<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
P.O. BOX 48
ALBANY, GEORGIA 31702-0048
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------
The 1997 Annual Meeting of Shareholders of Gray Communications Systems, Inc.
(the "Company") will be held at The Peachtree Insurance Center, The Executive
Board Room, 5th Floor, 4370 Peachtree Road, N.E., Atlanta, Georgia on the 1st
day of May, 1997 at 9:30 a.m., local time, for the following purposes:
(1) To elect seven directors to hold office until their successors have been
duly elected and qualified;
(2) To approve the appointment of Ernst & Young LLP as the independent
auditors of the Company and its subsidiaries for the year ending December
31, 1997; and
(3) To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Only holders of record of Class A Common Stock and Class B Common Stock at
the close of business on March 21, 1997 will be entitled to notice of and to
vote at this meeting or any adjournment or adjournments thereof. The transfer
books of the Company will not be closed.
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THIS MEETING IN ORDER THAT
THE PRESENCE OF A QUORUM BE ASSURED. ENCLOSED IS A FORM OF PROXY WHICH, IF YOU
DO NOT EXPECT TO ATTEND IN PERSON, YOU ARE URGED TO SIGN AND FORWARD TO THE
SECRETARY IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES.
By Order of the Board of Directors,
Robert A. Beizer
SECRETARY
Albany, Georgia
April 9, 1997
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
P.O. BOX 48
ALBANY, GEORGIA 31702-0048
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 1, 1997
------------------------
SOLICITATION AND REVOCABILITY OF PROXY
The enclosed proxy is solicited by the Board of Directors of Gray
Communications Systems, Inc. (the "Company") in connection with the Annual
Meeting of Shareholders to be held at The Peachtree Insurance Center, The
Executive Board Room, 5th Floor, 4370 Peachtree Road, N.E., Atlanta, Georgia on
the 1st day of May, 1997 at 9:30 a.m., local time, and at any adjournments
thereof.
The approximate date on which this Proxy Statement and form of proxy are
first being sent or given to shareholders is April 9, 1997.
You are requested to sign and complete the enclosed proxy and return it in
the enclosed envelope. Any person giving this proxy has the power to revoke it
at any time before it is exercised by delivering to the Company a written
instrument revoking it or a duly executed proxy bearing a later date. The proxy
will also be revoked if the person or persons executing it shall be present at
the meeting and elect to vote in person. If the proxy is not revoked or
suspended, the shares represented by the proxy will be voted as specified at the
meeting. All proxies received pursuant to this solicitation will be voted except
as to matters where authority to vote is specifically withheld and, where a
choice is specified as to the proposal, they will be voted in accordance with
such specification. If no instructions are given, the persons named in the proxy
solicited by the Board of Directors of the Company intend to vote for the
nominees for election as directors of the Company listed herein and for approval
of the proposal stated in the accompanying Notice and described herein.
The Board of Directors of the Company is not aware of any matter that may
come before the meeting other than the proposal stated in the accompanying
Notice and described herein. No director has informed management that he intends
to oppose any action to be taken at the meeting. If any other matter is properly
presented to the meeting for action, the individuals named in the proxy will
have discretionary authority to vote on such matter.
The cost of soliciting proxies will be borne by the Company, which may
reimburse brokers and others for their expenses incurred in obtaining voting
instructions from beneficial owners of Class A Common Stock, no par value (the
"Class A Common Stock"), and Class B Common Stock, no par value (the "Class B
Common Stock"), of the Company held of record by such brokers and others.
OUTSTANDING CAPITAL STOCK
The record date for shareholders entitled to vote at the meeting is the
close of business on March 21, 1997. At the close of business on that date, the
Company had issued and outstanding 4,496,402 shares of Class A Common Stock and
3,332,382 shares of Class B Common Stock, which constitute the only voting
securities of the Company.
QUORUM AND VOTING
Only owners of record of the Class A Common and Class B Common Stock at the
close of business on the record date will be entitled to vote at this meeting.
Each owner of record on the record date of Class A Common Stock is entitled to
10 votes for each share of Class A Common Stock so held and each owner of record
on the record date of Class B Common Stock is entitled to one vote for each
share of Class B Common Stock so held. The presence, in person or by proxy, of
the holders of a majority of the votes entitled to be cast by the holders of the
outstanding shares of Class A Common Stock and Class B Common Stock shall
constitute a quorum at a meeting of the shareholders. Shares represented by
proxies that withhold authority to vote for a nominee for director or indicate
an abstention or a "broker non-vote"
<PAGE>
(i.e., shares represented at the meeting held by brokers or shareholder nominees
as to which (i) instructions have not been received from the beneficial owners
thereof or persons entitled to vote such shares and (ii) the broker or nominee
does not have the discretionary voting power on a particular matter with respect
to such shares) will count as shares present and entitled to vote for purposes
of determining the presence of a quorum. Except with respect to the election of
directors, which is by a plurality of votes cast, other matters submitted to
shareholder vote will be approved if a quorum is present in person or by proxy
and a majority of the votes cast on a particular matter are cast in favor of
that matter. Abstentions and broker non-votes are not counted as votes cast on
any matter to which they relate.
ELECTION OF DIRECTORS
(ITEM ONE)
It is intended that the shares represented by the enclosed proxy will be
voted for the election of the seven nominees for director named in this section
unless otherwise specified. The seven director nominees listed below, all of
whom currently serve as directors, have been nominated to serve as directors
until the next annual election of directors and until their respective
successors are duly elected and qualified. If any nominee for director should
become unavailable, which is not anticipated, it is intended that such shares
subject to proxy will be voted for such substitute nominees as may be nominated
by the Board of Directors. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR"
ALL THE NOMINEES.
NOMINEES
Set forth below is certain information with respect to the nominees.
RICHARD L. BOGER DIRECTOR SINCE 1991 AGE: 50
Richard L. Boger has been President and Chief Executive Officer of Export
Insurance Services, Inc., an insurance organization, and a Director of CornerCap
Group of Funds, a "Series" investment company since prior to 1992. Mr. Boger is
a member of the Executive Committee and Management Personnel Committee of the
Board of Directors.
