operating assets and
liabilities:
Trade accounts receivable (116,526) (1,444,159) (852,965)
Recoverable income taxes (1,066,422) 589,942 (1,347,007)
Inventories (92,526) (179,930) (181,034)
Other current assets (352,174) (24,361) (11,208)
Trade accounts payable 701,556 (306,493) 1,441,745
Employee compensation and benefits 10,755 1,246,726 1,011,667
Accrued expenses (163,458) (45,335) (414,087)
Accrued interest (97,419) 858,164 78,536
Reduction in value of net assets of
discontinued business 1,135,394 -0- -0-
Gain on disposal of warehouse
operations (2,454,111) -0- -0-
--------------- --------------- ---------------
Net cash provided by operating
activities 1,323,706 5,797,822 7,599,674
INVESTING ACTIVITIES
Acquisitions of newspaper businesses -0- (3,442,836) (2,084,621)
Acquisition of television business (1,505,655) (37,492,643) -0-
Purchases of property and equipment (2,582,225) (1,767,800) (3,279,721)
Proceeds from asset sales 3,076,764 103,434 2,475
Deferred acquisition costs -0- -0- (3,330,481)
Deferred loan costs -0- (1,251,287) -0-
Proceeds from disposals of operating
units 2,922,893 1,222,697 -0-
Other 1,150,104 (141,767) (236,904)
--------------- --------------- ---------------
Net cash provided by (used in) investing
activities 3,061,881 (42,770,202) (8,929,252)
FINANCING ACTIVITIES
Proceeds from borrowings:
Short-term debt 650,000 -0- 1,200,000
Long-term debt -0- 55,826,260 2,950,000
Repayments of borrowings:
Short-term debt (170,000) (480,000) (1,200,000)
Long-term debt (5,133,349) (11,206,281) (1,792,516)
Dividends paid (307,376) (301,954) (348,689)
Common Stock transactions 29,000 (6,638,284) 522,254
--------------- --------------- ---------------
Net cash provided by (used in)
financing activities (4,931,725) 37,199,741 1,331,049
--------------- --------------- ---------------
Increase (decrease) in cash and cash
equivalents (546,138) 227,361 1,471
Cash and cash equivalents at beginning
of year 877,297 331,159 558,520
--------------- --------------- ---------------
Cash and cash equivalents at end of
year $331,159 $558,520 $559,991
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company's operations, which are located in six southeastern states, include
six television stations, three daily newspapers, and six area weekly advertising
only direct mail publications.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
REVENUE RECOGNITION
The Company recognizes revenues as services are performed.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit with a bank. Deposits with the
bank are generally insured in limited amounts.
INVENTORIES
Inventories, principally newsprint and supplies, are stated at the lower of cost
or market. The Company uses the last-in, first-out ("LIFO") method of
determining costs for substantially all of its inventories. Current cost
exceeded the LIFO value of inventories by approximately $36,000 and $170,000 at
December 31, 1994 and 1995, respectively.
PROGRAM BROADCAST RIGHTS
Rights to programs available for broadcast are initially recorded at the amounts
of total license fees payable under the license agreements and are charged to
operating expense on the basis of total programs available for use on the
straight-line method. The portion of the unamortized balance expected to be
charged to operating expense in the succeeding year is classified as a current
asset, with the remainder classified as a non-current asset. The liability for
program broadcast rights is classified as current or long-term, in accordance
with the payment terms of the various licenses. The liability is not discounted
for imputation of interest.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed principally
by the straight-line method for financial reporting purposes and by accelerated
methods for income tax purposes.
INTANGIBLE ASSETS
Intangible assets are stated at cost, and with the exception of goodwill
acquired prior to November 1, 1970 (approximately $2.47 million at December 31,
1994 and 1995), are amortized using the straight-line method. Goodwill is
amortized over 40 years. Loan acquisition fees are amortized over the life of
the applicable indebtedness. Non-compete agreements are amortized over the life
of the specific agreement. Accumulated amortization of intangible assets
resulting from business acquisitions was $0.4 million and $1.7 million as of
December 31, 1994 and 1995, respectively.
If facts and circumstances indicate that the goodwill may be impaired, an
evaluation of continuing value would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with this asset would be
compared to its carrying amount to determine if a write down to fair market
value or discounted cash flow value is required.
F-7
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred income taxes are provided on the differences between the financial
statement and income tax basis of assets and liabilities. The Company and its
subsidiaries file a consolidated federal income tax return and separate state
and local tax returns.
CAPITAL STOCK
The Company has authorized 10 million shares of Class B Common Stock and 20
million shares of Preferred Stock, none of which have been issued at December
31, 1995. All references made to Common Stock in the December 31, 1995 Audited
Consolidated Financial Statements of the Company and the Notes thereto refer to
the Company's Class A Common Stock.
On August 17, 1995, the Board of Directors declared a 50% stock dividend on the
Company's Common Stock payable October 2, 1995 to stockholders of record on
September 8, 1995 to effect a three for two stock split. All applicable share
and per share data have been adjusted to give effect to the stock split.
EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average common and common
equivalent shares outstanding during the period determined using the treasury
stock method. Common equivalent shares are attributable to a Common Stock award
to be paid in 1999 and outstanding stock options (SEE NOTES D AND E).
STOCK OPTION PLAN
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its stock options. Under APB 25, if the
exercise price of the stock options granted by the Company equals the market
price of the underlying stock on the date of the grant, no compensation expense
is recognized.
CONCENTRATION OF CREDIT RISK
The Company provides advertising air time to national, regional and local
advertisers within the geographic areas in which the Company operates. Credit is
extended based on an evaluation of the customer's financial condition, and
generally advance payment is not required. Credit losses are provided for in the
financial statements and consistently have been within management's
expectations.
INTEREST SWAP
The Company has entered into an interest rate swap agreement to modify the
interest characteristics of a portion of its outstanding debt (see Note C). The
agreement involves the exchange of amounts based on a fixed interest rate for
amounts based on variable interest rates over the life of the agreement without
an exchange of the notional amount upon which the payments are based. The
differential to be paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense related to the debt (the accrual
accounting method). The related amount payable to or receivable from
counter-parties is included in other liabilities or assets. The fair value of
the swap agreement is not recognized in the financial statements. In the event
of the early extinguishment of a designated debt obligation, any realized or
unrealized gain or loss from the swap would be recognized in income coincident
with the extinguishment.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has adopted FASB Statement No. 107, DISCLOSURE ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS, which requires disclosure of fair value, to the extent
practical, of certain of the Company's financial instruments. The fair value
amounts do not necessarily represent the amount that could be realized in a sale
or settlement. The Company's financial instruments are comprised principally of
an interest rate swap and long-term debt.
The estimated fair value of long-term bank debt at December 31, 1995
approximated book value since, in management's opinion, such obligations are
subject to fluctuating market rates of interest and can be settled at their
F-8
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
face amounts. The fair value of the Senior Note at December 31, 1995 was
estimated by management to be its carrying value at that date. The Company
amended its Senior Note at January 4, 1996 and among other things, changed its
effective interest rate. The Company does not anticipate settlement of long-term
debt at other than book value.
The fair value of other financial instruments classified as current assets or
liabilities approximates their carrying values due to the short-term maturities
of these instruments.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("Statement
121"), which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the asset's
carrying amount. Statement 121 also addresses the accounting for long-lived
assets which are expected to be disposed. The Company does not believe that the
adoption of Statement 121 will have a material impact on the Company's financial
position.
RECLASSIFICATIONS
Certain amounts in the accompanying consolidated financial statements have been
reclassified to conform to the 1995 format.
B. BUSINESS ACQUISITIONS
The Company's acquisitions have been accounted for under the purchase method of
accounting. Under the purchase method of accounting, the results of operations
of the acquired businesses are included in the accompanying consolidated
financial statements as of their respective acquisition dates. The assets and
liabilities of acquired businesses are included based on an allocation of the
purchase price.
PENDING ACQUISITIONS
In December 1995, the Company agreed to acquire certain assets owned by John H.
Phipps, Inc. ("Phipps"). The assets include WCTV-TV, the CBS network affiliate
serving the Tallahassee, Florida and Thomasville, Georgia television market,
WKXT-TV, the CBS network affiliate in Knoxville, Tennessee, and a communications
and paging business located in three southeastern states. The purchase price is
estimated at approximately $185.0 million. The transaction, which is expected to
close in 1996, is subject to approval by the appropriate regulatory agencies. If
approved, the Company will be required to divest of certain of its broadcasting
operations due to a signal overlap with WCTV, unless the rules of the Federal
Communications Commission are modified to permit common ownership of television
stations with overlapping signals.
The Company plans to fund the costs of this acquisition through the issuance of
debt and equity securities. Additionally, the Company will amend or replace its
existing bank credit facilities.
In connection with this acquisition, a bank has provided a $10.0 million letter
of credit to Phipps on behalf of the Company. The letter of credit will be
payable under certain conditions if this acquisition is not completed. In
connection with the issuance of the letter of credit, a stockholder of the
Company has executed a put agreement which the bank can exercise if the Company
defaults on repayment of any amounts that might be paid in accordance with the
terms of the letter of credit.
In connection with the proposed acquisition of assets owned by Phipps, the
Company's Board of Directors has agreed to pay Bull Run Corporation ("Bull
Run"), a stockholder, a finder's fee equal to 1% of the proposed purchase price
for services performed, of which $550,000 was due and included in accounts
payable at December 31, 1995.
On January 4, 1996, the Company purchased substantially all of the assets of
WRDW-TV, a CBS television affiliate serving the Augusta, Georgia television
market (the "Augusta Acquisition"). The purchase price of approximately $35.9
million, excluding assumed liabilities of approximately $4.0 million, was
financed primarily through long-term
F-9
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. BUSINESS ACQUISITIONS (CONTINUED)
borrowings. The assets acquired consisted of office equipment and broadcasting
operations located in North Augusta, South Carolina. Based on a preliminary
allocation of the purchase price, the excess of the purchase price over the fair
value of net tangible assets acquired was approximately $32.4 million. In
connection with the Augusta Acquisition, the Company's Board of Directors
approved the payment of a $360,000 finders fee to Bull Run.
Funds for the Augusta Acquisition were obtained from the sale to Bull Run of an
8% subordinated note due January 3, 2005 in principal amount of $10.0 million
(the "Subordinated Note"). In connection with the sale of the Subordinated Note,
the Company also issued warrants to Bull Run to purchase 487,500 shares of
Common Stock at $17.88 per share, 300,000 of which are currently vested, with
the remaining warrants vesting in five equal installments commencing in 1997
provided that the Subordinated Note is outstanding. The warrants may not be
exercised prior to January 3, 1998 and expire in January 2006. The Company
modified its existing bank debt to a variable rate reducing revolving credit
facility providing a credit line of $55.0 million (see Note C). The outstanding
credit facility balance subsequent to the Augusta Acquisition was approximately
$54.0 million; including $28.4 million, which was outstanding under the credit
facility at December 31, 1995, $25.2 million used for the Augusta Acquisition,
and $425,000 used for the Company's working capital. The transaction also
required a modification of the interest rate of the Company's $25.0 million
senior secured note with an institutional investor (the "Senior Note") from
10.08% to 10.7%.
An unaudited pro forma balance sheet as of December 31, 1995 and income
statements for the years ended December 31, 1994 and 1995 are presented below
giving effect to the Augusta Acquisition as though it had occurred on January 1,
1994.
Pro forma December 31, 1995 balance sheet (in 000's):
<TABLE>
<CAPTION>
------------------------------------------------------------------
AUGUSTA PRO FORMA ADJUSTED
GRAY ACQUISITION ADJUSTMENTS PRO FORMA
--------------- --------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Current assets $13,437 $3,061 $(594) $15,904
Property and equipment 17,017 1,778 402 19,197
Goodwill and other intangibles 46,566 4,129 26,152 76,847
Other long-term assets 1,220 2,571 (2,518) 1,273
--------------- --------------- --------------- ---------------
$78,240 $11,539 $23,442 $113,221
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Current liabilities $13,659 $1,131 $(41) $14,749
Long-term debt 51,462 -0- 33,729 85,191
Other long-term liabilities 4,133 2,680 (2,518) 4,295
Stockholders' equity 8,986 7,728 (7,728) 8,986
--------------- --------------- --------------- ---------------
$78,240 $11,539 $23,442 $113,221
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
These pro forma unaudited results of operations do not purport to represent what
the Company's actual results of operations would have been if the Augusta
Acquisition had occurred on January 1, 1994, and should not serve as a forecast
of the Company's operating results for any future periods. The pro forma
adjustments are based solely upon
F-10
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. BUSINESS ACQUISITIONS (CONTINUED)
certain assumptions that management believes are reasonable under the
circumstances at this time. Subsequent adjustments are expected upon final
determination of the allocation of the purchase price. Pro forma statement of
operations for the year ended December 31, 1994 are as follows (in 000's, except
per share data):
<TABLE>
<CAPTION>
------------------------------------------------------------------
AUGUSTA PRO FORMA ADJUSTED
GRAY ACQUISITION ADJUSTMENTS PRO FORMA
--------------- --------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues, net $36,518 $8,046 $255 $44,819
Expenses 30,242 5,854 935 37,031
--------------- --------------- --------------- ---------------
6,276 2,192 (680) 7,788
Miscellaneous income (expense), net 189 (55) 90 224
Interest expense 1,923 -0- 3,156 5,079
--------------- --------------- --------------- ---------------
4,542 2,137 (3,746) 2,933
Income tax expense (benefit) 1,776 -0- (603) 1,173
--------------- --------------- --------------- ---------------
NET EARNINGS $2,766 $2,137 $(3,143) $1,760
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Average shares outstanding 4,689 4,689
--------------- ---------------
--------------- ---------------
Earnings per share $.59 $.38
--------------- ---------------
--------------- ---------------
</TABLE>
Pro forma statement of operations for the year ended December 31, 1995 are as
follows (in 000's, except per share data):
<TABLE>
<CAPTION>
------------------------------------------------------------------
AUGUSTA PRO FORMA ADJUSTED
GRAY ACQUISITION ADJUSTMENTS PRO FORMA
--------------- --------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues, net $58,616 $8,660 $227 $67,503
Expenses 51,756 6,198 944 58,898
--------------- --------------- --------------- ---------------
6,860 2,462 (717) 8,605
Miscellaneous income (expense), net 143 (220) 128 51
Interest expense 5,438 -0- 3,355 8,793
--------------- --------------- --------------- ---------------
1,565 2,242 (3,944) (137)
Income tax expense (benefit) 634 -0- (675) (41)
--------------- --------------- --------------- ---------------
NET EARNINGS (LOSS) $931 $2,242 $(3,269) $(96)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Average shares outstanding 4,481 4,354
--------------- ---------------
--------------- ---------------
Earnings (loss) per share $.21 $(.02)
--------------- ---------------
--------------- ---------------
</TABLE>
The pro forma results presented above include adjustments to reflect (i) the
reclassification of national representative commissions as an expense consistent
with the presentation of the Company, (ii) the incurrence of interest expense to
fund the Augusta Acquisition, (iii) depreciation and amortization of assets
acquired, and (iv) the income tax effect of such pro forma adjustments and
income taxes on the earnings of the Augusta Acquisition. With respect to the
Augusta Acquisition, the pro forma adjustments are based upon a preliminary
allocation of the purchase price.
1995 ACQUISITIONS
On January 6, 1995, the Company purchased substantially all of the assets of The
Gwinnett Post-Tribune and assumed certain liabilities (the "Gwinnett
Acquisition"). The assets consisted of office equipment and publishing
operations located in Lawrenceville, Georgia. The purchase price of
approximately $3.7 million, including assumed liabilities of approximately
$370,000, was paid by approximately $1.2 million in cash (financed through
long-term
F-11
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. BUSINESS ACQUISITIONS (CONTINUED)
borrowings and cash from operations), issuance of 44,117 shares of the Company's
Common Stock (having fair value of $500,000), and $1.5 million payable to the
sellers pursuant to non-compete agreements. The excess of the purchase price
over the fair value of net tangible assets acquired was approximately $3.4
million. In connection with the Gwinnett Acquisition, the Company's Board of
Directors approved the payment of a $75,000 finders fee to Bull Run. Pro forma
results of the Gwinnett Acquisition have not been presented as the effect on
prior periods is not significant.
