<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------------------
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________.
COMMISSION FILE NUMBER 1-13796
----------------------------------------
GRAY COMMUNICATIONS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
GEORGIA 52-0285030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
126 N. WASHINGTON ST. 31701
ALBANY, GA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (912) 888-9390
---------------------------------------
</TABLE>
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
<S> <C>
CLASS A COMMON STOCK (NO PAR VALUE) NEW YORK STOCK EXCHANGE
CLASS B COMMON STOCK (NO PAR VALUE) NEW YORK STOCK EXCHANGE
Title of each class Name of each exchange on which registered
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
----------------------------------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------ -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 23, 1998: CLASS A AND CLASS B COMMON STOCK; NO PAR
VALUE - $139,915,154
The number of shares outstanding of the registrant's classes of common
stock as of February 23, 1998: CLASS A COMMON STOCK; NO PAR VALUE - 4,534,195
SHARES; CLASS B COMMON STOCK, NO PAR VALUE - 3,402,755 SHARES
DOCUMENTS INCORPORATED BY REFERENCE: The registrant's definitive proxy
statement for the annual meeting of shareholders to be filed with the Commission
pursuant to Regulation 14A is incorporated by reference into part III herein.
<PAGE>
PART 1
ITEM 1. BUSINESS
AS USED HEREIN, UNLESS THE CONTEXT OTHERWISE REQUIRES, THE "COMPANY" MEANS
GRAY COMMUNICATIONS SYSTEMS, INC. AND ITS SUBSIDIARIES. THE COMPANY CONSUMMATED
THE GULFLINK ACQUISITION AND THE WITN ACQUISITION (EACH AS HEREINAFTER DEFINED)
ON APRIL 24, 1997 AND AUGUST 1, 1997, RESPECTIVELY. EXCEPT WITH RESPECT TO
HISTORICAL FINANCIAL STATEMENTS AND UNLESS THE CONTEXT INDICATES OTHERWISE, THE
GULFLINK ACQUISITION AND THE WITN ACQUISITION (AS HEREINAFTER DEFINED) ARE
INCLUDED IN THE DESCRIPTION OF THE COMPANY. UNLESS OTHERWISE INDICATED, THE
INFORMATION HEREIN HAS BEEN ADJUSTED TO GIVE EFFECT TO A 3-FOR2 SPLIT OF THE
COMPANY'S CLASS A COMMON STOCK, NO PAR VALUE (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 HEREIN ARE DERIVED FROM THE NIELSEN STATION INDEX, VIEWERS IN PROFILE,
DATED NOVEMBER 1997, AS PREPARED BY A.C. NIELSEN COMPANY ("NIELSEN").
GENERAL
The Company owns eight network-affiliated television stations in
medium-size markets in the southeastern United States (the "Southeast"), 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 three are affiliated with the NBC Television Network, a division of the
National Broadcasting Company, Incorporated ("NBC"). In connection with the
First American Acquisition (as hereinafter defined) the Company will be required
under current regulations of the Federal Communications Commission (the "FCC")
to divest its NBC affiliates in Albany, Georgia and Panama City, Florida. For a
discussion of the Company's plans regarding such divestiture, see "Divestiture
Requirements." The Company also owns and operates three daily newspapers, two
weekly, advertising only publications ("shoppers"), and a paging business, all
located in the Southeast.
In 1993 after the acquisition of a large block of the Class A Common Stock
by a new investor, the Company implemented a strategy to foster growth through
strategic acquisitions. Since January 1, 1994, the Company's significant
acquisitions have included six 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 August 1997 the Company acquired WITN-TV ("WITN"), a NBC-affiliate
serving the Greenville-Washington-New Bern, North Carolina market which is
ranked as the 106th largest designated market area ("DMA") in the United States
(the "WITN Acquisition").
In April 1997 the Company acquired (the "GulfLink Acquisition") the stock
of GulfLink Communications, Inc. ("GulfLink") of Baton Rouge, Louisiana. The
GulfLink operations include nine transportable satellite uplink trucks.
In January 1996 the Company acquired (the "Augusta Acquisition") WRDW-TV
("WRDW"), a CBS-affiliate serving Augusta, Georgia ( the "Augusta Business"). In
September 1996, the Company purchased from First American Media, Inc. (the
"First American Acquisition") substantially all of the assets of two
CBS-affiliated stations, WCTV-TV ("WCTV") serving Tallahassee,
Florida-Thomasville, Georgia and WKXT-TV ("WKXT") in Knoxville, Tennessee, a
satellite uplink business and a paging business (collectively, the "First
American Business"). Subsequent to the First American Acquisition, the Company
rebranded WKXT with the call letters WVLT ("WVLT').
2
<PAGE>
In August 1996 the Company sold the assets of KTVE Inc. ("KTVE") serving
Monroe, Louisiana-El Dorado, Arkansas (the "KTVE Sale") for approximately $9.5
million in cash plus the amount of accounts receivable on the date of the
closing (approximately $829,000).
For the year ended December 31, 1997, on a pro forma basis giving effect
to the WITN Acquisition and the GulfLink Acquisition as if they had occurred on
January 1, 1997, the Company had net revenues, Media Cash Flow (the sum of
broadcast cash flow, publishing cash flow and paging cash flow), operating cash
flow and a net loss of $109.1 million, $40.2 million, $37.7 million and $(2.4)
million, respectively. On a pro forma basis giving effect to the WITN
Acquisitions, the GulfLink Acquisition, the First American Acquisition and
the KTVE Sale, as if they had occurred on January 1, 1996, net revenues and net
loss for the year ended December 31, 1997, increased 0.2% and 136.6%,
respectively, while Media Cash Flow and operating cash flow decreased 2.9% and
1.3%, from the pro forma amounts for the year ended December 31, 1996.
PENDING ACQUISITION
In February 1998 the Company announced that it had signed a definitive
purchase agreement to acquire all of the outstanding capital stock of Busse
Broadcasting Corporation ("Busse"). The purchase price is approximately $112.0
million plus Busse's cash and cash equivalents less Busse's indebtedness
including its 11 5/8% Senior Secured Notes due 2000. Busse owns and operates
three VHF television stations: KOLN-TV, the CBS-affiliate operating on Channel
10 in the Lincoln-Hastings-Kearney, Nebraska television market, and its
satellite station KGIN-TV, the CBS-affiliate operating on Channel 11 serving
Grand Island, Nebraska; and WEAU-TV, the NBC-affiliate operating on Channel 13
serving the Eau Claire-La Crosse, Wisconsin market. The purchase of Busse is
subject to FCC approval, and the acquisition is expected to close on or before
September 1, 1998.
WITN ACQUISITION
On August 1, 1997, the Company completed the WITN Acquisition. The
purchase price for the WITN Acquisition was approximately $41.7 million,
including fees, expenses, and working capital and other adjustments. The Company
funded the costs of this acquisition through borrowings under its senior credit
facility (the "Senior Credit Facility").
THE FIRST AMERICAN ACQUISITION, THE KTVE SALE AND THE FINANCING
On September 30, 1996, the Company completed the First American
Acquisition and acquired WCTV and WVLT, a satellite broadcasting business and a
paging business in the Southeast. The purchase price for the First American
Acquisition was approximately $183.9 million, including fees, expenses, and
working capital and other adjustments.
The Company completed the KTVE Sale, on August 20, 1996. The sales price
included $9.5 million in cash plus the amount of accounts receivable on the date
of closing to the extent collected by the buyer (approximately $829,000). The
Company recognized a pre-tax gain of approximately $5.7 million and estimated
income taxes of approximately $2.8 million.
DIVESTITURE REQUIREMENTS
In connection with the First American Acquisition, the FCC ordered the
Company to divest itself of WALB-TV ("WALB") in Albany, Georgia and WJHG-TV
("WJHG") in Panama City, Florida by March
3
<PAGE>
31, 1997 to comply with regulations governing common ownership of television
stations with overlapping service areas. The FCC is currently reexamining these
regulations, and if it revises them in accordance with the interim policy it has
adopted, divestiture of WJHG would not be required. Accordingly, the Company
requested and in July 1997 received an extension of the divestiture deadline
with regard to WJHG, conditioned upon the outcome of the rulemaking proceedings.
It can not be determined when the FCC will complete its rulemaking on this
subject. Also in July 1997, the Company obtained FCC approval to transfer
control of WALB to a trust with a view towards the trustee effecting (i) a swap
of WALB's 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 1031 of the Internal Revenue Code of 1986, or (ii) a sale of such
assets. Under the trust arrangement, the Company relinquished operating control
of the station to a trustee while retaining the economic risks and benefits of
ownership. If the trustee is required to effect a sale of WALB, the Company
would incur a significant gain and related tax liability. The FCC allowed up to
six months for the trustee to file an application seeking the agency's approval
of a swap or sale. This six month period expired in January 1998 without a swap
or sale being executed. The trustee has filed an application requesting a six
month extension to effect a swap or sale. The FCC has not yet ruled on this
extension application.
4
<PAGE>
TELEVISION BROADCASTING
THE COMPANY'S STATIONS AND THEIR MARKETS
AS USED IN THE TABLES FOR EACH OF THE COMPANY'S STATIONS AND IN THIS
SECTION (I) "TOTAL MARKET REVENUES" REPRESENT GROSS ADVERTISING REVENUES,
EXCLUDING BARTER REVENUES, FOR ALL COMMERCIAL TELEVISION STATIONS IN THE MARKET,
AS REPORTED IN INVESTING IN TELEVISION 1997 MARKET REPORT, FOURTH EDITION
NOVEMBER 1997 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; (II) "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;(III) "STATION RANK IN DMA" IS BASED ON NIELSEN ESTIMATES FOR NOVEMBER
1997 FOR THE PERIOD FROM 6 A.M. TO 2 A.M. SUNDAY THROUGH SATURDAY; AND (IV)
AVERAGE HOUSEHOLD INCOME, EFFECTIVE BUYING INCOME AND RETAIL BUSINESS SALES
GROWTH PROJECTIONS ARE AS REPORTED IN INVESTING IN TELEVISION 1997 MARKET
REPORT, FOURTH EDITION NOVEMBER 1997 RATINGS AS PUBLISHED BY BIA PUBLICATIONS,
INC. (THE "BIA GUIDE").
<TABLE>
<CAPTION>
Total In-Market
Commercial Station Market Share of
DMA Stations in Rank in Television Revenues in Households
Station Market Rank (1) DMA(2) DMA Households(3) DMA for 1997 Viewing TV
------- ------ -------- ------ --- ------------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
WVLT Knoxville, TN 64 5 2 441,000 $62,100 24%
WKYT Lexington, KY 67 6 1 403,000 53,300 36
WYMT(4) Hazard, KY 67 N/A 1 175,000 4,800 28
WITN Greenville-Washington-106 4 2 234,000 27,700 29
New Bern, NC
WRDW Augusta, GA 109 4 1 226,000 30,500 38
WCTV Tallahassee,FL- 112 4 1 221,000 22,000 56
Thomasville, GA
WALB (5) Albany, GA 148 4 1 138,000 13,800 77
WJHG(5) Panama City, FL 157 4 1 117,000 10,900 53
</TABLE>
- ------------------
(1) Ranking of DMA served by a station among all DMAs is measured by the
number of television households based within the DMA in the November 1997
Nielsen estimates.
(2) Includes independent broadcasting stations.
(3) Based upon the approximate number of television households in the DMA as
reported by the November 1997 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 ratings position in the 18-county trading area.
(5) The Company is required to divest WALB and WJHG under current FCC
regulations. For a discussion of the Company's plan, see "Divestiture
Requirements."
5
<PAGE>
The percentage of the Company's total revenues contributed by the
Company's television broadcasting segment was approximately 69.8%, 69.3% and
62.7% for each of the years ended December 31, 1997, 1996 and 1995,
respectively.
In the following description of each of the Company's stations, all
information set forth below concerning Total Market Revenues, average household
income, projected effective buying income and projected retail business sales
growth has been derived from the BIA Guide.
WVLT, THE CBS-AFFILIATE IN KNOXVILLE, TENNESSEE
WVLT, acquired by the Company in September 1996, began operations in 1988.
Knoxville, Tennessee is the 64th DMA in the United States, with approximately
441,000 television households and a total population of approximately 1.1
million. Total Market Revenues in the Knoxville DMA in 1997 were approximately
$62.1 million, a 2% increase over 1996. According to the BIA Guide, the average
household income in the Knoxville DMA in 1995 was $33,774, with effective buying
income projected to grow at an annual rate of 5.6% through 2000. Retail business
sales growth in the Knoxville DMA is projected by the BIA Guide to average 5.9%
annually during the same period. The Knoxville DMA has five licensed commercial
television stations, four of which are affiliated with major networks. The
Knoxville DMA also has two public broadcasting stations.
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. Leading manufacturing
employers in the area include: Lockheed Martin Energy Systems, Inc., DeRoyal
Industries, Aluminum Company of North America, Phillips Consumer Electronics
North America Corp., Clayton Homes and Sea Ray Boats, Inc. Area tourist
attractions are the Great Smokey Mountains National Park and Dollywood, a
country-western theme park sponsored by Dolly Parton.
WKYT, THE CBS-AFFILIATE IN LEXINGTON, KENTUCKY
WKYT, acquired by the Company in September 1994, began operations in 1957.
Lexington, Kentucky is the 67th largest DMA in the United States, with
approximately 403,000 television households and a total population of
approximately 1.1 million. Total Market Revenues in the Lexington DMA in 1997
were approximately $53.3 million, a 3% increase over 1996. According to the BIA
Guide, the average household income in the Lexington DMA in 1995 was $32,836,
with effective buying income projected to grow at an annual rate of 5.8% through
2000. Retail business sales growth in the Lexington DMA is projected by the BIA
Guide to average 5.8% annually during the same period. The Lexington DMA has six
licensed commercial television stations, including WYMT, WKYT's sister station,
five of which are affiliated with major networks. The Lexington DMA also has one
public television station.
MARKET DESCRIPTION. The Lexington DMA consists of 40 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., the University of Kentucky and
International Business Machines Corporation. Eight hospitals and numerous
medical clinics are located in Lexington, reinforcing Lexington's position as a
regional medical center. The University of Kentucky's main campus is also
located in Lexington. In
6
<PAGE>
addition, Lexington is an international center of the equine industry with the
Kentucky Horse Park, a 1,000 acre park that attracts approximately 730,000
visitors annually.
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 marketing area of the
Lexington, Kentucky DMA with approximately 175,000 television households and a
total population of approximately 460,000. WYMT is the only commercial
television station in this 18-county trading area. Total Market Revenues in the
18-county trading area for the year ended December 31, 1997, were approximately
$4.8 million. WYMT is the sister station of WKYT and shares many resources and
simulcasts some local programming with WKYT.
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 93 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 12,000 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.
WITN, THE NBC-AFFILIATE IN GREENVILLE-WASHINGTON-NEW BERN, NORTH CAROLINA
WITN, acquired by the Company in August 1997, began operations in 1955.
Greenville-Washington-New Bern, North Carolina is the 106th largest DMA in the
United States, with approximately 234,000 television households and a total
population of approximately 673,000. Total Market Revenues in the
Greenville-Washington-New Bern DMA in 1997 were approximately $27.7 million, a
4% increase over 1996. According to the BIA Guide, the average household income
in the Greenville-Washington-New Bern DMA in 1995 was $35,260, with effective
buying income projected to grow at an annual rate of 5.9% through 2000. Retail
business sales growth in the Greenville-Washington-New Bern DMA is projected by
the BIA Guide to average 5.9% annually during the same period. The
Greenville-Washington-New Bern DMA has four licensed commercial television
stations, all of which are affiliated with major networks. The
Greenville-Washington-New Bern DMA also has two public television stations.
MARKET DESCRIPTION. The Greenville-Washington-New Bern DMA consists of 15
counties in eastern North Carolina. Greenville, North Carolina (located 100
miles east of Raleigh) is the primary economic center of the region and home to
East Carolina University. The Greenville-Washington-New Bern economy centers
around education, manufacturing, and agriculture. Leading employers in the area
include: East Carolina University, Catalytica Pharmaceuticals, Inc., PCS
Phosphate, Rubber Maid Cleaning Products, Inc., and Weyerhauser Co.
WRDW, THE CBS-AFFILIATE IN AUGUSTA, GEORGIA
WRDW, acquired by the Company in January 1996, began operations in 1954.
Augusta, Georgia is the 109th largest DMA in the United States, with
approximately 226,000 television households and a total
7
<PAGE>
population of approximately 637,000. Total Market Revenues in the Augusta DMA in
1997 were approximately $30.5 million, a 2% increase over 1996. According to the
BIA Guide, the average household income in the Augusta DMA in 1995 was $32,830,
with effective buying income projected to grow at an annual rate of 3.5% through
2000. Retail business sales growth in the Augusta DMA is projected by the BIA
Guide to average 3.5% annually during the same period. 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.
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
military and 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
approximately 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 42 years.
WCTV, THE CBS-AFFILIATE IN TALLAHASSEE, FLORIDA-THOMASVILLE, GEORGIA
WCTV, acquired by the Company in September 1996, began operations in 1955.
Tallahassee Florida-Thomasville, Georgia is the 112th largest DMA in the United
States, with approximately 221,000 television households and a total population
of approximately 619,000. Total Market Revenues in the Tallahassee-Thomasville
DMA in 1997 were approximately $22.0 million, a 3% increase over 1996. According
to the BIA Guide, the average household income in the Tallahassee,
Florida-Thomasville, Georgia DMA in 1995 was $33,687, with effective buying
income projected to grow at an annual rate of 5.2% through 2000. Retail business
sales growth in the Tallahassee, Florida-Thomasville, Georgia DMA is projected
by the BIA Guide to average 5.4% annually during the same period. 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 television station.
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 universities which include Florida State
University, Florida A&M University, Tallahassee Community College, Thomas
College and Valdosta State University. Florida State University is the largest
university located in the DMA and its main campus is located within the city of
Tallahassee.
WALB, THE NBC-AFFILIATE IN ALBANY, GEORGIA
WALB was founded by the Company and began operations in 1954. Albany,
Georgia is the 148th largest DMA in the United States with approximately 138,000
television households and a total population of approximately 395,000. Total
Market Revenues in the Albany DMA in 1997 were approximately $13.8 million, a 2%
increase over 1996. According to the BIA Guide, the average household income in
the Albany DMA in 1995 was $28,830, with effective buying income projected to
grow at an annual rate of 4.5% through 2000. Retail business sales growth in the
Albany DMA is projected by the BIA Guide to average 4.5% annually during the
same period. The Albany DMA has four licensed commercial television stations,
three of which are affiliated with networks. The Albany DMA also has one public
television station.
MARKET DESCRIPTION. The Albany DMA, consists of 18 counties in southwest
Georgia. Albany, 170 miles south of Atlanta, is a regional center for
manufacturing, agriculture, education, health care and
8
<PAGE>
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 and Darton College are also located within this area.
WJHG, THE NBC-AFFILIATE IN PANAMA CITY, FLORIDA
WJHG, acquired by the Company in 1960, began operations in 1953. Panama
City, Florida is the 157th largest DMA in the United States, with approximately
117,000 television households and a total population of approximately 318,000.
Total Market Revenues in the Panama City DMA in 1997 were approximately $10.9
million, a 3% increase over 1996. According to the BIA Guide, the average
household income in the Panama City DMA in 1995 was $33,357, with effective
buying income projected to grow at an annual rate of 5.9% through 2000. Retail
business sales growth in the Panama City DMA is projected by the BIA Guide to
average 5.7% annually during the same period. 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.
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 and Gulf Coast Community College.
SATELLITE TRANSMISSION AND PRODUCTION SERVICES
The Company's satellite transmission and production services business,
Lynqx Communications, operates C-band and Ku-band transportable satellite uplink
units and provides production management services. Clients include The Golf
Channel, USA Network, Turner Cable Network Services, NBC, CBS, ABC, Home Box
Office, MTV, The Children's Miracle Network and many other broadcast and cable
services. In April 1997 the Company acquired GulfLink of Baton Rouge, Louisiana.
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
9
<PAGE>
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.
Four major broadcast networks, ABC, Inc. ("ABC"), NBC, CBS, and Fox
dominate broadcast television. Additionally, United Paramount Network ("UPN")
and Warner Brothers Network ("WB") 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 the four major
networks.
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. Most
successful commercial television stations obtain their brand identity from
locally produced news programs.
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 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.
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 has increased 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.
10
<PAGE>
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. The NBC affiliation agreements for WALB
and WJHG are renewed automatically every five years unless the station notifies
NBC otherwise. The NBC affiliation agreement with WITN expires on June 30, 2006.
The CBS affiliation agreements for WKYT, WYMT, WRDW, WCTV and WVLT expire on
December 31, 2004, December 31, 2004, March 31, 2005, December 31, 1999, and
December 31, 2004, respectively.
NEWSPAPER PUBLISHING
The Company owns and operates five publications comprising three
newspapers and two shoppers, all located in the Southeast. The percentage of
total company revenues contributed by the newspaper publishing segment was
approximately 23.7%, 28.8% and 37.3% for each of the years ended December 31,
1997, 1996 and 1995, respectively.
THE ALBANY HERALD
The Albany Herald Publishing Company, Inc. ("The Albany Herald"), located
in Albany, Georgia, publishes THE ALBANY HERALD, which is the only
seven-day-a-week newspaper that serves southwest Georgia. The Company converted
THE ALBANY HERALD from an afternoon newspaper to a morning newspaper in 1993 and
over the last five years has improved THE ALBANY HERALD'S graphics and layout,
expanded local news coverage and expanded delivery zones on peak advertising
days. These changes have allowed the Company to increase THE ALBANY HERALD'S
newsstand and subscription prices as well as its advertising rates. The Company
intends to increase selectively the price and advertising rates of THE ALBANY
HERALD in the future.
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 FARM
AND PLANTATION, an agricultural paper; a monthly coupon clipper and 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 printing press is
approximately 20 years old and is in good working order. 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.
THE ROCKDALE CITIZEN and the GWINNETT DAILY POST
THE ROCKDALE CITIZEN and the GWINNETT DAILY POST are six-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.
11
<PAGE>
The Rockdale Citizen Publishing Company 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 approximately 65,000.
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. Since the purchase of the Gwinnett Daily Post, the
frequency of publication has increased from three to six days per week in an
effort to establish a daily newspaper and increase market share.
In 1997, the Gwinnett Daily Post entered into an agreement with
CableVision Communications, Inc. ("Cable Vision"), a local cable provider, that
resulted in a subscription to the GWINNETT DAILY POST being included in the
basic cable package purchased by cable subscribers. As a result, the GWINNETT
DAILY POST'S paid circulation tripled to 49,000 in 1997, and the Company started
a local Gwinnett TV news channel, Gwinnett News and Entertainment Television
("GNET"), which is produced by the Company and broadcast on the local cable
system.
On October 30, 1997, the Gwinnett Daily Post entered into a similar
agreement with Genesis Cable Communications LLC ("Genesis"). Upon the completion
of this alliance on March 1, 1998, paid circulation for the GWINNETT DAILY POST
will be approximately 64,000.
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 their promotional
efforts. Additionally, the Gwinnett Daily Post is increasing its circulation
through the cable alliances with Cable Vision and Genesis. The Gwinnett Daily
Post intends to build upon this additional circulation in order to increase
advertising revenues. In 1997, the Company made a capital investment of
approximately $3.9 million to upgrade and expand the newspaper and GNET
production facilities including the installation of a new press at The Rockdale
Citizen.
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 an important
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 larger 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 PAGING BUSINESS
The paging business, acquired by the Company in September 1996 is based in
Tallahassee, Florida and operates in Columbus, Macon, Albany, and Valdosta,
Georgia, in Dothan, Alabama, in Tallahassee, Gainesville, Orlando and Panama
City, Florida and in certain contiguous areas. The population of the paging
business geographic coverage area is approximately 5.9 million. In 1997, the
Company's paging and specialized mobile radio ("SMR") business had approximately
67,000 units in service, representing a penetration rate of approximately 2.5%.
The percentage of total Company revenues contributed by the
12
<PAGE>
paging segment was approximately 6.5% and 1.9% for each of the years ended
December 31, 1997, and 1996, respectively.
The Company's paging system operates by connecting a telephone call placed
to a local telephone number with a local paging switch. The paging switch
processes a caller's information and sends the information to a link transmitter
which relays the processed information to paging transmitters, which in turn
alert an individual pager by means of a coded radio signal. This process
provides service to a "local coverage area." To enhance coverage further to its
customer base, all of the Company's local coverage areas are interconnected or
networked, providing for "wide area coverage" or "network coverage." A pager's
coverage area is programmable and can be customized to include or exclude any
particular paging switch and its respective geographic coverage area, thereby
allowing the Company's paging customers a choice of coverage areas. In addition,
the Company is able to network with other paging companies which share the
Company's paging frequencies in other markets, by means of an industry standard
network paging protocol, in order to increase the geographic coverage area in
which the Company's customers can receive paging service.
A 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 pagers currently in service, approximately 75% are customer owned
and maintained ("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
purchases the majority of its pagers from two suppliers, INTEK and Motorola,
with Motorola supplying a majority of such pagers. Due to the high demand from
the Company's customers for Motorola pagers, the Company believes that its
ability to offer Motorola pagers is important to its business.
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 the Company's 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.
13
<PAGE>
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; and (iii) sales
agents who solicit customers and are compensated on a salary and commission
basis.
ADDITIONAL INFORMATION ON BUSINESS SEGMENTS
Reference is made to Note K of Notes to Consolidated Financial Statements
of the Company for additional information regarding business segments.
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.
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. Historically, cable operators
have not sought to compete with broadcast stations for a share of the local news
audience. Recently, however, certain cable operators do 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, "wireless
cable" services, satellite master antenna television systems, low power
television stations, television translator stations and direct broadcast
satellite ("DBS") video distribution services.
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
SEINFELD) and first-run product (such as ENTERTAINMENT TONIGHT). Cable systems
generally do not compete
14
<PAGE>
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 station's overall ratings, 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. The stations also compete for advertising revenue 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. One
of the Company's newspaper competitors is significantly larger than the Company
and operates in two of its newspaper markets. The Company differentiates its
publications from the other newspaper by focusing on local news and local sports
coverage in order to compete with its larger competitor. 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. However, future technological
developments in the wireless communications industry and enhancements of current
technology 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.
15
<PAGE>
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 of 1934, as amended (the
"Communications Act") and the Telecommunications Act of 1996 (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 eight years but may be renewed for a shorter
period upon a finding by the FCC that the "public interest, convenience, and
necessity" would be served thereby. The broadcast licenses for WALB, WJHG, WITN,
WKYT, WYMT, WRDW, WCTV and WVLT are effective until April 1, 2005, February 1,
2005, December 1, 2004, August 1, 2005, August 1, 2005, April 1, 2005, April 1,
2005 and August 1, 2005, 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 substantially
all 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 co-owned television
stations whose aggregate audience reach exceeds 35% of all United States
households.
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 pending 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 for stations in adjacent
markets and possibly permitting some two-station combinations within certain
markets. The FCC has also proposed eliminating the TV-radio cross-ownership
restriction (the so-called
16
<PAGE>
"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 1998 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 also directs the FCC to extend its
one-to-a-market (TV-Radio) 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 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 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 Notice of Proposed Rule Making
("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
17
<PAGE>
holdings of nonattributable interests), which individually do not raise
concerns, raise issues with respect to diversity and competition. At this time,
the Company is unable to predict when this inquiry will be completed 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. 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 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 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 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.
RECENT DEVELOPMENTS. 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 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.
18
<PAGE>
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 are required to make an election
of "must carry" or retransmission consent at three year intervals. Stations that
fail to elect are deemed to have elected carriage under the "must carry"
provisions. Other issues addressed in the FCC rules are market designations, the
scope of retransmission consent and procedural requirements for implementing the
signal carriage provisions. Each of the Company's stations has elected "must
carry" status on certain cable systems in its DMA; on others the Company's
stations have entered into retransmission consent agreements. This election
entitled the Company's stations to carriage on those systems until at least
December 31, 1999.
ADVANCE 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. In February 1998, the FCC acted on numerous
petitions for
19
<PAGE>
reconsideration and issued a new table of allotments that expands the channels
(2-51) available for permanent digital broadcasting operations.
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 or the impact of possible
legislation on the growth of DBS service.
PAGING
FEDERAL REGULATION. The Company's paging operations, including its SMR
operations, acquired by the Company in September 1996, 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 and SMR
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. The Company holds various FCC radio licenses which
are used in connection with its paging and SMR operations. The license
expiration dates for these licenses are staggered, with only a portion of the
licenses expiring in any particular calendar year. The largest group of licenses
will expire during calendar year 1999. Licensees in the paging and SMR services
normally enjoy a license renewal expectancy and the vast majority of license
renewal applications are granted in the normal course. 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 operations of licensed facilities or
to revoke or modify licenses. None of the Company's licenses have ever been
revoked or modified involuntarily, and such proceedings by the FCC are rarely
undertaken.
20
<PAGE>
The FCC has enacted regulations regarding auctions for the award of
radio licenses. Pursuant to such rules, the FCC may, at any time, require
auctions for new or existing services prior to the award of any license, and has
done so in the 800 and 900 MHz SMR service band widths. Accordingly, there can
be no assurance that the Company will be able to procure additional frequencies,
or expand existing paging and SMR networks into new service areas.
In March 1994, the FCC adopted rules pursuant to which the FCC auctions
licenses for blocks of spectrum on a "market area basis." The winner of the
license is given the right to use a certain frequency or group of frequencies
throughout a defined geographic area and can construct and operate its
transmitters throughout this market area without FCC licensing of individual
stations. Existing users of the designated frequencies will be protected from
interference. The FCC has completed auctions to license various radio services
on a market area basis including the first phase of the 800 MHz trunked SMR
auction, which concluded in December 1997. In these auctions, successful bidders
have made significant auction payments in order to obtain spectrum. In the SMR
auction which just closed, the Company was the high bidder for the Tallahassee
and Panama City, Florida; Albany, Valdosta and Tifton, Georgia; and Columbus,
Georgia and Auburn, Alabama markets. The Company filed its long-form auction
application on December 23, 1997, and is not aware of any protests. The time
period for filing protests against the pending application has expired.
Once the Company's application for its licenses is granted, the Company
will be required to meet certain coverage bench marks in order to retain its
licenses. The Company believes that it will be able to build out the markets won
at the auction to meet these bench marks.
With respect to its paging operations, the Company may chose to
participate in the market area licensing auctions for the paging services. The
first such auction, for the 900 MHz paging band is tentatively scheduled for the
third quarter of calendar year 1998. The lower paging bands, e.g., the exclusive
150 Mhz frequencies on which the Company is licensed, are likely to be the
subject of market area licensing auctions in calendar year 1999. There is no
assurance that the Company will be able to successfully bid on its existing
frequencies; however, users of the designated frequencies will be protected from
interference.
EMPLOYEES
As of February 23, 1998, the Company had 1,020 full-time employees, of
which 671 were employees of the Company's stations, 290 were employees of the
Company's publications, 49 were employees of the Company's paging operations 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.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT
This annual report on Form 10-K contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. When
used in this report, the words "believes," "expects," "anticipates," "estimates"
and similar words and expressions are generally intended to identify
forward-looking statements. Statements that describe the Company's future
strategic plans, goals, or objectives are also forward-looking statements.