HILTON H. HOWELL, JR. DIRECTOR SINCE 1993 AGE: 35
Hilton H. Howell, Jr. 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
and Casualty Insurance Company since 1994, and Executive Vice President of
Bankers Fidelity Life Insurance Company and Georgia Casualty & Surety Company
since 1992. In addition, since 1994, he has served as Vice President and
Secretary of Bull Run Corporation, a designer and manufacturer of dot matrix
printers. He is also a director of the following corporations: Bull Run
Corporation, Atlantic American Corporation, 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.
Mr. Howell is a member of the Audit Committee. He is the son-in-law of J. Mack
Robinson.
WILLIAM E. MAYHER, III DIRECTOR SINCE 1990 AGE: 57
William E. Mayher, III has been a neurosurgeon in Albany, Georgia since
prior to 1992. Dr. Mayher is a member of the Executive Committee and has served
as Chairman of the Board of Directors since August 1993.
HOWELL W. NEWTON DIRECTOR SINCE 1991 AGE: 50
Howell W. Newton has been President and Treasurer of Trio Manufacturing Co.,
a textile manufacturing company, since prior to 1992. Mr. Newton is chairman of
the Audit Committee.
HUGH NORTON DIRECTOR SINCE 1987 AGE: 64
Hugh Norton has been President of Norco, Inc., an insurance agency, since
prior to 1992.
2
<PAGE>
ROBERT S. PRATHER, JR. DIRECTOR SINCE 1993 AGE: 52
Rober S. Prather, Jr. has been interim Executive Vice President --
Acquisitions of the Company since September 1996 and has been President and
Chief Executive Officer of Bull Run Corporation since July 1992 and a Director
of Bull Run Corporation since 1992. He is a member of the Executive Committee
and Management Personnel Committee of the Company.
J. MACK ROBINSON DIRECTOR SINCE 1993 AGE: 73
J. Mack Robinson has been interim President and Chief Executive Officer of
the Company since September 1996. He has been Chairman of the Board of Bull Run
Corporation since March 1994, Chairman of the Board and President of Delta Life
Insurance Company and Delta Fire and Casualty Insurance Company since 1958,
President of Atlantic American Corporation, an insurance holding company, from
1974 until 1995 and Chairman of the Board of Atlantic American Corporation since
1974. He is also a director of the following corporations: Bull Run Corporation,
Atlantic American Corporation, 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 and director emeritus of Wachovia Corporation. Mr.
Robinson is a member of the Executive Committee and Management Personnel
Committee of the Company. Mr. Robinson is the father-in-law of Hilton H. Howell,
Jr.
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND OTHER PRINCIPAL HOLDERS
OF THE COMPANY'S VOTING SECURITIES
The following table sets forth certain information regarding the ownership
of Class A Common Stock and Class B Common Stock as of March 21, 1997 by (i) any
person who is known to the Company to be the beneficial owner of more than five
percent of the Class A Common Stock or the Class B Common Stock, (ii) all
directors, (iii) all executive officers named in the Summary Compensation Table
herein and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK COMBINED
VOTING
BENEFICIALLY OWNED BENEFICIALLY OWNED PERCENT OF
NAME AND ADDRESS OF --------------------- -------------------- COMMON
BENEFICIAL OWNERS SHARES PERCENT SHARES PERCENT STOCK
- ------------------------------------------------------ ---------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Robert A. Beizer -- -- -- -- --
Richard L. Boger (1) 17,151 * 7,500 * *
Joseph A. Carriere (1) 4,530 * 181 -- *
William A. Fielder, III (1) 11,972 * 64 -- *
Estate of Ralph W. Gabbard (1),(2) 168,461 3.6% -- -- 3.4%
Hilton H. Howell, Jr. (1),(3),(4),(5) 1,273,240 28.3% 7,500 * 25.4%
William E. Mayher, III (1) 9,000 * 7,500 * *
Howell W. Newton (1) 1,750 * 7,500 * *
Hugh Norton (1) 9,000 * 7,500 * *
Robert S. Prather, Jr. (1),(3),(6) 1,234,840 27.5% 8,300 * 24.6 %
J. Mack Robinson (1),(3),(5),(7),(8) 1,996,030 44.4% 7,500 * 39.8 %
Thomas J. Stultz 1,500 * 600 * *
Bull Run Corporation (9) 1,211,590 27.0% -- -- 24.1%
The Capital Group Companies, Inc. (10) -- -- 200,000 6.0% *
Citicorp (11) -- -- 212,405 6.4% *
Mario J. Gabelli (12) -- -- 660,634 19.8% 1.3%
Mellon Bank Corporation (13) -- -- 300,000 9.0% *
George H. Nader (14) 240,899 5.4% -- -- 4.8%
Shapiro Capital Management Company, Inc. (15) -- -- 602,695 18.1% 1.2%
All directors and executive officers as a group (14
persons) (1)-(7),(16) 2,307,558 49.3% 54,190 1.6% 46.1%
</TABLE>
- ------------------------
* Less than 1%.
3
<PAGE>
(1) Includes options to purchase Class A Common Stock or Class B Common Stock as
follows: each of Messrs. Boger, Howell, Mayher, Newton, Norton, Prather and
Robinson -- 7,500 shares of Class B Common Stock; Mr. Carriere -- 3,750
shares of Class A Common Stock; Mr. Fielder -- 10,500 shares of Class A
Common Stock; Estate of Ralph W. Gabbard -- 45,509 shares of Class A Common
Stock.
(2) Includes 122,034 shares of Class A Common Stock granted by the Company's
Board of Directors to the estate of Mr. Gabbard due to his death. The shares
were not issued as of the March 21, 1997 record date. Subsequent to the
record date, the shares were issued to Mr. Gabbard's estate and the Company
has been informed that the shares were sold by the estate to Robert S.
Prather, Jr. in a private transaction.
(3) Includes 1,211,590 shares of Class A Common Stock owned by Bull Run
Corporation as described in footnote (9) below, because Messrs. Howell,
Prather and Robinson are directors and officers of Bull Run Corporation and
Messrs. Prather and Robinson are principal shareholders of Bull Run
Corporation and, as such, may be deemed to have the right to vote or dispose
of such shares. Each of Messrs. Howell, Prather and Robinson disclaims
beneficial ownership of the shares owned by Bull Run Corporation.