On September 1, 1995, the Company purchased substantially all of the assets of
three area weekly advertising only direct mail publications, and assumed certain
liabilities (the "Tallahassee Acquisition"). The tangible assets acquired
consist of land and office buildings, office equipment, mechanical equipment and
automobiles used in operations located in southwest Georgia and north Florida.
The purchase price of approximately $1.4 million consisted of $833,000 in cash
and approximately $583,000 in assumed liabilities. The excess of the purchase
price over the fair value of net tangible assets acquired was approximately
$934,000. Pro forma results giving effect to the Tallahassee Acquisition have
not been presented as the effect on prior periods is not significant.
1994 ACQUISITIONS
On September 2, 1994, the Company purchased substantially all of the assets of
Kentucky Central Television, Inc. ("Kentucky Central") and assumed certain of
its liabilities (the "Kentucky Acquisition"). Kentucky Central operated two
television stations, WKYT located in Lexington, Kentucky and WYMT located in
Hazard, Kentucky, both of which are affiliates of the CBS television network.
The purchase price of approximately $38.1 million, excluding acquisition costs
of approximately $2.1 million and assumed liabilities of approximately $2.3
million, was financed primarily through long-term borrowings. The excess of the
purchase price over the fair value of net tangible assets acquired was
approximately $31.4 million.
On May 31, 1994, the Company purchased substantially all of the assets of
Citizens Publishing Company, Inc. and assumed certain of its liabilities (the
"Rockdale Acquisition"). The acquired assets consist of land and an office
building located in Conyers, Georgia, containing The Rockdale Citizen newspaper
and other assets relating to the newspaper publishing business. The purchase
price of approximately $4.8 million consisted of a $2.8 million cash payment
financed through long-term bank borrowings, and 225,000 shares of the Company's
Common Stock (with a fair value of $2.0 million at the closing date). The excess
of the purchase price over the fair value of net tangible assets acquired was
approximately $4.0 million.
On October 18, 1994, the Company purchased substantially all of the assets of
four area weekly advertising only direct mail publications and assumed certain
of their liabilities. The assets consist of land and an office building, office
equipment, automobiles, and publishing operations located in southwest Georgia.
The purchase price of approximately $1.5 million consisted of a $545,000 cash
payment and approximately $1.0 million financed by the sellers. The excess of
the purchase price over the fair value of net tangible assets acquired was
approximately $1.2 million. Pro forma results giving effect to this acquisition
have not been presented below as the effect on prior periods is not significant.
Unaudited pro forma statements of income from continuing operations for the
years ended December 31, 1993 and 1994, are presented below, giving effect to
the Rockdale Acquisition and the Kentucky Acquisition (collectively the "1994
Acquisitions") as though they had occurred on January 1, 1993.
These pro forma unaudited results of operations do not purport to represent what
the Company's actual results of operations would have been if the 1994
Acquisitions had occurred on January 1, 1993, and should not serve as a
F-12
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. BUSINESS ACQUISITIONS (CONTINUED)
forecast of the Company's operating results for any future periods. The pro
forma adjustments are based upon certain assumptions that management believes
are reasonable under the circumstances. The unaudited pro forma results of
continuing operations are as follows (in 000's, except per share data):
<TABLE>
<CAPTION>
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993
KENTUCKY ROCKDALE PRO FORMA ADJUSTED
GRAY ACQUISITION ACQUISITION ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenues $25,113 $14,526 $2,660 $-0- $42,299
Operating expenses 21,582 10,827 2,646 877 35,932
------------ ------------ ------------ ------------ ------------
Operating income 3,531 3,699 14 (877) 6,367
Miscellaneous income, net 202 219 -0- -0- 421
------------ ------------ ------------ ------------ ------------
3,733 3,918 14 (877) 6,788
Interest expense 985 4 9 3,187 4,185
------------ ------------ ------------ ------------ ------------
Income from continuing operations before income
taxes 2,748 3,914 5 (4,064) 2,603
Income tax expense (benefit) 1,068 1,326 -0- (1,405) 989
------------ ------------ ------------ ------------ ------------
Income from continuing operations $1,680 $2,588 $5 $2,659 $1,614
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Average shares outstanding 4,611 4,836
------------ ------------
------------ ------------
Earnings per common share from continuing
operations $.36 $.33
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
KENTUCKY ROCKDALE PRO FORMA ADJUSTED
GRAY ACQUISITION ACQUISITION ADJUSTMENTS PRO FORMA
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenues $36,518 $10,237 $980 $-0- $47,735
Operating expenses 30,242 7,382 930 559 39,113
------------ ------------ ------------ ------------ ------------
Operating income 6,276 2,855 50 (559) 8,622
Miscellaneous income, net 189 19 -0- -0- 208
------------ ------------ ------------ ------------ ------------
6,465 2,874 50 (559) 8,830
Interest expense 1,923 -0- 4 2,412 4,339
------------ ------------ ------------ ------------ ------------
Income from continuing operations before income
taxes 4,542 2,874 46 (2,971) 4,491
Income tax expense (benefit) 1,776 237 -0- (208) 1,805
------------ ------------ ------------ ------------ ------------
Net income from continuing operations $2,766 $2,637 $46 $(2,763) $2,686
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Average shares outstanding 4,689 4,780
------------ ------------
------------ ------------
Earnings per common share from continuing
operations $.59 $.56
------------ ------------
------------ ------------
</TABLE>
The pro forma results presented above include adjustments to reflect (i) the
incurrence of interest expense to fund the 1994 Acquisitions, (ii) depreciation
and amortization of assets acquired, and (iii) the income tax effect of such pro
forma adjustments. Average outstanding shares used to calculate earnings per
share from continuing operations for 1994 and 1993 include the 225,000 shares
issued in connection with the Rockdale Acquisition.
F-13
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. LONG-TERM DEBT
Long-term debt consists of the following (in 000's):
<TABLE>
<CAPTION>
--------------------------------
DECEMBER 31,
1994 1995
--------------- ---------------
<S> <C> <C>
Senior Note $25,000 $25,000
Bank Loan 26,926 28,375
Other 1,013 950
--------------- ---------------
52,939 54,325
Less current portion (1,293) (2,862)
--------------- ---------------
$51,646 $51,463
--------------- ---------------
--------------- ---------------
</TABLE>
On September 2, 1994, the Company issued through a private placement with an
institutional investor, a $25.0 million 9.33% note (the "Senior Note"). The
Senior Note provides for semi-annual principal payments of $2.5 million
beginning March 1999. Interest is payable semi-annually in arrears and the
Senior Note, as amended on January 4, 1996, bears interest at 10.7% (see Note
B). The agreement pursuant to which the Senior Note was issued contains certain
restrictive provisions, which, among other things, limit capital expenditures
and additional indebtedness, and require minimum levels of net worth and cash
flows.
On September 2, 1994, the Company entered into a bank term loan agreement (the
"Bank Loan") which provided for borrowings of approximately $21.4 million. On
November 30, 1994, the Bank Loan was amended to provide for additional
borrowings of $6.7 million which were used to purchase 663,180 shares of the
Company's Common Stock (SEE NOTE E). The Bank Loan, as amended on January 4,
1996, bears interest, at the Company's option, at a spread over LIBOR, or at a
spread over the bank's prime rate (8.96% at January 4, 1996) (see Note B). The
Bank Loan is due in varying, quarterly principal payments of $750,000 to $2.0
million through September 2002 with two quarterly installments of $7 million
payable starting December 2002. The Bank Loan provides for an annual loan
prepayment based on the Company's cash flow as defined by the Bank Loan.
Additionally, the effective interest rate of the Bank Loan can be changed based
upon the Company's maintenance of certain operating ratios as defined by the
Bank Loan, not to exceed the bank's prime rate plus 1.25% or LIBOR plus 3.5%.
The Bank Loan contains restrictive provisions similar to the provisions of the
Senior Note.
The Senior Note and the Bank Loan are secured by substantially all of the
Company's existing and hereafter acquired assets.
The Company entered into a five year interest rate swap agreement on June 2,
1995, to effectively convert a portion of its floating rate debt to a fixed rate
basis. Approximately $25.0 million of the Company's outstanding debt under the
Bank Loan was subject to this interest rate swap agreement at December 31, 1995.
The effective rate of the Bank Loan and interest rate swap at December 31, 1995,
was approximately 8.64% and 9.10%, respectively. The unrealized loss for the
interest rate swap was approximately $565,000 at December 31, 1995, based upon
comparison to treasury bond yields for bonds with similar maturity dates as the
interest rate swap.
At December 31, 1995, retained earnings of approximately $500,000 were available
for dividends.
F-14
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. LONG-TERM DEBT (CONTINUED)
Aggregate minimum principal maturities on long-term debt as of December 31,
1995, were as follows (in 000's):
<TABLE>
<S> <C>
1996 $2,862
1997 5,039
1998 6,634
1999 12,615
2000 11,303
Thereafter 15,872
----------
$54,325
----------
----------
</TABLE>
The Company made interest payments of approximately $902,000, $1.2 million, and
$5.4 million during 1993, 1994 and 1995, respectively.
D. SUPPLEMENTAL EMPLOYEE BENEFITS AND OTHER AGREEMENTS
The Company has an employment agreement with its President which provides him
122,034 shares of the Company's Common Stock if his employment with the Company
continues until September 1999. The Company will recognize approximately $1.2
million of compensation expense for this award over the five year period ending
in 1999 ($80,000 and $240,000 of expense was recorded in 1994 and 1995,
respectively).
In December 1995, the Company amended an existing employment agreement to pay
consulting fees to its former chief executive officer. The Company has recorded
approximately $596,000 of corporate and administrative expenses during the year
ended December 31, 1995 in accordance with the terms of the employment
agreement. Additionally, in December 1995 the Company issued 150,000 shares of
Common Stock to this former chief executive officer in accordance with his
employment agreement which was amended to remove certain restrictions,
including, among others, a time requirement for continued employment.
Compensation expense of approximately $2.1 million (including $865,000 during
the quarter ended December 31, 1995), was recognized in 1995 for the 150,000
shares of Common Stock issued pursuant to this agreement.
The Company has entered into supplemental retirement benefit agreements with
certain key employees. These benefits are to be paid in equal monthly amounts
over the employees' life for a period not to exceed 15 years after retirement.
The Company charges against operations amounts sufficient to fund the present
value of the estimated lifetime supplemental benefit over each employee's
anticipated remaining period of employment.
The following summarizes activity relative to certain officers' agreements and
the supplemental employee benefits (in 000's):
<TABLE>
<CAPTION>
-------------------------------------------------
DECEMBER 31,
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Beginning liability $3,495 $2,960 $2,518
--------------- --------------- ---------------
Provision 166 184 976
Forfeitures (399) (266) (169)
--------------- --------------- ---------------
Net (income) expense (233) (82) 807
Payments (302) (360) (387)
--------------- --------------- ---------------
Net change (535) (442) 420
--------------- --------------- ---------------
Ending liability 2,960 2,518 2,938
Less current portion (162) (175) (725)
--------------- --------------- ---------------
$2,798 $2,343 $2,213
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
F-15
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. STOCKHOLDERS' EQUITY
The Company has a Stock Purchase Plan which allows outside directors to purchase
up to 7,500 shares of the Company's Common Stock directly from the Company
before the end of January following each calendar year. The purchase price per
share approximates the market price of the Common Stock at the time of the
grant. During 1993, 1994 and 1995, certain directors purchased an aggregate of
3,000, -0- and 23,500 shares of Common Stock, respectively, under this plan.
The Company has a long-term incentive plan (the "Incentive Plan") under which
600,000 shares of the Company's Common Stock are reserved for grants to key
personnel for (i) incentive stock options, (ii) non-qualified stock options,
(iii) stock appreciation rights, (iv) restricted stock and (v) performance
awards, as defined by the Incentive Plan. Stock underlying outstanding options
or performance awards are counted against the Incentive Plan's maximum shares
while such options or awards are outstanding. Under the Incentive Plan, the
options granted vest after a two year period and expire three years after full
vesting. Options granted through December 31, 1995, have been granted at a price
which approximates fair market value on the date of the grant.
<TABLE>
<CAPTION>
--------------------------------
EXERCISE PRICE PER SHARE
--------------------------------
<S> <C> <C>
$9.67 $13.33
Stock options granted on November 18, 1993 92,250 -0-
Forfeitures (3,000) -0-
--------------- ---------------
Stock options outstanding at
December 31, 1993 89,250 -0-
Options granted 73,559 -0-
Forfeitures (16,500) -0-
--------------- ---------------
Stock options outstanding at
December 31, 1994 146,309 -0-
Options granted -0- 58,050
Options exercised (5,000) -0-
Forfeitures (14,250) (3,900)
--------------- ---------------
Stock options outstanding at December 31, 1995 127,059 54,150
--------------- ---------------
--------------- ---------------
</TABLE>
At December 31, 1995, 56,500 of the $9.67 options issued in 1993 were
exercisable.
On December 1, 1994, the Company repurchased 663,180 shares of its Common Stock
at a price of $10.00 per share for a total purchase price before expenses, of
$6.63 million. The trading value of the Common Stock on the NASDAQ Small Cap
Issues Market was $10.83 on December 1, 1994. The Common Stock was purchased
from The Prudential Insurance Company of America and Sandler Associates (420,000
and 243,180 shares, respectively). The purchase was funded by a bank loan (SEE
NOTE C).
F. INCOME TAXES
The Company uses the liability method in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
F-16
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. INCOME TAXES (CONTINUED)
Federal and state income tax expense (benefit) included in the consolidated
financial statements are summarized as follows (in 000's):
<TABLE>
<CAPTION>
-------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Current
Federal $982 $1,093 $(253)
State 181 160 24
Deferred 436 523 863
--------------- --------------- ---------------
$1,599 $1,776 $634
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The total provision for income taxes for 1993 included $531,000 for discontinued
operations.
The components of deferred income tax expense for federal and state and local
income taxes resulted from the following (in 000's):
<TABLE>
<CAPTION>
-------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Accelerated depreciation for tax purposes $50 $19 $349
Accelerated amortization for tax purposes -0- 164 726
Employee benefits and other agreements 181 96 (150)
Temporary difference related to loss on sales of
assets 174 248 -0-
Excess of book over tax deductions for lease 7 91 -0-
Other 24 (95) (62)
--------------- --------------- ---------------
$436 $523 $863
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
Significant components of the Company's deferred tax liabilities and assets are
as follows (in 000's):
<TABLE>
<CAPTION>
-------------------------------------------------
DECEMBER 31,
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Deferred tax liabilities:
Net book value of property and equipment $704 $723 $1,069
Goodwill -0- 164 890
Other 120 120 120
--------------- --------------- ---------------
Total deferred tax liabilities 824 1,007 2,079
Deferred tax assets:
Liability under supplemental retirement plan 1,125 1,029 1,127
Allowance for doubtful accounts 168 335 195
Difference in basis of assets held for sale 1,189 941 941
Other 135 117 368
--------------- --------------- ---------------
Total deferred tax assets 2,617 2,422 2,631
Valuation allowance for deferred tax assets (753) (753) (753)
--------------- --------------- ---------------
Net deferred tax assets 1,864 1,669 1,878
--------------- --------------- ---------------
Deferred tax assets (liabilities) $1,040 $662 $(201)
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
F-17
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. INCOME TAXES (CONTINUED)
A reconciliation of income tax expense at the statutory federal income tax rate
and income taxes as reflected in the consolidated financial statements is as
follows (in 000's):
<TABLE>
<CAPTION>
-------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Statutory rate applied to income $1,409 $1,544 $532
State and local taxes, net of federal tax benefits 164 195 91
Other items, net 26 37 11
--------------- --------------- ---------------
$1,599 $1,776 $634
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The Company made income tax payments of approximately $2.1 million, $1.5 million
and $742,000 during 1993, 1994 and 1995, respectively. At December 31, 1995, the
Company had current recoverable income taxes of approximately $1.3 million.