Readers of this report are cautioned that any forward-looking statements,
including those regarding the intent, belief or current expectations of the
Company or management, are not guarantees of future performance, results or
events and involve risks and uncertainties, and that actual results and events
may differ materially from those in the forward-looking statements as a result
of various factors including, but not limited to, (i) general economic
conditions in
21
<PAGE>
the markets in which the Company operates, (ii) competitive pressures in the
markets in which the Company operates, (iii) the effect of future legislation or
regulatory changes on the Company's operations and (iv) other factors described
from time to time in the Company's filings with the Securities and Exchange
Commission. The forward-looking statements included in this report are made only
as of the date hereof. The Company undertakes no obligation to update such
forward-looking statements to reflect subsequent events or circumstances.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 126 North
Washington Street, Albany, Georgia.
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.
The following table sets forth certain information regarding the Company's
properties.
<TABLE>
<CAPTION>
TELEVISION BROADCASTING
Station/Approximate Owned or
Property Location Use Leased Approximate Size Expiration 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 on 2 acres
Hazard, KY Transmission tower site Leased -- June 2005
Hazard, KY Transmitter building and
improvements Owned 1,248 sq. ft. --
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. --
Transmission tower site Owned 23 acres --
WJHG
Panama City, FL Office and studio Owned 14,000 sq. ft. --
Youngstown, FL Transmission tower site Owned 17 acres --
- -----------------------------------------------------------------------------------------------------------------------
22
<PAGE>
TELEVISION BROADCASTING (CONTINUED)
Station/Approximate Owned or
Property Location Use Leased Approximate Size Expiration of Lease
- ---------------------------------------------------------------------------------------------------------------------
WVLT
Knoxville, TN Office and studio Owned 18,000 sq. ft. --
Transmission tower site Leased Tower space Dec. 1998
WCTV
Tallahassee, FL Office and studio Leased 21,000 sq. ft. of Dec. 2014
buildings on 37 acres
Metcalf, GA Transmission tower site Leased 182 acres Nov. 1999
WITN
Washington, NC Office and studio Owned 19,600 sq. ft. --
Grifton, NC Transmitter building Owned 4,190 sq. ft. --
Grifton, NC Transmission tower site Leased 9 acres Jan. 1999
Lynqx Communications
Baton Rouge, LA Office and repair site Leased 6,800 sq. ft. Dec. 1999
Tallahassee, FL Office Owned 1,000 sq. ft. --
- -----------------------------------------------------------------------------------------------------------------------
PUBLISHING
Owned or
Company/Property Location Use Leased Approximate Size Expiration of Lease
- -----------------------------------------------------------------------------------------------------------------------
The Albany Herald
Publishing Company,
Inc.
Albany, GA Offices, printing press and Owned 83,000 sq. ft. --
production facility for The
Albany Herald Publishing
Company, Inc.
The Rockdale Citizen
Publishing Company
Conyers, GA Offices for THE ROCKDALE Owned 20,000 sq. ft. --
CITIZEN
Conyers, GA Offices, printing press and Leased 20,000 sq. ft. May 2002
production facility for THE
ROCKDALE CITIZEN and the
GWINNETT DAILY POST
Lawrenceville, GA Offices and production Leased 11,000 sq. ft. Nov 1999
facilities of the GWINNETT
DAILY POST
The Southwest Georgia Offices Owned 5,500 sq. ft. --
Shoppers, Inc.
Tallahassee, FL
23
<PAGE>
PAGING
Owned or
Property Location Use Leased Approximate Size Expiration of Lease
- -----------------------------------------------------------------------------------------------------------------------
Albany, GA Sales Office Leased 800 sq. ft. May 2000
Columbus, GA Sales Office Leased 1,000 sq. ft. July 1998
Dothan, AL Sales Office Leased 800 sq. ft. Feb. 2000
Macon, GA Sales Office Leased 1,260 sq. ft. July 1998
Tallahassee, FL Sales Office Leased 1,800 sq. ft. Sept. 2000
Tallahassee, FL General and Administrative Leased 2,400 sq. ft. March 2002
Office
Thomasville, GA Sales Office Leased 300 sq. ft. May 2000
Valdosta, GA Sales Office Leased 400 sq. ft. Sept. 2000
Panama City, FL Sales Office Leased 1,050 sq. ft. Jan. 2000
Gainsville, FL Sales Office Leased 800 sq. ft. Oct. 2000
Central, FL (1) Various Sales Offices (1) Leased (1) (1)
</TABLE>
(1) The paging operations have five sales office locations in the Central
Florida region. These offices are leased and average approximately 600 sq.
ft. Three of the leases are month to month with the remaining two leases
expiring in April and October 1999.
The paging operations also lease space on various towers in Florida,
Georgia and Alabama. These tower leases have expiration dates ranging from 1998
to 2002.
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any legal proceedings in which an adverse
outcome would have a material adverse effect, either individually or in the
aggregate, upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the fiscal year covered.
24
<PAGE>
EXECUTIVE OFFICERS
Set forth below is certain information with respect to the executive
officers of the Company:
J. Mack Robinson, age 74, has been President and Chief Executive Officer,
of the Company since September 1996. Mr. Robinson 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 1988 until 1995 and Chairman of the Board of Atlantic American Corporation
since 1974.
Robert S. Prather, age 53, has been Executive Vice President-Acquisitions
of the Company since September 1996. He has been President and Chief Executive
Officer of Bull Run Corporation since July 1992.
Robert A. Beizer, age 58, 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 is a past president of the Federal
Communications Bar Association and a member of the ABA House of Delegates.
Joseph A. Carriere, age 65, has been Vice President-Television of the
Company since September 1996. Prior to that appointment, he served as Vice
President-Corporate Sales from February 1996. He has been President and General
Manager of WVLT-TV, Inc., a subsidiary of the Company, since September 1996.
From November 1994 until his appointment as Vice President-Corporate Sales, he
served as President and General Manager of KTVE Inc., a subsidiary of the
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 Affiliates Advisory Board and as a
member of the Television Board of Directors of the National Association of
Broadcasters.
William A. Fielder, III, age 39, had been Vice President and Chief
Financial Officer of the Company since August 1993. Prior to this position, he
served as Controller of the Company from April 1991 to August 1993. Effective
March 9, 1998, Mr. Fielder resigned to accept a position with a software
company.
Thomas J. Stultz, age 46, has been Vice President of the Company and
President of the Company's publishing division since February 1996. Prior to
joining the Company, he was employed by Multimedia Newspaper Company, where he
served as Vice President from 1988 to 1995.
25
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Since June 30, 1995, the Company's Class A Common Stock has been listed
and traded on The New York Stock Exchange (the "NYSE") under the symbol "GCS."
Since September 24, 1996, the date of its initial issuance, the Company's Class
B Common Stock, no par value, (the "Class B Common Stock") has also been listed
and traded on the NYSE under the symbol "GCS.B". The following table sets forth
the high and low sale prices of the Class A and Class B Common Stock as well as
the cash dividend declared for the periods indicated. The high and low sales
prices of the Class B Common Stock are as reported by the NYSE since the date of
its initial issuance.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
------------------------------------------------------------------------------------
CASH CASH
DIVIDENDS DIVIDENDS
DECLARED PER DECLARED
HIGH LOW SHARE HIGH LOW PER SHARE
-------------------------------------------------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1996
First Quarter $20.38 $15.75 $0.02 --- --- ---
Second Quarter 23.25 18.75 0.02 --- --- ---
Third Quarter 23.13 20.25 0.02 $20.50 $18.00 ---
Fourth Quarter 21.25 17.50 0.02 19.50 14.88 $0.02
FISCAL 1997
First Quarter $20.75 $17.63 $0.02 $19.50 $16.38 $0.02
Second Quarter 22.43 16.75 0.02 20.88 15.38 0.02
Third Quarter 25.63 20.31 0.02 25.50 18.88 0.02
Fourth Quarter 27.88 25.00 0.02 26.13 24.06 0.02
</TABLE>
As of February 23, 1998, the Company had 4,534,195 outstanding shares of
Class A Common Stock held by 1,209 shareholders and 3,402,755 outstanding shares
of Class B Common Stock held by 825 shareholders. The number of shareholders
includes shareholders of record and individual participants in security position
listings as furnished to the Company pursuant to Rule 17Ad-8 under the Exchange
Act.
The Company has paid a dividend on its Class A Common Stock since 1967. In
1996 the Company amended its Articles of Incorporation to provide that each
share of Class A Common Stock is entitled to 10 votes and each share of Class B
Common Stock is entitled to one vote. The Articles of Incorporation, as amended,
require that the Class A Common Stock and the Class B Common Stock receive
dividends on a PARI PASSU basis. There can be no assurance of the Company's
ability to continue to pay any dividends on either class of Common Stock.
The Senior Credit Facility and the Company's Senior Subordinated Notes due
2006 (the "Notes") each contain covenants that restrict the ability of the
Company to pay dividends on its capital stock. However, the Company does not
believe that such convenants currently limit its ability to pay dividends at the
recent quarterly rate of $0.02 per share. In addition to the foregoing, the
declaration and payment of dividends on the Class A Common Stock and the Class B
Common Stock are subject to the discretion of the Board of Directors. Any future
payments of dividends will depend on the earnings and financial position of the
Company and such other factors as the Board of Directors deems relevant.
26
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are certain selected historical consolidated financial
data of the Company. This information should be read in conjunction with the
Audited 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 five-year period ended December 31, 1997, are derived
from the Audited Consolidated Financial Statements of the Company and its
subsidiaries. Also see pro forma data for the WITN Acquisition, the GulfLink
Acquisition, the First American Acquisition and the Augusta Acquisition in Note
C and the KTVE Sale in Note B to the Company's Audited Consolidated Financial
Statements included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1997(1) 1996 (2) 1995 (3) 1994 (3) 1993
------------- ------------ -------------------------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA
Revenues $ 103,548 $ 79,305 $58,616 $36,518 $25,113
Operating Income 20,730 16,079 6,860 6,276 3,531
Income (loss) from continuing operations (1,402) 5,678 931 2,766 1,680
Income (loss) from continuing operations
available to common stockholders (2,812) 5,302 931 2,766 1,680
Income (loss) from continuing operations
available to common stockholders
per common share (4):
Basic (0.36) 0.98 0.21 0.59 0.36
Diluted (0.36) 0.94 0.21 0.59 0.36
Cash dividends per common share (4) $ 0.08 $ 0.08 $ 0.08 $ 0.07 $ 0.07
BALANCE SHEET DATA (AT END OF PERIOD):
Total Assets $ 345,051 $298,664 $78,240 $68,789 $21,372
Long-term Debt $ 227,076 $173,368 $54,324 $52,940 $ 7,759
</TABLE>
- ---------------------------------------------------
(1) The financial data reflects the operating results of the WITN Acquisition
and the GulfLink Acquisition, which were completed in 1997, as of their
respective acquisition dates. See Note C to the Company's Audited
Consolidated Financial Statements included elsewhere herein.
(2) The financial data reflects the operating results of the Augusta
Acquisition and the First American Acquisition, as well as the KTVE Sale,
all of which were completed in 1996, as of their respective acquisition,
or disposition, dates. The Company also incurred an extraordinary charge
in connection with the early extinguishment of debt. See Notes B, C and D
to the Company's Audited Consolidated Financial Statements included
elsewhere herein.
(3) The financial data reflects the operating results of various acquisitions
completed in 1994 and 1995 as of their respective acquisition dates. See
Note C of the Company's Audited Consolidated Financial Statements included
elsewhere herein.
(4) On August 17, 1995, the Company's Board of Directors authorized a 50%
stock dividend on the Company's Class A 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.
27
<PAGE>
THESE SUMMARIES SHOULD BE READ IN CONJUNCTION WITH THE RELATED
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED UNDER ITEM 8.
28
<PAGE>
ITEM 7. 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 Gray Communications Systems, Inc. (the "Company") should be read
in conjunction with the Company's Audited Consolidated Financial Statements and
notes thereto included elsewhere herein.
The Company derives its revenues from its television broadcasting,
publishing and paging operations. On February 13, 1998, the Company signed a
definitive purchase agreement to acquire all of the outstanding capital stock of
Busse Broadcasting Corporation ("Busse"). Busse owns and operates three VHF
television stations: KOLN-TV, the CBS affiliate operating on Channel 10 in the
Lincoln-Hastings-Kearney, Nebraska television market, and its satellite station
KGIN-TV, the CBS affiliate operating on Channel 11 serving Grand Island,
Nebraska; and WEAU-TV, the NBC affiliate operating on Channel 13 serving the Eau
Claire-La Crosse, Wisconsin market. The purchase of Busse is subject to FCC
approval; however, the parties expect to close the transaction on or before
September 1, 1998.
On August 1, 1997 the Company purchased substantially all of the assets
of WITN-TV ("WITN"), the NBC affiliate in the Greenville-Washington-New Bern,
North Carolina market (the "WITN Acquisition"). On April 24, 1997, the Company
purchased GulfLink Communications, Inc. (the "GulfLink Acquisition"), which is
in the transportable satellite uplink business, a business in which the Company
was already engaged.
In September 1996, the Company acquired substantially all of the assets
of WKXT-TV ("WKXT"), WCTV-TV ("WCTV"), a satellite uplink and production
services business and a communications and paging business (the "First American
Acquisition"). Subsequent to the First American Acquisition, the Company
rebranded WKXT with the call letters WVLT ("WVLT") as a component of its
strategy to promote the station's upgraded news product. On January 4, 1996, the
Company purchased substantially all of the assets of WRDW-TV (the "Augusta
Acquisition"). The First American Acquisition and the Augusta Acquisition are
collectively referred to as the "1996 Broadcasting Acquisitions." As a result of
these acquisitions, the proportion of the Company's revenues derived from
television broadcasting has increased significantly. The Company anticipates
that the proportion of the Company's revenues derived from television
broadcasting will increase further as a result of the announced acquisition of
Busse, and the completed acquisitions of WITN and GulfLink Communications, Inc.
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 contributions of the Company's publishing and paging
operations. Set forth below, for the periods indicated, is certain information
concerning the relative contributions of the Company's television broadcasting,
publishing and paging operations.
29
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1997 1996 1995
-------------------------------------------------- -------------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
------------- ------------------------------------ ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BROADCASTING
Revenues $72,300 69.8% $54,981 69.3% $36,750 62.7%
Operating income(1) 19,309 82.9% 16,989 84.0% 10,585 94.1%
PUBLISHING
Revenues $24,536 23.7% $22,845 28.8% $21,866 37.3%
Operating income(1) 2,810 12.1% 3,167 15.7% 660 5.9%
PAGING
Revenues $ 6,711 6.5% $ 1,479 1.9% $ -0- -0-%
Operating income(1) 1,181 5.0% 71 0.3% -0- -0-%
</TABLE>
- ------------------------
(1) Represents income before miscellaneous income (expense), allocation of
corporate overhead, interest expense, income taxes and extraordinary
charge.
The operating revenues of the Company's television stations are derived
from broadcast advertising revenues and, to a much lesser extent, from
compensation paid by the networks to the stations for broadcasting network
programming. The operating revenues of the Company's publishing operations are
derived from advertising, circulation and classified revenue. Paging revenue is
derived primarily from the leasing and sale of pagers.
In the Company's broadcasting operations, broadcast advertising is sold
for placement either preceding or following a television station's 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 Media Research ("Nielsen"). In addition, broadcast
advertising rates are affected by 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. 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. Approximately 56% of the gross revenues of the Company's
television stations for the year ended December 31, 1997, were generated from
local advertising, which is sold primarily by a station's sales staff directly
to local accounts, and the remainder represented primarily by 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 each year, due in part to increases in consumer advertising in
the spring and retail advertising in the period leading up to and including the
holiday season. In addition, broadcast advertising revenues are generally higher
during
30
<PAGE>
even numbered election years due to spending by political candidates, which
spending typically is heaviest during the fourth quarter.
The Company's publishing operations' advertising contracts are generally
entered into annually and provide for a commitment as to the volume of
advertising to be purchased by an advertiser during the year. The publishing
operations' advertising revenues are primarily generated from local advertising.
As with the broadcasting operations, the publishing operations' revenues are
generally highest in the second and fourth quarters of each year.
The Company's paging subscribers either own pagers, thereby paying solely
for the use of the Company's paging services, or lease pagers, thereby paying a
periodic charge for both the pagers and the paging services. The terms of the
lease contracts are month-to-month, three months, six months or twelve months in
duration. Paging revenues are generally equally distributed throughout the year.
The broadcasting operations' primary operating expenses are employee
compensation, related benefits and programming costs. The publishing operations'
primary operating expenses are employee compensation, related benefits and
newsprint costs. The paging operations' primary operating expenses are employee
compensation and telephone and other communications costs. In addition, the
broadcasting, publishing and paging operations incur overhead expenses, such as
maintenance, supplies, insurance, rent and utilities. A large portion of the
operating expenses of the broadcasting, publishing and paging operations is
fixed, although the Company has experienced significant variability in its
newsprint costs in recent years.
The following table sets forth certain operating data for the broadcast,
publishing and paging operations for the years ended December 31, 1997, 1996 and
1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995
------------------------------ ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating income $20,730 $16,079 $ 6,860
Add:
Amortization of program license rights 3,501 2,743 1,647
Depreciation and amortization 14,519 7,663 3,959
Corporate overhead 2,528 3,219 2,258
Non-cash compensation and contribution
to 401(k) plan, paid in Common Stock 412 1,125 2,612
Less:
Payments for program license liabilities (3,629) (2,877) (1,777)
------ ------ -------
Media cash flow (1) $38,061 $27,952 $15,559
======= ======= =======
</TABLE>
- ----------------------
(1) Of media cash flow, $30.5 million, $22.6 million and $13.6 million was
attributable to the Company's broadcasting operations in 1997, 1996, and
1995, respectively; $4.9 million, $5.0 million and $2.0 million was
attributable to the Company's publishing operations in 1997, 1996 and
1995, respectively; and $2.7 million, $401,000 and $-0- was attributable
to the Company's paging operations in 1997, 1996 and 1995, respectively.
"MEDIA CASH FLOW" IS DEFINED AS OPERATING INCOME, PLUS DEPRECIATION AND
AMORTIZATION (INCLUDING AMORTIZATION OF PROGRAM LICENSE RIGHTS), NON-CASH
COMPENSATION AND CORPORATE OVERHEAD, LESS PAYMENTS FOR PROGRAM LICENSE
LIABILITIES. THE COMPANY HAS INCLUDED MEDIA CASH FLOW DATA BECAUSE SUCH DATA ARE
COMMONLY USED AS A MEASURE OF PERFORMANCE FOR MEDIA COMPANIES AND ARE ALSO USED
BY INVESTORS TO MEASURE A COMPANY'S ABILITY TO SERVICE DEBT. MEDIA CASH FLOW IS
NOT, AND SHOULD NOT BE USED AS, AN
31
<PAGE>
INDICATOR OR ALTERNATIVE TO OPERATING INCOME, NET INCOME OR CASH FLOW AS
REFLECTED IN THE COMPANY'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS, AND IS NOT
A MEASURE OF FINANCIAL PERFORMANCE UNDER GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES AND SHOULD NOT BE CONSIDERED IN ISOLATION OR AS A SUBSTITUTE FOR
MEASURES OF PERFORMANCE PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES.
Since 1995, the Company has completed several broadcasting and publishing
acquisitions and a broadcasting disposition. The financial results of the
Company reflect significant increases between the years ended December 31, 1997,
December 31, 1996 and December 31, 1995, in substantially all line items. The
principal reason for these increases was the completion by the Company of the
WITN Acquisition (August 1997), the First American Acquisition (September 1996)
and the Augusta Acquisition (January 1996). The purchase prices for the WITN
Acquisition, the First American Acquisition and the Augusta Acquisition were
approximately $41.7 million, $183.9 million and $37.2 million, respectively. The
Company sold the assets of KTVE Inc. (the "KTVE Sale"), its NBC-affiliated
television station, in Monroe, Louisiana-El Dorado, Arkansas on August 20, 1996.
The sales price included $9.5 million in cash plus the amount of the accounts
receivable (approximately $829,000).
In addition, during 1995 the Company acquired the GWINNETT DAILY POST for
approximately $3.7 million (January 1995) and three area weekly advertising only
direct mail publications ("Shoppers") for an aggregate purchase price of
approximately $1.4 million (September 1995) (the "1995 Publishing
Acquisitions").
CASH FLOW PROVIDED BY (USED IN) OPERATING, INVESTING AND FINANCING ACTIVITIES
The following table sets forth certain cash flow data for the Company
for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows provided by (used in)
Operating activities $ 9,744 $ 12,092 $ 7,600
Investing activities (57,498) (205,068) (8,929)
Financing activities 49,071 193,467 1,331
</TABLE>
32
<PAGE>
BROADCASTING, PUBLISHING AND PAGING REVENUES
Set forth below are the principal types of broadcasting, publishing and
paging revenues earned by the Company's television stations, publishing and
paging operations for the periods indicated and the percentage contribution of
each of the Company's total broadcasting, publishing and paging revenues,
respectively:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1997 1996 1995
-------------------------------------------------- -------------------------
AMOUNT % AMOUNT % AMOUNT %
------------- ------------------------- ---------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BROADCASTING
Net Revenues:
Local $ 40,486 39.1% $30,046 37.9% $20,888 35.6%
National 21,563 20.8% 15,611 19.7% 10,881 18.6%
Network compensation 4,977 4.8% 3,661 4.6% 2,487 4.2%
Political 137 0.1% 3,612 4.6% 1,174 2.0%
Production and other 5,137 5.0% 2,051 2.5% 1,320 2.3%
-------- ----- ------- ----- -------- ------
$ 72,300 69.8% $54,981 69.3% $36,750 62.7%
======== ====== ======= ====== ======== ======
PUBLISHING
Revenues:
Retail $ 11,936 11.5% $11,090 14.0% $11,044 18.8%
Classifieds 7,344 7.1% 6,150 7.8% 5,324 9.1%
Circulation 4,779 4.6% 4,271 5.4% 3,784 6.5%
Other 477 0.5% 1,334 1.6% 1,714 2.9%
-------- ----- -------- ------ -------- -------
$ 24,536 23.7% $22,845 28.8% $21,866 37.3%
======== ===== ======== ====== ======== =======
PAGING
Revenues:
Paging lease, sales and service $ 6,712 6.5% $ 1,479 1.9% $ 0.0 0.0%
======== ======= ======== ======= ======== =========
TOTAL $103,548 100.0% $79,305 100.0% $58,616 100.0%
======== ====== ======= ====== ======= ======
</TABLE>
YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
REVENUES. Total revenues for the year ended December 31, 1997, increased
$24.2 million, or 30.6%, over the year ended December 31, 1996, from $79.3
million to $103.5 million. This increase was attributable to the net effect of
(i) increased revenues as a result of the WITN Acquisition, the GulfLink
Acquisition and the First American Acquisition, (ii) increases in total
non-political revenues of the Company (excluding the WITN Acquisition, the
GulfLink Acquisition and the First American Acquisition) and (iii) increased
publishing revenue, all of which were partially offset by decreased political
revenues and decreased revenues as a result of the KTVE Sale. The net increase
in revenue due to the WITN Acquisition, the GulfLink Acquisition and the First
American Acquisition less the effect of the KTVE Sale was $23.4 million, or
96.7% of the $24.2 million increase.
Broadcast net revenues increased $17.3 million, or 31.5%, over the prior
year, from $55.0 million to $72.3 million. The First American Acquisition, the
WITN Acquisition and the GulfLink Acquisition accounted for $16.5 million, $3.3
million and $1.4 million, respectively, of the broadcast net revenue increase.
On a pro forma basis, assuming the First American Acquisition had been effective
on January 1, 1996, broadcast net revenues for the First American Acquisition
for the year ended December 31, 1997, decreased $700,000, or 3.0%, over the year
ended December 31, 1996, from $23.9 million to $23.2
33
<PAGE>
million. On a pro forma basis, assuming the WITN Acquisition had been effective
on January 1, 1996, broadcast net revenues for the WITN Acquisition for the year
ended December 31, 1997, decreased $600,000, or 7.0%, over the year ended
December 31, 1996, from $8.4 million to $7.8 million. On a pro forma basis,
political revenue for the First American Acquisition and the WITN Acquisition
decreased $1.3 million and $650,000, respectively, over the prior year. The KTVE
Sale resulted in a decrease in broadcast net revenues of $3.0 million. Broadcast
net revenues, excluding the First American Acquisition, the WITN Acquisition and
the GulfLink Acquisition and the operating results of KTVE, decreased $800,000,
or 1.8%, over the prior year. This decrease of $800,000 resulted primarily from
decreased political spending of $3.1 million partially offset by increased local
advertising spending and national advertising spending of $1.5 million and
$600,000, respectively.
Publishing revenues increased $1.7 million, or 7.4%, over the prior year,
from $22.8 million to $24.5 million. Retail advertising, classified advertising
and circulation revenue increased approximately $850,000, $1.2 million and
$500,000, respectively, which was partially offset by a decrease in other
revenue of $860,000. The increase in retail advertising and classified
advertising was primarily the result of increased rates partially offset by
decreased linage. The increase in circulation revenue was attributable primarily
to the increase in subscribers at the GWINNETT DAILY POST from 13,000 at
December 31, 1996, to 49,000 at December 31, 1997. The increases in retail
advertising, classified advertising and circulation revenue were offset by a
decrease of $800,000 in commercial printing and events marketing revenue.
Paging revenue increased $5.2 million, or 353.8%, from $1.5 million to
$6.7 million primarily due to the First American Acquisition. On a pro forma
basis, assuming the First American Acquisition had been effective January 1,
1996, paging revenue for the year ended December 31, 1997, increased $1.2
million, or 21.6%, over the year ended December 31, 1996, from $5.5 million to
$6.7 million. The increase was attributable primarily to an increase in the
number of units in service. The Company had approximately 67,000 units in
service at December 31, 1997, and 49,500 units in service at December 31, 1996.
OPERATING EXPENSES. Operating expenses for the year ended December 31,
1997, increased $19.6 million, or 31.0%, over the year ended December 31, 1996,
from $63.2 million to $82.8 million. This increase was attributable to the net
effect of (i) increased expenses resulting from the WITN Acquisition, the
GulfLink Acquisition and the First American Acquisition, (ii) increased
publishing expenses, (iii) decreased broadcast expense of the Company (excluding
the WITN Acquisition, and the GulfLink Acquisition, the First American
Acquisition and the effects of the KTVE Sale), (iv) decreased expenses resulting
from the KTVE Sale and (v) decreased non-cash compensation. The net increase in
operating expenses (exclusive of depreciation and amortization) due to the WITN
Acquisition, the GulfLink Acquisition and the First American Acquisition less
the effects of the KTVE Sale was $13.7 million.
Broadcast expenses increased $9.5 million, or 29.4%, over the prior year,
from approximately $32.4 million to approximately $42.0 million. The increase
was attributable primarily to the WITN Acquisition, the GulfLink Acquisition and
the First American Acquisition partially offset by the KTVE Sale. The First
American Acquisition, the WITN Acquisition and the GulfLink Acquisition
accounted for $9.9 million, $1.9 million and $1.2 million, respectively, of the
broadcast expense increase. On a pro forma basis, assuming the First American
Acquisition had been effective on January 1, 1996, broadcast expense for First
American Acquisition for the year ended December 31, 1997, increased $1.2
million, or 9.8%, over the year ended December 31, 1996, from $12.2 million to
$13.4 million. On a pro forma basis, assuming the WITN Acquisition had been
effective on January 1, 1996, broadcast expense for the WITN Acquisition for the
year ended December 31, 1997, decreased $200,000, or 4.2%, over the year ended
December 31, 1996, from $4.8 million to $4.6 million. The KTVE Sale resulted in
a decrease in broadcast expenses of $2.2 million. Broadcast expenses, excluding
the results of the WITN Acquisition, the GulfLink Acquisition and the First
American Acquisition and the KTVE Sale, decreased $1.3 million, or 4.9%, as a
result of lower payroll and other costs.
34
<PAGE>
Publishing expenses increased $1.8 million, or 10.1%, over the prior year,
from approximately $17.9 million to approximately $19.8 million. This increase
resulted primarily from an increase in expenses associated with an expansion of
the news product and circulation at one of the Company's properties partially
offset by a decrease in work force related costs and improved newsprint pricing.
Average newsprint costs decreased approximately 14.4% while newsprint
consumption increased approximately 27.7%.
Paging expenses increased $3.0 million, or 275.8%, over the prior year,
from $1.1 million to $4.1 primarily due to the First American Acquisition. On a
pro forma basis, assuming the First American Acquisition had been effective
January 1, 1996, paging expenses for the year ended December 31, 1997, increased
$220,000, or 5.7%, over the year ended December 31, 1996, from $3.8 million to
$4.1 million. This increase was attributable primarily to increased payroll
expenses.
Corporate and administrative expenses decreased $700,000, or 21.5%, over
the prior year, from $3.2 million to $2.5 million. This decrease was
attributable primarily to a reduction of compensation expense at the corporate
level.
DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment and
amortization of intangible assets was $14.5 million for the year ended December
31, 1997, compared to $7.7 million for the prior year, an increase of $6.8
million, or 89.5%. This increase was primarily the result of higher depreciation
and amortization costs related to the WITN Acquisition, the GulfLink Acquisition
and the First American Acquisition.
NON-CASH COMPENSATION. Non-cash compensation for the year ended December
31, 1996, resulted from the Company's employment agreement with its former
President, Ralph W. Gabbard, who died unexpectedly in September 1996.
MISCELLANEOUS INCOME AND EXPENSE, NET: Miscellaneous income and expense
decreased $5.7 million from income of $5.7 million for the year ended December
31, 1996, to expense of $31,000 for the year ended December 31, 1997. The
decrease was primarily attributable to the KTVE Sale which resulted in a gain
before income tax of $5.7 million for the year ended December 31, 1996.
INTEREST EXPENSE. Interest expense increased $10.2 million, or 87.0%, from
$11.7 million for the year ended December 31, 1996, to $21.9 million for the
year ended December 31, 1997. This increase was attributable primarily to
increased levels of debt resulting from the financing of the the WITN
Acquisition, the GulfLink Acquisition and the First American Acquisition. The
effective interest rate of the Company's senior subordinated notes at December
31, 1997 and December 31, 1996, was approximately 10.6%. The effective interest
rate of the Company's Senior Credit Facility at December 31, 1997, and December
31, 1996, was approximately 7.9% and 8.4%, respectively.
EXTRAORDINARY CHARGE: An extraordinary charge of $5.3 million ($3.2
million after taxes) was recorded for the year ended December 31, 1996, in
connection with the early retirement of the Company's former bank credit
facility and the $25.0 million senior secured note with an institutional
investor (the "Senior Note").
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS. Net loss available to
common shareholders for the Company was $2.8 million for the year ended December
31, 1997, compared with net income available to common shareholders of $2.1
million for the year ended December 31, 1996, a decrease of $4.9 million, or
231.2%.
35
<PAGE>
YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Total revenues for the year ended December 31, 1996, increased
$20.7 million, or 35.3%, over the year ended December 31, 1995, from $58.6
million to $79.3 million. This increase was attributable to the net effect of
(i) increased revenues as a result of the 1996 Broadcasting Acquisitions, (ii)
increases in total revenues of the Company (excluding the 1996 Broadcasting
Acquisitions) and (iii) decreased revenues as a result of the KTVE Sale. The
1996 Broadcasting Acquisitions, net of the effects of the KTVE Sale, accounted
for $16.4 million, or 79.3%, of the revenue increase.