(4) Includes 39,050 shares of Class A Common Stock owned by Mr. Howell's wife,
as to which shares Mr. Howell disclaims beneficial ownership. Excludes
63,000 Class A shares held in trust for Mr. Howell's wife.
(5) Excludes as to Mr. Howell, and includes as to Mr. Robinson, an aggregate of
297,540 shares of Class A Common Stock 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 shareholder.
(6) Includes 150 shares of Class A Common Stock owned by Mr. Prather's wife, as
to which shares Mr. Prather disclaims beneficial ownership.
(7) Includes an aggregate of 256,650 shares of Class A Common Stock owned by Mr.
Robinson's wife directly and as trustee for their daughters, as to which
shares Mr. Robinson disclaims beneficial ownership. Does not include
warrants owned by Mr. Robinson and certain of his affiliates to purchase
shares of Class A Common Stock which are vested but are not exercisable
within 60 days. See "Issuance of Preferred Stock and Warrants." Mr.
Robinson's address is 4370 Peachtree Road NE, Atlanta, Georgia 30319.
(8) To comply with regulations and policies of the Federal Communications
Commission (the "FCC"), the Company is seeking the FCC's consent to the
transfer of de facto control of the Company to J. Mack Robinson, resulting
from his status as largest shareholder and his proposed continuing
involvement in management as President, Chief Executive Officer and
director. See "Certain Relationships and Related Transactions."
(9) Owned by Bull Run Corporation through its wholly-owned subsidiary, DataSouth
Computer Corporation. Does not include warrants to purchase shares of Class
A Common Stock which are vested, but are not exercisable within 60 days. See
"Issuance of Preferred Stock and Warrants." The address of Bull Run
Corporation is 4370 Peachtree Road NE, Atlanta, Georgia 30319.
(10) This information was furnished to the Company on a Schedule 13G filed by
The Capital Group Companies, Inc. and Capital Guardian Trust Company.
Capital Guardian Trust Company, a wholly owned subsidiary of The Capital
Group Companies, Inc., is the beneficial owner of these shares as a result
of its serving as the investment manager of various institutional accounts,
but has authority to vote only 66,000 Class B shares. The address of The
Capital Group Companies, Inc. and Capital Guardian Trust Company is 333
South Hope Street, Los Angeles, California 90071.
(11) This information was furnished to the Company on a Schedule 13G filed by
Citicorp and Citibank, N.A. Citibank, N.A., a wholly-owned subsidiary of
Citicorp, is the beneficial owner of these shares. The address of Citicorp
and Citibank, N.A. is 399 Park Avenue, New York, New York 10043.
(12) This information was furnished to the Company on a Schedule 13D filed by
Gabelli Funds, Inc. and also by Mario J. Gabelli and various entities which
he directly or indirectly controls or for which he acts as chief investment
officer. The Schedule 13D reports the beneficial ownership as follows:
Gabelli Funds, Inc. -- 307,000 shares; GAMCO Investors, Inc. -- 262,134
shares; Gabelli International Limited -- 90,000 shares; and Mr. Gabelli --
1,500 shares. Mr. Gabelli is deemed to have beneficial
4
<PAGE>
ownership of all of the securities listed. Gabelli Funds, Inc. is deemed to
have beneficial ownership of all of the shares except for the shares held by
Mr. Gabelli, however GAMCO Investors, Inc. only has the authority to vote
237,134 of the Class B shares beneficially held by it. The address of Mr.
Gabelli and Gabelli Funds, Inc. is One Corporate Center, Rye, New York
10580.
(13) This information was furnished to the Company on a Schedule 13G filed by
Mellon Bank Corporation. The Dreyfus Corporation, a subsidiary of Mellon
Bank Corporation, is the beneficial owner of these shares of Class B Common
Stock as the result of its serving as an investment adviser. The address of
Mellon Bank Corporation is One Mellon Bank Center, Pittsburgh, Pennsylvania
15258.
(14) Mr. Nader's address is P.O. Box 271, 1011 Fifth Avenue, West Point, Georgia
31833.
(15) This information was furnished to the Company on a Schedule 13G filed by
Shapiro Capital Management Company, Inc., an investment adviser, and also by
Samuel R. Shapiro, President, Director and majority shareholder of Shapiro
Capital Management Company, Inc. The address of Shapiro Capital Management
Company, Inc. is 3060 Peachtree Road NW, Atlanta, Georgia 30306.
(16) Includes 52,500 Class B shares issuable upon exercise of presently
exercisable options granted pursuant to the Company's Non-Qualified Stock
Option Plan for non-employee directors.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the directors,
executive officers and persons who own more than ten percent of a registered
class of a company's equity securities to file with the Securities and Exchange
Commission ("SEC") initial reports of ownership (Form 3) and reports of changes
in ownership (Forms 4 and 5) of such class of equity securities. Officers,
directors and greater than ten percent shareholders of the Company are required
by SEC regulation to furnish the Company with copies of all such Section 16(a)
reports that they file.
To the Company's knowledge, based solely on its review of the copies of such
reports furnished to the Company during the year ended December 31, 1996, all
Section 16(a) filing requirements applicable to its officers, directors and ten
percent beneficial owners were met, except that Joseph A. Carriere, Vice
President -- Television, inadvertently was late in filing his Form 5 disclosing
the purchase of 342 shares of Class A Common Stock under the Company's 401(k)
plan in 1996.
DIRECTORS COMMITTEES AND MEETINGS
Three meetings of the Board of Directors were held during the year ended
December 31, 1996. Each director of the Company attended at least 75% of the
aggregate of (i) all meetings of the Board of Directors and (ii) all meetings of
committees of the Board of Directors of which he was a member, during the year
ended December 31, 1996. In addition to the Executive Committee, the Board of
Directors has a Management Personnel Committee and an Audit Committee. The Audit
Committee is comprised of Messrs. Howell and Newton. The functions performed by
the Audit Committee include review of the affairs of the Company with its
independent auditors in determining whether in the professional opinion of such
auditors, the accounts are currently and accurately kept and the condition of
the Company corresponds therewith, as well as whether officers and employees of
the Company have provided adequate cooperation and assistance to the Company's
independent auditors for the purpose of making its deter mination. It held one
meeting during 1996.