G. RETIREMENT PLANS
PENSION PLAN
The Company has a retirement plan covering substantially all full-time
employees. Retirement benefits are based on years of service and the employees'
highest average compensation for five consecutive years during the last ten
years of employment. The Company's funding policy is to contribute annually the
minimum amounts deductible for federal income tax purposes.
The net pension expense includes the following (in 000's):
<TABLE>
<CAPTION>
-------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Service costs-benefits earned during the year $224 $204 $221
Interest cost on projected benefit obligation 374 359 384
Actual return on plan assets (377) (91) (655)
Net amortization and deferral (63) (338) 187
--------------- --------------- ---------------
Net pension expense $158 $134 $137
--------------- --------------- ---------------
--------------- --------------- ---------------
Assumptions:
Discount rate 8.0% 7.0% 8.0%
Expected long-term rate of return on assets 8.0% 7.0% 8.0%
Estimated rate of increase in compensation
levels 6.0% 5.0% 6.0%
</TABLE>
F-18
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
G. RETIREMENT PLANS (CONTINUED)
The following summarizes the plan's funded status and related assumptions (in
000's):
<TABLE>
<CAPTION>
--------------------------------
DECEMBER 31,
1994 1995
--------------- ---------------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation is as follows:
Vested $4,452 $5,308
Other 66 135
--------------- ---------------
$4,518 $5,443
--------------- ---------------
--------------- ---------------
Plan assets at fair value, primarily mutual funds
and an unallocated insurance contract $5,307 $5,680
Projected benefit obligation (5,015) (5,904)
--------------- ---------------
Plan assets in excess of (less than) projected
benefit obligation 292 (224)
Unrecognized net (gain) loss (135) 190
Unrecognized net asset (409) (355)
--------------- ---------------
Pension liability included in consolidated balance
sheet $(252) $(389)
--------------- ---------------
--------------- ---------------
Assumptions:
Discount rate 8.0% 7.0%
Estimated rate of increase in compensation
levels 6.0% 5.0%
</TABLE>
Effective December 31, 1995, the Company changed certain assumptions utilized in
the actuarially computed costs and liabilities. The effect of such changes was
to increase the present value of the projected benefit obligations by
approximately $613,000.
CAPITAL ACCUMULATION PLAN
Effective October 1, 1994, the Company adopted the Gray Communications Systems,
Inc. Capital Accumulation Plan (the "Capital Accumulation Plan") for the purpose
of providing additional retirement benefits for substantially all employees. The
Capital Accumulation Plan is intended to meet the requirements of section 401(k)
of the Internal Revenue Code.
Employee contributions to the Capital Accumulation Plan, not to exceed 6% of the
employees' gross pay, are matched by Company contributions. The Company's
percentage match is made by a contribution of the Company's Common Stock, in an
amount declared by the Company's Board of Directors before the beginning of each
plan year. The Company's percentage match was 50% for both the year ended
December 31, 1995 and the three months ended December 31, 1994. The Company
contributions vest, based upon each employee's number of years of service, over
a period not to exceed five years. The Company has reserved 150,000 shares of
its Common Stock for issuance under the Capital Accumulation Plan.
Company matching contributions aggregating $32,676 and $298,725 were charged to
expense for 1994 and 1995, respectively, for the issuance of 3,160 and 18,354
shares, respectively of the Company's Common Stock.
H. COMMITMENTS AND CONTINGENCIES
The Company has various operating lease commitments for equipment, land and
office space which expire through the year 2027. Future minimum payments under
operating leases with initial or remaining non-cancelable lease terms in excess
of one year are not material.
F-19
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
H. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has entered into commitments for various television film exhibition
rights for which the license periods have not yet commenced. Obligations under
these commitments are payable in the following years:
<TABLE>
<S> <C>
1996 $491,360
1997 1,431,983
1998 1,351,273
1999 1,133,860
2000 456,733
---------------
$4,865,209
---------------
---------------
</TABLE>
The Company is subject to legal proceedings and claims which arise in the normal
course of its business. In the opinion of management, the amount of ultimate
liability, if any, with respect to these actions will not materially affect the
Company's financial position.
I. DISCONTINUED OPERATIONS
On April 13, 1994, the Company completed the sale of the assets of Gray Air
Service (an operation discontinued in 1993) for approximately $1.2 million, and
used the proceeds to reduce the Company's outstanding debt. During the year
ended December 31, 1993, the Company sold its investment in undeveloped
farmland, another asset held for sale, for approximately $2.0 million.
On March 31, 1993, the Company completed the sale of its warehouse operations to
Gray Distribution Services, Inc., a Georgia corporation, owned by a former
director and officer of the Company. The net sales price of approximately $2.9
million was paid in cash at the date of closing. The Company recognized a gain
of approximately $1.5 million, net of income tax expense of approximately
$932,000, relative to the disposal of the warehouse operations. A special
independent committee of the Company's Board of Directors approved the terms and
conditions of the sale.
The following summarizes information relative to the discontinued business
segment for the year ended December 31, 1993 (in 000's):
<TABLE>
<S> <C>
Operating revenues $1,695
---------------
---------------
Operating earnings $100
---------------
---------------
Net earnings $48
---------------
---------------
</TABLE>
J. INFORMATION ON BUSINESS SEGMENTS
The Company operates in two business segments: broadcasting and publishing. A
transportation segment was discontinued in 1993 (see Note I). The broadcasting
segment operates five television stations at December 31, 1995. The Publishing
segment operates three daily newspapers in three different markets, and six area
weekly advertising only direct mail publications in southwest Georgia and north
Florida. The following tables present certain financial information concerning
the Company's two operating segments and its discontinued segment (in 000's).
<TABLE>
<CAPTION>
-------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
OPERATING REVENUE
Broadcasting $15,004 $22,826 $36,750
Publishing 10,109 13,692 21,866
--------------- --------------- ---------------
$25,113 $36,518 $58,616
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
F-20
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
J. INFORMATION ON BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
-------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
OPERATING PROFIT (LOSS) FROM CONTINUING OPERATIONS
Broadcasting $2,491 $5,241 $7,822
Publishing 1,040 1,036 (962)
--------------- --------------- ---------------
Total operating profit from continuing operations 3,531 6,277 6,860
Miscellaneous income and expense, net 202 188 144
Interest expense (985) (1,923) (5,439)
--------------- --------------- ---------------
Income from continuing operations before income
taxes $2,748 $4,542 $1,565
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
Operating profit is total operating revenue less operating expenses, excluding
miscellaneous income and expense (net) and interest. Corporate administrative
expenses are allocated to operating profit based on net segment revenues.
<TABLE>
<CAPTION>
-------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
DEPRECIATION AND AMORTIZATION EXPENSE
Broadcasting $904 $1,326 $2,723
Publishing 438 690 1,190
--------------- --------------- ---------------
1,342 2,016 3,913
Corporate 223 126 46
--------------- --------------- ---------------
1,565 2,142 3,959
Discontinued operations 224 -0- -0-
--------------- --------------- ---------------
Total depreciation and amortization expense $1,789 $2,142 $3,959
--------------- --------------- ---------------
--------------- --------------- ---------------
CAPITAL EXPENDITURES
Broadcasting $787 $1,330 $2,285
Publishing 755 366 973
--------------- --------------- ---------------
1,542 1,696 3,258
Corporate 124 72 22
--------------- --------------- ---------------
1,666 1,768 3,280
Discontinued operations 916 -0- -0-
--------------- --------------- ---------------
Total capital expenditures $2,582 $1,768 $3,280
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
F-21
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
J. INFORMATION ON BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
-------------------------------------------------
DECEMBER 31,
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Broadcasting $9,984 $53,173 $54,022
Publishing 4,753 11,878 18,170
--------------- --------------- ---------------
14,737 65,051 72,192
Corporate 5,699 3,738 6,048
--------------- --------------- ---------------
20,436 68,789 78,240
Discontinued operations 936 -0- -0-
--------------- --------------- ---------------
Total identifiable assets $21,372 $68,789 $78,240
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
F-22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners of Television Station Partners, L.P.
We have audited the accompanying balance sheet of WRDW-TV, an operating station
of Television Station Partners, L.P., as of December 31, 1995, and the related
statements of income, partnership's equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership'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 financial statements referred to above present fairly, in
all material respects, the financial position of WRDW-TV at December 31, 1995,
and the results of its operations and its cash flows for the year then ended in
conformity with the generally accepted accounting principles.
ERNST & YOUNG LLP
Atlanta, Georgia
January 26, 1996
F-23
<PAGE>
WRDW-TV
(THE AUGUSTA BUSINESS)
BALANCE SHEETS
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $333,658
Accounts receivable, net of allowance for doubtful accounts of approximately $117,380 1,748,208
Television film exhibition rights 924,107
Prepaid and other current assets 55,342
------------
Total current assets 3,061,315
Property, buildings and equipment-net (NOTE 3): 1,778,429
Television film exhibition rights 2,570,850
Intangible assets-net 4,128,730
------------
Total $11,539,324
------------
------------
LIABILITIES AND PARTNERSHIP'S EQUITY
Current liabilities:
Accounts payable and accrued expenses (NOTE 4) $233,197
Obligations for television film exhibition rights 898,251
------------
Total current liabilities 1,131,448
Obligations for television film exhibition rights 2,680,267
Commitments and contingencies (NOTE 5)
Partnership's equity (NOTES 1 AND 7) 7,727,609
------------
Total $11,539,324
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-24
<PAGE>
WRDW-TV
(THE AUGUSTA BUSINESS)
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUES:
Broadcasting revenues $10,059,555
Less:
Advertising agency commissions 1,171,595
National sales representative commissions 227,368
------------
Total advertising agency and national sales representative commissions 1,398,963
------------
Net operating revenues 8,660,592
------------
OPERATING EXPENSES:
Operating, technical and programming costs 3,142,280
Selling, general and administrative 2,631,952
------------
Total operating expenses 5,774,232
------------
INCOME BEFORE OTHER EXPENSES 2,886,360
------------
OTHER EXPENSES:
Depreciation 272,298
Amortization of intangible assets 151,620
Other-expenses, net 220,211
------------
Total 644,129
------------
Net income $2,242,231
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-25
<PAGE>
WRDW-TV
(THE AUGUSTA BUSINESS)
STATEMENT OF PARTNERSHIP'S EQUITY
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Balance at December 31, 1994 $7,410,422
Net income 2,242,231
Distribution to Television Station Partners, L.P. (1,925,044)
------------
Balance at December 31, 1995 $7,727,609
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-26
<PAGE>
WRDW-TV
(THE AUGUSTA BUSINESS)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $2,242,231
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,359,415
Provision for bad debt (recoveries) (14,000)
Net trade barter revenue (59,356)
Gain on sale of property and equipment (12,868)
Changes in operating assets and liabilities:
Accounts receivable (60,155)
Prepaid and other assets 102,937
Accounts payable and accrued expenses (359,296)
Payments of obligations for television film exhibition rights (1,017,754)
Other 274,956
------------
Net cash provided by operating activities 2,456,110
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 12,868
Capital expenditures (121,987)
------------
Net cash used in investing activities (109,119)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash transferred to Partnership (2,200,000)
------------
Net cash used in financing activities (2,200,000)
NET INCREASE IN CASH 146,991
CASH AT BEGINNING OF YEAR 186,667
------------
CASH AT END OF YEAR $333,658
------------
------------
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING, INVESTING AND FINANCIAL ACTIVITIES
Television film exhibition obligations were incurred when the Station entered into contracts for
film exhibition rights totaling: $387,450
------------
------------
Property and equipment was acquired in exchange for advertising time totaling: $59,356
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-27
<PAGE>
WRDW-TV
(THE AUGUSTA BUSINESS)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. STATION ORGANIZATION AND BASIS OF PRESENTATION
WRDW-TV (the "Station") is a commercial television station located in North
Augusta, South Carolina. The Station was owned and operated by Television
Station Partners, L.P. (the "Partnership") from July 7, 1989 to January 4,
1996-See Note 8. The Partnership is a Delaware limited partnership which was
organized on May 24, 1989 for the sole purpose of acquiring, owning, operating
and, at such time as GP Station Partners (the "general partner" of the
Partnership) determines is appropriate, reselling or otherwise disposing of its
television stations.
The Station was acquired by the Partnership on July 7, 1989 pursuant to an
Exchange Agreement dated May 24, 1989 between the Partnership and Television
Station Partners, a New York partnership ("TSP"). The Exchange Agreement
provided for the transfer to the partnership of all of TSP's assets in exchange
for all of the units of partnership interest in the Partnership, followed by the
liquidation and distribution of those units to the partners of TSP. For tax and
accounting purposes, the Partnership has been treated as a continuation of TSP.
The Station had been operated by TSP since March 23, 1983.
The financial statements of the Station are prepared on the accrual basis of
accounting, and include only those assets, liabilities, and results of
operations that relate to the business of the Station.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
TELEVISION FILM EXHIBITION RIGHTS
Television film exhibition rights are recorded at the amount of the license fees
payable when purchased and amortized using the straight-line method based on the
license period or usage, whichever yields the greater accumulated amortization.
Television film exhibition rights are classified based upon the portion of the
unamortized balance expected to be broadcast within the current year.
PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment is stated at cost less accumulated
depreciation. Depreciation is provided principally by the straight-line method
over the estimated useful lives of the assets. Any gains or losses realized on
disposition are reflected in operations. Maintenance and repairs, as well as
minor renewals and betterments, are charged to operating expenses directly as
incurred.
INTANGIBLE ASSETS
Intangible assets are comprised principally of Federal Communications Commission
licenses and network affiliation agreements and are amortized on the
straight-line basis, primarily over 40 years. Intangible assets are periodically
evaluated for impairments using a measurement of fair value, calculated at the
current market multiple times operating income. If this review indicates that
the intangible assets will not be recoverable, the Company's carrying value of
the intangible assets would be reduced to its estimated fair value.
TRADE/BARTER TRANSACTIONS
Trade/barter transactions involve the exchange of advertising time for products
and/or services and are recorded based on the fair market value of the products
and/or services received. Revenue is recorded when advertising schedules air,
and expense is recognized when products and/or services are used.
F-28
<PAGE>
WRDW-TV
(THE AUGUSTA BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
No income tax provision has been included in the financial statements since
income or loss of the Station is required to be reported by the partners of the
Partnership on their respective income tax returns.
3. PROPERTY, BUILDINGS, AND EQUIPMENT
The major classes of property, buildings and equipment at December 31, 1995
are as follows:
<TABLE>
<S> <C>
Land $190,000
Buildings and tower 2,062,613
Automobiles 136,245
Furniture and fixtures 5,999,846
Machinery and equipment 1,769,175
----------
10,157,879
Less accumulated depreciation 8,379,450
----------
$1,778,429
----------
----------
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1995 consist of the
following:
<TABLE>
<S> <C>
Accounts payable $10,275
Accrued state taxes 9,096
Accrued payroll, commissions, and bonuses 152,201
Other accrued expenses 61,625
----------
$233,197
----------
----------
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
FILM EXHIBITION RIGHTS
The obligations for television film exhibition rights are payable in the
following years:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
- - - ---------------------------------------------------------------- ----------
<S> <C>
1996 $898,251
1997 875,838
1998 838,254
1999 672,724
2000 293,451
----------
$3,578,518
----------
----------
</TABLE>
LITIGATION
The Station is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial statements of the Station.
F-29
<PAGE>
WRDW-TV
(THE AUGUSTA BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
DEBT
The Partnership had indebtedness outstanding under an Amended and Restated
Credit Agreement (the "Agreement"). The Agreement is secured by a first lien on
substantially all the assets of the Partnership. The Agreement required the
Partnership to enter into one or more binding sales contracts for the assets of
each station, satisfactory to the Banks, on or before June 30, 1995. During the
latter part of 1994, the Partnership contracted the services of Media Venture
Partners for the purpose of marketing the stations. On January 4, 1996, the
Partnership sold the assets of the Station. (Note 8).