Broadcast net revenues increased $18.2 million, or 49.6%, over the prior
year, from approximately $36.7 million to approximately $55.0 million. The 1996
Broadcasting Acquisitions, net of the effects of the KTVE Sale, accounted for
$14.9 million, or 81.9%, of the broadcast net revenue increase. On a pro forma
basis, assuming the 1996 Broadcasting Acquisitions had been effective on January
1, 1995, broadcast net revenues for the 1996 Broadcasting Acquisitions for the
year ended December 31, 1996, increased $2.0 million, or 6.4%, over the year
ended December 31, 1995, from $31.3 million to $33.3 million. The KTVE Sale
resulted in a decrease in broadcast net revenues of $1.2 million. Broadcast net
revenues, excluding the 1996 Broadcasting Acquisitions and the operating results
of KTVE, increased $3.3 million, or 9.0%, over the prior year. Approximately
$1.4 million, $1.4 million, $267,000 and $224,000 of the $3.3 million increase
in broadcast net revenues, excluding the 1996 Broadcasting Acquisitions and the
operating results of KTVE, was due to increased political advertising spending,
local advertising spending, network compensation and other revenue,
respectively.
Publishing revenues increased approximately $1.0 million, or 4.5%, over
the prior year, from approximately $21.9 million to approximately $22.8 million.
Circulation and classified advertising revenue comprised approximately $486,000
and $826,000, respectively, of the revenue increase. This increase in
circulation revenue was attributable primarily to price increases in 1996 at two
of the Company's publishing operations and the conversion of the GWINNETT DAILY
POST to a five-day-a-week paper. The increase in classified advertising was
primarily the result of linage increases. These increases were offset by a
decrease of $267,000 in commercial printing revenue.
Paging revenue increased $1.5 million due to the 1996 Broadcasting
Acquisitions. On a pro forma basis, assuming the 1996 Broadcasting Acquisitions
had been effective January 1, 1995, paging revenue for the year ended December
31, 1996, increased $621,000, or 12.7%, over the year ended December 31, 1995,
from $4.9 million to $5.5 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,
1996, increased $11.5 million, or 22.2%, over the year ended December 31, 1995,
from approximately $51.8 million to approximately $63.2 million. This increase
was attributable to the net effect of (i) increased expenses resulting from the
1996 Broadcasting Acquisitions, (ii) increases in total expenses of the Company
(excluding the 1996 Broadcasting Acquisitions), (iii) decreased expenses
resulting from the KTVE Sale, (iv) decreased publishing expenses and (v)
decreased non-cash compensation. The 1996 Broadcasting Acquisitions net of the
effects of the KTVE Sale accounted for $9.3 million, or 80.7%, of the increase
in operating expenses.
Broadcast expenses increased $9.2 million, or 39.8%, over the prior year,
from $23.2 million to $32.4 million. The increase was attributable primarily to
the 1996 Broadcasting Acquisitions partially offset by the KTVE Sale. The 1996
Broadcasting Acquisitions, net of the effects of the KTVE Sale, accounted for
approximately $8.2 million, or 88.5%, of the broadcast expense increase. On a
pro forma basis, assuming the 1996 Broadcasting Acquisitions had been effective
on January 1, 1995, broadcast expenses for the 1996 Broadcasting Acquisitions
for the year ended December 31, 1996, increased
36
<PAGE>
$432,000, or 2.4%, over the year ended December 31, 1995, from $17.5 million to
$18.0 million. The KTVE Sale resulted in a decrease in broadcast expenses of
$1.1 million. Broadcast expenses, excluding the results of the 1996 Broadcasting
Acquisitions and the KTVE Sale, increased $1.1 million, or 5.3%, as a result of
higher payroll costs partially offset by lower syndicated film expense.
Publishing expenses decreased $2.1 million, or 10.3%, over the prior year,
from $20.0 million to $17.9 million. This decrease resulted primarily from a
decrease in work force related costs, improved newsprint pricing, fewer
promotions and restructuring of the advertising publications, partially offset
by higher product delivery and outside service costs associated with the
conversion of the GWINNETT DAILY POST to a five-day-a-week newspaper. Average
newsprint costs decreased approximately 9.6%, while newsprint consumption
remained relatively constant with that of the prior year.
Paging expenses increased $1.1 million due to the 1996 Broadcasting
Acquisitions. On a pro forma basis, assuming the 1996 Broadcasting Acquisitions
had been effective January 1, 1995, paging expenses for the year ended December
31, 1996, increased $637,000, or 19.9%, over the year ended December 31, 1995,
from $3.2 million to $3.8 million. This increase was attributable primarily to
increased trade expense, administrative expense and other communication
expenses.
Corporate and administrative expenses increased $960,000, or 42.5%, over
the prior year, from $2.3 to $3.2 million. This increase was attributable
primarily to the addition of several officers at the corporate level.
DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment and
amortization of intangible assets was $7.7 million for the year ended December
31, 1996, compared to $3.9 million for the prior year, an increase of
approximately $3.8 million, or 93.6%. This increase was primarily the result of
higher depreciation and amortization costs related to the 1996 Broadcasting
Acquisitions.
NON-CASH COMPENSATION. Non-cash compensation paid in Class A Common Stock
resulted from the Company's employment agreements with its former President,
Ralph W. Gabbard, who died unexpectedly in September 1996 and its former chief
executive officer, John T. Williams, who resigned in December 1995. Non-cash
compensation was $880,000 for the year ended December 31, 1996, compared to $2.3
million for the prior year, a decrease of $1.4 million, or 62.1%. The decrease
was primarily attributable to a restricted stock award to the estate of Ralph W.
Gabbard, for which the Company incurred expense of $880,000 for the year ended
December 31, 1996, and the 1995 restricted stock award of 150,000 shares of
Class A Common Stock to John T. Williams, for which the Company incurred expense
of $2.1 million for the year ended December 31, 1995.
MISCELLANEOUS INCOME AND EXPENSE, NET: Miscellaneous income and expense
increased $5.6 million from $143,600 for the year ended December 31, 1995, to
$5.7 million for the year ended December 31, 1996. The increase was primarily
attributable to the KTVE Sale which resulted in a gain before income tax of $5.7
million.
INTEREST EXPENSE. Interest expense increased $6.3 million, or 114.9%, from
$5.4 million for the year ended December 31, 1995, to $11.7 million for the year
ended December 31, 1996. This increase was attributable primarily to increased
levels of debt resulting from the financing of the 1996 Broadcasting
Acquisitions. The Company entered into a $25.0 million notional amount five year
interest rate swap agreement of June 2, 1995, to effectively convert a portion
of its floating rate debt to a fixed rate basis. Effective May 14, 1996, the
Company received $254,000 as settlement of this interest rate swap agreement.
The effective interest rate of the Company's senior subordinated notes and
Senior Credit Facility at December 31, 1996, was approximately 10.6% and 8.4%,
respectively.
37
<PAGE>
EXTRAORDINARY CHARGE: An extraordinary charge of $5.3 million ($3.2
million after taxes) was recorded for the year ended December 31, 1996, in
connection with the early retirement of the Company's former credit facility and
Senior Note.
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS. Net income available to
common shareholders for the Company was $2.1 million for the year ended December
31, 1996, compared with $931,000 for the year ended December 31, 1995, an
increase of $1.2 million, or 130.2%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $10.1 million and $158,000 at December
31, 1997, and 1996, respectively. The Company's cash provided from operations
was $9.7 million, $12.1 million and $7.6 million in 1997, 1996 and 1995,
respectively. Management believes that current cash balances, cash flows from
operations and the available funds under its Senior Credit Facility will be
adequate to provide for the Company's capital expenditures, debt service, cash
dividends and working capital requirements. The agreement pursuant to which the
Senior Credit Facility was issued contains certain restrictive provisions,
which, among other things, limit capital expenditures and additional
indebtedness and require minimum levels of cash flows. Additionally, the
effective interest rate of the Senior Credit Facility can be changed based upon
the Company's maintenance of certain operating ratios as defined by the Senior
Credit Facility, not to exceed the lender's prime rate plus 0.5% or LIBOR plus
2.25%. The Senior Credit Facility contains restrictive provisions similar to the
provisions of the Company's 105/8 % Senior Subordinated Notes due 2006. The
amount borrowed by the Company and the amount available to the Company under the
Senior Credit Facility at December 31, 1997, was $65.6 million and $59.4
million, respectively.
The Company's cash used in investing activities was $57.5 million, $205.1
million and $8.9 million in 1997, 1996 and 1995, respectively. The decrease of
$147.6 million from 1996 to 1997 was primarily due to the net impact of the WITN
Acquisition and the GulfLink Acquisition in 1997 offset by the 1996 Broadcasting
Acquisitions in 1996. The increase of $196.2 million from 1995 to 1996 was
primarily due to the 1996 Broadcasting Acquisitions.
The Company was provided $49.1 million, $193.5 million and $1.3 million in
cash by financing activities in 1997, 1996 and 1995, respectively. In 1997, the
decrease in cash provided by financing activities resulted primarily from the
funding obtained for the 1996 Broadcasting Acquisitions in 1996 partially offset
by the borrowings for the WITN Acquisition and the GulfLink Acquisition,
purchase of treasury stock and increased payments on long-term debt in 1997.
During the year ended December 31, 1997, the Company purchased 172,900 shares of
Class A Common Stock at an average cost of $19.99 per share. The Company placed
these shares in treasury. The cash provided in 1996 resulted primarily from the
(i) the issuance of $160.0 million principal amount of 105/8 % Senior
Subordinated Notes due 2006, (ii) borrowings under the Company's revolving
credit agreements, (iii) public sale of Class B Common Stock and (iv) the
private placement of preferred stock, partially offset by the repayment of
certain long-term debt and the purchase of Class B Common Stock by the Company.
During the year ended December 31, 1996, the Company purchased 172,300 shares of
Class B Common Stock at an average cost of $15.90 per share.
On August 1, 1997, the Company completed the WITN Acquisition. The
purchase price of approximately $41.7 million consisted of $40.7 million cash,
$600,000 in acquisition related costs, and approximately $400,000 in liabilities
which were assumed by the Company. On April 24, 1997, the Company completed the
GulfLink Acquisition. The purchase price of approximately $5.2 million consisted
of $4.1 million cash, $127,000 in acquisition related costs, and approximately
$1.0 million in liabilities which were assumed by the Company.
38
<PAGE>
On September 30, 1996, the Company completed the First American
Acquisition. The purchase price for the First American Acquisition was
approximately $183.9 million and consisted of $175.5 million cash, $1.8 million
in acquisitions-related costs, and the assumption of approximately $6.6 million
of liabilities.
In addition to the consummation of the First American Acquisition, the
Company implemented a financing plan to increase liquidity and improve operating
and financial flexibility. Pursuant to the financing plan, the Company (i)
retired approximately $45.3 million principal amount of outstanding indebtedness
under its former credit facility, together with accrued interest thereon, (ii)
retired approximately $25.0 million aggregate principal amount of outstanding
indebtedness under its senior note, together with accrued interest thereon and a
prepayment fee, (iii) issued $10.0 million of its Series A Preferred Stock in
exchange for the Company's 8% note owned by the Company's principal stockholder,
with warrants to purchase up to 487,500 shares of Class A Common Stock
(representing 9.7% of the Class A Common Stock issued and outstanding at
December 31, 1997, after giving effect to the exercise of such warrants), (iv)
issued to Bull Run Corporation, J. Mack Robinson (Chairman of the Board of Bull
Run Corporation and the President and Chief Executive Officer of the Company)
and certain of his affiliates $10.0 million of its Series B Preferred Stock with
warrants to purchase up to 500,000 shares of Class A Common Stock (representing
9.9% of the Class A Common Stock issued and outstanding at December 31, 1997,
after giving effect to the exercise of such warrants) for cash proceeds of $10.0
million and (v) entered into the Senior Credit Facility which is comprised of a
term loan of $71.5 million and a revolving credit facility of $53.5 million
aggregating $125.0 million.
Effective September 17, 1997, the Senior Credit Facility was modified to
reinstate the original credit limit of $125.0 million, which had been reduced by
the scheduled reductions. The modification also reduced the interest rate spread
over LIBOR and/or Prime and reduced the fee applied to available funds from
0.50% to 0.375%. The modification also extended the maturity date from June 30,
2003 to June 30, 2004. The modification required a one-time fee of $250,000.
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. 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 the 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 Company completed the KTVE Sale, on August 20, 1996. The sales price
included $9.5 million in cash plus the amount of the accounts receivable on the
date of closing to the extent collected by the buyer, (approximately $829,000).
The company recognized a pre-tax gain of approximately $5.7 million and
estimated income taxes of approximately $2.8 million.
The Company regularly enters into program contracts for the right to
broadcast television programs produced by others and program commitments for the
right to broadcast programs in the future. Such programming commitments are
generally made to replace expiring or canceled program rights. Payments under
such contracts are made in cash or the concession of advertising spots for the
program provider to resell, or a combination of both. At December 31, 1997,
payments on program license liabilities due in 1998, which will be paid with
cash from operations, were approximately $4.0 million.
39
<PAGE>
In 1997 the Company's paging operations acquired a 800 Mhz SMR license for
$1,037,000. The Company made a down payment of $207,400 during 1997 with the
remaining balance of $829,600 becoming due in 1998.
In 1997, the Company made $10.4 million in capital expenditures, relating
primarily to the broadcasting and publishing operations, and paid $3.6 million
for program broadcast rights. The Company anticipates making $5.0 million in
capital expenditures in 1998.
In connection with the First American Acquisition, the FCC ordered the
Company to divest itself of WALB-TV ("WALB") and WJHG-TV ("WJHG") by March 31,
1997 to comply with regulations governing common ownership of television
stations with overlapping service areas. The FCC is currently reexamining these
regulations, and if it revises them in accordance with the interim policy it has
adopted, divestiture of WJHG-TV would not be required. Accordingly, the Company
requested and in July of 1997 received an extension of the divestiture deadline
with regard to WJHG conditioned upon the outcome of the rulemaking proceedings.
It can not be determined when the FCC will complete its rulemaking on this
subject. Also in July of 1997, the Company obtained FCC approval to transfer
control of WALB to a trustee with a view towards the trustee effecting (i) a
swap of WALB's 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 1031 of the Internal Revenue Code of 1986, or (ii) a sale
of such assets. Under the trust arrangement, the Company relinquished operating
control of the station to a trustee while retaining the economic risks and
benefits of ownership. If the trustee 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 an adverse effect on the Company's ability to acquire
comparable assets without incurring additional indebtedness. The FCC allowed up
to six months for the trustee to file an application seeking the agency's
approval of a swap or sale. This six month period expired in January 1998,
without a swap or sale being executed. The trustee filed an application
requesting a six-month extension to effect a swap or sale. The FCC has not yet
ruled on this extension application.
The Company and its subsidiaries file a consolidated federal income tax
return and such state or local tax returns as are required. As of December 31,
1997, the Company anticipates that it will generate taxable operating losses for
the foreseeable future.
Management 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.
In February 1998, the Company announced that it had signed a definitive
purchase agreement to purchase all of the outstanding capital stock of Busse
Broadcasting Corporation ("Busse"). The purchase price of approximately $112.0
million includes cash and the assumption of Busse's 11 5/8% Senior Secured
Notes. If completed, the Company currently believes that funding for this
acquisition could be provided primarily through cash flow from operations and
borrowing under the Senior Credit Facility, although there can be no assurances
that this acquisition would not require the sale by the Company of any debt or
equity securities.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT
This annual report on Form 10-K contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. When
used in this report, the words "believes," "expects," "anticipates," "estimates"
and similar words and expressions are generally intended to identify
forward-looking statements. Statements that describe the Company's future
strategic plans, goals, or objectives are also forward-looking statements.
Readers of this Report are cautioned that any forward-
40
<PAGE>
looking statements, including those regarding the intent, belief or current
expectations of the Company or management, are not guarantees of future
performance, results or events and involve risks and uncertainties, and that
actual results and events may differ materially from those in the
forward-looking statements as a result of various factors including, but not
limited to, (i) general economic conditions in the markets in which the Company
operates, (ii) competitive pressures in the markets in which the Company
operates, (iii) the effect of future legislation or regulatory changes on the
Company's operations and (iv) other factors described from time to time in the
Company's filings with the Securities and Exchange Commission. The
forward-looking statements included in this report are made only as of the date
hereof. The Company undertakes no obligation to update such forward-looking
statements to reflect subsequent events or circumstances.
41
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
Audited Consolidated Financial Statements of Gray Communications Systems, Inc.
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Consolidated Balance Sheets at December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . 44
Consolidated Statements of Operations for the years ended December 31, 1997,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
42
<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, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Atlanta, Georgia
January 27, 1998 except for the Pending Acquisition of
Note C, as to which the date is February 13, 1998
43
<PAGE>
<TABLE>
<CAPTION>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
--------------------------------------
1997 1996
------------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,367,300 $ 1,051,044
Trade accounts receivable, less allowance for doubtful accounts
of $1,253,000 and $1,450,000, respectively 19,527,316 17,373,839
Recoverable income taxes 2,132,284 1,747,687
Inventories 846,891 624,118
Current portion of program broadcast rights 2,850,023 2,362,742
Other current assets 968,180 379,793
--------------- --------------
Total current assets 28,691,994 23,539,223
Property and equipment (NOTES C AND D):
Land 889,696 785,682
Buildings and improvements 11,951,700 11,253,559
Equipment 52,899,547 41,954,501
-------------- -------------
65,740,943 53,993,742
Allowance for depreciation (23,635,256) (18,209,891)
-------------- -------------
42,105,687 35,783,851
Other assets:
Deferred loan costs (NOTE D) 8,521,356 9,141,262
Goodwill and other intangibles (NOTE C) 263,425,447 228,692,018
Other 2,306,143 1,507,488
-------------- -------------
274,252,946 239,340,768
-------------- ------------
$345,050,627 $298,663,842
============= ===========
</TABLE>
See accompanying notes.
44
<PAGE>
<TABLE>
<CAPTION>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31,
--------------------------------------
1997 1996
------------------- ------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable (includes $850,000 and $1,000,000 payable
to Bull Run Corporation, respectively) $ 3,321,903 $ 6,043,062
Employee compensation and benefits 3,239,694 7,152,786
Accrued expenses 2,265,725 1,059,769
Accrued interest 4,533,366 4,858,775
Current portion of program broadcast obligations 2,876,060 2,362,144
Deferred revenue 1,966,166 1,764,509
Current portion of long-term debt 400,000 140,000
-------------- -------------
Total current liabilities 18,602,914 23,381,045
Long-term debt (NOTES C AND D) 226,676,377 173,228,049
Other long-term liabilities:
Program broadcast obligations, less current portion 617,107 545,889
Supplemental employee benefits (NOTE E) 1,161,218 1,357,275
Deferred income taxes (NOTE H) 1,203,847 -0-
Deferred interest swap -0- 191,055
Other acquisition related liabilities (NOTES C AND D) 4,494,016 4,735,013
-------------- --------------
7,476,188 6,829,232
Commitments and contingencies (NOTES C, D AND J)
Stockholders' equity (NOTES C, D AND F)
Serial Preferred Stock, no par value; authorized 20,000,000 shares;
issued 2,060 and 2,000, respectively ($20,600,000 and
$20,000,000 aggregate liquidation value, respectively) 20,600,000 20,000,000
Class A Common Stock, no par value; authorized 15,000,000
shares; issued 5,307,716 and 5,155,331 shares, respectively 10,358,031 7,994,235
Class B Common Stock, no par value; authorized 15,000,000
shares; issued 3,515,364 and 3,500,000 shares, respectively 66,397,804 66,065,762
Retained earnings 6,603,191 10,543,940
-------------- --------------
103,959,026 104,603,937
Treasury Stock at cost, Class A Common, 781,921 and 663,180 shares,
respectively (9,011,369) (6,638,284)
Treasury Stock at cost, Class B Common, 166,790 and 172,300 shares,
respectively (2,652,509) (2,740,137)
--------------- --------------
92,295,148 95,225,516
-------------- --------------
$345,050,627 $298,663,842
============== ==============
</TABLE>
See accompanying notes.
45
<PAGE>
GRAY COMMUNCIATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
----------------- ---------------- -----------------
<S> <C> <C> <C>
Operating revenues:
Broadcasting (less agency commissions) $72,300,105 $54,981,317 $36,750,035
Publishing 24,536,348 22,845,274 21,866,220
Paging 6,711,426 1,478,608 -0-
----------- ----------- -----------
103,547,879 79,305,199 58,616,255
Expenses:
Broadcasting 41,966,493 32,438,405 23,201,990
Publishing 19,753,387 17,949,064 20,016,137
Paging 4,051,359 1,077,667 -0-
Corporate and administrative 2,528,461 3,218,610 2,258,261
Depreciation 7,800,217 4,077,696 2,633,360
Amortization of intangible assets 6,718,302 3,584,845 1,325,526
Non-cash compensation paid in common stock
(NOTE E) -0- 880,000 2,321,250
---------- ------------ -----------
82,818,219 63,226,287 51,756,524
---------- ------------ ----------
20,729,660 16,078,912 6,859,731
Miscellaneous income and (expense), net (NOTE B) (30,851) 5,704,582 143,612
---------- ------------ ----------
20,698,809 21,783,494 7,003,343
Interest expense 21,861,267 11,689,053 5,438,374
---------- ----------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY CHARGE (1,162,458) 10,094,441 1,564,969
Federal and state income taxes (NOTE H) 240,000 4,416,000 634,000
---------- ------------ ---------
INCOME (LOSS) BEFORE
EXTRAORDINARY CHARGE (1,402,458) 5,678,441 930,969
Extraordinary charge on extinguishment of debt, net of
applicable income tax benefit of $2,157,000 (NOTE D) -0- 3,158,960 -0-
--------- ------------- ---------
NET INCOME (LOSS) (1,402,458) 2,519,481 930,969
Preferred dividends (NOTE F) 1,409,690 376,849 -0-
----------- -------------- ---------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ (2,812,148) $ 2,142,632 $ 930,969
============= ============ =============
Average outstanding common shares-basic 7,901,697 5,398,436 4,354,183
Average outstanding common shares-diluted 7,901,697 5,625,548 4,481,317
Basic earnings per common share:
Income (loss) before extraordinary charge available to
common stockholders $ (0.36) 0.98 0.21
Extraordinary charge -0- (0.58) -0-
--------- ---------- -------------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ (0.36) $ 0.40 $ 0.21
========== ============ ============
Diluted earnings per common share:
Income (loss) before extraordinary charge available to
common stockholders $ (0.36) $ 0.94 $ 0.21
Extraordinary charge -0- (0.56) -0-
----------- ------------- -------------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ (0.36) $ 0.38 $ 0.21
=========== ============ ============
</TABLE>
See accompanying notes.
46
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS A
PREFERRED STOCK COMMON STOCK COMMON STOCK RESTRICTED TREASURY STOCK
--------------------- --------------------- --------------------- STOCK --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DEFERRALS SHARES AMOUNT
--------- ----------- --------- ----------- --------- ----------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 -0- $ -0- 4,841,785 $3,393,747 -0- $ -0- $ -0- (663,180) (6,638,284)
Net Income -0- -0- -0- -0- -0- -0- -0- -0- -0-
Class A Common Stock Cash Dividends
($0.08) per share -0- -0- -0- -0- -0- -0- -0- -0- -0-
Issuance of Class A Common Stock
(NOTES C, E, F, G AND I):
401(k) Plan -0- -0- 18,354 298,725 -0- -0- -0- -0- -0-
Directors' Stock Plan -0- -0- 23,500 238,919 -0- -0- -0- -0- -0-
Non-qualified Stock Plan -0- -0- 5,000 48,335 -0- -0- -0- -0- -0-
Gwinnett Acquisition -0- -0- 44,117 500,000 -0- -0- -0- -0- -0-
Restricted Stock Plan -0- -0- 150,000 2,081,250 -0- -0- (2,081,250) -0- -0-
Amortization of Restricted Stock
Plan deferrals -0- -0- -0- -0- -0- -0- 2,081,250 -0- -0-
Income tax benefits relating to
stock plans -0- -0- -0- 235,000 -0- -0- -0- -0- -0-
------- ----------- ---------- ------------------- ----------- ---------- --------- ------------
Balance at December 31, 1995 -0- -0- 5,082,756 6,795,976 -0- -0- -0- (663,180) (6,638,284)
Net Income -0- -0- -0- -0- -0- -0- -0- -0- -0-
Common Stock Cash Dividends:
Class A ($0.08 per share) -0- -0- -0- -0- -0- -0- -0- -0- -0-
Class B ($0.02 per share) -0- -0- -0- -0- -0- -0- -0- -0- -0-
Purchase of Class B Common Stock
(NOTE F) -0- -0- -0- -0- -0- -0- -0- -0- -0-
Issuance of Class A Common Stock
(NOTES F, G AND I):
401(k) Plan -0- -0- 13,225 262,426 -0- -0- -0- -0- -0-
Directors' Stock Plan -0- -0- 22,500 228,749 -0- -0- -0- -0- -0-
Non-qualified Stock Plan -0- -0- 36,850 358,417 -0- -0- -0- -0- -0-
Preferred Stock Dividends -0- -0- -0- -0- -0- -0- -0- -0- -0-
Issuance of Class A Common Stock
Warrants (NOTES C AND F) -0- -0- -0- 2,600,000 -0- -0- -0- -0- -0-
Issuance of Series A Preferred
Stock in exchange for
Subordinated Note
(NOTES C AND F) 1,000 10,000,000 -0- (2,383,333) -0- -0- -0- -0- -0-
Issuance of Series B Preferred
Stock (NOTES C AND F) 1,000 10,000,000 -0- -0- -0- -0- -0- -0- -0-
Issuance of Class B Common Stock,
net of expenses
(NOTES C AND F) -0- -0- -0- -0- 3,500,000 66,065,762 -0- -0- -0-
Income tax benefits relating to
stock plans -0- -0- -0- 132,000 -0- -0- -0- -0- -0-
----- ------------ --------- ----------- --------- ----------- ----- --------- ------------
Balance at December 31, 1996 2,000 $20,000,000 5,155,331 $7,994,235 3,500,000 $66,065,762 $ -0- (663,180) $(6,638,284)
<CAPTION>
CLASS B
TREASURY STOCK
--------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ -0- $ -0- $8,245,626 $5,001,089
Net Income -0- -0- 930,969 930,969
Class A Common Stock Cash Dividends
($0.08) per share -0- -0- (348,689) (348,689)
Issuance of Class A Common Stock
(NOTES C, E, F, G AND I):
401(k) Plan -0- -0- -0- 298,725
Directors' Stock Plan -0- -0- -0- 238,919
Non-qualified Stock Plan -0- -0- -0- 48,335
Gwinnett Acquisition -0- -0- -0- 500,000
Restricted Stock Plan -0- -0- -0- -0-
Amortization of Restricted Stock
Plan deferrals -0- -0- -0- 2,081,250
Income tax benefits relating to
stock plans -0- -0- -0- 235,000
--------------------- ----------- ------------
Balance at December 31, 1995 -0- -0- 8,827,906 8,985,598
Net Income -0- -0- 2,519,481 2,519,481
Common Stock Cash Dividends:
Class A ($0.08 per share) -0- -0- (357,598) (357,598)
Class B ($0.02 per share) -0- -0- (69,000) (69,000)
Purchase of Class B Common Stock
(NOTE F) (172,300) (2,740,137) -0- (2,740,137)
Issuance of Class A Common Stock
(NOTES F, G AND I):
401(k) Plan -0- -0- -0- 262,426
Directors' Stock Plan -0- -0- -0- 228,749
Non-qualified Stock Plan -0- -0- -0- 358,417
Preferred Stock Dividends -0- -0- (376,849) (376,849)
Issuance of Class A Common Stock
Warrants (NOTES C AND F) -0- -0- -0- 2,600,000
Issuance of Series A Preferred
Stock in exchange for
Subordinated Note
(NOTES C AND F) -0- -0- -0- 7,616,667
Issuance of Series B Preferred
Stock (NOTES C AND F) -0- -0- -0- 10,000,000
Issuance of Class B Common Stock,
net of expenses
(NOTES C AND F) -0- -0- -0- 66,065,762
Income tax benefits relating to
stock plans -0- -0- -0- 132,000
------------ ------------ ----------- -----------
Balance at December 31, 1996 (172,300) $(2,740,137) $10,543,940 $95,225,516
</TABLE>
See accompanying notes.
47
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK RESTRICTED
--------------------- -------------------- -------------------- STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DEFERRALS
--------- ----------- --------- ---------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 2,000 $20,000,000 5,155,331 $7,994,235 3,500,000 $66,065,762 $ -0-
Net Loss -0- -0- -0- -0- -0- -0- -0-
Common Stock Cash Dividends
($0.08) per share -0- -0- -0- -0- -0- -0- -0-
Preferred Stock Dividends -0- -0- -0- -0- -0- -0- -0-
Issuance of Class A Common Stock
(NOTES F AND G):
Directors' Stock Plan -0- -0- 501 9,645 -0- -0- -0-
Non-qualified Stock Plan -0- -0- 29,850 317,151 -0- -0- -0-
Stock Award Restricted Stock
Plan -0- -0- 122,034 1,200,000 -0- -0- -0-
Issuance of Class B Common Stock
(NOTES F AND I):
401(k) Plan -0- -0- -0- -0- 15,364 282,384 -0-
Issuance of Series B Preferred
Stock (NOTE F) 60 600,000 -0- -0- -0- -0- -0-
Issuance of Treasury Stock
(NOTES F, G, AND I):
401(k) Plan -0- -0- -0- -0- -0- 49,658 -0-
Non-qualified Stock Plan -0- -0- -0- -0- -0- -0- -0-
Purchase of Class A Common Stock
(NOTE F): -0- -0- -0- -0- -0- -0- -0-
Income tax benefits relating to
stock plans -0- -0- -0- 837,000 -0- -0- -0-
------ ---------- ---------- ----------- --------- ------------ -------
Balance at December 31, 1997 2,060 $20,600,000 5,307,716 $10,358,031 3,515,364 $66,397,804 $ -0-
====== ========== ========== ========== ========= =========== ========
<CAPTION>
CLASS A CLASS B
TREASURY STOCK TREASURY STOCK
-------------------- --------------------- RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
------------------------ --------------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 (663,180) $(6,638,284) (172,300) $(2,740,137) $10,543,940 $95,225,516
Net Loss -0- -0- -0- -0- (1,402,458) (1,402,458)
Common Stock Cash Dividends
($0.08) per share -0- -0- -0- -0- (628,045) (628,045)
Preferred Stock Dividends -0- -0- -0- -0- (1,409,690) (1,409,690)
Issuance of Class A Common Stock
(NOTES F AND G):
Directors' Stock Plan -0- -0- -0- -0- -0- 9,645
Non-qualified Stock Plan -0- -0- -0- -0- -0- 317,151
Stock Award Restricted Stock
Plan -0- -0- -0- -0- -0- 1,200,000
Issuance of Class B Common Stock
(NOTES F AND I):
401(k) Plan -0- -0- -0- -0- -0- 282,384
Issuance of Series B Preferred
Stock (NOTE F) -0- -0- -0- -0- -0- 600,000
Issuance of Treasury Stock
(NOTES F, G, AND I):
401(k) Plan -0- -0- 5,510 87,628 -0- 137,286
Non-qualified Stock Plan 54,159 1,082,390 -0- -0- (500,556) 581,834
Purchase of Class A Common Stock
(NOTE F): (172,900) (3,455,475) -0- -0- -0- (3,455,475)
Income tax benefits relating to
stock plans -0- -0- -0- -0- -0- 837,000
--------- ------------ -------- ----------- ---------- -----------
Balance at December 31, 1997 (781,921) $(9,011,369) (166,790) $(2,652,509) $6,603,191 $92,295,148
========= ============ ========= ============ =========== ============
</TABLE>
See accompanying notes.