The Management Personnel Committee is comprised of Messrs. Boger, Prather
and Robinson. Among its functions is to make recommendations with respect to
executive salaries, bonuses and compensation and to serve as the nominating
committee with respect to the principal officers and other committees of the
Board of Directors, as well as making nominations respecting membership of the
Board of Directors of the Company. The Management Personnel Committee will
consider recommendations for nominees for directorship submitted by
shareholders. Shareholders wishing to recommend director candidates for
consideration by the Management Personnel Committee may do so by writing to the
Secretary of the Company, giving the candidate's name, biographical data and
qualifications. The Management Personnel Committee met four times during the
year ended December 31, 1996.
5
<PAGE>
DIRECTOR'S COMPENSATION
Directors who are not employed by the Company received an annual fee of
$6,000 for the year ended December 31, 1996. 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 a fee of $800 for each meeting they attend. Any outside
director who served as Chairman of the Board for the year ended December 31,
1996 received 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 commi ttee thereof conducted by telephone.
For the year ending December 31, 1997, the Board of Directors approved a
recommendation by the Management Personnel Committee to increase the annual fee
to non-employee directors to $10,000 beginning in 1997 and $15,000 to any
outside director serving as Chair man of the Board.
In addition, the Company has a Non-Qualified Stock Option Plan for
non-employee directors that currently provides for the annual grant of options
to purchase up to 7,500 shares of Class B Common Stock at a price per share
equal to the market price at the time of grant. Such options are exercisable
until the end of the first month following the close of the Company's fiscal
year.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation of the
Company's former President, its Chief Executive Officer and the other executive
officers whose annual compensation exceeded $100,000 during the year ended
December 31, 1996 (the "named executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------
AWARDS
-----------------------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
---------------------------------- RESTRICTED OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARDS SARS(#) COMPENSATION
- -------------------------------- ------------ --------- --------- -------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
J. Mack Robinson 1996 -- -- -- -- --
interim President and
Chief Executive Officer
and a Director (1)
Ralph W. Gabbard, Former 1996 236,283 -- -- -- 216,592(3)
President and Director (1) 1995(2) 260,949 150,000 -- 15,000 12,628(4)
1994 76,611 168,117 1,200,000(5) 30,509 --
Thomas J. Stultz, 1996(6) 152,788 150,000 -- -- --
Vice President, President --
Publishing Division
Joseph A. Carriere, 1996 172,692 100,000 -- -- 5,698(7)
Vice President -- Television 1995 115,075 65,847 -- 3,750 878(7)
1994(8) 6,635 -- -- -- --
William A. Fielder, III, 1996 135,000 100,000 -- -- 10,568(9)
Vice President and Chief 1995 106,050 21,000 -- 3,000 9,407(10)
Financial Officer 1994 95,127 -- -- -- 6,695(11)
Robert A. Beizer, 1996(6) 169,231 -- -- 15,000(12) --
Vice President -- Law &
Development
</TABLE>
- ------------------------
(1) Mr. Gabbard died on September 10, 1996. Upon his death, Mr. Robinson was
appointed interim President and Chief Executive Officer, but received no
compensation during the year ended December 31, 1996.
(2) Mr. Gabbard was elected President and a director of the Company in December
1995 and served as such until his death in September 1996. 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.
(3) $3,750, $2,110 and $3,839 represent payments by the Company for matching
contributions to the 401(k) plan, term life insurance premiums and long term
disability premiums, respectively. $206,893 represents payments or accruals
made by the Company to the estate of Mr. Gabbard.
(4) $3,750, $2,736 and $6,142 represent payments by the Company for matching
contributions to the 401(k) plan, term life insurance premiums, and long
term disability premiums, respectively.
7
<PAGE>
(5) Mr. Gabbard had an employment agreement with the Company which provided him
with 122,034 shares of Class A Common Stock if his employment with the
Company continued until September 1999. The Company awarded these shares to
the estate of Mr. Gabbard due to his death. The shares were not issued as of
the March 21, 1997 record date. Subsequent to the record date, the shares
were issued to Mr. Gabbard's estate and the Company has been informed that
the shares were sold to Robert S. Prather, Jr. in a private transaction. The
market value of such shares at December 31, 1996 was $2,303,392.
Approximately $880,000, $240,000 and $80,000 of compensation expense was
recorded in 1996, 1995 and 1994, respectively. The Company paid no dividends
on such shares.
(6) Mr. Stultz and Mr. Beizer joined the Company in February 1996.
(7) $3,750 and $1,948 represent payments by the Company in 1996 for matching
contributions to the 401(k) plan and term life insurance premiums. $878
represents payments by the Company in 1995 for term life insurance premiums.
(8) Mr. Carriere joined the Company in November 1994.
(9) $5,765, $3,750, $414 and $639 represent payments or accruals by the Company
for supplemental retirement benefits, matching contributions to the 401(k)
plan, term life insurance premiums and long term disability premiums,
respectively.
(10) $5,765, $2,625, $378 and $639 represent payments or accruals by the Company
for supplemental retirement benefits, matching contributions to the 401(k)
plan, term life insurance premiums and long term disability premiums,
respectively.
(11) $5,717, $338 and $640 represent payments or accruals by the company for
supplemental retirement benefits, term life insurance premiums and matching
contributions to the 401(k) plan, respectively.
(12) Represents options to purchase Class B Common Stock.
STOCK OPTIONS GRANTED
The following table contains information on stock options granted to the
Company's named executives during the year ended December 31, 1996. Under the
Company's 1992 Long Term Incentive Plan (the "Incentive Plan"), all salaried
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 issuable under the
Incentive Plan is not to exceed 600,000 shares of which 200,000 are Class A
Common Stock and 400,000 are Class B Common Stock, 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 shareholders of the Company.
The Incentive Plan is administered by the members of the Management
Personnel Committee of the Board of Directors 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
Management Personnel 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.
8
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
% OF TOTAL STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OR OPTION TERM (1)
UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME OPTIONS GRANTED FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ------------------- ---------------- --------------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Beizer 15,000(2) 100 15.875 12/12/2001 65,790 145,378
</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 B Common Stock over the term of the options. These numbers are
calculated based on rules promulgated by the SEC and do not reflect the
Company's estimate of future stock price growth. Actual gains, if any, on
stock option exercises and Class B Common Stock holdings are dependent on
the timing of such exercise and the future performance of the Class B 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.