6. TRANSACTIONS WITH RELATED PARTIES
The Partnership pays various operating and non-operation expenses on behalf
of the Station. These expenses have been allocated for the year ended December
31, 1995. The Station is allocated a portion of management fees and expenses in
the amount of approximately $90,000 to RP Television for financial support
services such as accounting. Additionally, the Station transfers excess cash to
the Partnership's headquarters. Excess cash transferred was $2,200,000 for the
year ended December 31, 1995. This money is primarily used for principal and
interest payments on the Partnership's debt obligations.
7. PENSION PLAN
Effective January 1, 1993, the defined contribution pension plan was
converted to a 401(k) salaried deferral plan, covering substantially all
employees, with a Partnership profit sharing contribution of 3 1/2 percent of
the participants' salary per annum. Annual contributions aggregating
approximately $53,803 were made to the Plan during 1995.
8. SUBSEQUENT EVENT
On January 4, 1996, the Partnership sold the assets of WRDW-TV to Gray
Communication Systems, Inc., for approximately $34 million plus an amount equal
to the excess of the current assets over the current liabilities assumed by the
buyer, as defined in the Asset Purchase Agreement.
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners' of
Television Station Partners, L.P.:
We have audited the accompanying balance sheets of WRDW-TV (an operating station
of Television Station Partners, L.P.), (the "Station") as of December 31, 1994
and the related statements of income, partnership's equity, and cash flows for
the years ended December 31, 1993 and 1994. These financial statements are the
responsibility of the Partnership'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 from
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, such financial statements present fairly, in all material
respects, the financial position of the Station as of December 31, 1994, and the
results of their operations and their cash flows for the years ended December
31, 1993 and 1994 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
May 12, 1995
F-31
<PAGE>
WRDW-TV
(AN OPERATING STATION OF TELEVISION STATION PARTNERS, L.P.)
BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<CAPTION>
1994
------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $186,667
Accounts receivable, net of allowance for doubtful accounts of approximately $131,000 1,674,053
Television film exhibition rights 874,495
Prepaid and other current assets 158,279
------------
Total current assets 2,893,494
PROPERTY, BUILDINGS AND EQUIPMENT-Net (NOTE 3): 1,869,384
TELEVISION FILM EXHIBITION RIGHTS 3,168,509
INTANGIBLE ASSETS-Net 4,280,350
------------
TOTAL $12,211,737
------------
------------
LIABILITIES AND PARTNERSHIP'S EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses (NOTE 4) $592,493
Obligations for television film exhibition rights (NOTE 5) 908,652
------------
Total current liabilities 1,501,145
OBLIGATIONS FOR TELEVISION FILM EXHIBITION RIGHTS (NOTE 5) 3,300,170
COMMITMENTS AND CONTINGENCIES (NOTE 6)
PARTNERSHIP'S EQUITY (NOTES 1 AND 8) 7,410,422
------------
Total $12,211,737
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-32
<PAGE>
WRDW-TV
(AN OPERATING STATION OF TELEVISION STATION PARTNERS, L.P.)
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
1993 1994
------------ ------------
<S> <C> <C>
REVENUES:
Broadcasting revenues $7,933,825 $9,460,307
Less:
Advertising agency commissions 943,174 1,158,952
National sales representative commissions 194,516 255,379
------------ ------------
Total advertising agency and national sales representative commissions 1,137,690 1,414,331
------------ ------------
Net operating revenues 6,796,135 8,045,976
------------ ------------
OPERATING EXPENSES:
Operating, technical and programming costs 2,555,795 2,958,364
Selling, general and administrative 2,126,770 2,434,477
------------ ------------
Total operating expenses 4,682,565 5,392,841
------------ ------------
INCOME BEFORE OTHER EXPENSES 2,113,570 2,653,135
------------ ------------
OTHER EXPENSES:
Depreciation 290,730 309,949
Amortization of intangible assets 151,620 151,620
Other-expenses, net 77,408 54,570
------------ ------------
Total 519,758 516,139
------------ ------------
NET INCOME $1,593,812 $2,136,996
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-33
<PAGE>
WRDW-TV
(AN OPERATING STATION OF TELEVISION STATION PARTNERS, L.P.)
STATEMENTS OF PARTNERSHIP'S EQUITY
YEARS ENDED DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
PARTNERSHIP'S
EQUITY
---------------
<S> <C>
BALANCE, JANUARY 1, 1993 $7,829,582
Net income 1,593,812
Transfer to Television Station Partners, L.P. (1,909,588)
---------------
BALANCE, DECEMBER 31, 1993 7,513,806
Net income 2,136,996
Transfer to Television Station Partners, L.P. (2,240,380)
---------------
BALANCE, DECEMBER 31, 1994 $7,410,422
---------------
---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-34
<PAGE>
WRDW-TV
(AN OPERATING STATION OF TELEVISION STATION PARTNERS, L.P.)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
1993 1994
------------ ------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $1,593,812 $2,136,996
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,355,485 1,345,658
Provision for bad debt 24,800 62,000
Net trade barter revenue (15,850) (30,105)
Gain on sale of property and equipment (1,137) (400)
Changes in operating assets and liabilities:
Accounts receivable (413,414) (173,216)
Prepaid and other assets (51,535) (34,480)
Accounts payable and accrued expenses 155,264 2,443
Payments of obligations for television film exhibition rights (2,645,344) (3,048,878)
------------ ------------
Net cash provided by operating activities 2,081 260,018
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 9,470 400
Capital expenditures (230,718) (176,374)
------------ ------------
Net cash used in investing activities (221,248) (175,974)
------------ ------------
NET INCREASE (DECREASE) IN CASH (219,167) 84,044
CASH, BEGINNING OF YEAR 321,790 102,623
------------ ------------
CASH, END OF YEAR $102,623 $186,667
------------ ------------
------------ ------------
SUPPLEMENTAL INFORMATION:
Cash transferred to Television Station Partners, L.P. $2,075,000 $2,417,500
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING, INVESTING AND FINANCIAL ACTIVITIES:
Television film exhibition obligations of $1,969,210 and 3,112,615 in 1993 and
1994, respectively, were incurred when the Station entered into contracts for
film exhibition rights.
Property and equipment totaling $15,850 and $30,105 was acquired in 1993 and 1994,
respectively, in exchange for advertising time.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-35
<PAGE>
WRDW-TV
(AN OPERATING STATION OF TELEVISION STATION PARTNERS, L.P.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1994
1. STATION ORGANIZATION AND BASIS OF PRESENTATION
WRDW-TV (the "Station") is a commercial television station located in North
Augusta, South Carolina. The Station is owned and operated by Television
Station Partners, L.P. (the "Partnership") since July 7, 1989, as one of
four commercial television stations owned by the Partnership. The
Partnership is a Delaware limited partnership which was organized on May 24,
1989 for the sole purpose of acquiring, owning, operating and, at such time
as GP Station Partners (the "general partner" of the Partnership) determines
is appropriate, reselling or otherwise disposing of its television stations.
The Station was acquired by the Partnership on July 7, 1989 pursuant to an
Exchange Agreement dated May 24, 1989 between the Partnership and Television
Station Partners, a New York partnership ("TSP"). The Exchange Agreement
provided for the transfer to the partnership of all of TSP's assets in
exchange for all of the units of partnership interest in the Partnership,
followed by the liquidation and distribution of those units to the partners
of TSP. For tax and accounting purposes, the Partnership has been treated as
a continuation of TSP. The Station has been operated by TSP since March 23,
1983.
The financial statements of the Station are prepared on the accrual basis of
accounting, and include only those assets, liabilities, and results of
operations that relate to the business of the Station.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
TELEVISION FILM EXHIBITION RIGHTS -- Television film exhibition rights
relating to films which are currently available for telecasting are recorded
at the gross cost method when purchased and amortized using the
straight-line method over the greater of the license period or usage.
Television film exhibition rights are classified based upon the portion of
the unamortized balance expected to be broadcast within the current year.
PROPERTY, BUILDINGS AND EQUIPMENT -- Property, buildings and equipment are
stated at cost less accumulated depreciation. Depreciation is provided
principally by the straight-line method over the estimated useful lives of
the assets. Any gains or losses realized on disposition are reflected in
operations. Maintenance and repairs, as well as minor renewals and
betterments, are charged to operating expenses directly as incurred.
INTANGIBLE ASSETS -- Intangible assets are comprised principally of Federal
Communications Commission licenses and network affiliation agreements and
are amortized on the straight-line basis, primarily over 40 years.
Intangible assets are periodically evaluated for impairments using a
measurement of fair value, calculated at the current market multiple times
operating income. The current market value multiple used at December 31,
1994 was 8.5 times.
TRADE/BARTER TRANSACTIONS -- Trade/barter transactions involve the exchange
of advertising time for products and/or services and are recorded based on
the fair market value of the products and/or services received. Revenue is
recorded when advertising schedules air, and expense is recognized when
products and/or services are used.
INCOME TAXES -- No income tax provision has been included in the financial
statements since income or loss of the Station is required to be reported by
the partners of the Partnership on their respective income tax returns.
F-36
<PAGE>
WRDW-TV
(AN OPERATING STATION OF TELEVISION STATION PARTNERS, L.P.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994
3. PROPERTY, BUILDINGS AND EQUIPMENT
The major classes of property, buildings and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
---------------
<S> <C>
Land $190,000
Buildings and Tower 2,043,123
Automobiles 153,378
Furniture and fixtures 5,994,475
Machinery and equipment 1,637,285
---------------
10,018,261
Less accumulated depreciation 8,148,877
---------------
$1,869,384
---------------
---------------
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
---------------
<S> <C>
Accounts payable $99,042
Accrued state taxes 25,126
Accrued payroll, commissions, and bonuses 133,473
Other accrued expenses 334,852
---------------
$592,493
---------------
---------------
</TABLE>
5. OBLIGATIONS FOR TELEVISION FILM EXHIBITION RIGHTS
Obligation for television film exhibition rights at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
- - - ----------------------------------------------------------------------------------------- ------------
<S> <C>
1995 $908,652
1996 907,886
1997 822,655
1998 736,849
1999 539,332
Thereafter 293,448
------------
4,208,822
Current portion 908,652
------------
Long-term obligations $3,300,170
------------
------------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
LITIGATION -- In March 1990, a suit was commenced in the Superior Court of
California, County of Alameda, against the Partnership, GP Station Partners,
and certain individuals, in connection with the July 1989 transaction in
which the assets of TSP were transferred to the Partnership and the
Partnership distributed to the partners a major portion of the proceeds of a
$72 million borrowing. The plaintiffs in the suit sought rescission
F-37
<PAGE>
WRDW-TV
(AN OPERATING STATION OF TELEVISION STATION PARTNERS, L.P.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
of the asset transfer, the return by the general partner of all cash
distributions made from the $72 million borrowing, damages and other relief.
The suit was subsequently dismissed on the grounds that the California
courts were an inconvenient forum.
On April 8, 1992, the plaintiffs in the California suit and another
plaintiff commenced an action in the United States District Court for the
Southern District of New York against GP Station Partners and each of its
general partners. The action, which the plaintiffs purported to bring
individually and as representatives of the limited partners, sought damages
and other relief. The Partnership Agreement contains exculpation and
indemnification provisions relating to claims against GP Station Partners
and its affiliates. In November 1992 the action was settled and discontinued
following the court's denial of the plaintiff's motion for class
certification. The settlement agreement provided for an exchange of general
releases and for payment to the original plaintiffs of an amount equal to
their share of the July 1989 distribution to partners (which the original
Television Station Partners had been escrowing pending the outcome of the
litigation), plus accrued interest, and those plaintiffs also agreed to
waive all rights to any further distribution and to relinquish their
interest in the Partnership without further consideration. No amount will be
payable to the other plaintiff in the action. The agreement also provides
for payment of $75,000 to the plaintiffs' counsel as partial reimbursement
of legal fees and expenses incurred in prosecuting the action. As part of
the settlement, the limited partners' original investment of $203,000, plus
interest of approximately $63,000 was paid. As a result of the litigation,
the Partnership incurred legal fees of approximately $579,000.
The Station is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect
the financial statements of the Station.
DEBT -- At December 31, 1994 the Partnership had $71,900,000 of principal
indebtedness outstanding under an Amended and Restated Credit Agreement (the
"Agreement"). The Agreement is secured by a first lien on substantially all
the assets of the Partnership. The Agreement requires the Partnership to
enter into one or more binding sales contracts for the assets of each
station, satisfactory to the Banks, on or before June 30, 1995. During the
latter part of 1994, the Partnership contracted the services of Media
Venture Partners for the purpose of marketing the stations. In February
1995, the Partnership signed letters of intent for the sale of the assets of
each station. (Note 9)
7. TRANSACTIONS WITH RELATED PARTIES
The Partnership pays various operating and non-operating expenses on behalf
of the Station. These expenses totaled approximately $165,000 and $177,000
for the years ended December 31, 1993 and 1994, respectively. Additionally,
the Station transfers excess cash to the Partnership's headquarters. Excess
cash transferred was $1,909,588 and $2,240,380 for the years ended December
31, 1993 and 1994, respectively. This money is primarily used for principal
and interest payments on the Partnership's debt obligations.
8. PENSION PLAN
Effective January 1, 1993, the defined contribution pension plan was
converted to a 401(k) salaried deferral plan with a Partnership profit
sharing contribution of 3 1/2 percent of the participants' salary per annum.
Annual contributions aggregating approximately $40,585 and $57,314 were made
to the Plan during 1993 and 1994, respectively.
F-38
<PAGE>
WRDW-TV
(AN OPERATING STATION OF TELEVISION STATION PARTNERS, L.P.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1993 AND 1994
9. SUBSEQUENT EVENT
On February 10, 1995, the Partnership signed a letter of intent for the sale
of the assets of WRDW-TV for approximately $34 million, plus an amount equal
to the excess of the current assets over the current liabilities assumed by
the buyer, as defined in the Asset Purchase Agreement, if applicable, to be
paid in cash at the closing of the sale.
F-39
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
John H. Phipps, Inc.
We have audited the accompanying balance sheets of the Broadcasting and Paging
Operations of John H. Phipps, Inc. (see Note 1) as of December 31, 1994 and 1995
and the related statements of operations and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the management of John H. Phipps, Inc. 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 the Broadcasting and Paging
Operations of John H. Phipps, Inc. at December 31, 1994 and 1995 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Atlanta,Georgia
February 19, 1996
F-40
<PAGE>
BROADCASTING AND PAGING OPERATIONS
OF
JOHN H. PHIPPS, INC.
(THE PHIPPS BUSINESS)
BALANCE SHEETS
<TABLE>
<CAPTION>
--------------------------------
DECEMBER 31,
1994 1995
--------------- ---------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $95,210 $620,015
Accounts receivable, less allowance of $49,000
for each year 4,474,754 5,152,778
Program broadcast rights, current portion 521,921 919,281
Other current assets 329,343 347,785
--------------- ---------------
Total current assets 5,421,228 7,039,859
Program broadcast rights, excluding current
portion 579,561 575,111
Property and equipment, net (NOTE 3) 10,720,196 10,492,583
Goodwill and other intangibles (NOTE 3) 8,576,721 9,454,775
--------------- ---------------
Total assets $25,297,706 $27,562,328
--------------- ---------------
--------------- ---------------
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $467,300 $365,468
Program broadcast obligations, current portion 722,676 921,579
Deferred paging service income 579,109 833,264
Current portion of long-term debt (NOTE 4) 1,206,483 1,389,931
Other current liabilities 1,025,042 907,345
--------------- ---------------
Total current liabilities 4,000,610 4,417,587
Long-term debt, less current portion (NOTE 4) 4,858,433 3,419,918
Program broadcast obligations, less current
portion 245,421 345,140
Commitment and contingencies (NOTES 9 AND 10)
Minority interests 728,293 585,768
Owner's equity 15,464,949 18,793,915
--------------- ---------------
Total liabilities and owner's equity $25,297,706 $27,562,328
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes.