48
<PAGE>
<TABLE>
<CAPTION>
GRAY COMMUNCIATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
-------------- ------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (1,402,458) 2,519,481 930,969
Items which did not use (provide) cash:
Depreciation 7,800,217 4,077,696 2,633,360
Amortization of intangible assets 6,718,302 3,584,845 1,325,526
Amortization of deferred loan costs 1,083,303 270,813 -0-
Amortization of program broadcast rights 3,501,330 2,742,712 1,647,035
Amortization of original issue discount on 8% subordinated note -0- 216,667 -0-
Write-off of loan acquisition costs from early extinguishment
of debt -0- 1,818,840 -0-
Gain on disposition of television station -0- (5,671,323) -0-
Payments for program broadcast rights (3,629,350) (2,877,128) (1,776,796)
Compensation paid in Common Stock -0- 880,000 2,321,250
Supplemental employee benefits (196,057) (855,410) (370,694)
Common Stock contributed to 401(K) Plan 419,670 262,426 298,725
Deferred income taxes 1,283,000 (44,000) 863,000
Loss on asset sales 108,998 201,792 1,652
Changes in operating assets and liabilities:
Trade accounts receivable (369,675) (1,575,723) (852,965)
Recoverable income taxes (384,597) (400,680) (1,347,007)
Inventories (101,077) 254,952 (181,034)
Other current assets (569,745) (21,248) (11,208)
Trade accounts payable (2,825,099) 2,256,795 1,441,745
Employee compensation and benefits (2,848,092) 2,882,379 1,011,667
Accrued expenses 1,279,164 (2,936,155) (414,087)
Accrued interest (325,409) 3,794,284 78,536
Deferred revenue 201,657 710,286 -0-
----------- ---------- --------
Net cash provided by operating activities 9,744,082 12,092,301 7,599,674
INVESTING ACTIVITIES
Acquisitions of newspaper businesses -0- -0- (2,084,621)
Acquisition of television businesses (45,644,942) (210,944,547) -0-
Disposition of television business -0- 9,480,699 -0-
Purchases of property and equipment (10,371,734) (3,395,635) (3,279,721)
Proceeds from asset sales 24,885 174,401 2,475
Deferred acquisition costs (89,056) -0- (3,330,481)
Payments on purchase liabilities (764,658) (243,985) (111,548)
Other (652,907) (139,029) (125,356)
-------- -------- --------
Net cash used in investing activities (57,498,412) (205,068,096) (8,929,252)
FINANCING ACTIVITIES
Proceeds from borrowings:
Short-term debt -0- -0- 1,200,000
Long-term debt 75,350,000 238,478,310 2,950,000
Repayments of borrowings:
Short-term debt -0- -0- (1,200,000)
Long-term debt (22,678,127) (109,434,577) (1,792,516)
Deferred loan costs (463,397) (9,410,078) -0-
Dividends paid (1,428,045) (426,598) (348,689)
Class A Common Stock transactions 1,163,796 719,166 522,254
Proceeds from equity offering - Class B Common Stock, net of expenses -0- 66,065,762 -0-
Proceeds from offering of Series B Preferred Stock -0- 10,000,000 -0-
Proceeds from settlement of interest rate swap agreement -0- 215,000 -0-
Proceeds from sale of treasury shares 581,834 -0- -0-
Purchase of Class A Common Stock (3,455,475) -0- -0-
Purchase of Class B Common Stock -0- (2,740,137) -0-
---------- ----------- ------------
Net Cash provided by financing activities 49,070,586 193,466,848 1,331,049
----------- ------------ ------------
Increase in cash and cash equivalents 1,316,256 491,053 1,471
Cash and cash equivalents at beginning of year 1,051,044 559,991 558,520
----------- ------------ ------------
Cash and cash equivalents at end of year $ 2,367,300 $ 1,051,044 $ 559,991
=========== ============ ============
</TABLE>
See accompanying notes.
49
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company's operations, which are located in eight southeastern states,
include eight television stations, three daily newspapers, two area weekly
advertising only publications, and paging operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
REVENUE RECOGNITION
The Company recognizes revenues as services are performed.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit with a bank. Deposits
with the bank are generally insured in limited amounts.
INVENTORIES
Inventories, principally newsprint and supplies, are stated at the lower
of cost or market. The Company uses the last-in, first-out ("LIFO") method of
determining costs for substantially all of its inventories. Current cost
exceeded the LIFO value of inventories by approximately $15,000 and $13,000 at
December 31, 1997, and 1996, respectively.
PROGRAM BROADCAST RIGHTS
Rights to programs available for broadcast under program license
agreements are initially recorded at the beginning of the license period for the
amounts of total license fees payable under the license agreements and are
charged to operating expense on the basis of total programs available for use on
the straight-line method. The portion of the unamortized balance expected to be
charged to operating expense in the succeeding year is classified as a current
asset, with the remainder classified as a non-current asset. The liability for
the license fees payable under the program license agreements is classified as
current or long-term, in accordance with the payment terms of the various
license agreements.
50
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed
principally by the straight-line method for financial reporting purposes and by
accelerated methods for income tax purposes. Buildings, improvements and
equipment are depreciated over estimated useful lives of approximately 35 years,
10 years and 5 years, respectively.
INTANGIBLE ASSETS
Intangible assets are stated at cost and are amortized using the
straight-line method. Goodwill is amortized over 40 years. Loan acquisition fees
are amortized over the life of the applicable indebtedness. Non-compete
agreements are amortized over the life of the specific agreement. Accumulated
amortization of intangible assets resulting from business acquisitions was $11.5
million and $4.9 million as of December 31, 1997, and 1996, respectively.
If facts and circumstances indicate that the goodwill, property and
equipment or other assets may be impaired, an evaluation of continuing value
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with these assets would be compared to their
carrying amount to determine if a write down to fair market value or discounted
cash flow value is required.
INCOME TAXES
Deferred income taxes are provided on the differences between the
financial statement and income tax basis of assets and liabilities. The Company
and its subsidiaries file a consolidated federal income tax return. Consolidated
state income tax returns are filed when appropriate and separate state tax
returns are filed when consolidation is not available. Local tax returns are
filed separately.
CAPITAL STOCK
On August 17, 1995, the Board of Directors declared a 50% stock dividend
on the Company's Class A 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
In 1997, the Financial Accounting Standards Board issued Statement No.
128, EARNINGS PER SHARE ("Statement 128"). Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where appropriate, restated to conform to
Statement 128 requirements.
51
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its stock options. Under APB 25, if the
exercise price of the stock options granted by the Company equals the market
price of the underlying stock on the date of the grant, no compensation expense
is recognized.
CONCENTRATION OF CREDIT RISK
The Company provides print advertising and advertising air time to
national, regional and local advertisers within the geographic areas in which
the Company operates. Credit is extended based on an evaluation of the
customer's financial condition, and generally advance payment is not required.
Credit losses are provided for in the financial statements and consistently have
been within management's expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The 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 long-term debt and preferred stock.
The estimated fair value of long-term debt at December 31, 1997, and 1996
exceeded book value by $13.2 million and $9.6 million, respectively. The fair
value of the Preferred Stock at December 31, 1997, and 1996 approximates its
carrying value at that date. The Company does not anticipate settlement of
long-term debt or preferred stock at other than book value.
The fair value of other financial instruments classified as current assets
or liabilities approximates their carrying values due to the short-term
maturities of these instruments.
RECLASSIFICATIONS
Certain amounts in the accompanying consolidated financial statements have
been reclassified to conform to the 1997 format.
B. BUSINESS DISPOSITION
The Company sold the assets of KTVE Inc. (the "KTVE Sale"), its
NBC-affiliated television station, in Monroe, Louisiana-El Dorado, Arkansas on
August 20, 1996. The sales price included $9.5 million in cash plus the amount
of the accounts receivable on the date of closing to the extent collected by the
buyer, to be paid to the Company within 150 days following the closing date
(approximately $829,000). The Company recognized a pre-tax gain of approximately
$5.7 million and estimated income taxes of approximately $2.8 million in
connection with the sale.
52
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. 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 ACQUISITION
On February 13, 1998, the Company signed a definitive purchase agreement
to acquire all of the outstanding capital stock of Busse Broadcasting
Corporation ("Busse"). The purchase price is approximately $112.0 million plus
Busse's cash and cash equivalents less Busse's indebtedness including its 11 5/8
% Senior Secured Notes due 2000. Busse owns and operates three VHF television
stations: KOLN-TV, the CBS-affiliate operating on Channel 10 in the
Lincoln-Hastings-Kearney, Nebraska television market, and its satellite station
KGIN-TV, the CBS-affiliate operating on Channel 11 serving Grand Island,
Nebraska; and WEAU-TV, the NBC-affiliate operating on Channel 13 serving the Eau
Claire-La Crosse, Wisconsin market. The purchase of Busse is subject to FCC
approval. The acquisition is expected to close on or before September 1, 1998.
In connection with the proposed purchase of Busse, the Company will pay Bull Run
Corporation ("Bull Run"), a principal stockholder of the Company, a finder's fee
equal to 1% of the purchase price for services performed, none of which was due
and included in accounts payable at December 31, 1997.
1997 ACQUISITIONS
On August 1, 1997, the Company purchased the assets of WITN-TV ("WITN").
The purchase price of approximately $41.7 million consisted of $40.7 million
cash, $600,000 in acquisition related costs, and approximately $400,000 in
liabilities which were assumed by the Company. Based on the preliminary
allocation of the purchase price, the excess of the purchase price over the fair
value of net tangible assets acquired was approximately $37.4 million. The
Company funded the costs of this acquisition through its senior credit facility
(the "Senior Credit Facility"). WITN operates on Channel 7 and is the
NBC-affiliate in the Greenville-Washington-New Bern, North Carolina market. In
connection with the purchase of the assets of WITN ("WITN Acquisition"), the
Company will pay Bull Run a fee equal to 1% of the purchase price for services
performed, of which $400,000 was due and included in accounts payable at
December 31, 1997.
On April 24, 1997, the Company acquired all of the issued and outstanding
common stock of GulfLink Communications, Inc. ("GulfLink") of Baton Rouge,
Louisiana. The GulfLink operations include nine transportable satellite uplink
trucks. The purchase price of approximately $5.2 million consisted of $4.1
million cash, $127,000 in acquisition related costs, and approximately $1.0
million in liabilities which were assumed by the Company. Based on the
preliminary allocation of the purchase price, the excess of the purchase price
over the fair value of net tangible assets acquired was approximately $3.6
million. The Company funded the costs of this acquisition through its Senior
Credit Facility. In connection with the purchase of the common stock of GulfLink
Communications, Inc. (the "GulfLink Acquisition"), the Company paid Bull Run a
fee equal to $58,000 for services performed.
Unaudited pro forma operating data for the year ended December 31, 1997,
and 1996 is presented below and assumes that the WITN Acquisition and the
GulfLink Acquisition occurred on January 1, 1996.
53
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. BUSINESS ACQUISITIONS (CONTINUED)
1997 ACQUISITIONS (CONTINUED)
This unaudited pro forma operating data does not purport to represent the
Company's actual results of operations had the WITN Acquisition and the GulfLink
Acquisition occurred on January 1, 1996, and should not serve as a forecast of
the Company's operating results for any future periods. The pro forma
adjustments are based solely upon certain assumptions that management believes
are reasonable under the circumstances at this time. Unaudited pro forma
operating data for the year ended December 31, 1997, are as follows (in
thousands, except per common share data):
<TABLE>
<CAPTION>
WITN GULFLINK
ACQUISITION ACQUISITION PRO FORMA ADJUSTED
GRAY ADJUSTMENTS PRO FORMA
-------------- ------------ --------------------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net $ 103,548 $ 4,551 $ 1,000 $ -0- $109,099
========= ========= ========= ========= ========
Net income (loss) available to common
stockholders $ (2,812) $ 146 $ 74 $ (1,177) $ (3,769)
========== ========== =========== =========== =========
Income (loss) per share available to
common stockholders:
Basic $ (0.36) $ (0.48)
=========== ==========
Diluted $ (0.36) $ (0.48)
=========== ==========
</TABLE>
Unaudited pro forma operating data for the year ended December 31, 1996, are as
follows (in thousands, except per common share data):
<TABLE>
<CAPTION>
FIRST
WITN GULFLINK KTVE AMERICAN PRO FORMA ADJUSTED
GRAY ACQUISITION ACQUISITION SALE ACQUISITION ADJUSTMENTS PRO FORMA
----------- ---------------------------------------------------------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues, net $ 79,305 $ 8,431 $ 2,937 $ (2,968) $ 21,203 $ -0- $108,908
======== ========== ========== ======== ========= =========== ========
Net income (loss)
available to common
stockholders $ 2,143 $ 2,566 $ 197 $ (3,173) $ (1,773) $ (2,357) $ (2,397)
======== ========== ========== ======== ========= ========== ==========
Income (loss) per share
available to common
stockholders:
Basic $ 0.40 (0.30)
====== ======
Diluted 0.38 (0.30)
====== ======
</TABLE>
The pro forma results presented above include adjustments to reflect (i)
the incurrence of interest expense to fund the GulfLink Acquisition, the WITN
Acquisition, and the First American Acquisition (as defined in 1996
ACQUISITIONS), (ii) depreciation and amortization of assets acquired, (iii) the
reduction of employee compensation related to severance and vacation
compensation for 1996, (iv) the elimination of the corporate expense allocation
net of additional accounting and administrative expenses for the WITN
Acquisition and the First American Acquisition, (v) increased pension expense
for the First American Acquisition, and (vi) the income tax effect of such pro
forma adjustments. Average outstanding shares used to calculate pro forma
earnings per share data for 1996 include the 3,500,000 Class B Common shares
issued in connection with the First American Acquisition.
54
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. BUSINESS ACQUISITIONS (CONTINUED)
1996 ACQUISITIONS
On September 30, 1996, the Company purchased from First American Media,
Inc. substantially all of the assets used in the operation of two CBS-affiliated
television stations, WCTV-TV ("WCTV") serving Tallahassee, Florida-Thomasville,
Georgia and WKXT-TV ("WKXT") in Knoxville, Tennessee, as well as those assets
used in the operations of a satellite uplink and production services business
and a communications and paging business (the "First American Acquisition").
Subsequent to the First American Acquisition, the Company rebranded WKXT with
the call letters WVLT ("WVLT") as a component of its strategy to promote the
station's upgraded news product. The purchase price of approximately $183.9
million consisted of $175.5 million cash, $1.8 million in acquisition related
costs, and the assumption of approximately $6.6 million of liabilities. The
excess of the purchase price over the fair value of net tangible assets acquired
was approximately $160.2 million. The Company's Board of Directors has agreed to
pay Bull Run, a fee equal to approximately $1.7 million for services performed
in connection with this acquisition. At December 31, 1997, $450,000 of this fee
remains payable and is included in accounts payable.
The First American Acquisition and the early retirement of the Company's
existing bank credit facility and other senior indebtedness (SEE NOTES D AND F),
were funded as follows: net proceeds of $66.1 million from the sale of 3,500,000
shares of the Company's Class B Common Stock; net proceeds of $155.2 million
from the sale of $160.0 million principal amount of the Company's 10 5/8% Senior
Subordinated Notes due 2006; $16.9 million of borrowings under the Senior Credit
Facility; and $10.0 million net proceeds from the sale of 1,000 shares of the
Company's Series B Preferred Stock with warrants to purchase 500,000 shares of
the Company's Class A Common Stock at $24 per share. The shares of Series B
Preferred Stock were issued to Bull Run and to J. Mack Robinson, Chairman of the
Board of Bull Run and President and Chief Executive Officer of the Company, and
certain of his affiliates. The Company obtained an opinion from an investment
banker as to the fairness of the terms of the sale of such Series B Preferred
Stock with warrants.
In connection with the First American Acquisition, the Federal
Communications Commission (the "FCC") ordered the Company to apply for FCC
approval to divest itself of WALB-TV ("WALB") in Albany, Georgia and WJHG-TV
("WJHG") in Panama City, Florida by March 31, 1997 to comply with regulations
governing common ownership of television stations with overlapping service
areas. The FCC is currently reexamining these regulations, and if it revises
them in accordance with the interim policy it has adopted, divestiture of WJHG
would not be required. Accordingly, the Company requested and in July of 1997
received an extension of the divestiture deadline with regard to WJHG
conditioned upon the outcome of the rulemaking proceedings. It can not be
determined when the FCC will complete its rulemaking on this subject. Also in
July of 1997, the Company obtained FCC approval to transfer control of WALB to a
trust with a view towards the trustee effecting (i) a swap of WALB's 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 1031 of the
Internal Revenue Code of 1986, or (ii) a sale of such assets. Under the trust
arrangement, the Company relinquished operating control of the station to a
trustee while retaining the economic risks and benefits of ownership. If the
trustee 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 an
adverse effect on the Company's ability to acquire comparable assets without
incurring additional indebtedness. The FCC allowed up to six months for the
trustee to file an application seeking the agency's approval of a swap or sale.
This six month period expired in January 1998 without a swap or
55
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. BUSINESS ACQUISITIONS (CONTINUED)
1996 ACQUISITIONS (CONTINUED)
sale being executed. The trustee has filed an application requesting a six month
extension to effect a swap or sale. The FCC has not yet ruled on this extension
application.
Condensed unaudited balance sheets of WALB and WJHG are as follows (in
thousands):
<TABLE>
<CAPTION>
WALB WJHG
------------------------------- -------------------------------
DECEMBER 31,
1997 1996 1997 1996
--------------- --------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets $2,379 $2,058 $1,053 $1,079
Property and equipment 1,473 1,579 848 981
Other assets 471 100 346 55
------ ------ ------ ------
Total assets $4,323 $3,737 $2,247 $2,115
====== ====== ====== ======
Current liabilities $ 994 $1,189 $ 350 $ 497
Other liabilities 215 242 127 -0-
Stockholder's equity 3,114 2,306 1,770 1,618
------ ------ ------ ------
Total liabilities and stockholder's equity $4,323 $3,737 $2,247 $2,115
====== ====== ====== ======
</TABLE>
Condensed unaudited income statement data for the three years ended
December 31, 1997, for WALB and WJHG are as follows (in thousands):
<TABLE>
<CAPTION>
WALB WJHG
------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1997 1996 1995 1997 1996 1995
-------------------------------------------------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Broadcasting revenues $ 10,090 $ 10,611 $ 9,445 $ 4,896 $5,217 $ 3,843
Expenses 4,770 5,070 4,650 3,757 4,131 3,573
-------- ------- ----- ------ ------ -------
Operating income 5,320 5,541 4,795 1,139 1,086 270
Other income (expense) 3 7 17 (5) 6 60
-------- -------- ------ ------ ------- -------
Income before income taxes $ 5,323 $ 5,548 $4,812 $1,134 $1,092 $ 330
======== ======== ====== ====== ====== =======
Net income $ 3,295 $ 3,465 $2,984 $ 737 $ 685 $ 205
======== ======== ====== ======= ======= =======
</TABLE>
On January 4, 1996, the Company purchased substantially all of the assets
of WRDW-TV, a CBS television affiliate serving the Augusta, Georgia television
market (the "Augusta Acquisition"). The purchase price of approximately $37.2
million which included assumed liabilities of approximately $1.3 million, was
financed primarily through long-term borrowings. The assets acquired consisted
of office equipment and broadcasting operations located in North Augusta, South
Carolina. The excess of the purchase price over the fair value of net tangible
assets acquired was approximately $32.5 million. In connection with the Augusta
Acquisition, the Company's Board of Directors approved the payment of a $360,000
fee to Bull Run.
Funds for the Augusta Acquisition were obtained from the modification of
the Company's existing bank debt on January 4, 1996 (the "Bank Loan") to a
variable rate reducing revolving credit facility (the
56
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. BUSINESS ACQUISITIONS (CONTINUED)
1996 ACQUISITIONS (CONTINUED)
"Old Credit Facility") and the sale to Bull Run of an 8% subordinated note due
January 3, 2005 in the principal amount of $10.0 million (the "8% Note"). In
connection with the sale of the 8% Note, the Company also issued warrants to
Bull Run to purchase 487,500 shares of Class A Common Stock at $17.88 per share,
337,500 shares of which were vested at December 31, 1997. The remainder vests in
four equal annual installments of 37,500 shares through 2001. Approximately $2.6
million of the $10.0 million of proceeds from the 8% Note was allocated to the
warrants and increased Class A Common Stock. The Old Credit Facility provided
for a credit line up to $54.2 million. This transaction also required a
modification of the interest rate of the Company's $25.0 million senior secured
note with an institutional investor (the "Senior Note") from 10.08% to 10.7%.
As part of the financing arrangements for the First American Acquisition,
the Old Credit Facility and the Senior Note were retired and the Company issued
to Bull Run, in exchange for the 8% Note, 1,000 shares of Series A Preferred
Stock. The warrants issued with the 8% Note were retired and the warrants issued
with the Series A Preferred Stock will vest in accordance with the same schedule
described above provided the Series A Preferred Stock remains outstanding. The
Company recorded an extraordinary charge of $5.3 million ($3.2 million after
taxes or $0.58 per basic common share and $0.56 per diluted common share for
1996) in connection with the early retirement of the $25.0 million Senior Note
and the write-off of loan acquisition costs from the early extinguishment of
debt.
Unaudited pro forma operating data for the year ended December 31, 1996,
and 1995 is presented below and assumes that the Augusta Acquisition, the First
American Acquisition, and the KTVE Sale occurred on January 1, 1995.
This unaudited pro forma operating data does not purport to represent the
Company's actual results of operations had the Augusta Acquisition, the First
American Acquisition, and the KTVE Sale occurred on January 1, 1995, and should
not serve as a forecast of the Company's operating results for any future
periods. The pro forma adjustments are based solely upon certain assumptions
that management believes are reasonable under the circumstances at this time.
Unaudited pro forma operating data for the year ended December 31, 1996, are as
follows (in thousands, except per common share data):
<TABLE>
<CAPTION>
FIRST
KTVE AMERICAN PRO FORMA ADJUSTED
GRAY SALE ACQUISITION ADJUSTMENTS PRO FORMA
------------- -------------------------- ------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net $79,305 $(2,968) $21,203 $ -0- $ 97,540
======= ======= ======= =========== ========
Net income (loss) before extraordinary
charge available to common
stockholders $ 5,301 $(3,173) $(1,773) $ (1,743) $ (1,388)
======= ======= ======= ========== ========
Income (loss) per share available to
common stockholders before
extraordinary charge:
Basic $ 0.98 $ (0.17)
========= =========
Diluted $ 0.94 $ (0.17)
========= =========
</TABLE>
57
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. BUSINESS ACQUISITIONS (CONTINUED)
1996 ACQUISITIONS (CONTINUED)
Unaudited pro forma operating data for the year ended December 31, 1995,
are as follows (in thousands, except per common share data):
<TABLE>
<CAPTION>
FIRST
AUGUSTA KTVE AMERICAN PRO FORMA ADJUSTED
GRAY ACQUISITION SALE ACQUISITION ADJUSTMENTS PRO FORMA
------------- -------------------------- ------------ ---------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues, net $58,616 $8,660 $(4,188) $27,321 $ 228 $90,637
======= ====== ======= ======= ========= =======
Net income (loss) available
to common stockholders $ 931 $2,242 $ (278) $ 6,348 $(15,316) $(6,073)
======= ====== ======== ======== ======== ========
Income (loss) per share
available to common
stockholders:
Basic $ 0.21 $ (0.77)
======== ======
Diluted $ 0.21 $ (0.77)
======== ======
</TABLE>
The pro forma results presented above include adjustments to reflect (i)
the incurrence of interest expense to fund the First American Acquisition and
the WRDW Acquisition, (ii) depreciation and amortization of assets acquired,
(iii) the reduction of employee compensation related to severance and vacation
compensation for 1996, (iv) the elimination of the corporate expense allocation
net of additional accounting and administrative expenses for the First American
Acquisition, (v) increased pension expense for the First American Acquisition,
and (vi) the income tax effect of such pro forma adjustments. Average
outstanding shares used to calculate pro forma earnings per share data for 1996
and 1995 include the 3,500,000 Class B Common shares issued in connection with
the First American Acquisition.
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 $3.7
million, including assumed liabilities of approximately $370,000, was paid by
approximately $1.2 million in cash (financed through long-term borrowings and
cash from operations), the issuance of 44,117 shares of the Company's Class A
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 fee to Bull Run.
58
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
DECEMBER 31,
-----------------------------
1997 1996
------------- ---------------
10 5/8% Senior Subordinated Notes due 2006 $160,000 $160,000
Senior Credit Facility 65,630 12,680
Other 1,446 688
----------- --------
227,076 173,368
Less current portion (400) (140)
----------- --------
$226,676 $173,228
========== =========
On September 20, 1996, the Company sold $160.0 million principal amount of
the Company's 10 5/8% Senior Subordinated Notes (the "Senior Subordinated
Notes") due 2006. The net proceeds of $155.2 million from this offering, along
with the net proceeds from (i) the KTVE Sale, (ii) the issuance of Class B
Common Stock, (iii) the issuance of Series B Preferred Stock and (iv) borrowings
under the Senior Credit Facility, were used in financing the First American
Acquisition as well as the early retirement of the Senior Note and the Old
Credit Facility. Interest on the Senior Subordinated Notes is payable
semi-annually on April 1 and October 1, commencing April 1, 1997.
The Senior Subordinated Notes are jointly and severally guaranteed (the
"Subsidiary Guarantees") by all of the Company's subsidiaries (the "Subsidiary
Guarantors"). The obligations of the Subsidiary Guarantors under the Subsidiary
Guarantees is subordinated, to the same extent as the obligations of the Company
in respect of the Senior Subordinated Notes, to the prior payment in full of all
existing and future senior debt of the Subsidiary Guarantors (which will include
any guarantee issued by such Subsidiary Guarantors of any senior debt).
The Company is a holding company with no material independent assets or
operations, other than its investment in its subsidiaries. The aggregate assets,
liabilities, earnings and equity of the Subsidiary Guarantors are substantially
equivalent to the assets, liabilities, earnings and equity of the Company on a
consolidated basis. The Subsidiary Guarantors are, directly or indirectly,
wholly-owned subsidiaries of the Company and the Subsidiary Guarantees will be
full, unconditional and joint and several. All of the current and future direct
and indirect subsidiaries of the Company will be guarantors of the Notes.
Accordingly, separate financial statements and other disclosures of each of the
Subsidiary Guarantors are not presented because management has determined that
they are not material to investors.
The Company has a $125.0 million Senior Credit Facility, as amended, which
is comprised of a term loan (the "Term Commitment") of $71.5 million and a
revolving credit facility (the "Revolving Commitment") of $53.5 million. The
agreement pursuant to which the Senior Credit Facility was issued contains
certain restrictive provisions, which, among other things, limit capital
expenditures and additional indebtedness and require minimum levels of cash
flows. The Senior Subordinated Notes also contained similar restrictive
provisions. Additionally, the effective interest rate of the Senior Credit
Facility can be changed based upon the Company's maintenance of certain
operating ratios as defined by the Senior Credit Facility, not to exceed the
lender's prime rate plus 0.5% or LIBOR plus 2.25%. The effective interest rate
on the Senior Credit Facility at December 31, 1997, and 1996 was 7.9% and 8.4%,
respectively.
59
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. LONG-TERM DEBT (CONTINUED)
The amounts available under the Revolving Commitment will be reduced by
$7,356,000 in 1998; $8,025,000 in years 1999, 2000, 2001 and 2002; $9,363,000 in
2003; and $4,681,000 in 2004.
The amount borrowed by the Company on December 31, 1999 under the Term
Commitment will be converted to a four and one-half year term loan. The
principal of the term loan shall be repaid in nineteen consecutive quarterly
installments commencing on December 31, 1999. Each of the first five quarterly
installments are equal to 2.50% of the principal balance outstanding at December
31, 1999. Each of the next thirteen quarterly installments are equal to 3.75% of
the principal balance outstanding at December 31, 1999. The nineteenth and final
installment due June 30, 2004 will be equal to the remaining balance outstanding
and any outstanding interest due on June 30, 2004.
The Company is charged a commitment fee on the excess of the aggregate
average daily undisbursed amount of the Revolving Commitment and the Term
Commitment over the amount outstanding. At December 31, 1997, the commitment fee
was 0.375% per annum. At December 31, 1997, the Company has approximately $65.6
million outstanding on the Senior Credit Facility. At December 31, 1997, the
Company's interest rate for the Senior Credit Facility, was based on a spread
over LIBOR of 1.75% or Prime.
The Senior Subordinated Notes and the Senior Credit Facility are secured
by substantially all of the Company's existing and hereafter acquired assets.
At December 31, 1997, retained earnings of approximately $1.4 million and
$1.0 million were available for dividends to holders of preferred and common
stock, respectively.
Aggregate minimum principal maturities on long-term debt as of December
31, 1997, were as follows (in thousands):
1998 $ 400
1999 8,593
2000 10,300
2001 11,165
2002 11,058
Thereafter 185,560
-------
$227,076
========
The Company made interest payments of approximately $21.3 million, $7.6
million, and $5.4 million during 1997, 1996 and 1995, respectively.
In the quarter ended September 30, 1996, the Company recorded an
extraordinary charge of $5.3 million ($3.2 million after taxes or $0.58 per
basic common share or $0.56 per diluted common share) in connection with the
early retirement of the Senior Note and the write-off of unamortized loan
acquisition costs of the Senior Note and the Old Credit Facility resulting from
the early extinguishment of debt.
60
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. SUPPLEMENTAL EMPLOYEE BENEFITS AND OTHER AGREEMENTS
The Company had an employment agreement with its former President, Ralph
W. Gabbard, which provided for an award of 122,034 shares of the Company's Class
A Common Stock if his employment with the Company continued until September
1999. Mr. Gabbard died unexpectedly in September 1996. The Company awarded these
shares to the estate of Mr. Gabbard. Approximately $880,000 and $240,000 of
expense was recorded in 1996 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 recorded
approximately $596,000 of corporate and administrative expenses during the year
ended December 31, 1995, in accordance with the terms of the amended employment
agreement. Additionally, in December 1995 the Company issued 150,000 shares of
the Company's Class A 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 was recognized in
1995 for the 150,000 shares of Class A Common Stock issued pursuant to this
agreement.
The Company has entered into supplemental retirement benefit and other
agreements with certain key employees. These benefits are to be paid primarily
in equal monthly amounts over the employees' life for a period not to exceed 15
years after retirement. The Company charges against operations amounts
sufficient to fund the present value of the estimated lifetime supplemental
benefit over each employee's anticipated remaining period of employment.
The following summarizes activity relative to certain officers' agreements
and the supplemental employee benefits (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1997 1996 1995
------------------ -------------------- -------------
<S> <C> <C> <C>
Beginning liability $ 3,158 $ 2,938 $ 2,518
--------- ----------- -----------
Provision 161 918 976
Forfeitures -0- -0- (169)
--------- ----------- -----------
Net expense 161 918 807
--------- ----------- -----------
Payments (1,793) (698) (387)
--------- ----------- -----------
Net change (1,632) 220 420
--------- ----------- ----------
Ending liability 1,526 3,158 2,938
Less current portion (365) (1,801) (725)
--------- ---------- ----------
$ 1,161 $ 1,357 $ 2,213
======== ========== ==========
</TABLE>
F. STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
The Company amended its Articles of Incorporation to increase to
50,000,000 the number of shares of all classes of stock which the Company has
the authority to issue, of which, 15,000,000 shares are designated Class A
Common Stock, 15,000,000 shares are designated Class B Common Stock, and
20,000,000 shares are designated "blank check" preferred stock for which the
Board of Directors has the authority to determine the rights, powers,
limitations and restrictions. The rights of the Company's Class A and Class B
Common Stock are identical, except that the Class A Common Stock has 10 votes
per share and the Class B Common Stock has one vote per share. The Class A and
Class B Common Stock
61
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE (CONTINUED)
receive cash dividends on an equal per share basis. In September 1996, the
Company issued 1,000 shares each of Series A and Series B Preferred Stock
relating to the financing arrangements for the First American Acquisition.