(2) Represents options to purchase Class B Common Stock.
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 1996. All of these options entitle the holder thereof to purchase shares
of Class A Common Stock, except that Mr. Beizer's options entitle him to
purchase shares of Class B Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
CLOSING UNEXERCISABLE EXERCISABLE
EXERCISABLE UNEXERCISABLE EXERCISE PRICE IN-THE-MONEY IN-THE-MONEY
NAME OPTIONS OPTIONS PRICE @12/31/96 OPTIONS OPTIONS
- ------------------------- ----------- ------------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ralph W. Gabbard 30,509 $ 9.67 $ 18.875 $ 280,936
15,000 $ 13.33 $ 18.875 83,126
----------- ------ ------------- ------------
45,509 0 $ 0 $ 364,062
----------- ------ ------------- ------------
----------- ------ ------------- ------------
William A. Fielder, III 7,500 $ 9.67 $ 18.875 $ 69,062
3,000 $ 13.33 $ 18.875 $ 16,625
----------- ------ ------------- ------------
----------- ------ ------------- ------------
7,500 3,000 $ 16,625 $ 69,062
----------- ------ ------------- ------------
----------- ------ ------------- ------------
Joseph A. Carriere 0 3,750 $ 13.33 $ 18.875 $ 20.781 $ 0
----------- ------ ------------- ------------
----------- ------ ------------- ------------
Robert A. Beizer 0 15,000 $ 15.875 $ 17.000 $ 16,875 $ 0
----------- ------ ------------- ------------
----------- ------ ------------- ------------
</TABLE>
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.
9
<PAGE>
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 and 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
10 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,
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........................................ $ 1,329 $ 1,989 $ 2,649 $ 3,309 $ 3,300 $ 3,300
25,000........................................ 2,215 3,315 4,415 5,515 5,500 5,500
50,000........................................ 4,834 7,034 9,234 11,434 11,000 11,000
75,000........................................ 7,499 10,799 14,099 17,399 16,500 16,500
100,000........................................ 10,164 14,564 18,964 23,364 22,000 22,000
150,000........................................ 15,494 22,094 28,694 35,294 33,000 33,000
200,000........................................ 18,574 27,374 36,174 44,974 39,600 40,229
250,000 and above.............................. 19,758 29,404 39,050 48,696 43,406 44,095
</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 1996
differs from compensation reported in the Summary Compensation Table in that
pension compensation includes any annual incentive awards received in 1996 for
services in 1995 rather than the incentive awards paid in 1997 for services in
1996. The maximum annual compensation considered for pension benefits under the
plan in 1996 was $150,000.
As of December 31, 1996, officers of the Company with full years of actual
credited service in this plan are Mr. Fielder -- five years; and Mr. Carriere --
two years. Messrs. Beizer, Gabbard and Stultz had no full years of credited
service under the plan at December 31, 1996.
CAPITAL ACCUMULATION PLAN
Effective October 1, 1994, the Company adopted the Gray Communications
Systems, Inc. Capital Accumulation Plan (the "Capital Accumulation Plan") for
the purpose of providing additional retirement benefits for substantially all
employees. The Capital Accumulation Plan is intended to meet the requirements of
Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code").
10
<PAGE>
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
declared by the Board of Directors before the beginning of each Capital
Accumulation Plan Year and was made with a contribution of the Class A Common
Stock through the year ended December 31, 1996 and thereafter will be made with
Class B Common Stock. The percentage match declared for the year ended December
31, 1996 was 50%. The Company matching contributions vest based upon an
employee's number of years of service, over a period not to exceed five years.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
Ralph W. Gabbard, the former President of the Company who died in September
1996, and the Company were parties to an employment agreement which provided for
annual compensation of $250,000 during the term of the agreement (subject to
yearly inflation adjustment) and entitled Mr. Gabbard to certain fringe
benefits. In addition to his annual compensation, Mr. Gabbard was entitled to
participate in an annual incentive compensation plan and the Incentive Plan.
Under the annual incentive compensation plan, Mr. Gabbard was eligible to
receive additional compensation if the operating profits of the broadcasting
group of the Company reached or exceeded certain goals. Under the Incentive
Plan, Mr. Gabbard received non-qualified stock options to purchase 45,509 shares
of Class A Common Stock. These options are exercisable over a one-year period
beginning upon his death in September 1996. The exercise price for such options
is $9.67. Upon the fifth anniversary of Mr. Gabbard's employment with the
Company, Mr. Gabbard would have been entitled to receive 122,034 shares of Class
A Common Stock. Subsequent to Mr. Gabbard's death, the Board of Directors
awarded these shares to the estate of Mr. Gabbard and such shares were issued on
March 24, 1997.
In February 1996, the Board of Directors approved an amendment to Mr.
Gabbard's employment agreement to increase Mr. Gabbard's base salary from
$250,000 to $300,000, effective January 1, 1996, and to establish a new annual
compensation plan (the "Annual Compensation Plan") to be based upon the
achievement by the Company of certain operating profit, the amount of which was
to be established by the Board of Directors. Under the Annual Compensation Plan,
if the Company achieved the targeted amount of operating profit in any given
year, Mr. Gabbard would have been entitled to receive $200,000 as additional
compensation. The Annual Compensation Plan further provided that if the Company
exceeded the targeted amount of operating profit in any given year, Mr. Gabbard
would have been entitled to receive additional compensation in excess of
$200,000, as determined by the Board of Directors.
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 $145,000) 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
February 12, 1996, for a two-year term which automatically extends for three
successive one-year periods, subject to certain termination provisions. The
agreement provides that Mr. Beizer shall be employed as Vice President-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. In December, 1996, the Board of Directors approved an amendment
to Mr. Beizer's contract which replaces this option with the grant of an option
to purchase 15,000 shares of Class B Common Stock with an exercise price of
$15.875 per share. The amended Agreement provides that Mr. Beizer's base salary
shall be increased yearly based upon a cost of living index and he will receive
non-qualified options to purchase 7,000 shares of Class B Common Stock annually
during the term of the agreement at an exercise price per share equal to the
fair market value of the Class B Common Stock on the date of the grant.