F-41
<PAGE>
BROADCASTING AND PAGING OPERATIONS
OF
JOHN H. PHIPPS, INC.
(THE PHIPPS BUSINESS)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
-------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Broadcast revenues, net (NOTE 3) $17,963,667 $20,209,523 $20,768,121
Paging operations 3,787,946 4,276,640 4,897,522
Production and other revenues 1,496,417 1,314,779 1,655,940
--------------- --------------- ---------------
23,248,030 25,800,942 27,321,583
--------------- --------------- ---------------
Expenses:
Operating, technical and programming 5,221,729 5,306,801 5,449,435
Selling, general and administrative 6,919,769 7,056,510 7,693,715
Amortization of program broadcast rights 1,552,438 1,021,395 844,815
Depreciation and amortization 2,835,966 2,672,209 3,120,442
Pension credit (NOTE 5) (431,000) (409,000) (449,000)
Management fees (NOTE 7) 2,462,195 2,485,423 3,280,354
--------------- --------------- ---------------
18,561,097 18,133,338 19,939,761
--------------- --------------- ---------------
4,686,933 7,667,604 7,381,822
Interest 631,333 479,852 498,714
Other (income) expense, net (15,765) (666,657) (12,526)
--------------- --------------- ---------------
Income before minority interests 4,071,365 7,854,409 6,895,634
Minority interests (140,586) (635,302) (547,045)
--------------- --------------- ---------------
Net income $3,930,779 $7,219,107 $6,348,589
--------------- --------------- ---------------
--------------- --------------- ---------------
Supplemental unaudited pro-forma information
(NOTE 6):
Net income, as above $3,930,779 $7,219,107 $6,348,589
Pro-forma provision for income tax expense (1,500,300) (2,743,300) (2,412,500)
--------------- --------------- ---------------
Pro-forma net income $2,430,479 $4,475,807 $3,936,089
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
See accompanying notes.
F-42
<PAGE>
BROADCASTING AND PAGING OPERATIONS
OF
JOHN H. PHIPPS, INC.
(THE PHIPPS BUSINESS)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $3,930,779 $7,219,107 $6,348,589
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,835,966 2,672,209 3,120,442
Gain on disposition of fixed assets (13,408) (665,047) (9,023)
Amortization of program broadcast rights 1,552,438 1,021,395 844,815
Payments of program broadcast rights obligations (1,072,008) (863,344) (931,004)
Minority interests 140,586 635,302 547,045
Changes in operating assets and liabilities:
Accounts receivable 40,092 (396,373) (678,024)
Other current assets (12,091) (90,846) (18,442)
Accounts payable and accrued expenses (292,863) (206,137) (101,832)
Other current liabilities 219,336 277,681 (117,697)
Deferred paging income 68,136 204,356 254,155
--------------- --------------- ---------------
Net cash provided by operating activities 7,396,963 9,808,303 9,259,024
--------------- --------------- ---------------
INVESTING ACTIVITIES:
Purchases of minority interests -0- (818,000) (1,780,794)
Purchases of property and equipment (3,537,592) (3,353,068) (3,187,596)
Proceeds from disposition of property and
equipment 584,187 1,665,504 1,140,520
--------------- --------------- ---------------
Net cash used in investing activities (2,953,405) (2,505,564) (3,827,870)
--------------- --------------- ---------------
FINANCING ACTIVITIES:
Indebtedness:
Borrowings 6,266,780 5,761,977 3,422,586
Repayments (7,421,873) (6,239,305) (4,677,653)
Distributions to minority interests (495,150) (539,596) (505,532)
Other 134,536 (156,475) (126,128)
Payments to J.H. Phipps, Inc., net (2,901,945) (6,060,036) (3,019,622)
--------------- --------------- ---------------
Net cash used in financing activities (4,417,652) (7,233,435) (4,906,349)
--------------- --------------- ---------------
Increase in cash and cash equivalents 25,906 69,304 524,805
Cash and cash equivalents at beginning of year -0- 25,906 95,210
--------------- --------------- ---------------
Cash and cash equivalents at end of year $25,906 $95,210 $620,015
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
See accompanying notes.
F-43
<PAGE>
BROADCASTING AND PAGING OPERATIONS OF JOHN H. PHIPPS, INC.
(THE PHIPPS BUSINESS)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. BASIS OF PRESENTATION
Pursuant to a letter of intent dated December 15, 1995, Gray Communications
Systems, Inc. ("Gray") agreed to purchase substantially all of the assets and
assume certain liabilities and commitments of certain operations owned by J.H.
Phipps, Inc. ("Phipps"). The operations include (i) two CBS affiliates-a VHF
television station (WCTV-TV located in Tallahassee, Florida), and 74.5% interest
in a VHF television station (WKXT-TV located in Knoxville, Tennessee), (the
"Broadcast Operations"); and (ii) a portable communications and paging service
business (the "Paging Operations"), with operations in three southeastern states
(collectively referred to as the "Broadcasting and Paging Operations"). The
purchase is subject to regulatory approval.
At December 31, 1995, a Phipps subsidiary held the 74.5% interest in the
partnership that owns WKXT-TV (the "Knoxville Partnership"). The Knoxville
Partnership's remaining 25.5% interest is owned by four limited partners and
their ownership is shown as "minority interests" in the accompanying financial
statements. Gray, in separate agreements, has also agreed to purchase the
limited partners' interests. Phipps' ownership of the Knoxville Partnership has
increased, from 65.8% during 1993 to the 74.5% ownership interest at December
31, 1995, through purchases of certain minority interests for approximately
$818,000 in 1994 and approximately $1.78 million in 1995. Goodwill recorded
related to these acquisitions of minority interests was approximately $200,000
and $1.78 million in 1994 and 1995, respectively.
Phipps also owns and operates other businesses which are not being purchased by
Gray. The accompanying financial statements are intended to present the
Broadcasting and Paging Operations which are to be acquired by Gray pursuant to
the letter of intent described above and do not include the other operations of
Phipps.
The accompanying financial statements are derived from the historical books and
records of Phipps and do not give effect to any purchase accounting adjustments
which Gray may record as a result of its acquisition. Certain current
liabilities and long-term debt on the accompanying balance sheets will not be
assumed by Gray. Such liabilities will be retained by Phipps or retired at the
closing date of the acquisition by Gray.
2. ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Broadcasting revenues are recognized as the related advertising broadcast
services are rendered. Agency commissions are deducted from gross revenue,
reflecting the net amount due for broadcast services. Revenues from paging and
communications services are recognized over the applicable service period.
Revenues from mobile broadcasting contracts are recognized as services are
provided.
CONCENTRATION OF CREDIT RISK
The Broadcast Operations provide advertising air time to national, regional and
local advertisers within the geographic areas in which the Broadcast Operations
operate. Credit is extended based on an evaluation of the customer's financial
condition, and generally advance payment is not required. The Paging Operations
provide services to individuals and corporate customers in three southeastern
states. Such services are generally billed in advance. Credit losses for the
Broadcasting and Paging Operations are provided for in the financial statements
and consistently have been within management's expectations.
F-44
<PAGE>
BROADCASTING AND PAGING OPERATIONS OF JOHN H. PHIPPS, INC.
(THE PHIPPS BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
BARTER ARRANGEMENTS
The Broadcasting and Paging Operations, in the ordinary course of business,
provide services and advertising air time to certain customers in exchange for
products or services. In addition, the Broadcasting Operations provide air time
to certain program syndicators in exchange for program licenses or reductions in
program license fees. Barter transactions are recorded on the basis of the
estimated fair market value of the products or services received. Revenue is
recognized as the related advertising is broadcast and expenses are recognized
when the merchandise or services are received or utilized.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit with banks. Deposits with
banks are generally insured in limited amounts. All liquid investments with an
original maturity of three months or less when purchased are considered to be
cash equivalents.
PROGRAM BROADCAST RIGHTS
Rights to programs available for broadcast are initially recorded at the amounts
of total license fees payable under the license agreements and are charged to
operating expense on the basis of total programs available for use on the
straight-line method. The portion of the unamortized balance expected to be
charged to operating expense in the succeeding year is classified as a current
asset, with the remainder classified as a noncurrent asset. The liability for
program broadcast rights is classified as current or long-term, in accordance
with the payment terms of the various licenses. The liability is not discounted
for imputation of interest.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed by the straight-line method over the estimated useful
life of the assets for financial reporting purposes and by accelerated methods
for income tax purposes.
INTANGIBLE ASSETS
Intangible assets are stated at cost and are amortized using the straight-line
method. Goodwill is amortized over 15 to 40 years. Intangible assets other than
goodwill, which include broadcasting licenses, network affiliation agreements,
and other intangibles carried at an allocated cost based on appraisals are
amortized over 15 years. Loan acquisition fees are amortized over the life of
the specific agreement.
In the event that facts and circumstances indicate that the goodwill or other
intangibles may be impaired, an evaluation of continuing value would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with this asset would be compared to its carrying amount to
determine if a write down to fair market value or discounted cash flow value is
required.
INTEREST SWAP
The Knoxville Partnership had an interest rate swap agreement to modify the
interest characteristics of a portion of its outstanding debt (see Note 4.
INDEBTEDNESS). The agreement, which expired during 1995, involved the exchange
of amounts based on a fixed interest rate for amounts based on variable interest
rates over the life of the agreement without an exchange of the notional amount
upon which the payments are based. The differential to be paid or received as
interest rates changed was accrued and recognized as an adjustment of interest
expense related to the debt (the accrual accounting method). Interest expense
(income) adjustments resulting from the interest rate swap were $44,385 in 1993,
$(986) in 1994 and $(2,805) in 1995.
STOCK BASED COMPENSATION
Phipps accounted for its stock Appreciation Rights Plan (see Note 7. PHIPPS'
CORPORATE ALLOCATIONS) in accordance with APB Opinion No 25, Accounting for
Stock Issued to Employees and related interpretations.
F-45
<PAGE>
BROADCASTING AND PAGING OPERATIONS OF JOHN H. PHIPPS, INC.
(THE PHIPPS BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Phipps and its subsidiaries file a consolidated federal income tax return and
separate state tax returns. The operating results of the Knoxville Partnership
are included in the income tax returns of Phipps based on their percentage
ownership. All states where the Broadcast and Paging Operations are located have
taxes based on income. Income tax expense for the Broadcasting and Paging
Operations are not presented in the accompanying financial statements as such
amounts are computed and paid by Phipps. Pro-forma federal and state income
taxes for the Broadcast and Paging Operations are calculated on a pro-forma,
separate return basis (see Note 6. PRO-FORMA INCOME TAXES).
FAIR VALUES OF FINANCIAL INSTRUMENTS
Phipps has adopted FASB Statement No. 107, "Disclosure about Fair Value of
Financial Instruments", which requires disclosure of fair value, to the extent
practical, of certain of Phipps' financial instruments. The fair value amounts
do not necessarily represent the amount that could be realized in a sale or
settlement. Phipps' financial instruments are comprised principally of an
interest rate swap and long-term debt.
The estimated fair value of long-term bank debt at December 31, 1995
approximates book value since, in management's opinion, such obligations are
subject to fluctuating market rates of interest and can be settled at their face
amounts. The Company does not anticipate settlement of long-term debt at other
than book value and currently intends to hold such financial instruments through
maturity.
The fair value of other financial instruments classified as current assets or
liabilities approximate their carrying values due to the short-term maturities
of these instruments.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("Statement
121"), which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairments are present and the undiscounted
cash flows estimated to be generated by those assets are less than the asset's
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. Phipps does not believe that the
adoption of Statement 121 will have a material impact on Phipps' financial
position.
3. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
Major classifications of property and equipment and their estimated useful lives
are summarized as follows (in 000's):
<TABLE>
<CAPTION>
-------------------------------------------------
ESTIMATED
USEFUL LIVES DECEMBER 31,
CLASSIFICATION (YEARS) 1994 1995
- - - -------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Land $593 $593
Buildings and improvements 40 2,630 3,104
Broadcasting equipment and furniture 5-20 15,440 14,567
Communications and paging equipment 5-7 4,561 4,739
--------------- ---------------
23,224 23,003
Less accumulated depreciation (12,504) (12,510)
--------------- ---------------
$10,720 $10,493
--------------- ---------------
--------------- ---------------
</TABLE>
F-46
<PAGE>
BROADCASTING AND PAGING OPERATIONS OF JOHN H. PHIPPS, INC.
(THE PHIPPS BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION (CONTINUED)
The composition of intangible assets was as follows (in 000's):
<TABLE>
<CAPTION>
--------------------------------
DECEMBER 31,
1994 1995
--------------- ---------------
<S> <C> <C>
Goodwill $3,050 $4,663
Broadcast licenses and network affiliation
agreements 6,162 6,162
Other 812 812
Accumulated amortization (1,447) (2,182)
--------------- ---------------
$8,577 $9,455
--------------- ---------------
--------------- ---------------
</TABLE>
The composition of other current liabilities is as follows (in 000's):
<TABLE>
<CAPTION>
--------------------------------
DECEMBER 31,
1994 1995
--------------- ---------------
<S> <C> <C>
Customer deposits $63 $85
Accrued bonuses 163 265
Other compensation related accruals 404 439
Other 395 118
--------------- ---------------
$1,025 $907
--------------- ---------------
--------------- ---------------
</TABLE>
The Broadcast Operations' revenues are presented net of agency commissions as
follows (in 000's):
<TABLE>
<CAPTION>
-------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Broadcast revenues, gross $20,523 $23,131 $23,767
Agency commissions (2,559) (2,921) (2,999)
--------------- --------------- ---------------
Broadcast revenues, net $17,964 $20,210 $20,768
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
Components of "Other (income) expense, net" are as follows (in 000's):
<TABLE>
<CAPTION>
-------------------------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Interest income $(2) $(2) $(4)
Gain on sale of assets (14) (665) (9)
--------------- --------------- ---------------
$(16) $(667) $(13)
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
F-47
<PAGE>
BROADCASTING AND PAGING OPERATIONS OF JOHN H. PHIPPS, INC.
(THE PHIPPS BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INDEBTEDNESS
A summary of indebtedness is as follows (in 000's):
<TABLE>
<CAPTION>
--------------------------------
DECEMBER 31,
1994 1995
--------------- ---------------
<S> <C> <C>
Bank Credit Agreement:
Revolving credit loan $302 $498
Term loan 4,500 3,202
Partnership Note Payable 744 725
PortaPhone Acquisition Debt 518 385
--------------- ---------------
6,064 4,810
Less current portion (1,206) (1,390)
--------------- ---------------
$4,858 $3,420
--------------- ---------------
--------------- ---------------
</TABLE>
BANK CREDIT AGREEMENT
The Knoxville Partnership has a bank credit agreement (the "Bank Credit
Agreement") which provides a term loan and a revolving credit facility. The loan
has provisions which, among other things, requires that the loan be redeemed in
the event of a change in control.
Under the terms of the Bank Credit Agreement, the Knoxville Partnership may, at
its option, have a Base Rate Advance or LIBOR (London Interbank Official Rate)
Advance, as specified by the bank in the notice of borrowing. Base Rate Advances
and LIBOR Advances may be outstanding at the same time with Base Rate Advances
bearing interest at the bank's index rate (8.5% at December 31, 1995), plus .25%
or .50% as applicable based on the Partnership's leverage ratio. LIBOR Advances
bear interest at the LIBOR (5.88% at December 31, 1995), plus 1.25% or 1.5% as
applicable based on the Knoxville Partnership's leverage ratio. Base Rate
Advances and LIBOR Advances totaled $0 and $3.7 million, respectively, at
December 31, 1995.
The Bank Credit Agreement contains numerous financial covenants and other
affirmative covenants with regard to payment of distributions to partners,
operating and capitalized leases, and acquisition of property. The advances are
guaranteed by Phipps and collateralized by substantially all the Knoxville
Partnership's assets. In connection with the Phipps guarantee, Phipps charged
the Knoxville Partnership guaranty fees, classified as interest expense in the
accompanying financial statements, of approximately $55,000 in 1993, $54,000 in
1994 and $42,000 in 1995.