As part of the financing for the Augusta Acquisition, funding was obtained
from the 8% Note, which included the issuance of detachable warrants to Bull Run
to purchase 487,500 shares of Class A Common Stock at $17.88 per share, 337,500
shares of which were vested at December 31, 1997. The remainder vests in four
equal annual installments of 37,500 through 2001. Approximately $2.6 million of
the $10.0 million of proceeds from the 8% Note was allocated to the warrants and
increased Class A Common Stock. This allocation of the proceeds was based on an
estimate of the relative fair values of the 8% Note and the warrants on the date
of issuance. The Company amortized the original issue discount on a ratable
basis in accordance with the original terms of the 8% Note through September 30,
1996. The Company recognized approximately $217,000 in amortization costs for
the $2.6 million original issue discount. In September 1996, the Company
exchanged the 8% Note with Bull Run for 1,000 shares of liquidation preference
Series A Preferred Stock yielding 8%. The warrants issued with the 8% Note were
retired and the warrants issued with the Series A Preferred Stock will vest in
accordance with the same schedule described above provided the Series A
Preferred Stock remains outstanding. The holder of the Series A Preferred Stock
will receive cash dividends at an annual rate of $800 per share. The liquidation
or redemption price of the Series A Preferred Stock is $10,000 per share.
As part of the financing for the First American Acquisition, the Company
also issued 1,000 shares of Series B Preferred Stock, with warrants to purchase
an aggregate of 500,000 shares of Class A Common Stock at an exercise price of
$24.00 per share. Of these warrants 300,000 vested upon issuance, with the
remaining warrants vesting in five equal annual installments commencing on the
first anniversary of the date of issuance. The shares of Series B Preferred
Stock were issued to Bull Run and to J. Mack Robinson, Chairman of the Board of
Bull Run and President and Chief Executive Officer of the Company, and certain
of his affiliates. The Company obtained a written opinion from an investment
banker as to the fairness of the terms of the sale of such Series B Preferred
Stock with warrants. The holders of the Series B Preferred Stock will receive
dividends at an annual rate of $600 per share, except the Company at its option
may pay these dividends in cash or in additional shares. The liquidation or
redemption price of the Series B Preferred Stock is $10,000 per share. In
September 1997, the Company issued 60 shares of Series B Preferred Stock as
payment of dividends to the holders of its then outstanding Series B Preferred
Stock.
On September 24, 1996, the Company completed a public offering of 3.5
million shares of its Class B Common Stock at an offering price of $20.50 per
share. The proceeds, net of expenses, from this public offering of approximately
$66.1 million were used in the financing of the First American Acquisition.
The Company 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 1997, 1996 and 1995, certain directors purchased an aggregate
of 501, 22,500, and 23,500 shares of Class A Common Stock, respectively, under
this plan.
62
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE (CONTINUED)
The Company's Board of Directors authorized the purchase of up to two
million shares of the Company's Class A or Class B Common Stock to either be
retired or reissued in connection with the Company's benefit plans, including
the Capital Accumulation Plan and the Incentive Plan. During 1997 and the fourth
quarter of 1996, the Company purchased 172,900 Class A Common Stock shares and
172,300 Class B Common Stock shares, respectively, under this authorization. The
1997 and 1996 treasury shares were purchased at prevailing market prices with an
average effective price of $19.99 and $15.90 per share, respectively, and were
funded from the Company's operating cash flow.
Statement of Financial Accounting Standards No. 128. "Earnings Per Share"
is effective for full-year 1997 and subsequent periods. Statement 128 modifies
the method for calculations of net income per share applicable to common
stockholders and also requires a reconciliation between basic and diluted per
share amounts.
The following table presents the effect of Statement 128 (in thousands,
except per common share data):
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ----------------- -----------------
<S> <C> <C> <C>
Net income (loss) available to common stockholders $ (2,812) $ 2,143 $ 931
=========== =========== ============
Basic average common shares outstanding 7,902 5,398 4,354
=========== ============ ============
Basic net income (loss) per share available
to common stockholders $ (0.36) $ 0.40 $ 0.21
=========== ============ ============
Basic average common shares outstanding 7,902 5,398 4,354
Stock compensation awards -0- 228 127
----------- ------------- -------------
Diluted average common shares outstanding 7,902 5,626 4,481
============ ============ ============
Diluted net income (loss) per share available
to common stockholders $ (0.36) $ 0.38 $ 0.21
============ ============ ============
</TABLE>
G. LONG-TERM INCENTIVE PLAN AND STOCK PURCHASE PLAN
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123 "Accounting for Stock-Based Compensation" ("Statement 123") requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of the grant, no compensation expense is recognized.
The Company has a long-term incentive plan (the "Incentive Plan") under
which 200,000 shares of the Company's Class A Common Stock and 400,000 shares of
the Company's Class B Common Stock are reserved for grants to key personnel for
(i) incentive stock options, (ii) non-qualified stock options, (iii) stock
appreciation rights, (iv) restricted stock and (v) performance awards, as
defined by the Incentive Plan. Shares of Common Stock underlying outstanding
options or performance awards are counted against the Incentive Plan's maximum
shares while such options or awards are outstanding.
63
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
G. LONG-TERM INCENTIVE PLAN AND STOCK PURCHASE PLAN (CONTINUED)
Under the Incentive Plan, the options granted typically vest after a two year
period and expire three years after full vesting. Options granted through
December 31, 1997, have been granted at a price which approximates fair market
value on the date of the grant.
The Company also has a Stock Purchase Plan which grants outside directors
up to 7,500 shares of the Company's Common Stock. Under this Stock Purchase
Plan, the options granted vest at the beginning of the upcoming calendar year
and expire at the end of January following that calendar year.
Prior to 1996, grants under the Incentive Plan and the Stock Purchase Plan
were made with the Company's Class A Common Stock. In 1996, the Company amended
its Incentive Plan and Stock Purchase Plan for grants to be made with Class B
Common Stock. Therefore, all options granted subsequent to 1995, were made with
Class B Common Stock.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of Statement
123. The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995, respectively: risk-free interest rates of
5.82%, 5.43% and 6.06%; dividend yields of 0.32%, 0.50% and 0.53%; volatility
factors of the expected market price of the Company's Class A Common Stock of
0.28, 0.33 and 0.26; and a weighted-average expected life of the options of 4.5,
2.0 and 2.7 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and which are fully transferable. In addition, option valuation models require
the input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except per common share data):
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ----------
<S> <C> <C> <C>
Pro forma income (loss) before extraordinary charge available to common
stockholders $ (3,174) $ 5,190 $ 792
Pro forma income (loss) before extraordinary charge per common share:
Basic $ (0.40) $ 0.96 $ 0.18
Diluted $ (0.40) $ 0.92 $ 0.18
</TABLE>
64
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
G. LONG-TERM INCENTIVE PLAN AND STOCK PURCHASE PLAN (CONTINUED)
A summary of the Company's stock option activity for Class A Common Stock, and
related information for the years ended December 31 follows (in thousands,
except weighted average data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
------------------------ ------------------------------------------------
OPTIONS WEIGHTED OPTIONS WEIGHTED OPTIONS WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
PRICE PRICE PRICE
------------ ------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Stock options outstanding -
beginning of year 198 $13.11 263 $12.39 199 $ 9.80
Options granted -0- -0- 111 16.14
Options exercised (85) 10.75 (52) 9.93 (29) 10.08
Options forfeited -0- (6) 12.44 (18) 10.45
Options expired (52) 19.25 (7) 10.17 -0-
----- ---- ----
Stock options outstanding - end of year 61 $11.15 198 $13.11 263 $12.39
===== ==== ===
Exercisable at end of year 61 $11.15 164 $13.06 86 $ 9.84
Weighted-average fair value of $ 3.37
options granted during the year
</TABLE>
Exercise prices for Class A Common Stock options outstanding as of
December 31, 1997, ranged from $9.67 to $13.33 for the Incentive Plan. The
weighted-average remaining contractual life of the Class A Common Stock options
outstanding for the Incentive Plan is 1.4 years.
A summary of the Company's stock option activity for Class B Common Stock,
and related information for the years ended December 31 follows (in thousands,
except weighted average data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
------------------------ ------------------------
OPTIONS WEIGHTED OPTIONS WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
PRICE PRICE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Stock options outstanding - beginning of year 68 $15.88 -0-
Options granted 352 25.20 68 $15.88
--- ---
Stock options outstanding - end of year 420 $23.70 68 $15.88
=== ====
Exercisable at end of year 53 $15.88 -0-
Weighted-average fair value of options granted during the
year $ 8.10 $ 3.22
</TABLE>
Exercise prices for Class B Common Stock options outstanding as of December 31,
1997, ranged
65
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
G. LONG-TERM INCENTIVE PLAN AND STOCK PURCHASE PLAN (CONTINUED)
from $15.88 to $25.50 for the Incentive Plan and $15.88 to $24.19 for the Stock
Purchase Plan. The weighted-average remaining contractual life of the Class B
Common Stock options outstanding for the Incentive Plan and Stock Purchase Plan
is 4.7 and 0.5 years, respectively.
H. INCOME TAXES
The Company uses the liability method in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Federal and state income tax expense (benefit) included in the
consolidated financial statements are summarized as follows (in thousands):
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------- -------------
Current
Federal $ (1,620) $1,462 $ (253)
State and local 577 841 24
Deferred 1,283 (44) 863
--------- ------- -------
$ 240 $2,259 $ 634
========= ====== ======
The total provision for income taxes for 1996 included a tax benefit of
$2.2 million which related to an extraordinary charge on extinguishment of debt.
Significant components of the Company's deferred tax liabilities and
assets are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------- ---------------
<S> <C> <C>
Deferred tax liabilities:
Net book value of property and equipment $ 2,670 $1,165
Goodwill 6,281 2,370
Other 120 120
-------- ------
Total deferred tax liabilities 9,071 3,655
Deferred tax assets:
Liability under supplemental retirement plan 526 1,241
Allowance for doubtful accounts 499 619
Difference in basis of assets held for sale 941 941
Federal operating loss carryforwards 4,412 -0-
State and local operating loss carryforwards 1,952 1,164
Other 290 511
-------- ------
Total deferred tax assets 8,620 4,476
Valuation allowance for deferred tax assets (753) (753)
-------- ------
Net deferred tax assets 7,867 3,723
-------- -------
Deferred tax assets (liabilities) net $(1,204) $ 68
======= ========
</TABLE>
66
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
H. INCOME TAXES (CONTINUED)
A substantial portion of the federal operating loss carryforwards will
expire in the year ended December 31, 2012.
A reconciliation of income tax expense at the statutory federal income tax
rate and income taxes as reflected in the consolidated financial statements is
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
------------ -------------- --------------
<S> <C> <C> <C>
Statutory rate applied to income $ (395) $ 1,625 $ 532
State and local taxes, net of federal tax benefits 572 (7) 91
Permanent difference relating to sale of KTVE -0- 602 -0-
Other items, net 63 39 11
------ -------- --------
$ 240 $ 2,259 $ 634
====== ======== ========
</TABLE>
The Company made income tax payments of approximately $275,000, $3.6
million and $742,000 during 1997, 1996 and 1995, respectively. At December 31,
1997, the Company had current recoverable income taxes of approximately $2.1
million.
I. 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 thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
------------ ------------- -----------
<S> <C> <C> <C>
Service costs - benefits earned during the year $ 429 $ 360 $ 221
Interest cost on projected benefit obligation 442 409 384
Actual return on plan assets (608) (574) (655)
Net amortization and deferral 121 126 187
----- ----- ------
Net pension expense $ 384 $ 321 $ 137
===== ====== =======
Assumptions:
Discount rate 7.0% 7.0% 8.0%
Expected long-term rate of return on assets 7.0% 7.0% 8.0%
Estimated rate of increase in compensation levels 5.0% 5.0% 6.0%
</TABLE>
67
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
I. RETIREMENT PLANS (CONTINUED)
PENSION PLAN (CONTINUED)
The following summarizes the plan's funded status and related assumption
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
----------- -----------
Actuarial present value of accumulated benefit obligation is as follows:
<S> <C> <C>
Vested $5,962 $ 5,675
Other 491 291
------ -------
$6,453 $ 5,966
====== =======
Plan assets at fair value, primarily mutual funds and an unallocated
insurance contract $6,919 $ 6,282
Projected benefit obligation (7,053) (6,483)
------ -------
Plan assets less than projected benefit obligation (134) (201)
Unrecognized net (gain) loss (58) 72
Unrecognized net asset (246) (300)
------ ------
Pension liability included in consolidated balance sheet $ (438) $ (429)
====== =======
Assumptions:
Discount rate 7.0% 7.0%
Estimated rate of increase in compensation levels 5.0% 5.0%
</TABLE>
CAPITAL ACCUMULATION PLAN
Effective October 1, 1994, the Company adopted the Gray Communications
Systems, Inc. Capital Accumulation Plan (the "Capital Accumulation Plan") for
the purpose of providing additional retirement benefits for substantially all
employees. The Capital Accumulation Plan is intended to meet the requirements of
section 401(k) of the Internal Revenue Code.
On November 14, 1996, the Company amended its Capital Accumulation Plan to
allow an investment option in the Company's Class B Common Stock. The amendment
also allows for the Company's percentage match to be made by a contribution of
the Company's Class B Common Stock, effective in 1997. On December 13, 1996, the
Company reserved 200,000 shares of the Company's Class B Common Stock for
issuance under the Capital Accumulation Plan.
Employee contributions to the Capital Accumulation Plan, not to exceed 6%
of the employees' gross pay, are matched by Company contributions. Until 1997,
the Company's percentage match was made by a contribution of the Company's Class
A Common Stock. The Company's percentage match amount is declared by the
Company's Board of Directors before the beginning of each plan year. In 1997,
the Company's percentage match has been made by a contribution of the Company's
Class B Common Stock. The Company's percentage match was 50% for the three years
ended December 31, 1997. The Company contributions vest, based upon each
employee's number of years of service, over a period not to exceed five years.
Company matching contributions aggregating $419,670, $262,426 and $298,725
were charged to expense for 1997, 1996 and 1995, respectively, for the issuance
of 20,874 Class B shares; 13,225 and 18,354 Class A shares, respectively.
68
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
J. COMMITMENTS AND CONTINGENCIES
The Company has various operating lease commitments for equipment, land
and office space. The Company has also entered into commitments for various
television film exhibition rights for which the license periods have not yet
commenced. Rent expense resulting from operating leases for the years ended
December 31, 1997, 1996 and 1995 were $1.4 million, $501,000, and $267,000,
respectively. Future minimum payments under operating leases with initial or
remaining noncancelable lease terms in excess of one year and obligations under
film exhibition rights for which the license period have not yet commenced are
as follows (in thousands):
LEASE FILM TOTAL
---------- ------------- -----------
1998 $1,434 $1,083 $ 2,517
1999 1,255 3,128 4,383
2000 674 2,693 3,367
2001 505 1,650 2,155
2002 290 920 1,210
Thereafter 732 -0- 732
------ ------ -------
$4,890 $9,474 $14,364
====== ====== =======
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.
69
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. INFORMATION ON BUSINESS SEGMENTS
The Company operates in three business segments: broadcasting, publishing
and paging. The broadcasting segment operates eight television stations at
December 31, 1997. The publishing segment operates three daily newspapers in
three different markets, and two area weekly advertising only publications in
southwest Georgia and north Florida. The paging operations are located in
Florida, Georgia, and Alabama. The following tables present certain financial
information concerning the Company's three operating segments (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
------------ ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING REVENUES:
Broadcasting $ 72,300 $54,981 $36,750
Publishing 24,536 22,845 21,866
Paging 6,712 1,479 -0-
----- ------ -------
$ 103,548 $79,305 $58,616
======== ======= =======
OPERATING PROFIT:
Broadcasting $ 17,509 $ 14,106 $ 7,822
Publishing 2,206 1,980 (962)
Paging 1,015 (7) -0-
------- ------- -------
Total operating profit 20,730 16,079 6,860
Miscellaneous income and (expense), net (31) 5,704 144
Interest expense (21,861) (11,689) (5,439)
--------- ---------- --------
Income (loss) before income taxes $ (1,162) $ 10,094 $ 1,565
========= ========= =======
</TABLE>
Operating profit is total operating revenue less operating expenses,
excluding miscellaneous income and expense (net) and interest. Corporate and
administrative expenses are allocated to operating profit based on net segment
revenues.
70
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. INFORMATION ON BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
------------ ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
DEPRECIATION AND AMORTIZATION EXPENSE:
Broadcasting $ 11,024 $ 5,554 $ 2,723
Publishing 1,973 1,730 1,190
Paging 1,480 329 -0-
--------- ----------- --------
14,477 7,613 3,913
Corporate 42 50 46
--------- ----------- --------
Total depreciation and amortization expense $ 14,519 $ 7,663 $ 3,959
========= =========== ========
CAPITAL EXPENDITURES:
Broadcasting $ 5,000 $ 2,674 $ 2,285
Publishing 4,235 692 973
Paging 975 -0- -0-
-------- ----------- --------
10,210 3,366 3,258
Corporate 162 30 22
--------- ----------- --------
Total capital expenditures $ 10,372 $ 3,396 $ 3,280
========= =========== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996 1995
------------ ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
IDENTIFIABLE ASSETS:
Broadcasting $287,254 $ 245,614 $54,022
Publishing 19,818 16,301 18,170
Paging 23,950 23,764 -0-
-------- --------- -------
331,022 285,679 72,192
Corporate 14,029 12,985 6,048
-------- --------- -------
Total identifiable assets $345,051 $ 298,664 $78,240
======== ========= =======
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
L. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
FISCAL QUARTERS
FIRST SECOND THIRD FOURTH
------------ ------------ ------------ ------------
Year Ended December 31, 1997 (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
- ----------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 22,761 $ 25,499 $ 25,984 $ 29,304
Operating income 4,337 6,124 4,271 5,998
Net income (loss) (461) 622 (1,162) (401)
Net income (loss) available to common stockholders (811) 272 (1,513) (760)
Basic income (loss) per share $ (0.10) $ 0.03 $ (0.19) $ (0.10)
Diluted income (loss) per share $ (0.10) $ 0.03 $ (0.19) $ (0.10)
</TABLE>
<TABLE>
<CAPTION>
FISCAL QUARTERS
FIRST SECOND THIRD FOURTH
------------ ------------ ------------ ------------
Year Ended December 31, 1996 (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
- ----------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 17,027 $ 18,487 $ 16,699 $ 27,092
Operating income 2,678 4,633 2,381 6,387
Income before extraordinary charge 311 1,490 2,947 930
Extraordinary charge -0- -0- 3,159 -0-
Net income (loss) 311 1,490 (212) 930
Net income (loss) available to common stockholders 311 1,490 (239) 580
Basic income (loss) per share
Income before extraordinary charge available to
common stockholders $ 0.07 $ 0.33 $ 0.62 $ 0.07
Extraordinary charge 0.00 0.00 (0.67) 0.00
Net income (loss) available to common stockholders $ 0.07 $ 0.33 $ (0.05) $ 0.07
Diluted income (loss) per share
Income before extraordinary charge available to
common stockholders $ 0.07 $ 0.32 $ 0.58 $ 0.07
Extraordinary charge 0.00 0.00 (0.63) 0.00
Net income (loss) available to common stockholders $ 0.07 $ 0.32 $ (0.05) $ 0.07
</TABLE>
Because of the method used in calculating per share data, the quarterly
per share data will not necessarily add to the per share data as computed for
the year.
The third quarter of 1996 includes the KTVE Sale and an extraordinary
charge. As a result of the KTVE Sale, the Company recognized a pre-tax gain of
approximately $5.7 million and estimated income taxes of approximately $2.8
million (SEE NOTE B). The Company recorded an extraordinary charge on
extinguishment of debt of $5.3 million and an income tax benefit of $2.2 million
(SEE NOTE D).
72
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning executive officers, in response to this item, is
incorporated from PART I herein. Information concerning directors of the
registrant, in response to this item, is hereby incorporated by reference to the
information, relating thereto in the Company's proxy statement for its 1998
Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation, in response to this item,
is hereby incorporated by reference to the information, relating thereto in the
Company's proxy statement for its 1998 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management, in response to this item, is hereby incorporated by reference to the
information, relating thereto in the Company's proxy statement for its 1998
Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning Certain Relationships and Related Transactions, in
response to this item, is hereby incorporated by reference to the information,
relating thereto in the Company's proxy statement for its 1998 Annual Meeting of
Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) (1) AND (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS
SCHEDULES
(1) FINANCIAL STATEMENTS
The following consolidated financial statements of Gray Communications
Systems, Inc. are included in item 8:
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995
73
<PAGE>
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES.
The following financial statement schedule of Gray Communications Systems.
Inc and subsidiaries is included in Item 14(d):
Schedule II - Valuation and qualifying accounts.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore
have been omitted.
(B) REPORTS ON FORM 8-K.
A current report on Form 8-K was filed on August 14, 1997, reporting the
purchase of certain assets from Raycom-U.S., Inc. used in the operation of
WITN-TV in the Greenville-Washington-New Bern, North Carolina market area. A
current report on Form 8K/A was filed on October 14, 1997 as an amendment to the
current report on Form 8-K that was filed on August 14, 1997.
(C) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ------------- ------
<S> <C>
3.1 Restated Articles of Incorporation of Gray Communications
Systems, Inc., (incorporated by reference to Exhibit 3.1 to
the Company's Form 10-K for the fiscal year ended December 31,
1996)
3.2 By-Laws of Gray Communications Systems, Inc. as amended
(incorporated by reference to Exhibit 3.2 to the Company's
Form 10-K for the year ended December 31, 1996)
4.1 Indenture for the Company's 105/8% Senior Subordinated Notes
due 2006 (incorporated by reference to Exhibit 4.1 to the
Company's registration statement on Form S-1 (Registration No.
333-4338) (Exhibit 4.1 to the "Note S-1")
4.2 Loan Agreement dated September 23, 1996 by and among Gray
Communications Systems, Inc., as the borrower, KeyBank
National Association as agent, NationsBank, N.A. (South) as
Co-Agent and CIBC, Inc., CoreStates Bank, N.A., and the Bank
of New York (incorporated by reference to Exhibit 4(i) to the
Company's Form 8-K, filed October 15, 1996)
4.3 Borrower Security Agreement dated September 30, 1996 by and
between Gray Communications Systems, Inc. and KeyBank National
Association (incorporated by reference to Exhibit 4(ii) to the
Company's Form 8-K, filed October 15, 1996)
4.4 Subsidiary Security Agreement dated September 30, 1996 between
Gray Communications Systems, Inc., its subsidiaries and
KeyBank National Association (incorporated by reference to
Exhibit 4(iii) to the Company's Form 8-K, filed October 15,
1996)
74
<PAGE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- -------------- -------------- ------
<S> <C>
4.5 Borrower Pledge Agreement dated September 30, 1996 between Gray
Communications Systems, Inc. and KeyBank National Association
(incorporated by reference to Exhibit 4(iv) to the Company's
Form 8-K, filed October 15, 1996)
4.6 Subsidiary Pledge Agreement dated September 30, 1996 by and
among WRDW-TV, Inc., WJHG-TV, Inc., Gray Kentucky Television,
Inc. and KeyBank National Association (incorporated by
reference to Exhibit 4(v) to the Company's Form 8-K, filed
October 15, 1996)
4.7 Subsidiary Guarantee dated September 30, 1996 between Gray
Communications Systems, Inc., its subsidiaries and KeyBank
National Association (incorporated by reference to Exhibit
4(vi) to the Company's Form 8-K, filed October 15, 1996)
4.8 First Amendment to Loan Agreement dated September 8, 1997, by
and among Gray Communications Systems, Inc., as the borrower,
KeyBank National Association as agent, NationsBank, N.A.
(South) as Co-Agent and CIBC, Inc., CoreStates Bank, N.A., and
the Bank of New York 80
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 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)
10.3 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)
10.4 Capital Accumulation Plan, effective October 1, 1994
(incorporated by reference to Exhibit 10(i) to the 1994 Form
10-K)
10.5 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)
10.6 Warrant, dated January 4, 1996, to purchase 487,500
shares of Class A Common Stock (incorporated by reference to
the Note S-1)
10.7 Form of amendment to employment agreement between the Company
and Ralph W. Gabbard, dated January 1, 1996 (incorporated by
reference to Exhibit 10(m) to the 1995 Form 10-K)
10.8 Employment Agreement, dated February 12, 1996 between the
Company and Robert A. Beizer (incorporated by reference to the
Note S-1)
10.9 Form of Preferred Stock Exchange and Purchase Agreement between
the Company and Bull Run Corporation (incorporated by reference
to the Note S-1)
75
<PAGE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- -------------- ------------- -----
<S> <C>
10.10 Form of Warrant to purchase 500,000 shares of Class A
Common Stock (incorporated by reference to the Note S-1)
10.11 Form of amendment to employment agreement between the Company
and Robert A. Beizer, dated December 12, 1996 ( incorporated by
reference to Exhibit 10.19 to the Company's Form 10-K for the
year ended December 31, 1996)
10.12 Amendment to the Company's Long-Term Incentive Plan (
incorporated by reference to Exhibit 10.19 to the Company's
Form 10-K for the year ended December 31, 1996)
10.13 First Amendment to the Company's Capital Accumulation Plan (
incorporated by reference to Exhibit 10.19 to the Company's
Form 10-K for the year ended December 31, 1996)
10.14 Asset Purchase Agreement by and among the Company and
Raycom-U.S., Inc. and WITN-TV, Inc. (incorporated by
reference to item 10 of the current report filed on Form 8-K
(Registration No. 001-13796) on August 14, 1997)
10.15 Stock Purchase Agreement by and Among Busse Broadcasting
Corporation, South Street Corporate Recovery Fund I, L.P.,
Greycliff Leveraged Fund 1993, L.P., South Street Leveraged
Corporate Recovery Fund, L.P. and Gray Communications Systems,
Inc., as dated February 13, 1998. 102
21 List of Subsidiaries
23 Consent of Ernst & Young L.L.P. for the financial statements
of Gray Communications Systems, Inc. 154
27 Financial data schedule for Gray Communications Systems, Inc. 155
(D) FINANCIAL STATEMENT SCHEDULES - The response to this section is submitted as
a part of (a)(1) and (2).
</TABLE>
76
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GRAY COMMUNICATIONS SYSTEMS, INC.
Date: March 4, 1998 By: /s/ J. MACK ROBINSON
--------------------------------------------
J. Mack Robinson, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Date: March 4, 1998 By: /s/ WILLIAM A. FIELDER, III
--------------------------------------------
William A. Fielder, III
VICE PRESIDENT & CFO
(CHIEF FINANCIAL OFFICER)
Date: March 4, 1998 By: /s/ JACKSON S COWART, IV
--------------------------------------------
Jackson S. Cowart, IV
(CHIEF ACCOUNTING OFFICER)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 4, 1998 By: /s/ WILLIAM E. MAYHER, III
--------------------------------------------
William E. Mayher, III
CHAIRMAN OF THE BOARD
Date: March 4, 1998 By: /s/ J. MACK ROBINSON
--------------------------------------------
J. Mack Robinson,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER AND DIRECTOR
Date: March 4, 1998 By: /s/ RICHARD L. BOGER
--------------------------------------------
Richard L. Boger, DIRECTOR
Date: March 4, 1998 By: /s/ HILTON H. HOWELL, JR.
--------------------------------------------
Hilton H. Howell, Jr., DIRECTOR
Date: March 4, 1998 By: /s/ HOWELL W. NEWTON
--------------------------------------------
Howell W. Newton, DIRECTOR
Date: March 4, 1998 By: /s/ HUGH NORTON
--------------------------------------------
Hugh Norton, DIRECTOR
Date: March 4, 1998 By: /s/ ROBERT S. PRATHER, JR.
--------------------------------------------
Robert S. Prather, Jr., DIRECTOR
Date: March 4, 1998 By: /s/ HARRIETT J. ROBINSON
--------------------------------------------
Harriett J. Robinson., DIRECTOR
77
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Gray
Communications Systems, Inc. as of December 31, 1997 and 1996, and for each of
the three years in the period ended December 31, 1997, and have issued our
report thereon dated January 27, 1998 (except for the Pending Acquisition of
Note C, as to which the date is February 13, 1998). Our audits also included the
financial statement schedule listed in Item 14(a). 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
January 27, 1998
78
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. C
--------------------------
COL. A COL. B ADDITIONS COL. D COL. E
- ----------------------------------------- ------------- -------------------------- --------------- ---------------
DESCRIPTION BALANCE AT CHARGED TO CHARGED TO BALANCE AT
- ----------- BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS (1) PERIOD
------------- ------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts $1,450,000 $188,000 $ 31,000(2) $416,000 $1,253,000
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts $ 450,000 $894,000 $ 583,000(2) $477,000 $1,450,000
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.
79
Exhibit 4.8
FIRST AMENDMENT TO LOAN AGREEMENT
This FIRST AMENDMENT TO LOAN AGREEMENT is made and entered into as of
September 8, 1997, by and among GRAY COMMUNICATIONS SYSTEMS, INC., a Georgia
corporation (the "Borrower"), the FINANCIAL INSTITUTIONS listed on the signature
pages hereof (the "Banks"), NATIONSBANK, N.A. (SOUTH), as co-agent, and KEYBANK
NATIONAL ASSOCIATION, as agent (the "Agent").
RECITALS
A. The Borrower, the Agent, the Co-Agent and the Banks entered into a
Loan Agreement dated as of September 23, 1996 (the "Original Agreement"),
pursuant to which the Banks agreed to make available to the Borrower loans of up
to $53,500,000 on a reducing revolving credit basis and $71,500,000 on a
revolving credit converting to a term loan basis. The Original Agreement, as
amended hereby, may be referred to hereinafter as the "Loan Agreement."
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned to them in the Loan Agreement.
B. The Borrower desires to extend the Conversion Date of the Term Loans
until December 31, 1999, extend the Termination Date of all of the Loans until
June 30, 2004, reduce the Applicable Margin, revise certain of the financial
covenants and make certain other changes in the Original Agreement. Subject to
the terms and conditions of this Amendment, the Agent, the Co Agent and the
Banks have agreed to such requests.
AGREEMENTS
In consideration of the foregoing Recitals and of the covenants and
representations contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Borrower, the
Agent, the Co-Agent and the Banks agree as follows:
1. Amendments. Subject to the satisfaction of the conditions set
forth in Section 2 of this Amendment, the Original Agreement
shall be amended as follows:
(a) The definition of the term "Applicable Margin" in
Section 1.1 shall be amended in its entirety to read
as follows:
<PAGE>
"Applicable Margin" means, as of any date of
determination, the percentage determined from the following
table based upon the Leverage Ratio:
<TABLE>
<CAPTION>
Leverage Ratio: Applicable Applicable
Margin for Margin for
Base Rate LIBOR
Loans: Loans:
<S> <C> <C>
Greater than 6.25:1.0 but 0.50% 2.25%
less than or equal to
6.50:1.0
Greater than 6.00:1.0 but 0.25% 2.00%
less than or equal to
6.25:1.0
Greater than 5.50:1.0 but 0.00% 1.75%
less than or equal to
6.00:1.0
Greater than 5.00:1.0 but 0.00% 1.50%
less than or equal to
5.50:1.0
Greater than 4.50:1.0 but 0.00% 1.25%
less than or equal to
5:00:1.0
Greater than 4.00:1.0 but 0.00% 1.00%
less than or equal to
4.50:1.0
Less than or equal 0.00% 0.75%
4.0:1.0
</TABLE>
(b) The definition of the term "Conversion Date" in Section
1.1 shall be amended in its entirety to read as follows: "Conversion Date" means
December 31, 1999."