Accordingly, on February 12, 1997, he was granted an option to purchase an
additional 7,000 shares of Class B Common Stock at $18.75. All options granted
are exercisable over a three-year period beginning upon the second anniversary
of the grant date. If there is a "change of control" of the Company, Mr. Beizer
will be paid a lump sum amount equal to his then current
11
<PAGE>
base salary for the remaining term of the agreement and will be granted any
remaining stock options to which he would have been entitled. For purposes of
the agreement, "change of control" is defined as any change in the control of
the Company that would be required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Securities Exchange Act of 1934. Mr. Beizer
has agreed that during the term of his agreement and for two years thereafter,
he will be subject to certain non-competition provisions.
The Management Personnel Committee recommended, and Mr. Beizer agreed, to
amend his employment contract to provide for options for Class B Common Stock
rather than Class A Common Stock since it had converted the Company's matching
contribution under the Capital Accumulation Plan and the non-employee director
options to Class B Common Stock. In an effort to make all future options
consistent, the Management Personnel Committee has recommended that all future
officer and employee executive stock options entitle the holders thereof to
purchase Class B Common Stock.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF EXERCISE ORIGINAL
SECURITIES MARKET PRICE PRICE AT OPTION TERM
UNDERLYING OF STOCK AT TIME OF REMAINING AT
OPTIONS/ SARS TIME OF REPRICING NEW DATE OF
REPRICED OR REPRICING OR OR EXERCISE REPRICING OR
NAME DATE AMENDED (#) AMENDMENT AMENDMENT PRICE($) AMENDMENT
- ------------------------------- --------- ------------- ------------ ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Beizer 12/12/96 15,000 $ 15.875 $ 19.375 $ 15.875 4 years
Vice President -- Law and
Development
</TABLE>
MANAGEMENT PERSONNEL COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The goals of the Company's executive compensation program for 1996 were to
attract, retain, motivate and reward qualified persons serving as executive
officers. To achieve such goals the Company relies primarily on salaries,
bonuses, options and other compensation for each of the Company's executive
officers, except that each of the salaries of Messrs. Gabbard and Beizer is
specified in his employment agreement with the Company. Such determinations of
the Management Personnel Committee are reported to the full Board, which then
has the opportunity to consider or amend such determinations concerning the
compensation payable to executive officers. In 1996, the full Board approved the
determinations of the Management Personnel Committee with respect to
compensation without making any changes thereto. The Management Personnel
Committee's policy for determining an executive's salary, bonus and stock option
grants is based on the responsibility of such executive, his or her impact on
the operations and profitability of the Company or the business unit for which
such executive has operating responsibility and the knowledge and experience of
such executive.
In 1996, the Management Personnel Committee utilized the foregoing criteria
to determine executive salaries, bonuses and option grants and such salaries,
bonuses and option grants are consistent with the foregoing policy. An
executive's annual bonus is based on a percentage of his or her annual base
salary. In determining the size of a bonus that an executive may earn, the
Management Personnel Committee considers the executive's responsibility,
experience, knowledge and his or her impact on Company or business unit
profitability. These considerations are subjective in nature and the Management
Personnel Committee does not assign relative weights thereto. For 1996, bonuses
ranged from 0% to 95% of an executive's base salary. Whether or not a bonus is
in fact earned by an executive is linked to the attainment, by the Company or
the business unit for which such executive has operating responsibility, of
predetermined operating profit targets based on budgeted operating revenues
(which is an objective analysis) and the individual's contribution to the
Company or the business unit (which is a subjective analysis). The operating
profit targets are approved annually by the Management Personnel Committee. When
measuring an executive's individual contribution and performance, the Management
Personnel Committee examines quantitative factors, as well as qualitative
factors that necessarily involve a subjective judgment
12
<PAGE>
by the Management Personnel Committee. In making such subjective determination,
the Management Personnel Committee does not base its determination on any single
performance factor nor does it assign relative weights to factors, but considers
a mix of factors, including evaluations of superiors, and evaluates an
individual's performance against such mix in absolute terms in relation to other
executives at the Company. In deciding whether or not to grant an option to an
individual and in determining the number of shares subject to an option so
granted, the Management Personnel Committee takes into account subjective
considerations, including the level of such executive's position and the
individual's contribution to the Company. Although the Management Personnel
Committee believes that its compensation structure is similar to that of other
comparable communications companies, it did not specifically compare such
structure with that of other companies in 1996.
Mr. Gabbard's 1996 base salary was $300,000 and the Annual Compensation Plan
was established to provide for additional annual compensation of a minimum of
$200,000 if certain operating profit levels were achieved. The Management
Personnel Committee believed that Mr. Gabbard's base salary and the incentive
bonus was consistent with the responsibilities of his position with the Company
and his performance as measured by the criteria discussed above. Such
compensation was also based on a study conducted by the Management Personnel
Committee on compensation paid by 12 other comparable television broadcasting
companies. Mr. Gabbard's annual compensation (salary and bonus) was within the
middle range of such comparable television broadcasting companies. Such study
included five of the 30 companies included in the New York Stock Exchange
Industry Index based upon the Television Broadcasting Stations Standard
Industrial Classification Code to which the Company compares the total return on
its Class A and Class B Common Stock. See "Performance Graph." Mr. Robinson does
not receive any compensation from the Company as interim President and Chief
executive Officer.
Submitted by Management Personnel Committee of the Board of Directors
Richard L. Boger, Chairman
Robert S. Prather, Jr.
J. Mack Robinson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Richard L. Boger, Robert S. Prather, Jr. and J. Mack Robinson are the
members of the Management Personnel Committee. Messrs. Robinson and Prather are
interim President and Chief Executive Officer and interim Executive Vice
President -- Acquisitions of the Company, respectively.
Gray Kentucky Television, Inc., a subsidiary of the Company ("Gray
Kentucky"), is a party to a rights sharing agreement with Host Communications,
Inc. ("Host") and certain other parties not affiliated with the Company,
pursuant to which the parties agreed to exploit Host's rights to broadcast and
market certain University of Kentucky football and basketball games and related
activities. Pursuant to such agreement, Gray Kentucky is licensed to broadcast
certain University of Kentucky football and basketball games and related
activities. Under this agreement, Gray Kentucky also provides Host with
production and certain marketing services and Host provides accounting and
various marketing services. During the year ended December 31, 1996, the Company
received approximately $300,000 from this joint venture. See "Certain
Relationships and Related Transactions" for a description of certain
relationships between Messrs. Prather and Robinson and the Company, Bull Run
Corporation, Host and CSP (as defined below).