PARTNERSHIP NOTE PAYABLE
On September 30, 1994, Phipps acquired approximately 4.2% additional ownership
interest in the Knoxville Partnership from a limited partner. The total amount
to be paid to the former limited partner by the remaining partners is $2 million
and is payable over 20 years at $100,000 a year. The payment of this amount is
guaranteed by the Knoxville Partnership. The first payment of $100,000 was made
at the time the assignment was executed. Subsequent payments are due annually at
September 30. The present value of the total purchase price at September 30,
1994 was $1,098,841 based on an interest factor of 7.46% compounded annually.
Phipps Tennessee has recorded a liability of approximately $725,000 at December
31, 1995 for its portion of the outstanding balance.
PORTAPHONE ACQUISITION DEBT
In connection with a 1988 asset acquisition, PortaPhone is required to pay the
seller a consulting fee of $15,000 monthly for ten years. The liability for the
monthly payments required under the agreement are recorded at a discounted
present value in the accompanying financial statements.
F-48
<PAGE>
BROADCASTING AND PAGING OPERATIONS OF JOHN H. PHIPPS, INC.
(THE PHIPPS BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INDEBTEDNESS (CONTINUED)
Future scheduled reductions of principal for indebtedness are as follows (in
000's):
<TABLE>
<S> <C>
Year Ended December 31
1996 $ 1,390
1997 1,155
1998 1,557
1999 81
2000 and thereafter 627
------
$ 4,810
------
------
</TABLE>
Cash payments of net interest expense were approximately $339,000 in 1993,
$449,000 in 1994 and $564,000 in 1995.
5. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLAN
Phipps has a defined benefit pension plan that covers substantially all its
full-time employees. Benefits are based on years of service and each employee's
compensation during the last ten years of employment (average final pay) up to a
maximum of 50% of average final pay.
Benefits become vested upon completion of five years of service. No vesting
occurs until the employee has completed five years of service. Phipps' funding
policy is to make the maximum contribution allowable by applicable regulations.
Total pension credit for the Broadcasting and Paging Operations was ($431,000),
($409,000) and ($449,000) for 1993, 1994 and 1995, respectively.
The following summarizes information for all Phipps operations including the
plan's funded status as of the plan's September 30 year end and assumptions used
to develop the net periodic pension expense credit (in 000's).
<TABLE>
<CAPTION>
-------------------------------
DECEMBER 31,
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Actuarial present value of accumulated benefit
obligation is as follows:
Vested $3,691 $3,451 $4,348
Other 382 284 358
--------- --------- ---------
$4,073 $3,735 $4,706
--------- --------- ---------
--------- --------- ---------
Plan assets at fair value, primarily common stocks
and bonds $9,582 $9,367 $10,206
Projected benefit obligation (4,993) (4,419) (5,568)
--------- --------- ---------
Plan assets in excess of projected benefit
obligation 4,589 4,948 4,638
Unrecognized net (gain) loss 804 688 1,288
Unrecognized net asset (3,394) (3,149) (2,904)
--------- --------- ---------
Pension asset $1,999 $2,487 $3,022
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-49
<PAGE>
BROADCASTING AND PAGING OPERATIONS OF JOHN H. PHIPPS, INC.
(THE PHIPPS BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. EMPLOYEE BENEFIT PLANS (CONTINUED)
The net pension credit included in the accompanying financial statements is
calculated as follows (in 000's):
<TABLE>
<CAPTION>
-------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Service costs-benefits earned during the year $168 $207 $144
Interest cost on projected benefit obligation 280 306 303
Actual return on plan assets (670) (713) (687)
Net amortization and deferral (209) (209) (209)
--------- --------- ---------
Net pension credit $(431) $(409) $(449)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The assumptions used to develop the plan's funded status and expenses were as
follows:
<TABLE>
<S> <C> <C> <C>
Assumptions:
Discount rate 7.5% 8.5% 7.5%
Expected long-term rate of return on assets 9.0% 9.0% 9.0%
Estimated rate of increase in compensation
levels 4.5% 4.5% 4.5%
</TABLE>
401(K) PLAN
The Company also sponsors two 401(k) plans which provide for discretionary
employer contributions equal to 25% of the first 4% of an employee's
contribution. Contributions by Phipps to the plans are not material.
MANAGEMENT INCENTIVE BONUS PLAN
Phipps maintains an incentive bonus plan in which managers participate in the
performance of the division of Phipps which they manage. Eligible employees are
selected by the Board of Directors, and the bonus formula is established and
reviewed annually by the Board of Directors and key members of management.
Bonuses are calculated in the year following the year earned, at which time
one-half of the calculated bonus is paid as compensation. The remaining portion
is deferred and earned by the employee over five years based on a vesting
schedule adopted by the Board. Employees become eligible to receive payment of
deferred amounts upon full vesting. Deferred amounts are recognized as an
expense in the year earned. Expenses under this plan were approximately $128,000
in 1993, $170,000 in 1994 and $233,000 in 1995.
Cumulative amounts vested for the Broadcasting and Paging Operations since the
inception of the plan in 1990, total approximately $303,000 at December 31, 1995
and are included as a current liability in the accompanying financial
statements.
6. PRO-FORMA INCOME TAXES
Pro-forma income tax expense differed from the amounts computed by applying the
statutory federal income tax rate of 34% as a result of the following (in
000's):
<TABLE>
<CAPTION>
-------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax rate $ 1,342 $ 2,454 $ 2,159
Increase resulting from:
State income taxes 158 289 253
--------- --------- ---------
$ 1,500 $ 2,743 $ 2,412
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-50
<PAGE>
BROADCASTING AND PAGING OPERATIONS OF JOHN H. PHIPPS, INC.
(THE PHIPPS BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. PHIPPS' CORPORATE ALLOCATIONS
Interest expense incurred by Phipps is allocated to the Broadcasting and Paging
Operations based on specific borrowings. Such allocated interest expense totaled
approximately $134,700 in 1993, $44,000 in 1994 and $64,500 in 1995. Pension
expense (credit) is allocated based on an actuarial calculation (see Note 5.
EMPLOYEE BENEFITS PLANS)
The corporate operations and employees of Phipps provide certain services to the
Broadcasting and Paging Operations including executive management, cash
management, accounting, tax and other corporate services which are allocated to
the operating units of Phipps. Corporate expenses of Phipps, including corporate
officers salaries and related employee benefits (see Stock Appreciation Rights
and Performance Incentive Agreement below), travel costs, and related support
staff and operations, are allocated to the operating units of Phipps. The
Broadcasting and Paging Operations were charged $2,462,195, $2,485,423, and
$3,280,354 for these services during 1993, 1994 and 1995, respectively. In the
opinion of Phipps management, these charges have been made on a basis which is
reasonable, however, they are not necessarily indicative of the level of
expenses which might have been incurred by the Broadcasting and Paging
Operations on a stand-alone basis.
Phipps maintains a Stock Appreciation Rights Plan and Performance Incentive
Agreement for certain key corporate officers identified by the Board of
Directors. The expenses incurred for these plans are allocated to the
Broadcasting and Paging Operations as part of the management fee allocation for
Phipps' corporate expenses as discussed above. All amounts due under these plans
were paid in December 1995. Compensation expense recorded for these plans in
1993, 1994 and 1995 was approximately $2,828,000, $2,458,000 and $2,861,000,
respectively.
8. SUMMARY ACTIVITY IN OWNER'S EQUITY
Phipps provides centralized cash management for the Broadcasting and Paging
Operations. Substantially all cash receipts are remitted to Phipps and
substantially all disbursements are made by Phipps. There are no terms of
settlement for interest charges on these intercompany accounts. The amounts due
to/from Phipps are included as a part of owner's equity as the Broadcasting and
Paging operations are not required to settle these amounts on a current basis.
An analysis of the net transactions in the owner's equity accounts for each of
the three years in the period ended December 31 is as follows (in 000's):
<TABLE>
<CAPTION>
-------------------------------------------------
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance of the beginning of year $13,276 $14,306 $15,465
Payments to Phipps (5,067) (8,181) (7,696)
Phipps' purchase of minority interests -0- -0- 1,781
Phipps allocations 2,166 2,121 2,895
Net earnings 3,931 7,219 6,349
--------------- --------------- ---------------
Balance at the end of year $14,306 $15,465 $18,794
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
9. LITIGATION
At December 31, 1995, the Broadcast and Paging Operations are involved in
various lawsuits arising in the normal course of their business. However,
management believes that any potential losses that may occur from such lawsuits
would be covered by insurance and the final outcome of these lawsuits will not
have a material effect to the accompanying combined financial statements.
F-51
<PAGE>
BROADCASTING AND PAGING OPERATIONS OF JOHN H. PHIPPS, INC.
(THE PHIPPS BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
Program rights payable for films and syndicated series, which are noninterest
bearing, are due as follows at December 31, 1995 (in 000's):
<TABLE>
<S> <C>
1996 $922
1997 171
1998 and later 174
---------
$1,267
---------
---------
</TABLE>
Payments related to commitments for films and syndicated series, rights which
are not yet available for broadcast at December 31, 1995 are due as follows (in
000's):
<TABLE>
<S> <C>
1996 $106
1997 631
1998 515
1999 440
2000 283
----------
$1,975
----------
----------
</TABLE>
The Paging Operations lease office space, office equipment and paging network
towers. The Broadcasting Operations lease land and broadcast towers. The
operating leases with unaffiliated entities have various renewal options.
Certain of the towers used in the Paging Operations are leased from Phipps.
Written contracts do not exist for such leases but management has established
that the leases are for five years and are renewable at the end of five years.
Rental expense for operating leases was as follows (in 000's):
<TABLE>
<CAPTION>
----------------------------------
OTHER
PHIPPS LESSORS TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Year Ended December 31
1993 $58 $384 $442
1994 64 316 380
1995 83 385 468
</TABLE>
The minimum aggregate rentals under noncancelable operating leases are payable
the lessors as follows (in 000's):
<TABLE>
<CAPTION>
----------------------------------
OTHER
PHIPPS LESSORS TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Year Ended December 31
1996 $118 $329 $447
1997 122 240 362
1998 125 190 315
1999 129 61 190
2000 and thereafter 133 59 192
---------- ---------- ----------
$627 $879 $1,506
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-52
<PAGE>
BROADCASTING AND PAGING OPERATIONS OF JOHN H. PHIPPS, INC.
(THE PHIPPS BUSINESS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. INFORMATION ON BUSINESS SEGMENTS (IN 000'S):
<TABLE>
<CAPTION>
----------------------------------
YEAR ENDED DECEMBER 31,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Broadcasting Operations $19,460 $21,524 $22,424
Paging Operations 3,788 4,277 4,898
---------- ---------- ----------
Total revenues $23,248 $25,801 $27,322
---------- ---------- ----------
---------- ---------- ----------
OPERATING PROFIT:
Broadcasting Operations $4,631 $7,287 $7,040
Paging Operations 56 381 342
---------- ---------- ----------
Total operating profit $4,687 $7,668 $7,382
---------- ---------- ----------
---------- ---------- ----------
DEPRECIATION AND AMORTIZATION EXPENSE:
Broadcasting Operations $2,089 $2,015 $2,302
Paging Operations 747 657 818
---------- ---------- ----------
Total depreciation and amortization
expense $2,836 $2,672 $3,120
---------- ---------- ----------
---------- ---------- ----------
CAPITAL EXPENDITURES:
Broadcasting Operations $2,429 $1,515 $1,216
Paging Operations 1,109 1,838 1,972
---------- ---------- ----------
Total capital expenditures $3,538 $3,353 $3,188
---------- ---------- ----------
---------- ---------- ----------
IDENTIFIABLE ASSETS (AT END OF YEAR):
Broadcasting Operations $21,003 $21,059 $23,036
Paging Operations 3,816 4,239 4,526
---------- ---------- ----------
Total identifiable assets $24,819 $25,298 $27,563
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Operating profit is total operating revenue less expenses and before
miscellaneous income and expense (net), interest expense and minority interests.
F-53
<PAGE>
GRAY
COMMUNICATIONS SYSTEMS, INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred by the Company
in connection with the issuance and distribution of the Notes. Except for the
SEC and NASD filing fees, all expenses have been estimated and are subject to
future contingencies.
<TABLE>
<S> <C>
SEC registration fee $51,724
NASD fee 15,500
Legal fees and expenses *
Printing and engraving expenses *
Accounting fees and expenses *
Blue sky fees and expenses *
Trustee fees and expenses *
Miscellaneous *
----------
Total $*
----------
----------
</TABLE>
- - - ------------------------
* to be filed by amendment
ITEM 14 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Business Corporation Code of the State of Georgia and the Business
Corporation Act of the State of Arkansas grant corporations incorporated
thereunder (such as the Company and certain of the co-registrants) the power to
indemnify its officers and directors against liability for certain of their
acts.
The Articles of Incorporation of the Company and certain of the co-registrants
eliminate the liability of directors to stockholders or the Company and certain
of the co-registrants for monetary damages arising out of the directors' breach
of their fiduciary duty of care. The By-laws of the Company and certain of the
co-registrants authorize indemnification of their directors, officers,
incorporators, employees and agents with respect to certain costs, expenses and
amounts incurred in connection with an action, suit or proceeding by reason of
the fact that such person was serving as a director, officer, incorporator,
employee or agent of the Company or certain of the co-registrants.
The Underwriting Agreement provides for reciprocal indemnification between the
Company, the co-registrants, and their controlling persons, on the one hand, and
the Underwriters and their controlling persons, on the other hand, against
certain liabilities in connection with this offering, including liabilities
under the Securities Act.
ITEM 15 RECENT SALES OF UNREGISTERED SECURITIES
On January 3, 1996, Bull Run purchased for $10 million from the Company (i) an
8% subordinated note in the principal amount of $10 million due in January 2005
(ii) warrants to purchase 487,500 shares of Class A Common Stock at $17.88 per
share. On September 2, 1994, the Company sold to one institutional investor its
note in the principal amount of $25 million due 2003. The Company believes that
the foregoing transactions were exempt from the registration provisions of the
Securities Act of 1933 pursuant to Section 4(2) of such Act.
II-1
<PAGE>
ITEM 16 EXHIBITS
<TABLE>
<S> <C>
1* Form of Underwriting Agreement
3.1 Articles of Incorporation of Gray Communications Systems, Inc., as amended
(incorporated by references to Exhibit 3 to the Company's Form 10 dated October 7,
1991, as amended on January 29, 1992 and March 2, 1992, and Exhibit 3(i) to the
Company's Form 10-K for the fiscal year ended June 30, 1993).
3.2 By-Laws of Gray Communications Systems, Inc., as amended (incorporated by
references to Exhibit 3(i) to the Company's Form 10 dated October 7, 1991, as
amended on January 29, 1992 and March 2, 1992, Exhibit 3(i) to the Company's 10-K
for the period ended June 30, 1993 and Exhibit 3(d) of the Company's 10-K for the
transition period from July 1, 1993 to December 31, 1993).
3.3 Articles of Incorporation of The Albany Herald Publishing Company, Inc.
3.4 By-Laws of The Albany Herald Publishing Company, Inc.
3.5 Articles of Incorporation of The Rockdale Citizen Publishing Company
3.6 Bylaws of The Rockdale Citizen Publishing Company
3.7 Articles of Incorporation of WALB-TV, Inc.
3.8 By-Laws of WALB-TV, Inc.
3.9 Articles of Incorporation of WJHG-TV, Inc.
3.10 By-Laws of WJHG-TV, Inc.
3.11 Articles of Incorporation of Gray Real Estate and Development Company
3.12 By-Laws of Gray Real Estate and Development Company
3.13 Articles of Incorporation of Gray Kentucky Television, Inc.
3.14 By-Laws of Gray Kentucky Television, Inc.
3.15 Articles of Incorporation of Southwest Georgia Shoppers, Inc.
3.16 By-Laws of Southwest Georgia Shoppers, Inc.
3.17 Articles of Incorporation of KTVE, Inc.
3.18 By-Laws of KTVE, Inc.
3.19 Articles of Incorporation of WRDW-TV, Inc.
3.20 By-Laws of WRDW-TV, Inc.
4.1* Indenture for the Notes
4.2 Credit Agreement and first modification of Credit Agreement, dated as of April 22,
1994, between the Company and Bank South, N.A., and Deposit Guaranty National Bank
(incorporated by reference to Exhibit 4(i) to the Company's Form 8-K, dated
September 2, 1994).