(c) The definition of the term "Termination Date" in Section
1.1 shall be amended in its entirety to read as follows: "Termination Date"
means June 30, 2004."
(d) Section 1.1 shall be amended by adding the following
definition in proper alphabetical order:
<PAGE>
"First Amendment" means the First Amendment to Loan
Agreement dated as of September 8, 1997, among the Borrower,
the Agent, the Co-Agent and the Banks.
(e) Section 2.1(b) shall be amended in its entirety to read
as follows:
(b) On each date set forth in the table below, the
Revolving Commitment shall automatically reduce by the amount
set forth for such date in such table:
<TABLE>
<CAPTION>
Calendar March 31 June 30 September December 31
Year 30
<S> <C> <C> <C> <C>
1998 $1,839,062 $1,839,062 $1,839,063 $1,839,063
1999 $2,006,250 $2,006,250 $2,006,250 $2,006,250
2000 $2,006,250 $2,006,250 $2,006,250 $2,006,250
2001 $2,006,250 $2,006,250 $2,006,250 $2,006,250
2002 $2,006,250 $2,006,250 $2,006,250 $2,006,250
2003 $2,340,625 $2,340,625 $2,340,625 $2,340,625
2004 $2,340,625 $2,340,625
</TABLE>
(f) Section 2.2(d) shall be amended by deleting the table
that is set forth therein and replacing it with the following table:
<TABLE>
<CAPTION>
Calendar Year March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C> <C>
1999 0.0% 0.0% 0.0% 2.5%
2000 2.5% 2.5% 2.5% 2.5%
2001 3.75% 3.75% 3.75% 3.75%
2002 3.75% 3.75% 3.75% 3.75%
2003 3.75% 3.75% 3.75% 3.75%
2004 3.75% all
remaining
principal
</TABLE>
(g) Section 2.6(a) shall be amended in its entirety to read as
follows:
(a) Commitment Fees. The Borrower shall pay to the
Agent for the benefit of the Banks a non-refundable commitment
fee of 1/2% per annum for periods prior to the effective date
of the First Amendment and 3/8% per annum for periods
commencing on or after the effective date of the First
Amendment (based on a year having 360 days and actual days
elapsed) on the excess of the aggregate average daily
undisbursed amount of each Commitment over the aggregate
stated amount of the Letters of Credit then outstanding issued
under such Commitment;
<PAGE>
provided, however, that the commitment fee shall be 1/4% per
annum for any day on which the Leverage Ratio is less than or
equal to 4.5 to 1.0. Such commitment fee shall (i) commence to
accrue as of the date hereof and continue for each day to and
including the Termination Date, with respect to the Revolving
Commitment, and to and including the Conversion Date, with
respect to the Term Commitment, (ii) be in addition to any
other fee required by the terms and conditions of this
Agreement, (iii) be payable quarterly in arrears on each
Quarterly Date and, with respect to the Revolving Commitment,
on the date the Revolving Commitment is terminated, and, with
respect to the Term Commitment, on the date the Term
commitment is terminated, and (iv) be shared by the Banks in
accordance with their Ratable Shares.
(h) Section 2.16 shall be amended by deleting the reference
to "December 31, 1998" in the second line thereof and replacing it with a
reference to "December 31, 1999."
(i) Section 8.1 shall be amended (i) by deleting the
reference to "$150,000,000" in clause (f) thereof and replacing it with a
reference to "$160,000,000," and (ii) by adding a new clause (h) at the end
thereof which shall read as follows:
(h) unsecured Indebtedness incurred by WALB-TV, Inc.
pursuant to a line of credit in an aggregate principal amount
not to exceed $1,000,000,which shall be guaranteed by the
Borrower.
(j) Section 8.3 shall be amended by adding at the end thereof
a new clause (f) which shall read as follows: "and (f) a guaranty by the
Borrower of Indebtedness incurred by WALB TV, Inc., to the extent permitted
pursuant to Section 8.1(h)."
(k) Section 8.7 shall be amended in its entirety to read as
follows:
8.7 Capital Expenditures. The Borrower and its
Subsidiaries shall not make Capital Expenditures (i) in either
of calendar years 1997 or 1998 which exceed in the aggregate
for such year $10,000,000, or (ii) in any calendar year after
1998 which exceed in the aggregate for such year $7,500,000
(the amount permitted in any year pursuant to this sentence
being referred to as the "Base Amount" for such year). The
Base Amount for each year shall be increased by an amount
equal to the product of $500,000 times the net increase in the
number of television stations and Newspapers owned by the
Borrower and its Subsidiaries as of the end of such year over
the number of television stations and Newspapers owned by the
Borrower and its Subsidiaries as of the date of the First
Amendment. If the Base Amount for any year exceeds the
aggregate amount of Capital Expenditures actually made by the
Borrower and its Subsidiaries in such year (such excess being
referred to as the "Excess Amount"), then the Borrower and its
Subsidiaries may make Capital Expenditures in the immediately
succeeding year (but not in any year thereafter) in excess of
the Base Amount for
<PAGE>
such succeeding year in an amount not to exceed the lesser of
$1,000,000 and the Excess Amount for the prior year.
(1) Section 8.9(a) shall be amended by adding a new paragraph
(v) at the end thereof which shall read as follows:
(v) The Borrower may, from and after November 21,
1996, make open market purchases of up to 1,000,000 shares in
the aggregate of its Class A and Class B Common Stock, so long
as no Possible Default or Event of Default exists at the time
of making any such purchase or would exist after giving effect
thereto and prior to making any such purchase, the Borrower
shall have delivered to the Agent a certificate of its chief
financial officer in form and substance satisfactory to the
Agent which shall contain calculations demonstrating on a pro
forma basis the Borrower's compliance with the financial
covenants set forth in Section 8 after giving effect to such
purchase.
(m) Section 8.13(a) shall be amended in its entirety to read
as follows:
(a) Leverage Ratio. The Borrower shall not permit the
Leverage Ratio at any time during any period listed in Column
A below to be greater than the ratio set forth in Column B
below opposite such period:
<TABLE>
<CAPTION>
Column A Column B
Period: Permitted Ratio:
<S> <C>
effective date of the 6.50:1.0
First Amendment through March 31, 1998:
April 1, 1998, through December 31, 1998: 6.25:1.0
January 1, 1999, through September 30, 1999: 6.00:1.0
October 1, 1999, through June 30, 2000: 5.75:1.0
July 1, 2000, through March 31, 2001: 5.50:1.0
April 1, 2001, through December 31, 2001: 5.25:1.0
January 1, 2002, and thereafter: 5.00:1.0
</TABLE>
<PAGE>
(n) Section 8.13(c) shall be amended in its entirety to read
as follows:
(c) Operating Cash Flow to Interest Expense.
The Borrower shall not permit the ratio of Operating
Cash Flow for any four fiscal quarter period ending on
or prior to September 30, 1998, to Interest Expense for
such four quarter period to be less than 1.40 to 1.00;
the Borrower shall not permit the ratio of Operating
Cash Flow for any four fiscal quarter period ending
after September 30, 1998, but on or before September
30, 2000, to Interest Expense for such four quarter
period to be less than 1.50 to 1.00; and the Borrower
shall not permit the ratio of Operating Cash Flow for
any four fiscal quarter period ending after September
30, 2000, to Interest Expense for such four quarter
period to be less than 2.00 to 1.00.
(o) Section 8.13(d) shall be amended in its entirety to read
as follows:
(d) Pro Forma Debt Service Coverage Ratio.
The Borrower shall not permit the ratio of Operating
Cash Flow for any four fiscal quarter period ending on
or prior to September 30, 1998, to Pro Forma Debt
Service as of the end of such four quarter period to be
less than 1.10 to 1.00; the Borrower shall not permit
the ratio of Operating Cash Flow for any four fiscal
quarter period ending after September 30, 1998, but on
or prior to September 30, 2001, to Pro Forma Debt
Service as of the end of such four quarter period to be
less than 1.15 to 1.00; and the Borrower shall not
permit the ratio of operating Cash Flow for any four
fiscal quarter period ending after September 30, 2001,
to Pro Forma Debt Service as of the end of such four
quarter period to be less than 1.20 to 1.00.
(p) Section 11.10 shall be amended in its entirety to read as
follows:
11.10 Successor Agent.
(a) The Agent may, without the consent of the
Borrower or the other Banks, assign its rights and
obligations as Agent hereunder and under the Collateral
Documents to any wholly owned subsidiary of the Agent
which has capital and retained earnings of at least
$500,000,000, and upon such assignment, the former
Agent shall be deemed to have retired, and such wholly
owned subsidiary shall be deemed to be a successor
Agent.
(b) The Agent may resign at any time by giving
written notice thereof to the Banks. Upon any such
resignation, the Majority Banks shall have the right to
appoint a successor Agent. If no successor Agent shall
have been so appointed by the Majority Banks and shall
have accepted such appointment within thirty days after
the notice of resignation, then the
<PAGE>
retiring Agent may appoint a successor Agent. Such
successor Agent shall be a commercial bank having
capital and retained earnings of at least $500,000,000.
(c) Upon the acceptance of any appointment as the
Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the assigning or
retiring Agent, and the assigning or retiring Agent shall be
discharged from its duties and obligations hereunder. After
any assigning or retiring Agent's resignation hereunder as the
Agent, the provisions of this Section 11 shall continue in
effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent
hereunder.
(q) Section 12.7(d) shall be amended by deleting the reference
to "Section 12.12" in the fourth line from the bottom thereof and replacing it
with a reference to "Section 12.14."
2. Conditions to Effectiveness. The amendments set forth in Section 1
shall be effective on the date on which all of the following conditions are
satisfied:
(a) The Borrower shall have executed and delivered to each
Bank an Amended and Restated Reducing Revolving Credit Note and an Amended and
Restated Term Note (collectively, the "Amended Notes") in the forms attached
hereto as Exhibits A and B.
(b) The Borrower shall have paid all fees and expenses of
the Agent and the Banks and payable pursuant to the terms of the Loan
Agreement, the Fee Letter, this Amendment or any separate agreement between the
Borrower and the Agent.
(c) The Borrower shall have delivered to the Agent a
certified copy of resolutions of the Board of Directors of the Borrower
evidencing approval of the execution, delivery and performance of this
Amendment, the Amended Notes and the other documents and instruments required
pursuant hereto.
(d) The Subsidiaries of the Borrower shall have executed the
Acknowledgment and Agreement attached hereto.
(e) The Borrower shall have delivered to the Agent such other
documents, instruments and opinions as the Agent or any Bank may reasonably
request.
3. Representations, Warranties and Events of Default.
(a) Except as amended hereby, the terms, provisions,
conditions and agreements of the Original Agreement are hereby ratified and
confirmed and shall remain in full force and effect. Each and every
representation and warranty of the Borrower set forth in the
<PAGE>
Original Agreement (other than those which by their terms are limited to a
specific date) is hereby confirmed and ratified in all material respects, and
such representations and warranties as so confirmed and ratified shall be deemed
to have been made and undertaken as of the date of this Amendment as well as at
the time they were made and undertaken.
(b) The Borrower represents and warrants that:
i) No Event of Default or Possible Default now exists
or will exist immediately following the execution hereof or after giving effect
to the transactions contemplated hereby.
ii) All necessary corporate or stockholder actions on
the part of the Borrower and its Subsidiaries to authorize the execution,
delivery and performance of this Amendment, the Amended Notes and all other
documents or instruments required pursuant hereto or thereto have been taken;
this Amendment, the Amended Notes and each such other document or instrument
have been duly and validly executed and delivered and are legally valid and
binding upon the Borrower and its Subsidiaries and enforceable in accordance
with their respective terms, except to the extent that the enforceability
thereof may be limited by bankruptcy, insolvency or like laws or by general
equitable principles.
iii) The execution, delivery and performance of this
Amendment, the Amended Notes and all other documents and instruments required
pursuant hereto or thereto, and all actions and transactions contemplated hereby
and thereby will not (A) violate, be in conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under (I) any
provision of the Articles of Incorporation or By-Laws of the Borrower or any of
its Subsidiaries, (II) any arbitration award or any order of any court or of any
other governmental agency or authority, (III) any license, permit or
authorization granted to the Borrower or any of its subsidiaries or under which
the Borrower or any of its Subsidiaries operates, or (IV) any applicable law,
rule, order or regulation, indenture, agreement or other instrument to which the
Borrower or any of its Subsidiaries is a party or by which the Borrower or any
of its Subsidiaries or any of their respective properties is bound and which has
not been waived or consented to, or (B) result in the creation or imposition of
any lien, charge or encumbrance of any nature whatsoever, except as expressly
permitted in the Loan Agreement, upon any of the properties of the Borrower or
any of its subsidiaries.
iv) No consent, approval or authorization of, or
filing, registration or qualification with, any governmental authority
(including, without limitation, the FCC and any other Licensing Authority) is
required to be obtained by the Borrower or any of its Subsidiaries in connection
with the execution, delivery or performance of this Amendment, the Amended Notes
or any document or instrument required in connection herewith or therewith which
has not already been obtained or completed.
4. Affirmation of the Borrower. The Borrower has executed this
Amendment to consent to the amendments to the Original Agreement made pursuant
hereto and to acknowledge
<PAGE>
that the security interests and liens granted by the Borrower to the Agent, for
the benefit of the Banks, pursuant to the Borrower Security Agreement, the
Borrower Pledge Agreement, the Mortgages and the other Collateral Documents to
which the Borrower is a party remain in full force and effect and shall continue
to secure all Obligations.
5. Fees and Expenses.
(a) In consideration of the Banks' agreement to the
amendments to the Original Agreement contemplated hereby, the Borrower shall
pay to the Agent, for the benefit of the Banks, on the effective date of this
Amendment an amendment fee in an amount equal to 0.075% of the maximum amount
of the Commitments. The Banks shall share in this amendment fee in accordance
with their respective Ratable Shares.
(b) As required under the Original Agreement, the Borrower
will reimburse the Agent upon demand for all out-of-pocket costs, charges and
expenses of the Agent (including reasonable fees and disbursements of special
counsel to the Agent) in connection with the preparation, negotiation, execution
and delivery of this Amendment and the other agreements or documents relating
hereto or required hereby.
6. Counterparts. This Amendment may be executed in as many counterparts
as may be convenient and shall become binding when the Borrower, the Agent, the
Co-Agent and each Bank have executed at least one counterpart.
7. Governing Law. This Amendment shall be a contract made under and
governed by the laws of the State of Ohio, without regard to the conflicts of
law provisions thereof.
8. Binding Effect. This Amendment shall be binding upon and shall inure
to the benefit of the Borrower, the Agent, the Co-Agent the Banks and their
respective successors and assigns.
9. Reference to Original Agreement. Except as amended hereby, the
Original Agreement shall remain in full force and effect and is hereby ratified
and confirmed in all respects. On and after the effectiveness of the amendments
to the Original Agreement accomplished hereby, each reference in the original
Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like
import, and each reference to the original Agreement or the original notes
evidencing the Loans issued pursuant thereto in any Note or other Collateral
Document, or other agreement, document or instrument executed and delivered
pursuant to the Original Agreement, shall be deemed a reference to the Original
Agreement, as amended hereby, or the Amended Notes, as the case may be.
10. No Other Modifications; Same Indebtedness. The modifications
effected by this Amendment and by the other documents and instruments
contemplated hereby shall not be deemed to provide for or effect a repayment and
re-advance of any of the Loans now
<PAGE>
outstanding, it being the intention of the Borrower, the Agent and the Banks
that the Loans outstanding under the Original Agreement, as amended by this
Amendment, be and are the same Indebtedness as that owing under the Original
Agreement immediately prior to the effectiveness hereof.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Amendment to
Loan Agreement as of the date first above written.
BORROWER:
GRAY COMMUNICATIONS SYSTEMS, INC.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Title: Vice President
BANKS:
KEY CORPORATE CAPITAL INC.
By: /s/ Jason R. Weaver
Name: Jason R. Weaver
Title: Vice President
NATIONSBANK, N.A. (SOUTH)
By: /s/ Melinda M. Bergbom
Name: Melinda M. Bergbom
Title: Senior Vice President
CIBC INC.
By: /s/ Harold Birk
Name: Harold Birk
Title: Director, CIBC Wood Gundy
Securities Corp., as Agent
CORESTATES BANK, N.A.
By: /s/ Charles Brinley
Name: Charles Brinley
Title: Commercial Officer
<PAGE>
THE BANK OF NEW YORK
By: /s/ Edward Ryan
Name: Edward Ryan
Title: Senior Vice President
AGENT:
KEYBANK NATIONAL ASSOCIATION
By: /s/ Jason R. Weaver
Name: Jason R. Weaver
Title: Vice President
CO-AGENT:
NATIONSBANK, N.A. (SOUTH)
By: /s/ Melinda M. Bergbom
Name: Melinda M. Bergbom
Title: Senior Vice President
GRAY TRANSPORTATION COMPANY, INC.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
PORTA-PHONE PAGING, INC.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
PORTA-PHONE PAGING LICENSEE CORP.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
THE ROCKDALE CITIZEN PUBLISHING COMPANY
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
<PAGE>
Its: Secretary
THE SOUTHWEST GEORGIA SHOPPER, INC.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
WALB LICENSEE CORP.
By: /s/ Ward L. Quaal
Name: Ward L. Quaal
Its: President
WALB-TV, INC.
By: /s/ Ward L. Quaal
Name: Ward L. Quaal
Its: President
WCTV LICENSEE CORP.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
WCTV OPERATING CORP.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
WJHG LICENSEE CORP.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
WITN LICENSEE CORP.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
<PAGE>
WITN OPERATING CORP.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
WJHG-TV, INC.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
WVLT LICENSEE CORP.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
WVLT-TV, INC.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
WKYT LICENSEE CORP.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
WRDW LICENSEE CORP.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
WRDW-TV, INC.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
<PAGE>
WYMT LICENSEE CORP.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
GULF LINK COMMUNICATIONS, INC.
By: /s/ Robert A. Beizer
Name: Robert A. Beizer
Its: Secretary
<PAGE>
EXHIBIT A
AMENDED AND RESTATED REDUCING REVOLVING CREDIT NOTE
$_____________________ September 8, 1997
FOR VALUE RECEIVED, GRAY COMMUNICATIONS SYSTEMS, INC., a Georgia
corporation (the "Maker"), hereby promises to pay to the order of
_______________ (the "Payee"), on or before June 30, 2004, in the manner and at
the place provided in the Loan Agreement, as that term is defined below, the
principal sum of $___________ or if less, the outstanding balance of the
Revolving Loans, as that term is defined in the Loan Agreement described below,
made by the Payee.
The unpaid principal balance of this Note shall bear interest prior to
maturity at the rates determined in accordance with the provisions of that
certain Loan Agreement dated as of September 23, 1996, as amended by the First
Amendment to Loan Agreement, dated as of September 8, 1997, among the Maker,
KeyBank National Association, as Agent, NationsBank, N.A. (South), as Co-Agent,
the Payee and the other financial institutions as may from time to time be
parties thereto (as the same may be amended, modified, extended or restated from
time to time, the "Loan Agreement"). Interest accrued on each Base Rate Loan
shall be paid quarterly in arrears on each Quarterly Date after the date hereof
until such Loan is paid in full and on the date such Loan is paid in full, and
interest accrued on each LIBOR Loan shall be paid on the last day of the
Interest Period thereof and on the date such Loan is paid in full and, in
addition, if such Interest Period has a duration of more than three months,, on
each day that occurs during such Interest Period that is three, six or nine
months from the first day of such Interest Period.
This Note is an amendment and restatement of the Reducing Revolving
Credit Note dated September 30, 1996, of the Maker to the Payee (the "Original
Note") and not a replacement, substitution or repayment thereof. The
indebtedness and liabilities of the Maker under the Original Note evidenced
hereby remain in full force and effect as amended, renewed and extended hereby.
This Note is subject to voluntary and mandatory prepayment in whole or
in part at the times and in the manner specified in the Loan Agreement.
The Payee may, and is hereby authorized by the Borrower to, set forth
on the grid attached hereto, or in other comparable records maintained by it,
the amount of each Revolving Loan, all payments and prepayments of principal and
interest received, the current outstanding principal balance, and other
appropriate information. The aggregate unpaid amount of any Revolving Loan set
forth in any records maintained by the Payee with respect to this Note shall be
presumptive evidence of the principal amount owing and unpaid on this Note.
Failure of the Payee to record the principal amount of any Revolving Loan on the
grid attached hereto shall not limit or otherwise affect the obligation of the
Borrower hereunder to repay the principal amount of such Revolving Loan and all
interest accruing thereon.
<PAGE>
This Note evidences indebtedness of the Maker to the Payee arising
under the Loan Agreement, to which reference is hereby made for a statement of
the rights of the Payee and the duties and obligations of the Maker in relation
thereto, but neither this reference to the Loan Agreement nor any provision
thereof shall affect or impair the absolute and unconditional obligation of the
Maker to pay the principal of and interest on this Note when due.
The principal of and all interest on this Note shall be paid as
provided in the Loan Agreement in immediately available funds constituting
lawful money of the United States of America, not later than 11:00 A.M.
(Cleveland time) on the day when due.
Upon the occurrence of any Event of Default, the entire outstanding
principal amount of each Revolving Loan and (to the extent permitted by law)
unpaid interest thereon and all other amounts due hereunder shall bear interest,
from the date of occurrence of such Event of Default until the earlier of the
date such Revolving Loan is paid in full and the date on which such Event of
Default is cured or waived in writing, at the Default Interest Rate which shall
be payable upon demand.
Subject to the provisions of Section 10 of the Loan Agreement, the
entire unpaid principal balance of this Note, together with all interest accrued
thereon, shall become immediately due and payable upon the occurrence of an
Event of Default. Upon the occurrence of any Event of Default, the holder hereof
shall have all of the rights, powers and remedies provided in the Loan Agreement
or in any Collateral Document or at law or in equity. Failure of the Payee or
any holder of this Note to exercise any such right or remedy available hereunder
or under the Loan Agreement or any Collateral Document or at law or in equity
shall not constitute a waiver of the right to exercise subsequently such option
or such other right or remedy.
The payment of this Note is secured by certain security Agreements,
certain Pledge Agreements, the Guaranty, certain Mortgages and collateral
assignments of leases and certain other Collateral Documents, all as more
fully identified in the Loan Agreement.
To the extent permitted by law, except as otherwise provided herein or
in the Loan Agreement, the Maker and each endorser of this Note, and their
respective heirs, successors, legal representatives and assigns, hereby
severally waive presentment; protest and demand; notice of protest, demand,
dishonor and nonpayment; and diligence in collection, and agree to the
application of any bank balance as payment or part payment of this Note or as an
offset hereto as provided in the Loan Agreement, and further agree that the
holder hereof may release all or any part of the collateral given as security
for this Note or any rights of the holder thereunder and may amend this-Note
(with the consent of the Maker), without notice to, and without in any way
affecting the liability of, the Maker or any endorser of this Note, and their
respective heirs, successors, legal representatives and assigns.
If at any time the indebtedness evidenced by this Note is collected
through legal proceedings or this Note is placed in the hands of attorneys for
collection, the Maker and each
<PAGE>
endorser of this Note, and their respective heirs, successors, legal
representatives and assigns, hereby jointly and severally agree to pay all costs
and expenses (including reasonable attorneys, fees if permitted by law) incurred
by the holder of this Note in collecting or attempting to collect such
indebtedness.
This Note shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio, without regard to provisions relating
to the conflict of laws.
The rate of interest payable on this Note from time to time shall in no
event exceed the maximum rate permissible under applicable law. If the rate of
interest payable on this Note is ever reduced as a result of the preceding
sentence and at any time thereafter the maximum rate permitted by applicable law
shall exceed the rate of interest provided for on this Note, then the rate
provided for on this Note shall be increased to the maximum rate permitted by
applicable law for such period as is required so that the total amount of
interest received by the Payee is that which would have been received by the
Payee but for the operation of the preceding sentence.
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in the Loan Agreement.
GRAY COMMUNICATIONS SYSTEMS, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE>
REVOLVING CREDIT GRID
<TABLE>
<CAPTION>
- -------------------------- ----------------------- -------------------- --------------------------- -----------------
AMOUNT AMOUNT UNPAID OFFICER'S
DATE BORROWED PAID BALANCE INITIALS
- -------------------------- ----------------------- -------------------- --------------------------- -----------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B
AMENDED AND RESTATED TERM NOTE
$_______________________ September 8, 1997
FOR VALUE RECEIVED, GRAY COMMUNICATIONS SYSTEMS, INC., a
Georgia corporation (the "Maker"), hereby promises to pay to the order of
_________________ (the "Payee"), on or before June 30, 2004, in the manner and
at the place provided in the Loan Agreement, as that term is defined below, the
principal sum of $ __________________ or if less, the outstanding balance of the
Term Loans, as that term is defined in the Loan Agreement described below, made
by the Payee.
The unpaid principal balance of this Note shall bear interest prior to
maturity at the rates determined in accordance with the provisions of that
certain Loan Agreement dated as of September 23, 1996, as amended by the First
Amendment to Loan Agreement, dated as of September 8, 1997, among the Maker,
KeyBank National Association, as Agent, NationsBank, N.A. (South), as Co-Agent,
the Payee and the other financial institutions as may from time to time be
parties thereto (as the same may be amended, modified, extended or restated from
time to time, the "Loan Agreement"). Interest accrued on each Base Rate Loan
shall be paid quarterly in arrears on each Quarterly Date after the date hereof
until such Loan is paid in full and on the date such Loan is paid in full, and
interest accrued on each LIBOR Loan shall be paid on the last day of the
Interest-Period thereof and on the date such Loan is paid in full and, in
addition, if such Interest Period has a duration of more than three months, on
each day that occurs during such Interest Period that is three, six or nine
months from the first day of such Interest Period.
This Note is an amendment and restatement of the Term Note dated
September 30, 1996, of the Maker to the Payee (the "Original Note") and not a
replacement, substitution or repayment thereof. The indebtedness and liabilities
of the Maker under the Original Note evidenced hereby remain in full force and
effect as amended, renewed and extended hereby.
The indebtedness evidenced hereby shall be a revolving credit from the
date hereof until the Conversion Date. On the Conversion Date, the indebtedness
evidenced by this Note shall be automatically converted into, and continued and
extended as, a four and one-half year term loan in the principal sum of the then
outstanding balance of the Maker's revolving credit hereunder. The aggregate
principal balance of this Note shall be repaid in nineteen consecutive quarterly
installments of principal in the amounts calculated as provided in Section 2.2
of the Loan Agreement, commencing on the Conversion Date, and continuing on each
Quarterly Date thereafter, with the final installment of all then outstanding
principal, together with all accrued interest, due no later than June 30, 2004.
This Note is subject to voluntary and mandatory prepayment in whole or
in part at the times and in the manner specified in the Loan Agreement.
<PAGE>
The Payee may, and is hereby authorized by the Borrower to, set forth
on the grid attached hereto, or in other comparable records maintained by it,
the amount of each Term Loan, all payments and prepayments of principal and
interest received, the current outstanding principal balance, and other
appropriate information. The aggregate unpaid amount of any Term Loan set forth
in any records maintained by the Payee with respect to this Note shall be
presumptive evidence of the principal amount owing and unpaid on this Note.
Failure of the Payee to record the principal amount of any Term Loan on the grid
attached hereto shall not limit or otherwise affect the obligation of the
Borrower hereunder to repay the principal amount of such Term Loan and all
interest accruing thereon.
This Note evidences indebtedness of the Maker to the Payee arising
under the Loan Agreement, to which reference is hereby made for a statement of
the rights of the Payee and the duties and obligations of the Maker in relation
thereto, but neither this reference to the Loan Agreement nor any provision
thereof shall affect or impair the absolute and unconditional obligation of the
Maker to pay the principal of and interest on this Note when due.
The principal of and all interest on this Note shall be paid as
provided in the Loan Agreement in immediately available funds constituting
lawful money of the United States of America, not later than 11:00 A.M.
(Cleveland time) on the day when due.
Upon the occurrence of any Event of Default, the entire outstanding
principal amount of each Term Loan and (to the extent permitted by law) unpaid
interest thereon and all other amounts due hereunder shall bear interest, from
the date of occurrence of such Event of Default until the earlier of the date
such Term Loan is paid in full and the date on which such Event of Default is
cured or waived in writing, at the Default Interest Rate which shall be payable
upon demand.
Subject to the provisions of Section 10 of the Loan Agreement, the
entire unpaid principal balance of this Note, together with all interest
accrued thereon, shall become immediately due and payable upon the occurrence
of an Event of Default. Upon the occurrence of any Event of Default, the holder
hereof shall have all of the rights, powers and remedies provided in the Loan
Agreement or in any Collateral Document or at law or in equity. Failure of the
Payee or any holder of this Note to exercise any such right or remedy available
hereunder or under the Loan Agreement or any Collateral Document or at law or
in equity shall not constitute a waiver of the right to exercise subsequently
such option or such other right or remedy.
The payment of this Note is secured by certain Security Agreements,
certain Pledge Agreements, the Guaranty, certain Mortgages and collateral
assignments of leases and certain other Collateral Documents, all as more fully
identified in the Loan Agreement.
To the extent permitted by law, except as otherwise provided herein or
in the Loan Agreement, the Maker and each endorser of this Note, and their
respective heirs, successors, legal representatives and assigns, hereby
severally waive presentment; protest and demand;
<PAGE>
notice of protest, demand, dishonor and nonpayment; and diligence in collection,
and agree to the application of any bank balance as payment or part payment of
this Note or as an offset hereto as provided in the Loan Agreement, and further
agree that the holder hereof may release all or any part of the collateral given
as security for this Note or any rights of the holder thereunder and may amend
this Note (with the consent of the Maker), without notice to, and without in any
way affecting the liability of, the Maker or any endorser of this Note, and
their respective heirs, successors, legal representatives and assigns.
If at any time the indebtedness evidenced by this Note is collected
through legal proceedings or this Note is placed in the hands of attorneys for
collection, the Maker and each endorser of this Note, and their respective
heirs, successors, legal representatives and assigns, hereby jointly and
severally agree to pay all costs and expenses (including reasonable attorneys'
fees if permitted by law) incurred by the holder of this Note in collecting or
attempting to collect such indebtedness.
This Note shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio, without regard to provisions relating
to the conflict of laws.
The rate of interest payable on this Note from time to time shall in no
event exceed the maximum rate permissible under applicable law. If the rate of
interest payable on this Note is ever reduced as a result of the preceding
sentence and at any time thereafter the maximum rate permitted by applicable law
shall exceed the rate of interest provided for on this Note, then the rate
provided for on this Note shall be increased to the maximum rate permitted by
applicable law for such period as is required so that the total amount of
interest received by the Payee is that which would have been received by the
Payee but for the operation of the preceding sentence.
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in the Loan Agreement.