Bull Run Corporation 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 48.9% of the Host outstanding common
stock. Bull Run Corporation also owns approximately 4.5% of Host's currently
outstanding common stock directly, thereby giving Bull Run Corporation 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. Robert S. Prather, Jr., a member of the Company's Board
of Directors, is a member of the Board of Directors of both CSP and Host.
13
<PAGE>
The Company's Board of Directors approved payments to Bull Run Corporation
of finders fees for the acquisition of all of the assets of WRDW-TV, a CBS
affiliate serving the Augusta, Georgia area (the "Augusta Acquisition") and all
the assets of two CBS-affiliated stations, WCTV-TV serving Tallahassee, Florida,
Thomasville, Georgia and WKXT-TV in Knoxville, Tennessee, a satellite
broadcasting business and a paging business (the "First American Acquisition").
The Company agreed to pay finders fees of $360,000 in connection with the
Augusta Acquisition and $1.4 million in connection with the First American
Acquisition of which $1.0 million was due and included in accounts payable at
December 31, 1996. The Company has agreed to pay Bull Run Corporation a finders
fee of $394,000 in connection with the pending acquisition of the assets of
WITN-TV, an NBC-affiliate in Washington, N.C.
On January 3, 1996, Bull Run Corporation purchased for $10.0 million from
the Company (i) an 8% subordinated note due in January 2005 (the "8% Note") and
(ii) warrants to purchase 487,500 shares of Class A Common Stock at $17.88 per
share (subject to customary antidilution provisions), 337,500 of which are
currently fully vested, with the remaining warrants vesting in four equal annual
installments commencing January 3, 1998, provided that the 8% Note is
outstanding. On January 3, 1996, the closing price of the Class A Common Stock
on The New York Stock Exchange was $17.75. The warrants (which represent 9.8% of
the issued and outstanding shares of Class A Common Stock as of the record date,
after giving effect to the exercise of such warrants) expire in January 2006.
The Company obtained a "fairness opinion" from The Robinson-Humphrey Company,
Inc., stating that the terms and conditions of the 8% Note were fair, from a
financial point of view, to the shareholders of the Company. The proceeds from
the sale of the 8% Note and the warrants were used to fund, in part, the Augusta
Acquisition for approximately $35.9 million.
ISSUANCE OF PREFERRED STOCK AND WARRANTS
As part of the public offering of 3,500,000 shares of the Company's Class B
Common Stock and $160.0 million aggregate principal amount of the Company's
senior subordinated notes due 2006 and the entering into of a new senior secured
bank credit facility to provide for a term loan and revolving credit facility
aggregating $125.0 million (the "Financing"), the 8% Note was retired and the
Company issued to Bull Run Corporation, in exchange therefor, 1,000 shares of
Series A Preferred Stock (the "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, cumulative cash dividends at an annual rate of
$800 per share. The Series A Preferred Stock has priority as to dividends over
the Class A Common Stock and Class B Common Stock (the "Common Stock") and any
other series or class of the Company's Stock which ranks junior as to dividends
as to the 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 as 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
$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, or on a parity with, 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 directors to the
Company's Board of Directors until the full dividends accumulated have been
declared and paid and (iii) as required by law. The warrants issued with the 8%
Note will vest in accordance with the schedule described above, provided that
the Series A Preferred Stock remains outstanding.
14
<PAGE>
In addition, as part of the Financing, the Company issued to Bull Run
Corporation and to J. Mack Robinson, Chairman of the Board of Bull Run
Corporation and interim President and Chief Executive Officer and a director of
the Company, and certain of his affiliates, for $10 million, 1,000 shares of
Series B Preferred Stock (the "Series B Preferred Stock" and, together with the
Series A Preferred Stock, the "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, cumulative dividends at an annual rate of $600
per share, except that the Company at its option may pay such dividends in cash
or in additional shares of Series B Preferred Stock valued, for the purpose of
determining the number of shares (or fraction thereof) of such Series B
Preferred Stock to be issued, at $10,000 per share. 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 or from
time to 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, or on a parity with, 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 directors
to the Company's Board of Directors until the full dividends accumulated have
been declared and paid and (iii) as required by law. The shares of the Series A
Preferred Stock and Series B Preferred Stock will rank PARI PASSU as to the
payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up of the Company.
In connection with the issuance of the Series B Preferred Stock as part of
the Financing, (i) the Company issued to Bull Run Corporation, J. Mack Robinson
and certain of his affiliates, warrants entitling the holder thereof to purchase
500,000 shares of Class A Common Stock at an exercise price equal to $24.00 per
share (subject to customary antidilution provisions), representing 10.0% of the
issued and outstanding shares of Class A Common Stock as of the record date,
after giving effect to the exercise of such warrants. Of these warrants, 300,000
vested upon issuance, with the remaining warrants vesting in five equal
installments commencing on the first anniversary of the date of issuance. The
warrants 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
Company obtained a written opinion from The Robinson-Humphrey Company, Inc.
stating that the terms and conditions of the Series B Preferred Stock and the
warrants are fair to the shareholders of the Company from a financial point of
view.
15
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return of the
Company's Class A Common Stock and Class B Common Stock, for the period from
March 27, 1992 and September 24, 1996 (when the Company's Class A Common Stock
and Class B Common Stock first became publicly traded, respectively) to December
31, 1996 as compared to stock market total return indexes for (i) the New York
Stock Exchange and (ii) the New York Stock Exchange Industry Index based upon
the Television Broadcasting Stations Standard Industrial Classification Code. In
July 1995, the Class A Common Stock was listed on The New York Stock Exchange.