4.3 Note Purchase Agreement and first modification of Note Purchase Agreement between
the Company and Teachers Insurance and Annuity Association of America
(incorporated by reference to Exhibit 4(ii) to the Company's Form 8-K, dated
September 2, 1994).
4.4 Second modification of Credit Agreement, dated November 30, 1994, between the
Company and Bank South, N.A. and Deposit Guaranty National Bank (incorporated by
reference to Exhibit 4(c) to the Company's Form 10-K for the year ended December
31, 1994 (the "1994 Form 10-K")).
4.5 Second modification of Note Purchase Agreement, dated November 30, 1994, between
the Company and Teachers Insurance and Annuity Association (incorporated by
reference to Exhibit 4(d) to the 1994 Form 10-K).
4.6 Third modification of Credit Agreement, dated January 6, 1995, between the Company
and Bank South, N.A. and Deposit Guaranty National Bank (incorporated by reference
to Exhibit 4(e) to the 1994 Form 10-K).
4.7 Fourth modification of Credit Agreement, dated January 27, 1995, between the
Company and Bank South, N.A. and Deposit Guaranty National Bank (incorporated by
reference to Exhibit 4(f) to the 1994 Form 10-K).
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
4.8 Third Modification of Note Purchase Agreement, dated June 15, 1995, between the
Company and Teachers Insurance and Annuity Association (incorporated by reference
to Exhibit 4(a) to the Company's Form 10-Q for the quarter ended June 30, 1995).
4.9 Form of Master Agreement, dated as of June 13, 1995, between the Company and
Society National Bank.
4.10 Amendment to Intercreditor Agreement, dated June 15, 1995, by and among the
Company, Bank South, N.A., Deposit Guaranty National Bank and Teachers Insurance
and Annuity Association (incorporated by reference to Exhibit 4(b) to the
Company's form 10-Q for the quarter ended June 30, 1995).
4.11 Fourth Modification of Note Purchase Agreement, dated as of January 3, 1996,
between the Company and Teachers Insurance Annuity Association (incorporated by
reference to Exhibit 4(h) to the Company's Form 10-K for the year ended December
31, 1995 (the "1995 10-K")).
4.12 First Consolidated Modification of Credit Agreement, dated as of January 3, 1996,
among the Company, Bank South, Deposit Guaranty National Bank and Society National
Bank (incorporated by reference to Exhibit 4(i) to the Company's Form 8-K, dated
January 18, 1996).
4.13 Note Purchase between the Company and Bull Run, dated as of January 3, 1996
(incorporated by reference to Exhibit 4(ii) to the Company's Form 8-K, dated
January 18, 1996).
5* Opinion of Proskauer Rose Goetz & Mendelsohn LLP re: validity of securities
10.1 Supplemental pension plan (incorporated by reference to Exhibit 10(a) to the
Company's Form 10 filed October 7, 1991, as amended January 29, 1992 and March 2,
1992).
10.2 Employment Agreement, between the Company and John T. Williams (incorporated by
reference to Exhibit 19 to the Company's Form 10-Q for the quarter ended March 31,
1992).
10.3 Amendment to employment agreement, between the Company and John T. Williams
(incorporated by reference to Exhibit 19(b) to the Company's Form 10-Q for the
quarter ended March 31, 1992).
10.4 Restricted stock agreement between the Company and John T. Williams (incorporated
by reference to Exhibit 19(c) to the Company's Form 10-Q for the quarter ended
March 31, 1992).
10.5 Long Term Incentive Plan (incorporated by reference to Exhibit 10(e) to the
Company's Form 10-K for the fiscal year ended June 30, 1993).
10.6 Asset Purchase Agreement between the Company and The Citizen Publishing Company,
Inc. (incorporated by reference to Exhibit 10 to the Company's Form 8-K, dated May
31, 1994).
10.7 Asset Purchase Agreement between the Company and Kentucky Central Television, Inc.
(incorporated by reference to Exhibit 10 to the Company's Form 8-K, dated
September 2, 1994).
10.8 Asset Purchase Agreement, dated January 6, 1995, between the Company and Still
Publishing, Inc. (incorporated by reference to Exhibit 10(h) to the 1994 Form
10-K).
10.9 Asset Purchase Agreement, dated April 11, 1995, between the Company, Television
Station Partners, L.P. and WRDW Associates (incorporated by reference to Exhibit
10(a) to the Company's 10-Q for the quarter ended June 30, 1995).
10.10 Capital Accumulation Plan, effective October 1, 1994 (incorporated by reference to
Exhibit 10(i) to the 1994 Form 10-K).
10.11 Employment Agreement, dated September 3, 1994, between the Company and Ralph W.
Gabbard (incorporated by reference to Exhibit 10(j) to the 1994 Form 10-K).
10.12 Asset Purchase Agreement, dated March 15, 1996, by and between the Company and
Media Acquisition Partners, L.P. (incorporated by reference to Exhibit 10(l) to
the 1995 Form 10-K).
10.13 Warrant, dated January 4, 1996, to purchase 487,500 shares of Common Stock.
10.14 Form of amendment to employment agreement between the Company and Ralph W. Gabbard,
dated January 1, 1996 (incorporated by reference to the Exhibit 10(m) 1995 Form
10-K).
10.15 Employment Agreement, dated February 12, 1996 between the Company and Robert A.
Beizer
12 Statement re computation of ratios
21 List of Subsidiaries
23.1** Consent of Ernst & Young LLP for the financial statements for Gray Communications
Systems, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
23.2* Consent of Proskauer Rose Goetz & Mendelsohn LLP (contained in opinion filed as
Exhibit 5)
23.3** Consent of Ernst & Young LLP for certain financial statements of WRDW-TV.
23.4** Consent of Ernst & Young LLP for the financial statements of the Broadcasting and
Paging Operations of John H. Phipps, Inc.
23.5** Consent of Deloitte & Touche LLP for certain financial statements of WRDW-TV.
24.1 Power of Attorney (see signature page)
25* Statement of eligibility of trustee
</TABLE>
- - - ------------------------
* To be filed by amendment
** Filed herewith
(b) The financial statement schedules filed as a part of this Registration
Statement are as follows:
Gray Communications Systems, Inc.:
Report of Independent Auditors
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted as the required information is
inapplicable or is presented in the financial statements or related
notes.
Broadcasting and Paging Operations of John H. Phipps, Inc.:
Report of Independent Auditors
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted as the required information is
inapplicable or its presented in the financial statements or
related notes.
ITEM 17 UNDERTAKINGS
Each of the undersigned registrants hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of a
registrant pursuant to the provisions described in Item 15, or otherwise, each
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by a
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, each registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 10th day of May, 1996.
GRAY COMMUNICATIONS SYSTEMS, INC.
By: /s/ RALPH W. GABBARD
-----------------------------------
Ralph W. Gabbard
PRESIDENT
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------------------------------ ----------------------------------------- --------------
<C> <S> <C>
/s/ RALPH W. GABBARD
------------------------------------------- President and Director (principal May 10, 1996
Ralph W. Gabbard executive officer)
/s/ WILLIAM A. FIELDER III
------------------------------------------- Vice President and Chief Financial May 10, 1996
William A. Fielder III Officer (principal financial officer)
/s/ SABRA H. COWART Controller and Chief Accounting
------------------------------------------- Officer (principal accounting May 10, 1996
Sabra H. Cowart officer)
*
------------------------------------------- Director May 10, 1996
Richard L. Boger
*
------------------------------------------- Director May 10, 1996
Hilton H. Howell, Jr.
*
------------------------------------------- Director May 10, 1996
William E. Mayher III
*
------------------------------------------- Director May 10, 1996
Howell W. Newton
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------------------------------ ----------------------------------------- --------------
<C> <S> <C>
*
------------------------------------------- Director May 10, 1996
Robert S. Prather, Jr.
*
------------------------------------------- Director May 10, 1996
J. Mack Robinson
/s/ WILLIAM A. FIELDER III
-------------------------------------------
William A. Fielder III May 10, 1996
*Attorney-in-fact
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 10th day of May, 1996.
THE ALBANY HERALD PUBLISHING COMPANY,
INC.
By: /s/ RALPH W. GABBARD
-----------------------------------
Ralph W. Gabbard
CHAIRMAN OF THE BOARD
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------------------------------ ----------------------------------------- --------------
<C> <S> <C>
/s/ RALPH W. GABBARD
------------------------------------------- Chairman of the Board May 10, 1996
Ralph W. Gabbard (principal executive officer)
/s/ WILLIAM A. FIELDER III Vice President and Chief Financial
------------------------------------------- Officer (principal financial and May 10, 1996
William A. Fielder III accounting officer)
*
------------------------------------------- Director May 10, 1996
Richard L. Boger
*
------------------------------------------- Director May 10, 1996
Hilton H. Howell, Jr.
*
------------------------------------------- Director May 10, 1996
William E. Mayher III
*
------------------------------------------- Director May 10, 1996
Howell W. Newton
*
------------------------------------------- Director May 10, 1996
Robert S. Prather, Jr.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------------------------------ ----------------------------------------- --------------
<C> <S> <C>
*
------------------------------------------- Director May 10, 1996
J. Mack Robinson
/s/ WILLIAM A. FIELDER III
-------------------------------------------
William A. Fielder III May 10, 1996
*Attorney-in-fact
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 10th day of May, 1996.
THE ROCKDALE CITIZEN PUBLISHING
COMPANY
By /s/ RALPH W. GABBARD
------------------------------------
Ralph W. Gabbard
CHAIRMAN OF THE BOARD
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - -------------------------------------------- --------------------------------- -----------
<C> <S> <C>
/s/ RALPH W. GABBARD
- - - ------------------------------------------- Chairman of the Board May 10,
Ralph W. Gabbard (principal executive officer) 1996
Vice President and Chief
/s/ WILLIAM A. FIELDER III Financial Officer (principal May 10,
- - - ------------------------------------------- financial and accounting 1996
William A. Fielder III officer)
*
- - - ------------------------------------------- Director May 10,
Richard L. Boger 1996
*
- - - ------------------------------------------- Director May 10,
Hilton H. Howell, Jr. 1996
*
- - - ------------------------------------------- Director May 10,
William E. Mayher III 1996
*
- - - ------------------------------------------- Director May 10,
Howell W. Newton 1996
*
- - - ------------------------------------------- Director May 10,
Robert S. Prather, Jr. 1996
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - -------------------------------------------- --------------------------------- -----------
<C> <S> <C>
*
- - - ------------------------------------------- Director May 10,
J. Mack Robinson 1996
/s/ WILLIAM A. FIELDER III
- - - ------------------------------------------- May 10,
William A. Fielder III 1996
*Attorney-in-fact
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 10th day of May, 1996.
WALB-TV, INC.
By: /s/ RALPH W. GABBARD
-----------------------------------
Ralph W. Gabbard
CHAIRMAN OF THE BOARD
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - -------------------------------------------- ---------------------------- ----------------
<C> <S> <C>
/s/ RALPH W. GABBARD Chairman of the Board
- - - ------------------------------------------- (principal executive May 10, 1996
Ralph W. Gabbard officer)
Vice President and Chief
/s/ WILLIAM A. FIELDER III Financial Officer
- - - ------------------------------------------- (principal financial and May 10, 1996
William A. Fielder III accounting officer)
*
- - - ------------------------------------------- Director May 10, 1996
Richard L. Boger
*
- - - ------------------------------------------- Director May 10, 1996
Hilton H. Howell, Jr.
*
- - - ------------------------------------------- Director May 10, 1996
William E. Mayher III
*
- - - ------------------------------------------- Director May 10, 1996
Howell W. Newton
*
- - - ------------------------------------------- Director May 10, 1996
Robert S. Prather, Jr.
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - -------------------------------------------- ---------------------------- ----------------
<C> <S> <C>
*
- - - ------------------------------------------- Director May 10, 1996
J. Mack Robinson
/s/ WILLIAM A. FIELDER III
- - - -------------------------------------------
William A. Fielder III
*Attorney-in-fact May 10, 1996
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 10th day of May, 1996.
WJHG-TV, INC.
By /s/ RALPH W. GABBARD
------------------------------------
Ralph W. Gabbard
CHAIRMAN OF THE BOARD
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
/s/ RALPH W. GABBARD Chairman of the Board May 10, 1996
------------------------------------------- (principal executive officer)
Ralph W. Gabbard
/s/ WILLIAM A. FIELDER III Vice President and Chief Financial May 10, 1996
------------------------------------------- Officer (principal financial and
William A. Fielder III accounting officer)
* Director May 10, 1996
-------------------------------------------
Richard L. Boger
* Director May 10, 1996
-------------------------------------------
Hilton H. Howell, Jr.
* Director May 10, 1996
-------------------------------------------
William E. Mayher III
* Director May 10, 1996
-------------------------------------------
Howell W. Newton
* Director May 10, 1996
-------------------------------------------
Robert S. Prather, Jr.
</TABLE>
II-13
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
* Director May 10, 1996
-------------------------------------------
J. Mack Robinson
/s/ WILLIAM A. FIELDER III
-------------------------------------------
William A. Fielder III
*Attorney-in-fact May 10, 1996
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 10th day of May, 1996.
GRAY REAL ESTATE &
DEVELOPMENT COMPANY
By /s/ RALPH W. GABBARD
------------------------------------
Ralph W. Gabbard
CHAIRMAN OF THE BOARD
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
/s/ RALPH W. GABBARD
------------------------------------------- Chairman of the Board May 10, 1996
Ralph W. Gabbard (principal executive officer)
/s/ WILLIAM A. FIELDER III Vice President and Chief Financial
------------------------------------------- Officer (principal financial and May 10, 1996
William A. Fielder III accounting officer)
*
------------------------------------------- Director May 10, 1996
Richard L. Boger
*
------------------------------------------- Director May 10, 1996
Hilton H. Howell, Jr.
*
------------------------------------------- Director May 10, 1996
William E. Mayher III
*
------------------------------------------- Director May 10, 1996
Howell W. Newton
*
------------------------------------------- Director May 10, 1996
Robert S. Prather, Jr.
</TABLE>
II-15
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
*
------------------------------------------- Director May 10, 1996
J. Mack Robinson
/s/ WILLIAM A. FIELDER III
-------------------------------------------
William A. Fielder III
*Attorney-in-fact May 10, 1996
</TABLE>
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 10th day of May, 1996.
GRAY KENTUCKY TELEVISION, INC.
By /s/ RALPH W. GABBARD
------------------------------------
Ralph W. Gabbard
CHAIRMAN OF THE BOARD
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
/s/ RALPH W. GABBARD
------------------------------------------- Chairman of the Board May 10, 1996
Ralph W. Gabbard (principal executive officer)
/s/ WILLIAM A. FIELDER III Vice President and Chief Financial
------------------------------------------- Officer (principal financial and May 10, 1996
William A. Fielder III accounting officer)
*
------------------------------------------- Director May 10, 1996
Richard L. Boger
*
------------------------------------------- Director May 10, 1996
Hilton H. Howell, Jr.
*
------------------------------------------- Director May 10, 1996
William E. Mayher III
*
------------------------------------------- Director May 10, 1996
Howell W. Newton
*
------------------------------------------- Director May 10, 1996
Robert S. Prather, Jr.
</TABLE>
II-17
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
*
------------------------------------------- Director May 10, 1996
J. Mack Robinson
/s/ WILLIAM A. FIELDER III
-------------------------------------------
William A. Fielder III May 10, 1996
* Attorney-in-fact
</TABLE>
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 10th day of May, 1996.
THE SOUTHWEST GEORGIA SHOPPER, INC.