GRAY COMMUNICATIONS SYSTEMS, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE>
REVOLVING CREDIT GRID
<TABLE>
<CAPTION>
- -------------------------- ----------------------- -------------------- --------------------------- -----------------
AMOUNT AMOUNT UNPAID OFFICER'S
DATE BORROWED PAID BALANCE INITIALS
- -------------------------- ----------------------- -------------------- --------------------------- -----------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
================================================================================
STOCK PURCHASE AGREEMENT
BY AND AMONG
BUSSE BROADCASTING CORPORATION,
SOUTH STREET CORPORATE RECOVERY FUND I, L.P.,
GREYCLIFF LEVERAGED FUND 1993, L.P.,
SOUTH STREET LEVERAGED CORPORATE RECOVERY FUND, L.P.,
SOUTH STREET CORPORATE RECOVERY FUND I (INTERNATIONAL), L.P.
AND
GRAY COMMUNICATIONS SYSTEMS, INC.
DATED AS OF FEBRUARY 13, 1998
================================================================================
<PAGE>
CONTENTS
Background................................................................... 1
Agreement.................................................................... 1
ARTICLE I SALE OF NEW STOCK
1.01 Purchase of Shares by Purchaser........................................ 1
1.02 Purchase Price for the Stock........................................... 2
1.03 Letter of Credit....................................................... 2
1.04 Effectiveness of Closing; Deliveries.................................... 2
ARTICLE II REPRESENTATIONS AND WARRANTIES BY
THE STOCKHOLDERS AND THE COMPANY
2.01 Title to Stock; Other Rights............................................ 3
2.02 Capacity and Validity................................................... 3
2.03 Organization............................................................ 3
2.04 Capitalization.......................................................... 4
2.05 No Conflict............................................................. 4
2.06 Subsidiaries............................................................ 5
2.07 Financial Statements.................................................... 5
2.08 Absence of Undisclosed Liability........................................ 5
2.09 Absence of Changes...................................................... 5
2.10 Tax Matters............................................................. 6
2.11 Title to Assets; Encumbrances; Condition................................ 7
2.12 Real Property........................................................... 8
2.13 Personal Property....................................................... 9
2.14 Intellectual Property................................................... 9
2.15 Computer Software and Databases.........................................10
2.16 Accounts Receivable.....................................................10
2.17 Insurance...............................................................10
2.18 Bonds, Letters of Credit and Guarantees.................................11
2.19 Compliance with Law.....................................................11
2.20 Environmental...........................................................12
2.21 Litigation and Claims...................................................14
2.22 Benefit Plans...........................................................15
2.23 Contracts...............................................................17
2.24 Suppliers and Customers.................................................19
2.25 Labor Matters...........................................................19
2.26 Brokers and Finders.....................................................20
2.27 Interested Transactions.................................................20
2.28 Officers, Directors and Bank Accounts...................................20
2.29 Reports and Financial Statements........................................21
2.30 Statements True and Correct.............................................21
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER
3.01 Organization............................................................21
3.02 Capacity and Validity...................................................21
3.03 No Conflict.............................................................22
3.04 Brokers and Finders.....................................................22
3.05 Investment Representation...............................................22
-i-
<PAGE>
3.06 Qualification of Purchaser..............................................22
3.07 Financing...............................................................22
3.08 Statements True and Correct.............................................22
ARTICLE IV COVENANTS AND ADDITIONAL AGREEMENTS
OF THE COMPANY, THE STOCKHOLDERS AND PURCHASER
4.01 Conduct of Business.....................................................22
4.02 Right of Inspection; Access.............................................23
4.03 Other Offers and Exclusive Dealing......................................24
4.04 Confidentiality.........................................................24
4.05 Consents and Approvals..................................................25
4.06 Supplying of Financial Statements.......................................25
4.07 Qualification and Corporate Existence...................................25
4.08 Public Announcements....................................................25
4.09 Closing Conditions......................................................25
4.10 Supplements to Schedules................................................25
4.11 Certain Tax Matters.....................................................26
4.12 Expenses................................................................27
4.13 Further Assurances......................................................27
4.14 Delivery of Books and Records...........................................27
4.15 FCC Matters.............................................................28
4.16 Cooperation To Effect Station Exchange..................................28
4.17 Name Change.............................................................28
4.18 Severance and Incentive Payments........................................28
4.19 HSR Filings.............................................................28
4.20 Further Actions.........................................................29
ARTICLE V NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
6.01 Representations True and Covenants Performed at Closing.................29
6.02 Incumbency Certificate..................................................29
6.03 Certified Copies of Resolutions.........................................29
6.04 Opinions of Counsel.....................................................30
6.05 No Material Adverse Change..............................................30
6.06 No Injunction, Etc......................................................30
6.07 Resignations............................................................30
6.08 Approval of Legal Matters...............................................30
6.09 FCC Approvals...........................................................30
6.10 Hart-Scott Approval.....................................................30
6.11 Environmental Report....................................................30
6.12 Sales and Use Taxes.....................................................31
6.13 Title Documents.........................................................31
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF
THE COMPANY AND STOCKHOLDERS
7.01 Representations True and Covenants Performed at Closing.................32
7.02 Incumbency Certificate..................................................32
7.03 Certified Copies of Resolutions.........................................32
7.04 No Injunction, Etc......................................................32
-ii-
<PAGE>
7.05 Hart-Scott Act Approval.................................................32
7.06 Approval of Legal Matters...............................................33
7.07 FCC Approvals...........................................................33
7.08 Opinions of Counsel.....................................................33
ARTICLE VIII TERMINATION
8.01 Cause for Termination...................................................33
8.02 Notice of Termination...................................................33
8.03 Effect of Termination...................................................33
8.04 Risk of Loss............................................................34
ARTICLE IX DEFINITIONS
Accounts Receivable...........................................................34
Affiliate.....................................................................34
Agreement.....................................................................35
Balance Sheet.................................................................35
Balance Sheet Date............................................................35
Board of Directors............................................................35
Business......................................................................35
Business Day..................................................................35
Certificate of Incorporation..................................................35
Closing.......................................................................35
Closing Date..................................................................35
Code..........................................................................35
Commitments...................................................................35
Common Stock..................................................................35
Computer Software.............................................................35
Contract......................................................................36
Databases.....................................................................36
Default.......................................................................36
Employee Benefit Plan.........................................................36
Environmental Laws............................................................36
Environmental Litigation......................................................37
Environmental Matter..........................................................37
Environmental Report..........................................................37
ERISA.........................................................................37
ERISA Plan....................................................................37
FCC...........................................................................37
Financial Statements..........................................................37
GAAP..........................................................................37
Governmental Authority........................................................37
Hart-Scott Act................................................................37
Hazardous Substance...........................................................38
Improvements..................................................................38
Intellectual Property.........................................................38
Inventory.....................................................................38
IRS...........................................................................38
Knowledge.....................................................................38
Law...........................................................................38
Leased Personal Property......................................................38
-iii-
<PAGE>
Leased Real Property..........................................................38
Liability.....................................................................38
License.......................................................................38
Lien..........................................................................39
Litigation....................................................................39
Loss..........................................................................39
Material or Materially........................................................39
Material Adverse Change or Material Adverse Effect............................39
Option Property...............................................................40
Order.........................................................................40
Other Agreements..............................................................40
Owned Real Property...........................................................40
Permitted Liens...............................................................40
Person........................................................................40
Personal Property.............................................................40
Preferred Stock...............................................................40
PUC Laws......................................................................40
Purchase Price................................................................40
Real Property.................................................................40
Registration Rights Agreement.................................................41
Related Person................................................................41
Stock.........................................................................41
Subsidiary....................................................................41
Tax or Taxes..................................................................41
Tax Returns...................................................................41
Third Party or Third Parties..................................................41
Undisclosed Liabilities.......................................................41
ARTICLE X MISCELLANEOUS
10.01 Notices................................................................41
10.02 Entire Agreement.......................................................43
10.03 Modifications, Amendments and Waivers..................................43
10.04 Successors and Assigns.................................................43
10.05 Table of Contents; Captions; References................................43
10.06 Governing Law..........................................................44
10.07 Pronouns...............................................................44
10.08 Severability...........................................................44
10.09 Remedies Not Exclusive.................................................44
10.10 Counterparts...........................................................44
10.11 Interpretations........................................................44
10.12 Exclusive Remedy.......................................................44
-iv-
<PAGE>
EXHIBITS AND SCHEDULES
Exhibit 1.02 -- Purchase Price Allocation Among Stockholders
Exhibit 2.01 -- Stockholders' Ownership
Exhibit 6.04(i) -- Form of Opinion of Cadwalader, Wickersham & Taft
Exhibit 6.04(ii) -- Form of Opinion of Pepper & Corazzini L.L.P.
Exhibit IX -- Key Employees of the Company and the Subsidiaries
Exhibit X -- Option Property
Schedule 1.02 -- Payment of the Purchase Price
Schedule 2.03 -- Organization, Standing & Foreign Qualification
Schedule 2.05 -- Conflicts
Schedule 2.06 -- Subsidiaries
Schedule 2.07 -- Financial Statements
Schedule 2.08 -- Absence of Undisclosed Liability
Schedule 2.09 -- Absence of Changes
Schedule 2.10 -- Tax Matters
Schedule 2.11 -- Title to Assets; Encumbrances
Schedule 2.12 -- Real Property
Schedule 2.13 -- Personal Property
Schedule 2.14 -- Intellectual Property
Schedule 2.15 -- Computer Software and Databases
Schedule 2.17 -- Insurance
Schedule 2.18 -- Bonds, Letters of Credit and Guarantees
Schedule 2.19 -- Compliance With Law
Schedule 2.20 -- Environmental
Schedule 2.21 -- Litigation and Claims
Schedule 2.22 -- Benefit Plans
Schedule 2.23(a)(i) -- Real Property Contracts
Schedule 2.23(a)(ii) -- Personal Property Contracts
Schedule 2.23(a)(iii) -- Purchase Orders--Non-Capital Assets
Schedule 2.23(a)(iv) -- Purchase Orders--Capital Assets
Schedule 2.23(a)(v) -- Sales Contracts
Schedule 2.23(a)(vi) -- Employment; Other Affiliate Contracts
Schedule 2.23(a)(vii) -- Sales Representatives Contracts
Schedule 2.23(a)(viii) -- Powers of Attorney
Schedule 2.23(a)(ix) -- Programming and Network Affiliation Agreements
Schedule 2.23(a)(x) -- Barter & Trade Agreements
Schedule 2.23(a)(xi) -- Any Other Contracts
Schedule 2.24 -- Suppliers and Customers
Schedule 2.25 -- Labor Matters
Schedule 2.26 -- Brokers and Finders
Schedule 2.27 -- Interested Transactions
Schedule 2.28 -- Officers, Directors and Bank Accounts
Schedule 3.03 -- Purchaser -- Conflicts
Schedule 3.04 -- Purchaser -- Brokers and Finders
-v-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") dated as of the
13th day of February, 1998, is made and entered into by and among BUSSE
BROADCASTING CORPORATION, a Delaware corporation (the "Company"), SOUTH STREET
CORPORATE RECOVERY FUND I, L.P., GREYCLIFF LEVERAGED FUND 1993, L.P., and SOUTH
STREET LEVERAGED CORPORATE RECOVERY FUND, L.P., all of which are Delaware
limited partnerships, and SOUTH STREET CORPORATE RECOVERY FUND I
(INTERNATIONAL), L.P., a Cayman Islands exempted limited partnership
(individually, a "Stockholder" and collectively, the "Stockholders"), and GRAY
COMMUNICATIONS SYSTEMS, INC., a Georgia corporation ("Purchaser").
BACKGROUND
The Stockholders collectively own, beneficially and of record,
107,700 shares of the Common Stock of the Company, representing 100% of the
outstanding shares of the Common Stock and 65,524.41 shares of the Preferred
Stock of the Company, representing 100% of the outstanding shares of the
Preferred Stock.
The Company is the parent corporation of WEAU License, Inc.
("WEAU") and of KOLN/KGIN, Inc. ("KOLN/KGIN"). KOLN/KGIN is the parent
corporation of KOLN/KGIN License, Inc. ("KOLN/KGIN License" and together with
KOLN/KGIN and WEAU, sometimes collectively referred to herein as the
"Subsidiaries" or individually as a "Subsidiary"). The Company, directly or
indirectly, owns and operates three network-affiliated very high frequency
television stations, KOLN-TV, serving Lincoln, Nebraska, KGIN-TV, serving Grand
Island, Nebraska and WEAU-TV, serving Eau Claire and LaCrosse, Wisconsin
(collectively, the "Stations" and individually, a "Station").
Certain terms used in this Agreement are defined in Article IX
hereof.
AGREEMENT
In consideration of the foregoing, the mutual agreements,
covenants, representations and warranties contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and subject to the terms and conditions hereinafter set forth, the
parties hereto agree as follows:
ARTICLE I
SALE OF STOCK
1.01 Purchase of Stock by Purchaser. At the Closing, and
subject to the terms and conditions of this Agreement, the Stockholders shall
sell, convey, assign, transfer and deliver to Purchaser, and Purchaser shall
purchase and accept from the Stockholders, all of the issued and outstanding
Common Stock and all of the issued and outstanding Preferred Stock, in each case
free and clear of any and all Liens other than those created hereunder or by
Purchaser.
<PAGE>
1.02 Purchase Price for the Stock. The total purchase price
for the Stock shall be equal to (i) One Hundred Twelve Million Dollars
($112,000,000) less (ii) an amount equal to the balance, as of the Closing Date,
of (x) the aggregate accreted value of the Company's 11-5/8% Senior Secured
Notes due 2000 (issued under that certain Indenture, dated as of October 26,
1995, by and among the Company, certain guarantors and Shawmut Bank Connecticut,
National Association) and (y) the outstanding aggregate principal balance of
indebtedness for borrowed money (excluding any intercompany indebtedness) that
is evidenced by a note, bond, debenture or similar instrument of Busse or its
subsidiaries, taken as whole, less (iii) accrued interest on the indebtedness
referred to in the foregoing clause (ii), plus (iv) an amount equal to the sum,
as of the Closing Date, of all cash, cash equivalents, marketable securities,
bank accounts, certificates of deposit and short term investments (other than
Accounts Receivable) of the Company and the Subsidiaries, less (v) an amount
equal to the net book value (calculated in accordance with GAAP) of the Option
Property at the end of the month prior to the transfer of such Option Property
by the Company, less (vi) an amount equal to the aggregate unpaid obligations,
if any, of the Company to any Person (including without limitation any current
or former employee, officer, director, consultant, agent, advisor or
representative of the Company) with respect to or on account of any severance
agreement, severance plan, severance policy, incentive compensation, bonus
arrangement, employment agreement, severance benefit agreement, compensation
plan, consulting agreement or personal service contract (including without
limitation the Company's Long Term Incentive Plan, the Company's Incentive Fee
Plan, the Amended and Restated Employment Agreement with Lawrence A. Busse and
the Amended and Restated Employment Agreement with James C. Ryan) other than any
such obligation that relates solely to a termination of employment by the
Company after the Closing (or any such termination done at the request of
Purchaser prior to the Closing) of any employee of, or any consultant or
independent contractor to, the Company other than Lawrence A. Busse or James C.
Ryan. Each of the foregoing components of the Purchase Price shall be calculated
by the Company in a manner reasonably satisfactory to Purchaser and (a)
according to GAAP, (b) in a manner consistent with the Company's publicly
available financial statements and (c) as of the close of business on the
Business Day immediately preceding the Closing Date. At the Closing, Purchaser
shall pay the Purchase Price to the Stockholders, against delivery to Purchaser
of a certificate or certificates, registered in its name or the name of its
designees, representing the Stock. At the Closing, the Purchase Price shall be
paid in cash by wire transfers of immediately available funds, or in such other
form and manner as may be mutually satisfactory, to an account designated in
writing by each of the Stockholders at least three (3) days prior to the
Closing. The amount of the Purchase Price due to each Stockholder shall be in
the respective percentages set forth on Exhibit 1.02 and all payments shall be
in such percentages. Exhibit 1.02 shall be prepared by the Stockholders and
delivered to Purchaser no later than sixty (60) days after the date hereof.
1.03 Letter of Credit. Simultaneously with the
execution of this Agreement, Purchaser shall deposit with SSP, Inc., on
behalf of and for the benefit of the Stockholders, a standby letter of
credit in the amount of Five Million Eight Hundred Fifty Thousand
Dollars ($5,850,000) (the "LC") to be applied as provided herein. In the
event of a termination of this Agreement, the LC will be paid to the
Stockholders or Purchaser as provided in Section 8.03 below. At the
Closing, the LC shall be returned to Purchaser.
1.04 Closing; Effectiveness of Closing; Deliveries.
The Closing shall occur at 10:00 a.m. local time on the Closing Date at
the offices of Cadwalader, Wickersham & Taft in New York, New York or at
such other time and place as the parties may agree. The Closing shall be
effective as of the close of business on the Closing Date. All
deliveries, payments and other transactions and documents relating to
the Closing (i) shall be interdependent and none shall be effective
unless and until all are effective (except to the extent that the party
entitled to the benefit thereof has waived satisfaction or performance
thereof as a condition precedent to Closing), and (ii) shall be deemed
to be consummated in
2
<PAGE>
the order set forth in this Agreement and, to the extent the order is
not specified, shall be deemed to be consummated simultaneously.
ARTICLE II
REPRESENTATIONS AND WARRANTIES BY THE STOCKHOLDERS AND THE COMPANY
Each of the Stockholders and the Company, jointly and severally,
hereby represent and warrant to Purchaser as follows:
2.01 Title to Stock; Other Rights. Each of the Stockholders
is the owner of all right, title and interest (legal and beneficial) in and to
that number of shares of Common Stock and shares of Preferred Stock set forth
next to its name on Exhibit 2.01, free and clear of all Liens. Collectively, the
Stockholders own all right, title and interest (legal and beneficial) in and to
all of the issued and outstanding shares of the Stock. Except as specifically
contemplated by this Agreement, no Person has any Contract or option or any
right or privilege (whether pre-emptive or contractual) capable of becoming a
Contract or option for the purchase from the Stockholders of any shares of
Common Stock or Preferred Stock or for the purchase, subscription or issuance of
any securities of the Company.
2.02 Capacity and Validity. Each of the Stockholders has the
full power and authority necessary to enter into and perform its obligations
under this Agreement and the Other Agreements to which it is a party and to
consummate the transactions contemplated hereby and thereby. The Company has the
full corporate power, capacity and authority necessary to enter into and perform
its obligations under this Agreement and the Other Agreements to which it is a
party and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the Other Agreements
have been approved by all necessary action of (i) the Board of Directors and
stockholders of the Company and (ii) the partners of each of the Stockholders,
including the Board of Directors of each corporate partner. This Agreement has
been, and the Other Agreements to which the Company or any of the Stockholders
are parties will be when executed and delivered, duly executed and delivered by
duly authorized officers of the Company and duly authorized partners or agents
of each Stockholder, including duly authorized officers of corporate partners,
and the Agreement and each of the Other Agreements constitutes, or will
constitute when executed and delivered, the legal, valid and binding obligation
of the Company and each of the Stockholders, as the case may be, enforceable
against the Company and each of the Stockholders, as the case may be, in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or
general equitable principles (regardless of whether considered in a proceeding
in equity or at law) or by an implied covenant of good faith and fair dealing.
2.03 Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, lease and
operate its assets and to carry on its Business as presently conducted. Each of
the Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to own, lease and operate its respective assets and to carry
on its respective business as presently conducted. Each of the Stockholders is a
limited partnership duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization and has all requisite power and
authority to own, operate and lease its respective assets and to conduct its
respective business as presently conducted. The Company and each of the
Subsidiaries are duly qualified or licensed to transact business as a foreign
corporation in good standing
3
<PAGE>
in the jurisdictions listed in Schedule 2.03, and the character of their
respective assets or the nature of their respective businesses do not require
such qualification or licensing in any other jurisdiction except where the
failure to so qualify or be so licensed would not have a Material Adverse Effect
on the Company or any such Subsidiary, as the case may be. Complete and correct
copies of the Certificate of Incorporation of the Company and each of the
Subsidiaries, and all amendments thereto (certified by the Secretary of State of
the State of Delaware) and complete and correct copies of the By-Laws of the
Company and each of the Subsidiaries, and all amendments thereto, previously
have been delivered to Purchaser. Except as may be set forth in Schedule 2.03,
copies of all records of the proceedings of incorporators, stockholders and
directors of each of the Company and each of the Subsidiaries, which are set
forth in the Company's and each of the Subsidiaries' respective minute books
(collectively, the "Minute Books"), are correct and complete in all Material
respects and accurately reflect in all Material respects all proceedings of each
of the Company's and each of the Subsidiaries' respective incorporators,
stockholders and Board of Directors and all committees thereof. Except as may be
set forth in Schedule 2.03, the stock record books of each of the Company and
each of the Subsidiaries (collectively, the "Stock Record Books") are correct
and complete and accurately reflect the stock ownership of their respective
stockholders. The Minute Books and the Stock Record Books have been made
available to Purchaser for review.
2.04 Capitalization. The authorized capital stock of the
Company consists of 2,154,000 shares of Common Stock, of which 107,700 are
issued and outstanding, and 65,524.41 shares of Preferred Stock, all of which
are issued and outstanding. All of such Stock is duly and validly issued and
outstanding, is fully paid and nonassessable and was issued pursuant to a valid
exemption from registration under the Securities Act of 1933, as amended, and
all applicable state securities laws. Except for shares of Common Stock issuable
upon conversion of the Preferred Stock, no Stock is reserved for issuance.
Except as contemplated by the conversion rights applicable to the Preferred
Stock, the Company has no obligation to issue any additional Stock or securities
convertible or exchangeable for Stock, or options or warrants for the purchase
of (a) any Stock or (b) any securities convertible into or exchangeable for any
Stock. Excepted as contemplated by the Registration Rights Agreement, there are
no outstanding rights to either demand registration of any Stock under the
Securities Act of 1933, as amended, or to sell any Stock in connection with such
a registration of Stock.
2.05 No Conflict. Except as disclosed on Schedule 2.05 and
assuming compliance with the Hart-Scott Act and the receipt of all necessary FCC
approvals, neither the execution, delivery and performance of this Agreement or
the Other Agreements to which it is a party by either the Company or any of the
Stockholders nor the consummation by the Company or any of the Stockholders of
the transactions contemplated hereby or thereby will (i) conflict with or result
in a violation, contravention or breach of any of the terms, conditions or
provisions of the Certificate of Incorporation, as amended, or the By-Laws, as
amended, of the Company or any of the Subsidiaries, (ii) conflict with or result
in a violation, contravention or breach of any of the terms, conditions or
provisions of the partnership agreement, certificate of limited partnership or
other governing document or agreement of any of the Stockholders, (iii) result
in a Default under, or require the consent or approval of any party to, any
Contract or License of the Company or any of the Subsidiaries required to be set
forth on one or more of the Schedules contemplated by Section 2.23 hereof or any
Contract or License of any of the Stockholders (which, in the case of the
Stockholders, would (a) affect the ability of the Stockholders to consummate the
transactions contemplated hereby) or (b) result in any Liability to Purchaser
(iv) result in the violation of any Law or Order applicable to the Company, any
of the Subsidiaries or any of the Stockholders (which, in the case of the
Stockholders, would (a) affect the ability of the Stockholders to consummate the
transactions contemplated hereby) or (b) result in any Liability to Purchaser or
(v) result in the creation or imposition of any Lien applicable to the Stock,
the Company or any of the Subsidiaries, except in each case as would not have a
Material Adverse Effect.
4
<PAGE>
2.06 Subsidiaries. Except as set forth on Schedule 2.06 and
except for the Subsidiaries, neither the Company nor any of the Subsidiaries has
in the past three (3) years had, and none of them currently has, a direct or
indirect majority or controlling interest in any entity. Except as disclosed on
Schedule 2.06, neither the Company nor any of the Subsidiaries has in the past
three (3) years owned and none of them owns, directly or indirectly, more than
1% of any capital stock or other equity, ownership, proprietary or voting
interest in any Person. The Company owns, directly or indirectly, 100% of the
issued and outstanding capital stock of each of the Subsidiaries. None of the
Subsidiaries has any obligation to issue any additional capital stock or other
securities or securities convertible or exchangeable for capital stock or other
securities, or options or warrants for the purchase of (a) any capital stock or
other securities or (b) any securities convertible into or exchangeable for any
capital stock or other securities.
2.07 Financial Statements. The Financial Statements (of the
type provided for in clauses (i) and (ii) of the definition thereof), correct
and complete copies of which are included in Schedule 2.07, (i) are in
accordance with the books and records of the Company and each of the
Subsidiaries, which are correct and complete in all Material respects and which
have been maintained in accordance with good business practices; (ii) present
fairly in all Material respects the financial position of the Company and each
of the Subsidiaries as of the dates indicated and the results of each of their
operations and their respective cash flows for the periods then ended; and (iii)
have been prepared in accordance with GAAP, subject, in the case of interim
financial statements, to the condensing of the Financial Statements or the
absence of footnotes. The Financial Statements contain all adjustments, which
are solely of a normal recurring nature, necessary to present fairly in all
Material respects the consolidated financial condition and the consolidated
results of operations, changes in stockholders' equity and changes in financial
position or cash flows of the Company and each of the Subsidiaries as of the
dates and for the periods indicated.
2.08 Absence of Undisclosed Liability. Except as set forth in
Schedule 2.08, neither the Company nor any of the Subsidiaries has any
Undisclosed Liabilities nor does there exist any Known basis for or threat of an
assertion against the Company or any of the Subsidiaries, their respective
businesses or their respective assets of any Undisclosed Liability, except for
Liabilities incurred since the Balance Sheet Date in the ordinary course of
business consistent with past practice, none of which are Material.
2.09 Absence of Changes. Except as disclosed on Schedule 2.09,
since the Balance Sheet Date, (i) the Business has been carried on only in the
ordinary course consistent with past practice, (ii) there has been no Material
Adverse Change, and there has been no event or circumstance that reasonably is
anticipated to result in a Material Adverse Change with respect to the Company
or any of the Subsidiaries, their respective assets or businesses or the
Business, (iii) the Company has not directly or indirectly declared, paid or
authorized any dividends or other distributions or payments in respect of its
Stock or other equity securities, if any, (iv) neither the Company nor any of
the Subsidiaries has made any change in any method of accounting or accounting
practice, and (v) except in the ordinary course of business consistent with past
practice, neither the Company nor any of the Subsidiaries has canceled, modified
or waived, without receiving payment or performance in full, any (a) Liability
owed to the Company or any of the Subsidiaries, as the case may be, including
without limitation, any receivable of the Company from any Affiliate (other than
a Subsidiary) or any Related Person to an Affiliate, (b) Litigation the Company
or any of the Subsidiaries may have against other Persons, or (c) other rights
of the Company or any of the Subsidiaries, as the case may be.
5
<PAGE>
2.10 Tax Matters. Except as set forth on Schedule 2.10:
(a) The Company and each of the Subsidiaries have
timely filed with the appropriate Governmental Authorities all required Tax
Returns in all jurisdictions in which Tax Returns are required to be filed.
Neither the Company nor any of the Subsidiaries is presently the beneficiary of
any extension of time within which to file any Tax Return. All Taxes (whether or
not shown on any Tax Return) for all periods ending on or before the Balance
Sheet Date, have been fully paid or appropriate deposits or adequate accruals
have been made therefor on the Balance Sheet.
(b) Since the Balance Sheet Date, neither the Company
nor any of the Subsidiaries has incurred any Liability for Taxes other than in
the ordinary course of business and no such Tax Liability so incurred (other
than any Liability incurred by the Company or the Subsidiaries in connection
with their cooperation under Section 4.16 hereof) is Material. Neither the
Company nor any of the Subsidiaries is currently delinquent in the payment of
any Tax, assessment, deposit or other charge by any Governmental Authority for
which any Liability is pending or has been assessed, asserted or threatened (in
writing, or otherwise to the Knowledge of the Company, any of the Subsidiaries
or any of the Stockholders) against the Company, any of the Subsidiaries or any
of their respective assets in connection with any Tax and there is no basis for
any such Liability. Neither the Company nor any of the Subsidiaries has received
any notice of assessment or proposed assessment in connection with any Tax
Returns and there are no pending Tax examinations of or Tax claims asserted (in
writing, or otherwise to the Knowledge of the Company, any of the Subsidiaries
or any of the Stockholders) against the Company, any of the Subsidiaries or any
of their respective assets, including without limitation, any claim by any
Governmental Authority in any jurisdiction where the Company or any of the
Subsidiaries did not file Tax Returns that the Company or any of the
Subsidiaries, respectively, is or may be subject to or liable for Taxes imposed
by that Governmental Authority or jurisdiction. There are no Liens for any Taxes
(other than any Lien for current real property or ad valorem Taxes not yet due
and payable) on any of the Company's or any of the Subsidiaries' assets.
(c) None of the Company's or any of the Subsidiaries'
Tax Returns have ever been audited by the IRS or any other Governmental
Authority and the neither the Company nor any of the Subsidiaries has waived any
statute of limitations in respect of Taxes or agreed to a Tax assessment or
deficiency. Neither the Company nor any of the Subsidiaries has filed any
consent under Section 341(f) of the Code relating to collapsible corporations.
No Tax is required to be withheld pursuant to Section l445 of the Code as a
result of any of the transfers contemplated by this Agreement and the Company
and each of the Subsidiaries will provide any certificate reasonably requested
by Purchaser at Closing with respect thereto.
(d) The Company and each of the Subsidiaries have
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other Third Party.
(e) Neither the Company nor any of the Subsidiaries
is a party to any agreement, contract, arrangement or plan that has resulted or
would result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code or any
similar provision of foreign, state or local Law.
(f) Neither the Company nor any of the Subsidiaries
has agreed, nor is it required to make, any adjustment under Section 481(a) of
the Code by reason of a change in accounting method or otherwise.
6
<PAGE>
(g) Neither the Company nor any of the Subsidiaries
is a party to or bound by (nor will the Company or the Subsidiaries, prior to
the Closing, become a party to or be bound by) any Tax indemnity, Tax sharing or
Tax allocation agreement or arrangement.
(h) Except for the group of which the Company and the
Subsidiaries are presently members, none of the Company or any of the
Subsidiaries has been a member of an affiliated group filing a consolidated
federal income Tax Return (other than a group the common parent of which was the
Company) or has any Liability for Taxes of any Person (other than the Company or
any of the Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any
similar provision of the state, local, or foreign Law), as a transferee or
successor, by contract, or otherwise.
(i) Neither the Company nor any of the Subsidiaries
is a party to any joint venture, partnership, or other arrangement or Contract
which is treated as a partnership for federal income Tax purposes.
(j) Neither the Company nor any of the Subsidiaries
has issued or assumed any corporate acquisition indebtedness, within the meaning
of Section 279(b) of the Code, or any obligation described in Section 279(a)(2)
of the Code.
(k) Neither the Company nor any Subsidiary has any
excess loss account (as defined in Treasury Regulation Section 1.1502-19) with
respect to the stock of any Subsidiary.
(l) Schedule 2.10 contains Materially complete and
accurate descriptions of the following information with respect to the Company
and its Subsidiaries (or, in the case of clause (B) below, with respect to each
of the Subsidiaries) as of the most recent practicable date: (A) the basis of
the Company or the Subsidiary in its assets; (B) the basis of each shareholder
in each Subsidiary's stock; and (C) the amount of any deferred gain or loss
allocable to the Company or Subsidiary arising out of any deferred intercompany
transaction.
(m) The net operating loss and other carryovers
reported by the Company and each of the Subsidiaries as of the Balance Sheet
Date are as set forth in Schedule 2.10; as of the Closing Date and immediately
prior to the consummation of any of the transactions contemplated hereby the
ability of the Company and each of the Subsidiaries to use such reported
carryovers will not have been affected by Sections 382, 383 or 384 of the Code
or by the SRLY or CRCO limitations of Treasury Regulation Sections 1.1502-21 or
1.1502-22. Except as set forth in this clause (m) and notwithstanding anything
in this Agreement to the contrary, the Stockholders and the Company make no
representation or warranty as to the extent, availability or use of the net
operating loss and other carryover items reported by the Company and its
Subsidiaries.