The graph assumes that $100 was invested in the Class A Common Stock and Class B
Common Stock in each such index on March 27, 1992 and September 24, 1996,
respectively, and all dividends were reinvested.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GRAY COMMUNICATIONS SYSTEMS SIC CODE INDEX NYSE MARKET INDEX
<S> <C> <C> <C>
3/27/1992 $100.00 $100.00 $100.00
12/31/1992 145.22 109.67 108.91
12/31/1993 176.16 143.69 123.66
12/30/1994 194.91 111.67 121.26
12/29/1995 322.55 132.89 157.23
9/24/1996 370.96 139.61 176.91
12/31/1996 341.93 147.81 189.40
<CAPTION>
GRAY COMMUNICATIONS SYSTEMS B
<S> <C>
3/27/1992
12/31/1992
12/31/1993
12/30/1994
12/29/1995
9/24/1996 100.00
12/31/1996 87.29
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
J. Mack Robinson, interim President, Chief Executive Officer and a director
of the Company, is Chairman of the Board of Bull Run Corporation and the
beneficial owner of approximately 29.3% of the outstanding shares of common
stock, par value $.01 per share ("Bull Run Common Stock"), of Bull Run
Corporation (including certain shares as to which such beneficial ownership is
disclaimed by Mr. Robinson). Robert S. Prather, Jr., interim Executive Vice
President -- Acquisitions and a director of the Company, is President, Chief
Executive Officer and a director of Bull Run Corporation and the beneficial
owner of approximately 13.1% of the outstanding shares of Bull Run Common Stock
(including certain shares as to which such beneficial ownership is disclaimed by
Mr. Prather). Mr. Prather is also a member of the Board of Directors of CSP and
Host. Hilton H. Howell, Jr., a director of the Company, is Vice President,
Secretary and a director of Bull Run Corporation. See "Compensation Committee
Interlocks and Insider Participation" for a description of certain business
relationships between the Company and Messrs. Prather and Robinson, Host, CSP
and Bull Run Corporation.
In connection with the initial purchase by Bull Run Corporation and its
affiliates in 1993 of the shares owned by a former principal shareholder of the
Company, in the application for approval of that transaction by the FCC, Bull
Run Corporation and its affiliates: (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 Corporation and its affiliates have acquired the common
stock of the Company for investment purposes only and not with the intent to
control the Company; (iii) agreed not to solicit proxies for votes on matters
before the Company's shareholders; (iv) represented that no individual
affiliated with Bull Run Corporation would serve as an officer or key employee
of the Company; and (v) agreed to file an appropriate application with the FCC
in the event these circumstances were to change.
The Company has filed an application seeking approval from the FCC for the
transfer of de facto control of the Company, as defined by FCC rules and
policies, to J. Mack Robinson, an affiliate of Bull
16
<PAGE>
Run Corporation, in order that Mr. Robinson and Mr. Prather, also an affiliate
of Bull Run Corporation, can remain active in the management of the Company and
to terminate the other FCC related restrictions on Bull Run Corporation and its
affiliates.
APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS OF COMPANY
(ITEM TWO)
The Board of Directors has appointed Ernst & Young LLP, certified public
accountants, as independent auditors of the Company and its subsidiaries for the
year ending December 31, 1997. The appointment of this firm was recommended to
the Board by the Audit Committee.
Ernst & Young LLP has served the Company and its subsidiaries in this
capacity since 1967. The firm has advised the Company that neither the firm nor
any of its partners holds any direct financial interest or any material indirect
financial interest in the Company or any of its subsidiaries in the capacity of
promoter, underwriter, voting trustee, director, officer or employee.
One or more representatives of Ernst & Young LLP will be present at this
year's Annual Meeting of Shareholders, will have an opportunity to make a
statement if he or she desires to do so, and will be available to respond to
appropriate questions.
The Board of Directors recommends the appointment of Ernst & Young LLP as
independent auditors for the Company. If the appointment is not approved by a
majority of the votes cast at the meeting on this proposal, the appointment of
independent auditors will be reconsidered by the Board.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE SELECTION OF
AUDITORS.
OTHER INFORMATION
All information contained in this Proxy Statement relating to the
occupations and security holdings of directors and officers of the Company is
based upon information received from the individual directors and officers.
SHAREHOLDER PROPOSALS FOR PRESENTATION AT NEXT ANNUAL MEETING
Any proposal of a shareholder of the Company to be presented at the next
Annual Meeting of the Shareholders of the company must be received by the
Secretary of the Company at the address set forth below on or before December
10, 1997 for inclusion in the Company's proxy statement and form of proxy
relating to that meeting.
The above Notice and Proxy Statement are sent by order of the Board of
Directors.
Robert A. Beizer
SECRETARY
Dated: April 9, 1997
P.O. Box 48
Albany, Georgia 31702-0048
17
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PROXY
GRAY COMMUNICATIONS SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned does hereby constitute and appoint WILLIAM E. MAYHER, III
and J. MACK ROBINSON and each of them with power of substitution to each, the
proxies of the undersigned to vote all shares of GRAY COMMUNICATIONS SYSTEMS,
INC. which the undersigned may be entitled to vote at the Annual Meeting of its
stockholders to be held on May 1, 1997, at 9:30 a.m., local time, and at any
adjournment or adjournments thereof upon the matters described in the
accompanying Proxy Statement and upon any other business that may properly come
before the meeting or adjournment thereof. Said proxies are directed to vote or
to refrain from voting as checked below upon the following matters, and
otherwise in their discretion upon other matters in connection with the
following or otherwise as may properly come before the meeting or any
adjournment thereof.
(CONTINUED ON THE OTHER SIDE)
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1. Election of seven (7) Directors as listed below.
NOMINEES: Richard L. Boger, Hilton H. Howell, Jr., William E. Mayher, III,
Howell W. Newton, Hugh Norton, Robert S. Prather, Jr., and J.
Mack Robinson
FOR (all accept WITHHOLD
as listed AUTHORITY
below)
[ ] [ ]
(INSTRUCTIONS: To refrain from voting on any individual nominee, write that
nominee's name on the space provided below.)
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2. Proposal to approve the appointment of Ernst & Young LLP as independent
auditors of the Company and its subsidiaries for the year ending December
31, 1997.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
UNLESS OTHERWISE SPECIFIED ABOVE, THIS PROXY
SHALL BE VOTED "FOR" EACH OF THE PROPOSALS.
SIGNATURE(S)__________________SIGNATURE(S)_______________DATE____________, 1997
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
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