By /s/ RALPH W. GABBARD
------------------------------------
Ralph W. Gabbard
CHAIRMAN OF THE BOARD
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
/s/ RALPH W. GABBARD
------------------------------------------- Chairman of the Board May 10, 1996
Ralph W. Gabbard (principal executive officer)
/s/ WILLIAM A. FIELDER III Vice President and Chief Financial
------------------------------------------- Officer (principal financial and May 10, 1996
William A. Fielder III accounting officer)
*
------------------------------------------- Director May 10, 1996
Richard L. Boger
*
------------------------------------------- Director May 10, 1996
Hilton H. Howell, Jr.
*
------------------------------------------- Director May 10, 1996
William E. Mayher III
*
------------------------------------------- Director May 10, 1996
Howell W. Newton
*
------------------------------------------- Director May 10, 1996
Robert S. Prather, Jr.
</TABLE>
II-19
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
*
------------------------------------------- Director May 10, 1996
J. Mack Robinson
/s/ WILLIAM A. FIELDER III
-------------------------------------------
William A. Fielder III May 10, 1996
* Attorney-in-fact
</TABLE>
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 10th day of May, 1996.
WRDW-TV, INC.
By /s/ RALPH W. GABBARD
------------------------------------
Ralph W. Gabbard
CHAIRMAN OF THE BOARD
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
/s/ RALPH W. GABBARD
------------------------------------------- Chairman of the Board May 10, 1996
Ralph W. Gabbard (principal executive officer)
/s/ WILLIAM A. FIELDER III Vice President and Chief Financial
------------------------------------------- Officer (principal financial and May 10, 1996
William A. Fielder III accounting officer)
*
------------------------------------------- Director May 10, 1996
Richard L. Boger
*
------------------------------------------- Director May 10, 1996
Hilton H. Howell, Jr.
*
------------------------------------------- Director May 10, 1996
William E. Mayher III
*
------------------------------------------- Director May 10, 1996
Howell W. Newton
*
------------------------------------------- Director May 10, 1996
Robert S. Prather, Jr.
</TABLE>
II-21
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
*
------------------------------------------- Director May 10, 1996
J. Mack Robinson
/s/ WILLIAM A. FIELDER III
-------------------------------------------
William A. Fielder III May 10, 1996
* Attorney-in-fact
</TABLE>
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 10th day of May, 1996.
KTVE, INC.
By /s/ RALPH W. GABBARD
------------------------------------
Ralph W. Gabbard
CHAIRMAN OF THE BOARD
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
/s/ RALPH W. GABBARD
------------------------------------------- Chairman of the Board May 10, 1996
Ralph W. Gabbard (principal executive officer)
/s/ WILLIAM A. FIELDER III Vice President and Chief Financial
------------------------------------------- Officer (principal financial and May 10, 1996
William A. Fielder III accounting officer)
*
------------------------------------------- Director May 10, 1996
Richard L. Boger
*
------------------------------------------- Director May 10, 1996
Hilton H. Howell, Jr.
*
------------------------------------------- Director May 10, 1996
William E. Mayher III
*
------------------------------------------- Director May 10, 1996
Howell W. Newton
*
------------------------------------------- Director May 10, 1996
Robert S. Prather, Jr.
</TABLE>
II-23
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
*
------------------------------------------- Director May 10, 1996
J. Mack Robinson
/s/ WILLIAM A. FIELDER
-------------------------------------------
William A. Fielder III May 10, 1996
* Attorney-in-fact
</TABLE>
II-24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Gray Communications
Systems, Inc. as of December 31, 1995 and 1994, and for each of the three years
in the period ended December 31, 1995, and have issued our report thereon dated
February 14, 1996 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 16(b) of
Amendment No. 1 to this Registration Statement. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Columbus, Georgia
February 14, 1996
II-25
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- - - ----------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- - - ----------------------------------------------------------------------------------------------------------------------
ADDITIONS
--------------------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO BALANCE AT END
DESCRIPTION PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS(1) OF PERIOD
- - - -------------------------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
Allowance for doubtful
accounts $453,000 $187,000 $(83,000) $205,000 $352,000
--------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- ---------------
Year Ended December 31, 1994
Allowance for doubtful
accounts $352,000 $211,000 $360,000(2) $229,000 $694,000
--------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- ---------------
Year Ended December 31, 1995
Allowance for doubtful
accounts $694,000 $384,000 $33,000(2) $661,000 $450,000
--------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- ---------------
</TABLE>
- - - ------------------------
(1) Deductions are write-offs of amounts not considered collectible.
(2) Represents amounts recorded in certain allocations of purchase prices for
the Company's acquisitions.
II-26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the financial statements of the Broadcasting and Paging
Operations of John H. Phipps, Inc. as of December 31, 1995 and 1994, and for
each of the three years in the period ended December 31, 1995, and have issued
our reports thereon dated February 19, 1996 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedule listed in Item 16(b) of Amendment No. 1 to this Registration Statement.
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Atlanta, Georgia
February 19, 1996
II-27
<PAGE>
BROADCASTING AND PAGING OPERATIONS OF JOHN H. PHIPPS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- - - ---------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- - - ---------------------------------------------------------------------------------------------------------------------
ADDITIONS
--------------------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO BALANCE AT END
DESCRIPTION PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS(1) OF PERIOD
- - - -------------------------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
Allowance for doubtful
accounts $45,000 $99,000 -- $95,000 $49,000
--------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- ---------------
Year Ended December 31, 1994
Allowance for doubtful
accounts $49,000 $53,000 -- $53,000 $49,000
--------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- ---------------
Year Ended December 31, 1995
Allowance for doubtful
accounts $49,000 $38,000 -- $38,000 $49,000
--------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- ---------------
</TABLE>
- - - ------------------------
(1) Deductions are write-offs of amounts not considered collectible.
II-28
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- - - ----------- ---------------------------------------------------------------------------- ---
<C> <S> <C>
1* Form of Underwriting Agreement..............................................
3.1 Articles of Incorporation of Gray Communications Systems, Inc., as amended
(incorporated by references to Exhibit 3 to the Company's Form 10 dated
October 7, 1991, as amended on January 29, 1992 and March 2, 1992, and
Exhibit 3(i) to the Company's Form 10-K for the fiscal year ended June 30,
1993)......................................................................
3.2 By-Laws of Gray Communications Systems, Inc., as amended (incorporated by
references to Exhibit 3(i) to the Company's Form 10 dated October 7, 1991,
as amended on January 29, 1992 and March 2, 1992, Exhibit 3(i) to the
Company's 10-K for the period ended June 30, 1993 and Exhibit 3(d) of the
Company's 10-K for the transition period from July 1, 1993 to December 31,
1993)......................................................................
3.3 Articles of Incorporation of The Albany Herald Publishing Company, Inc......
3.4 By-Laws of The Albany Herald Publishing Company, Inc........................
3.5 Articles of Incorporation of The Rockdale Citizen Publishing Company........
3.6 Bylaws of The Rockdale Citizen Publishing Company...........................
3.7 Articles of Incorporation of WALB-TV, Inc...................................
3.8 By-Laws of WALB-TV, Inc.....................................................
3.9 Articles of Incorporation of WJHG-TV, Inc...................................
3.10 By-Laws of WJHG-TV, Inc.....................................................
3.11 Articles of Incorporation of Gray Real Estate and Development Company.......
3.12 By-Laws of Gray Real Estate and Development Company.........................
3.13 Articles of Incorporation of Gray Kentucky Television, Inc..................
3.14 By-Laws of Gray Kentucky Television, Inc....................................
3.15 Articles of Incorporation of Southwest Georgia Shoppers, Inc................
3.16 By-Laws of Southwest Georgia Shoppers, Inc..................................
3.17 Articles of Incorporation of KTVE, Inc......................................
3.18 By-Laws of KTVE, Inc........................................................
3.19 Articles of Incorporation of WRDW-TV, Inc...................................
3.20 By-Laws of WRDW-TV, Inc.....................................................
4.1* Indenture for the Notes.....................................................
4.2 Credit Agreement and first modification of Credit Agreement, dated as of
April 22, 1994, between the Company and Bank South, N.A., and Deposit
Guaranty National Bank (incorporated by reference to Exhibit 4(i) to the
Company's Form 8-K, dated September 2, 1994)...............................
4.3 Note Purchase Agreement and first modification of Note Purchase Agreement
between the Company and Teachers Insurance and Annuity Association of
America (incorporated by reference to Exhibit 4(ii) to the Company's Form
8-K, dated September 2, 1994)..............................................
4.4 Second modification of Credit Agreement, dated November 30, 1994, between
the Company and Bank South, N.A. and Deposit Guaranty National Bank
(incorporated by reference to Exhibit 4(c) to the Company's Form 10-K for
the year ended December 31, 1994 (the "1994 Form 10-K"))...................
4.5 Second modification of Note Purchase Agreement, dated November 30, 1994,
between the Company and Teachers Insurance and Annuity Association
(incorporated by reference to Exhibit 4(d) to the 1994 Form 10-K)..........
4.6 Third modification of Credit Agreement, dated January 6, 1995, between the
Company and Bank South, N.A. and Deposit Guaranty National Bank
(incorporated by reference to Exhibit 4(e) to the 1994 Form 10-K)..........
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- - - ----------- ---------------------------------------------------------------------------- ---
<C> <S> <C>
4.7 Fourth modification of Credit Agreement, dated January 27, 1995, between the
Company and Bank South, N.A. and Deposit Guaranty National Bank
(incorporated by reference to Exhibit 4(f) to the 1994 Form 10-K)..........
4.8 Third Modification of Note Purchase Agreement, dated June 15, 1995, between
the Company and Teachers Insurance and Annuity Association (incorporated by
reference to Exhibit 4(a) to the Company's Form 10-Q for the quarter ended
June 30, 1995).............................................................
4.9 Form of Master Agreement, dated as of June 13, 1995, between the Company and
Society National Bank......................................................
4.10 Amendment to Intercreditor Agreement, dated June 15, 1995, by and among the
Company, Bank South, N.A., Deposit Guaranty National Bank and Teachers
Insurance and Annuity Association (incorporated by reference to Exhibit
4(b) to the Company's form 10-Q for the quarter ended June 30, 1995).......
4.11 Fourth Modification of Note Purchase Agreement, dated as of January 3, 1996,
between the Company and Teachers Insurance Annuity Association
(incorporated by reference to Exhibit 4(h) to the Company's Form 10-K for
the year ended December 31, 1995 (the "1995 10-K"))........................
4.12 First Consolidated Modification of Credit Agreement, dated as of January 3,
1996, among the Company, Bank South, Deposit Guaranty National Bank and
Society National Bank (incorporated by reference to Exhibit 4(i) to the
Company's Form 8-K, dated January 18, 1996)................................
4.13 Note Purchase between the Company and Bull Run, dated as of January 3, 1996
(incorporated by reference to Exhibit 4(ii) to the Company's Form 8-K,
dated January 18, 1996)....................................................
5* Opinion of Proskauer Rose Goetz & Mendelsohn LLP re: validity of
securities.................................................................
10.1 Supplemental pension plan (incorporated by reference to Exhibit 10(a) to the
Company's Form 10 filed October 7, 1991, as amended January 29, 1992 and
March 2, 1992).............................................................
10.2 Employment Agreement, between the Company and John T. Williams (incorporated
by reference to Exhibit 19 to the Company's Form 10-Q for the quarter ended
March 31, 1992)............................................................
10.3 Amendment to employment agreement, between the Company and John T. Williams
(incorporated by reference to Exhibit 19(b) to the Company's Form 10-Q for
the quarter ended March 31, 1992)..........................................
10.4 Restricted stock agreement between the Company and John T. Williams
(incorporated by reference to Exhibit 19(c) to the Company's Form 10-Q for
the quarter ended March 31, 1992)..........................................
10.5 Long Term Incentive Plan (incorporated by reference to Exhibit 10(e) to the
Company's Form 10-K for the fiscal year ended June 30, 1993)...............
10.6 Asset Purchase Agreement between the Company and The Citizen Publishing
Company, Inc. (incorporated by reference to Exhibit 10 to the Company's
Form 8-K, dated May 31, 1994)..............................................
10.7 Asset Purchase Agreement between the Company and Kentucky Central
Television, Inc. (incorporated by reference to Exhibit 10 to the Company's
Form 8-K, dated September 2, 1994).........................................
10.8 Asset Purchase Agreement, dated January 6, 1995, between the Company and
Still Publishing, Inc. (incorporated by reference to Exhibit 10(h) to the
1994 Form 10-K)............................................................
10.9 Asset Purchase Agreement, dated April 11, 1995, between the Company,
Television Station Partners, L.P. and WRDW Associates (incorporated by
reference to Exhibit 10(a) to the Company's 10-Q for the quarter ended June
30, 1995)..................................................................
10.10 Capital Accumulation Plan, effective October 1, 1994 (incorporated by
reference to Exhibit 10(i) to the 1994 Form 10-K)..........................
10.11 Employment Agreement, dated September 3, 1994, between the Company and Ralph
W. Gabbard (incorporated by reference to Exhibit 10(j) to the 1994 Form
10-K)......................................................................
10.12 Asset Purchase Agreement, dated March 15, 1996, by and between the Company
and Media Acquisition Partners, L.P. (incorporated by reference to Exhibit
10(l) to the 1995 Form 10-K)...............................................
10.13 Warrant, dated January 4, 1996, to purchase 487,500 shares of Common
Stock......................................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- - - ----------- ---------------------------------------------------------------------------- ---
<C> <S> <C>
10.14 Form of amendment to employment agreement between the Company and Ralph W.
Gabbard, dated January 1, 1996 (incorporated by reference to the Exhibit
10(m) 1995 Form 10-K)......................................................
10.15 Employment Agreement, dated February 12, 1996 between the Company and Robert
A. Beizer..................................................................
12 Statement re computation of ratios..........................................
21 List of Subsidiaries........................................................
23.1** Consent of Ernst & Young LLP for the financial statements for Gray
Communications Systems, Inc................................................
23.2* Consent of Proskauer Rose Goetz & Mendelsohn LLP (contained in opinion filed
as Exhibit 5)..............................................................
23.3** Consent of Ernst & Young LLP for certain financial statements of WRDW-TV....
23.4** Consent of Ernst & Young LLP for the financial statements of the
Broadcasting and Paging Operations of John H. Phipps, Inc..................
23.5** Consent of Deloitte & Touche LLP for certain financial statements of
WRDW-TV....................................................................
24.1 Power of Attorney (see signature page)......................................
25* Statement of eligibility of trustee.........................................
</TABLE>
- - - ------------------------
* To be filed by amendment
** Filed herewith
<PAGE>
EXHIBIT 23.1
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 14, 1996, in Amendment No. 1 to the
Registration Statement (Form S-1) and related Prospectus of Gray Communications
Systems, Inc. dated May 13, 1996.
ERNST & YOUNG LLP
Columbus, Georgia
May 13, 1996
<PAGE>
EXHIBIT 23.3
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 26, 1996 with respect to the financial
statements of WRDW-TV included in Amendment No. 1 to the Registration Statement
(Form S-1) and related Prospectus of Gray Communications Systems, Inc. dated May
13, 1996.
ERNST & YOUNG LLP
Atlanta, Georgia
May 13, 1996
<PAGE>
EXHIBIT 23.4
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 19, 1996 with respect to the financial
statements of the Broadcasting and Paging Operations of John H. Phipps, Inc.
included in Amendment No. 1 to the Registration Statement (Form S-1) and related
Prospectus of Gray Communications Systems, Inc. dated May 13, 1996.
ERNST & YOUNG LLP
Atlanta, Georgia
May 13, 1996
<PAGE>
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-4338 of Gray Communications Systems, Inc. of our report dated May 12, 1995
on the balance sheet of WRDW-TV (an operating station of Television Station
Partners, L.P.), as of December 31, 1994 and the related statements of income,
partnership's equity and cash flows for the years ended December 31, 1993 and
1994, appearing in the Prospectus, which is a part of such Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
New York, New York
May 13, 1996