2.11 Title to Assets; Encumbrances; Condition.
(a) Each of the Company and each of the Subsidiaries
has good, valid and marketable (and, in the case of the Owned Real Property,
insurable) title to all of its respective assets free and clear of any and all
Liens, except Permitted Liens. Schedule 2.11 contains true and complete copies
(in all Material respects) of (i) Commitments to issue owner's title insurance
policies for all of the Owned Real Property in the amounts indicated in each
such Commitment, except for the Owned Real Property located in York County,
Nebraska, a copy of which will be delivered to Purchaser prior to Closing, and
(ii) all
7
<PAGE>
existing owner's title insurance policies. A survey of each parcel of the Owned
Real Property has been delivered to Purchaser prior to the date hereof, except
for the Owned Real Property located in York County, Nebraska, a copy of which
will be delivered to Purchaser prior to Closing. Copies of all documents
evidencing the Liens upon the Company's and each of the Subsidiaries' respective
assets are either contained in Schedule 2.11 or previously have been delivered
to Purchaser.
(b) Except as set forth in Schedule 2.11, each of the
Material Improvements and each item of Material Personal Property is in good
condition and repair, reasonable wear and tear excepted, and is usable in the
ordinary course of business consistent with past practices. Each Material
Improvement and each item of Material Personal Property is adequate for its
present and intended uses and operation and neither the Company nor any of the
Subsidiaries has any intention to use or operate any Material Improvement or any
item of Material Personal Property other than as presently used or operated. The
Company's and each of the Subsidiaries' respective assets (including the
Company's and each of the Subsidiaries' respective interest in all leased
assets) include all Material assets required to operate the Business as
presently conducted.
2.12 Real Property.
(a) Schedule 2.12 contains a correct and complete
list of all of the Real Property, including, without limitation, a legal
description for all of the Owned Real Property. To the Knowledge of the Company,
any of the Subsidiaries or any of the Stockholders, no facts or circumstances
exist which do, or potentially may, adversely affect any of the access to and
from the Real Property, from and to the existing public highways and roads, and,
to the Knowledge of the Company, any of the Subsidiaries or any of the
Stockholders, there is no pending or threatened denial, revocation, modification
or restriction of such access. The primary tower, transmitter and Real Property
on which such tower and transmitter are located are all owned by the Company or
one of the Subsidiaries in fee simple title, except for the 2000 foot television
tower located on a permanent easement which is located in Eau Claire County
(Fairchild Township), Wisconsin.
(b) The Real Property is served by utilities as
required for its current operation.
(c) No zoning or similar land use restrictions are
presently in effect or proposed by any Governmental Authority that would impair
in any Material respect the operation of the Business as presently conducted by
the Company and each of the Subsidiaries or which would prevent the use of any
of the Real Property as currently operated. All of the Real Property is in
compliance in all Material aspects with all applicable zoning laws and recorded
covenants. Neither the Company nor any of the Subsidiaries has received any
notice from any Governmental Authority or other Third Party with regard to
encroachments on or off the Real Property, violations of building codes, zoning,
subdivision or other similar Laws or other material defects in the Improvements
or in the good, valid, marketable and insurable title of said Real Property.
(d) As of the Closing Date, there will be no Persons
in possession of the Real Property or any part thereof other than the Company or
one or more of the Subsidiaries or their lessees pursuant to Contracts that are
Permitted Liens.
(e) No condemnation proceedings are pending or to the
Knowledge of the Company, any of the Subsidiaries or any of the Stockholders,
threatened with regard to the Owned Real Property.
8
<PAGE>
(f) With respect to each parcel of Leased Real
Property, (i) the lessor was the owner of the premises leased to the lessee at
the time of the execution and delivery of the lease, (ii) the Company is the
owner and holder of the interest of the lessee in the lease, (iii) all buildings
and towers constructed by the lessee of each lease are located within the
boundaries of the leased premises, (iv) each lease contains an adequate
description of the leased premises, (v) each lease is enforceable by the lessee,
(vi) all payments of rent are current under each lease and no default exists
under any lease and (vii) except as set forth on Schedule 2.21, there are no
disputes with or adverse claims asserted by any lessor of a lease. Each of the
Contracts of the Company or any of the Subsidiaries relating to such Leased Real
Property is fully and accurately identified, and the expiration date and current
rent are described, in Schedule 2.23(a)(i) and each such Contract is in full
force and effect. Except as disclosed on Schedule 2.12, neither the Leased Real
Property nor any of the Company's or any of the Subsidiaries' right, title or
interest therein is affected by any Lien, prior interests or superior interests
of any nature whatsoever that will, or could reasonably be expected to,
terminate or otherwise adversely affect such Leased Real Property or any of the
Company's or any of the Subsidiaries' right, title and interest therein.
2.13 Personal Property.
(a) Schedule 2.13 contains a correct and complete
list of each item of Personal Property, other than Inventory and the Option
Property (excluding office furniture, equipment, supplies and miscellaneous
items of personal property with an individual cost of less than $2,500).
(b) Schedule 2.13 contains a correct and complete
description of all Material Leased Personal Property. Each of the Contracts of
the Company or any of the Subsidiaries relating to such Leased Personal Property
is identified on Schedule 2.13 and each such Contract is in full force and
effect.
2.14 Intellectual Property.
(a) Schedule 2.14 contains a correct and complete
list of all of the Company's and each of the Subsidiaries' respective Material
Intellectual Property, including all Material license agreements relating
thereto. Neither the Company nor any of the Subsidiaries (or any goods or
services sold by any of them) has violated, infringed upon or unlawfully or
wrongfully used the Intellectual Property of others and none of the Company's or
any of the Subsidiaries' Intellectual Property or any related rights or any
customer lists, supplier lists or mailing lists, as used in the Business or in
the other businesses now or heretofore conducted by the Company or any of the
Subsidiaries, Materially infringes upon or otherwise Materially violates the
rights of others, nor has any Person asserted a claim of such infringement or
misuse, which infringement or violation is likely to result in a cost to the
Company in excess of $20,000. Each of the Company and the Subsidiaries has taken
all reasonable measures to enforce, maintain and protect its interests and, to
the extent applicable, the rights of Third Parties, in and to the Company's and
each of the Subsidiaries' Material Intellectual Property. The Company and each
of the Subsidiaries have all right, title and interest in the Intellectual
Property identified on Schedule 2.14. The consummation of the transactions
contemplated by this Agreement will not alter or impair any Material
Intellectual Property rights of the Company or any of the Subsidiaries. Except
as set forth in Schedule 2.14, neither the Company nor any of the Subsidiaries
is obligated nor has the Company or any of the Subsidiaries incurred any
Liability to make any Material payments for royalties, fees or otherwise to any
Person in connection with any of the Company's or any of the Subsidiaries'
Intellectual Property. All patents, trademarks, trade names, service marks,
assumed names, and copyrights and all registrations thereof included in or
related to the Company's or any of the Subsidiaries' Intellectual Property are
valid, subsisting and in full force and effect. The Company is unaware of any
Material infringement of the Company's or any of the Subsidiaries' Material
9
<PAGE>
Intellectual Property, and there are no pending infringement actions against
another for infringement of the Company's or any of the Subsidiaries'
Intellectual Property or theft of the Company's trade secrets.
(b) No present or former officer, director, partner
or employee of the Company or any of the Subsidiaries owns or has any
proprietary, financial or other interest, direct or indirect, in any of the
Company's or any of the Subsidiaries' Material Intellectual Property, except as
described on Schedule 2.14. Except as set forth on Schedule 2.14, no officer,
director, partner or employee of the Company or any of the Subsidiaries has
entered into any Contract (i) that requires such officer, director, partner or
employee to (A) assign any interest to inventions or other Material Intellectual
Property, or (B) keep confidential any Material trade secrets, proprietary data,
customer lists or other business information or (ii) that restricts or prohibits
such officer, director, partner or employee from engaging in competitive
activities with or soliciting customers to or from any competitor of the Company
or any of the Subsidiaries.
2.15 Computer Software and Databases. Schedule 2.15 identifies
all Material Computer Software and Databases owned, licensed, leased, internally
developed or otherwise used in connection with the Business. The Company and
each of the Subsidiaries have use of or the ability to freely acquire, without
substantial costs to the Company or any of the Subsidiaries for such
acquisition, all Computer Software and Databases that are necessary to conduct
the Business as presently conducted by the Company and each of the Subsidiaries
and all documentation relating to all such Material Computer Software and
Databases. Such Computer Software and Databases perform in all Material respects
in accordance with the documentation related thereto or used in connection
therewith and are free of Material defects in programming and operation. The
Company has previously delivered to Purchaser complete and accurate copies of
all documents relating to the sale, license, lease or other transfer or grant of
Material Computer Software and Databases by the Company or any of its
Subsidiaries since January 1, 1996.
2.16 Accounts Receivable. The Accounts Receivable are (i)
validly existing, (ii) enforceable by the Company or the Subsidiaries in
accordance with the terms of the instruments or documents creating them, and
(iii) collectible in the ordinary course of business consistent with past
practice at the full recorded amount thereof less an allowance for collection
losses disclosed in the Balance Sheet, or in the case of Accounts Receivable
arising after the Balance Sheet Date, an allowance for collection losses accrued
on the books of the Company or any of the Subsidiaries in the ordinary course of
business consistent with past practices and in accordance with GAAP. The
allowance for collection losses on the Balance Sheet was established in the
ordinary course of business consistent with past practices and in accordance
with GAAP. The Accounts Receivable represent monies due for, and have arisen
solely out of, bona fide sales and deliveries of goods, performance of services
and other business transactions in the ordinary course of business consistent
with past practices. None of the Accounts Receivable represent monies due for
goods either sold on consignment or sold on approval. There are no refunds,
discounts or other adjustments payable with respect to any such Accounts
Receivable, and there are no defenses, rights of set-off, counterclaims,
assignments, restrictions, encumbrances, or conditions enforceable by Third
Parties on or affecting any Account Receivable, except, in each case, for terms
arising in the ordinary course of business consistent with past practice.
2.17 Insurance. All of the assets and the operations of the
Company, each of the Subsidiaries and the Business of an insurable nature and of
a character usually insured by companies of similar size and in similar
businesses are insured by the Company or any of the Subsidiaries in such amounts
and against such losses, casualties or risks as is (i) usual in such companies
and for such assets, operations and businesses, (ii) required by any Law
applicable to the Company, any of the Subsidiaries or the Business, or (iii)
required by any Contract of the Company or any of the Subsidiaries. Schedule
2.17
10
<PAGE>
contains a complete and accurate list of all Material insurance policies now in
force and held or owned by the Company or any of the Subsidiaries and such
Schedule indicates the name of the insurer, the type of policy, the risks
covered thereby, the amount of the premiums, the term of each policy, the policy
number and the amounts of coverage and deductible in each case and all
outstanding claims thereunder. Correct and complete copies or summaries of all
such policies have been delivered to Purchaser by the Company or will be
delivered to Purchaser by the Company as soon as such policies are available to
the Company after the date hereof. All such policies are in full force and
effect and enforceable in accordance with their terms. Neither the Company nor
any of the Subsidiaries is now in Material Default regarding the provisions of
any such policy, including, without limitation, failure to make timely payment
of any premiums due thereon, and neither the Company nor any of the Subsidiaries
has failed to give any Material notice or present any Material claim thereunder
in due and timely fashion. Neither the Company nor any of the Subsidiaries has
been refused or denied renewal of, any Material insurance coverage in connection
with the Company, any of the Subsidiaries, the ownership or use of the Company's
or any of the Subsidiaries' respective assets or the operation of the Business.
In addition to the deductibles set forth on Schedule 2.17, such Schedule
discloses all Material risks that are self-insured by the Company and each of
the Subsidiaries that in the ordinary course of business could be insured.
2.18 Bonds, Letters of Credit and Guarantees. Schedule 2.18
contains a complete and accurate list of all bonds (whether denominated bid,
litigation, performance, fidelity, or otherwise), letters of credit, and
guarantees (other than instruments that are guaranteed in the ordinary course)
issued by the Company, any of the Subsidiaries, the Stockholders or others for
the benefit of the Company or any of the Subsidiaries and now in force or
outstanding. Correct and complete copies of each such Material bond, letter of
credit and guarantee have been delivered to Purchaser by the Company on or
before the date of this Agreement. The bonds, letters of credit and guarantees
listed in Schedule 2.18 satisfy all Material requirements for bonds, letters of
credit or guarantees set forth in (i) any Law applicable to the Company, any of
the Subsidiaries or the Business and (ii) any Contracts of the Company or any of
the Subsidiaries. All such bonds, letters of credit and guarantees are in full
force and effect and enforceable in accordance with their terms. Neither the
Company nor any of the Subsidiaries is in Material Default regarding the
provisions of any such bond, letter of credit or guarantee, including, without
limitation, the failure to make timely payment of all premiums and fees due
thereon, and neither the Company nor any of the Subsidiaries has failed to give
any notice or present any claim thereunder in due and timely fashion.
2.19 Compliance with Law.
(a) The Company and each of the Subsidiaries have
complied with and are in compliance with all Laws, Licenses and Orders
applicable to, required of or binding on the Company or any of the Subsidiaries,
respectively, their respective assets or the Business, including without
limitation, the FCC Licenses, the Communications Act of 1934, and PUC Laws, and
none of the Company, any of the Subsidiaries, or any of the Stockholders has
Knowledge of any basis for any claim of current or past non-compliance with any
such Law, License or Order, in each case where such non-compliance would be
Material to the business, operations, assets, Liabilities, financial condition,
or results of operations of the Company and the Subsidiaries, taken as a whole,
including, without limitation, the value of the Company and the Subsidiaries,
taken as a whole. No notices from any Governmental Authority with respect to any
failure or alleged failure of the Company, any of the Subsidiaries, their
respective assets or the Business to comply with any such Law, License or Order
have been received by the Company, any of the Subsidiaries or any of the
Stockholders, nor, to the Knowledge of the Company, any of the Subsidiaries or
any of the Stockholders, are any such notices proposed or threatened. Schedule
2.19 contains a complete and correct list of all Material Licenses and Orders
applicable to, required of or binding on the Company, any of the
11
<PAGE>
Subsidiaries, their respective assets or the Business, true and complete copies
of which (other than the FCC Licenses) previously have been delivered to the
Purchaser.
(b) The Company and each of the Subsidiaries hold the
FCC Licenses and all other Material Licenses necessary for or used in the
operations of the Business, and each of the FCC Licenses is, and all such other
Material Licenses are, in full force and effect. Schedule 2.19 contains a true
and complete list of the FCC Licenses currently in effect and all such other
Material Licenses (showing, in each case, the expiration date). Except as set
forth on Schedule 2.19, no application, action or proceeding is pending for the
renewal or modification of any of the FCC Licenses or any of such other Material
Licenses, and no application, action or proceeding is pending or, to the
Company's, any of the Subsidiaries' or any of the Stockholder's Knowledge,
threatened that may result in the denial of the application for renewal, the
revocation, modification, nonrenewal or suspension of any of the FCC Licenses or
any of such other Material Licenses, the issuance of a cease-and-desist order,
or the imposition of any administrative or judicial sanction with respect to the
Business that may Materially and adversely affect the rights of Purchaser, the
Company or any of the Subsidiaries under any such FCC Licenses or other Material
Licenses. All Material returns, reports and statements required to be filed by
the Company or any of the Subsidiaries with the FCC relating to the Business
have been filed and complied with and are complete and correct in all Material
respects as filed.
(c) Except as described in Schedule 2.19, there are
no Material capital expenditures that the Company, any of the Subsidiaries or
any of the Stockholders anticipates will be required to be made in connection
with the Company's or any of the Subsidiaries' respective assets or the Business
as now conducted in order to comply with any Law applicable to the Company, any
of the Subsidiaries, their respective assets or the Business as now conducted.
2.20 Environmental. Except as set forth in Schedule 2.20 or
the Environmental Report:
(a) There is no Environmental Litigation (or any
Litigation against any Person whose Liability, or any portion thereof, for
Environmental Matters or under any Environmental Laws the Company or any of the
Subsidiaries has or, to the Knowledge of the Company, any of the Subsidiaries or
any of the Stockholders, may have retained or assumed contractually or by
operation of Law) pending or, to the Knowledge of the Company, any of the
Subsidiaries or any of the Stockholders, threatened with respect to (i) the
ownership, use, condition or operation of the Business, the Real Property or any
other asset of the Company or any of the Subsidiaries or any asset formerly held
for use or sale by the Company or any of the Subsidiaries or any of their
respective predecessors or any of their respective current or former
subsidiaries, or (ii) any violation or alleged violation of or Liability or
alleged Liability under any Environmental Law or any Order related to
Environmental Matters. To the Knowledge of the Company, any of the Subsidiaries
or any of the Stockholders, there have been and there are no existing violations
of (i) any Environmental Law, or (ii) any Order related to Environmental
Matters, with respect to the ownership, use, condition or operation of the
Business, the Real Property or any other asset of the Company or any of the
Subsidiaries or any asset formerly held for use or sale by the Company or any of
the Subsidiaries or any of their respective predecessors or any of their
respective current or former subsidiaries. To the Knowledge of the Company, any
of the Subsidiaries or any of the Stockholders, there are no past or present
actions, activities, circumstances, conditions, events or incidents, including,
without limitation, any Environmental Matter, that could reasonably be expected
to form the basis of (i) any Environmental Litigation against the Company or any
of the Subsidiaries, or (ii) any Litigation against any Person whose Liability
(or any portion thereof) for Environmental Matters or under any Environmental
Laws the Company or any of the Subsidiaries has or may have retained or assumed
contractually or by operation of Law. To the Knowledge of the Company, any of
the Subsidiaries or any of the Stockholders,
12
<PAGE>
none of the Company, any of the Subsidiaries or any of their respective
predecessors or any of their respective current or former subsidiaries nor
anyone Known to the Company, any of the Subsidiaries or any of the Stockholders
has used any assets or premises of the Company or any of the Subsidiaries or any
of their respective predecessors or any of their respective current or former
subsidiaries or any part thereof for the handling, treatment, storage, or
disposal of any Hazardous Substances except in Material compliance with
applicable Environmental Laws. The disclosure of facts set forth in Schedule
2.20 shall not relieve the Company, any of the Subsidiaries or any of the
Stockholders of any of their respective obligations under this Agreement.
(b) To the Knowledge of the Company, any of the
Subsidiaries or any of the Stockholders, no release, discharge, spillage or
disposal of any Hazardous Substances has occurred or is occurring at any assets
owned, leased, operated or managed by the Company or any of the Subsidiaries or
any of their respective predecessors or any of their respective current or
former subsidiaries or any part thereof while or before such assets were owned,
leased, operated or managed by the Compan or any of the Subsidiaries.
(c) To the Knowledge of the Company, any of the
Subsidiaries or any of the Stockholders, no soil or water in, under or adjacent
to any assets owned, leased, operated or managed, directly or indirectly, by the
Company or any of the Subsidiaries or assets formerly held for use or sale by
the Company or any of the Subsidiaries or, in either case, any of their
respective predecessors or any of their respective current or former
subsidiaries has been contaminated by any Hazardous Substance while or before
such assets were owned, leased, operated or managed by the Company or any of the
Subsidiaries or any of their respective predecessors or any of their respective
current or former subsidiaries.
(d) To the Knowledge of the Company, any of the
Subsidiaries or any of the Stockholders, all waste containing any Hazardous
Substances generated, used, handled, stored, treated or disposed of (directly or
indirectly) by the Company or any of the Subsidiaries or any of their respective
predecessors or any of their respective current or former subsidiaries has been
released or disposed of in compliance with all applicable reporting requirements
under any Environmental Laws and there is no Environmental Litigation with
respect to any such release or disposal.
(e) To the Knowledge of the Company, any of the
Subsidiaries or any of the Stockholders, all underground tanks and other
underground storage facilities presently or previously located at any Real
Property owned, leased, operated or managed by the Company or any of the
Subsidiaries or any of their respective predecessors or any of their respective
current or former subsidiaries or any such tanks or facilities located at any
Real Property while such Real Property was owned, leased, operated, or managed
by the Company or any of the Subsidiaries or any of their respective
predecessors or any of their respective current or former subsidiaries are
listed together with the capacity and contents (former and current) of each such
tank or facility in Schedule 2.20. To the Knowledge of the Company, any of the
Subsidiaries or any of the Stockholders, none of such underground tanks or
facilities is leaking or has ever leaked, and none of the Company, any of the
Subsidiaries or any of their respective current or former subsidiaries holds any
responsibility or Liability for any underground tanks or underground facilities
at any other location.
(f) To the Knowledge of the Company, any of the
Subsidiaries or any of the Stockholders, all hazardous waste has been removed
from all Real Property of the Company and each of the Subsidiaries and each of
their respective predecessors and each of their respective current and former
subsidiaries in Material compliance with applicable Environmental Laws.
13
<PAGE>
(g) To the Knowledge of the Company, any of the
Subsidiaries or any of the Stockholders, the Company, each of the Subsidiaries
and each of their respective predecessors or any of their respective current or
former subsidiaries has complied with all applicable reporting requirements
under all Environmental Laws concerning the disposal or release of Hazardous
Substances and none of the Company, any of the Subsidiaries or any of their
respective predecessors or any of their respective current or former
subsidiaries has made any such reports concerning any Real Property of the
Company or any of the Subsidiaries or concerning the operations or activities of
the Company, any of the Subsidiaries or any of their respective predecessors or
any of their respective current or former subsidiaries.
(h) To the Knowledge of the Company, any of the
Subsidiaries or any of the Stockholders, no building or other Improvement or any
Real Property owned, leased, operated or managed by the Company or any of the
Subsidiaries contains any asbestos-containing materials.
(i) To the Knowledge of the Company, any of
the Subsidiaries or any of the Stockholders, without limiting the
generality of any of the foregoing, (i) all on-site and off-site
locations where the Company, any of the Subsidiaries or any of their
respective predecessors or any of their respective current or former
subsidiaries has disposed or arranged for the disposal of Hazardous
Substances are identified in Schedule 2.20, (ii) none of the on-site or
off-site locations identified in Schedule 2.20 is listed on any federal,
state or local government lists of abandoned disposal sites or sites
where Hazardous Substances have or may have occurred, and (iii) no
polychlorinated biphenyls ("PCB's") are used or stored on or in any real
property owned, leased, operated or managed by the Company, any of the
subsidiaries or any of their respective predecessors or any of their
respective current or former Subsidiaries, except in Material compliance
with applicable Environmental Laws.
(j) Schedule 2.20 contains a correct and
complete list of all environmental site assessments and other studies
relating to the investigation of the possibility of the presence or
existence of any Environmental Matter with respect to the Company, any
of the Subsidiaries, the Business, any assets owned, leased, operated or
managed by the Company, any of the Subsidiaries or any of their
respective predecessors or any of their respective current or former
subsidiaries, and the Company has previously delivered to Purchaser a
correct and complete copy of each such assessment and study.
2.21 LITIGATION AND CLAIMS. Except as disclosed on Schedule
2.21:
(a) There is no Litigation pending or, to the
Knowledge of the Company, any of the Subsidiaries or any of the
Stockholders, threatened and none of the Company, any of the
Subsidiaries or any of the Stockholders has any Knowledge of any basis
for any such Litigation or any facts or the occurrence of any event
which might give rise to any Litigation;
(b) No Litigation has been pending during the
three (3) years prior to the date hereof that, individually or in the
aggregate resulted in an uninsured Loss in excess of $150,000 or granted
any injunctive relief against the Company or any of the Subsidiaries.
(c) Except as disclosed on Schedule 2.21,
neither the Company nor any of the Subsidiaries has been advised by any
attorney representing it that there are any "loss contingencies" (as
defined in Statement of Financial Accounting Standards No. 5 issued by
the Financial Accounting Standards Board in March 1975 ("FASB 5"), which
would be required by FASB 5 to be disclosed or accrued in financial
statements of the Company or any of the Subsidiaries, were such
financial statements prepared as of the date hereof.
14
<PAGE>
2.22 BENEFIT PLANS.
(a) Schedule 2.22 lists every Employee Benefit Plan
of the Company and each of the Subsidiaries. On or after September 26, 1980,
none of the Company, any of the Subsidiaries or any entity aggregated with the
Company or any of the Subsidiaries under Code Section 414 (for purposes of this
Section, an "ERISA Affiliate") has had an "obligation to contribute" (as defined
in ERISA Section 4212) to a "multiemployer plan" (as defined in ERISA Sections
4001(a)(3) and (3)(37)(A)). No Employee Benefit Plan is or has been a
multiemployer plan within the meaning of Section 3(37) of ERISA.
(b) The Employee Benefit Plans listed on
Schedule 2.22 have been or will be made available to Purchaser for
review, including correct and complete copies of: (i) all trust
agreements or other funding arrangements for such Employee Benefit Plans
(including insurance contracts), and all amendments thereto, (ii) with
respect to any such Employee Benefit Plans or amendments, all
determination letters, rulings, opinion letters, information letters, or
advisory opinions issued by the United States Internal Revenue Service,
the United States Department of Labor, or the Pension Benefit Guaranty
Corporation after December 31, 1974, (iii) annual reports or returns,
audited or unaudited Financial Statements, actuarial valuations and
reports, and summary annual reports prepared for any Employee Benefit
Plan with respect to the most recent three plan years, and (iv) the most
recent summary plan descriptions and any material modifications thereto.
(c) Except as disclosed in Schedule 2.22, all the
Employee Benefit Plans and the related trusts subject to ERISA comply in all
Material respects with and have been administered in compliance in all Materials
respects with, (i) the applicable provisions of ERISA, (ii) all applicable
provisions of the Code relating to qualification and Tax exemption under Code
Sections 401(a) and 501(a) or otherwise applicable to secure intended Tax
consequences, (iii) all applicable state or federal securities
Laws, and (iv) all other applicable Laws and collective bargaining agreements,
and neither the Company nor any of the Subsidiaries has received any notice from
any Governmental Authority questioning or challenging such compliance. All
available determination letters and required registrations under federal and
state securities Laws ("Permits") for the Employee Benefit Plans have been
obtained, including, but not limited to, timely determination letters on the
qualification of the ERISA Plans and Tax exemption of related trusts, as
applicable under the Code, and all such Permits continue in full force and
effect. No event has occurred which will or could reasonably be expected to give
rise to disqualification of any such plan or loss of intended Tax consequences
under the Code or to any Tax under Section 511 of the Code.
(d) Except as disclosed in Schedule 2.22, no
oral or written representation or communication with respect to any
aspect of the Employee Benefit Plans has been made to employees of the
Company or any of the Subsidiaries prior to the date hereof that is not
in accordance with the written or otherwise preexisting terms and
provisions of such plans. None of the Company, any of the Subsidiaries
or any administrator or fiduciary of any Employee Benefit Plan (or any
agent of any of the foregoing) has engaged in any transaction, or acted
or failed to act in any manner that could subject the Company, any of
the Subsidiaries or Purchaser to any direct or indirect Material
Liability (by indemnity or otherwise) for breach of any fiduciary,
co-fiduciary or other duty under ERISA. There are no unresolved claims
or disputes under the terms of, or in connection with, the Employee
Benefit Plans other than claims for benefits which are payable in the
ordinary course and no Litigation has been commenced with respect to any
Employee Benefit Plan.
(e) Except as disclosed in Schedule 2.22, all
Employee Benefit Plan documents and annual reports or returns, audited or
unaudited financial statements, actuarial valuations, summary annual reports,
and summary plan descriptions issued with respect to the Employee Benefit Plans
are
15
<PAGE>
correct and complete in all Material respects, have been timely filed with
the IRS and the United States Department of Labor, have been timely distributed
to participants in the Employee Benefit Plans, and there have been
no changes in the information set forth therein.
(f) No "party in interest" (as defined in
Section 3(14) of ERISA) or "disqualified person" (as defined in Code
Section 4975) of any Employee Benefit Plan has engaged in any Material
nonexempt "prohibited transaction" (described in Code Section 4975 or
ERISA Section 406). Except as disclosed in Schedule 2.22, there has been
no (i) "reportable event" (as defined in Section 4043 of ERISA), or
event described in Sections 4041, 4042, 4062 (including ERISA Section
4062(e)), 4064, 4069 or 4063 of ERISA, or (ii) termination or partial
termination, withdrawal or partial withdrawal with respect to any of the
ERISA Plans which the Company or any of the Subsidiaries maintains or
contributes to or has maintained or contributed to. Except as disclosed
in Schedule 2.22, neither the Company nor any of the Subsidiaries has
incurred any liability under Title IV of ERISA, including any Liability
that could arise under Title IV of ERISA as a result of the Company's or
any of the Subsidiaries' membership in a "controlled group" as defined
in ERISA ss.ss.4001(a)(14) and 4001(b)(1).
(g) Except as disclosed in Schedule 2.22, for
any ERISA Plan that is an employee pension benefit plan as defined in
ERISA ss.3(2) ("ERISA Pension Plan"), the fair market value of such
Plan's assets equals or exceeds the present value of all benefits
(whether vested or not) accrued to date by all present or former
participants in such ERISA Pension Plan. For this purpose the
assumptions prescribed by the Pension Benefit Guaranty Corporation for
valuing plan assets or liabilities upon plan termination shall be
applied and the term "benefits" shall include the value of all benefits,
rights and features protected under Code ss. 411(d)(6) or its successors
and any ancillary benefits (including disability, shutdown, early
retirement and welfare benefits) provided under any such employee
pension benefit plan and all "benefit liabilities" as defined in ERISA
Section 4001(a)(16). Since the date of the most recent actuarial
valuation, there has been (i) no Material change in th financial
position of an ERISA Pension Plan, (ii) no change in the actuarial
assumptions with respect to any ERISA Pension Plan, and (iii) no
increase in benefits under any ERISA Pension Plan as a result of ERISA
Pension Plan amendments or changes in any applicable regulation which is
reasonably likely to have, individually or in the aggregate, a Material
effect on the funding status of such ERISA Pension Plan. All
contributions with respect to an Employee Benefit Plan of the Company or
of an ERISA Affiliate that is subject to Code Section 412 or ERISA
Section 302 have been, or will be, timely made and there is no Lien or
expected to be a Lien under Code Section 412(n) or ERISA Section 302(f)
or Tax under Code Section 4971. No ERISA Pension Plan of the Company or
any of the Subsidiaries or of an ERISA Affiliate has a "liquidity
shortfall" as defined in Code Section 412(m)(5). No event described in
Code Section 401(a)(29) has occurred or can reasonably be expected to
occur with respect to the Company or its ERISA Affiliates. All premiums
required to be paid under ERISA Section 4006 have been paid by the
Company and each of the Subsidiaries and by any Person aggregated with
the Company or any of the Subsidiaries under ERISA Sections 4001(a)(14)
and 4001(b)(1).
(h) Neither the Company nor any of the Subsidiaries
has, or maintains, an Employee Benefit Plan providing welfare benefits (as
defined in ERISA Section 3(1)) to employees after retirement or other separation
of service except to the extent required under Part 6 of Title I of ERISA or
Code Section 4980B or their successors. No Material Tax under Code Sections
4980B or 5000 has been incurred with respect to any Employee Benefit Plan and no
circumstances exist which could reasonably be expected to give rise to such
Taxes.
(i) Except as disclosed on Schedule 2.22, neither the
execution or delivery of this Agreement or the Other Agreements nor the
consummation of the transactions contemplated by this
16
<PAGE>
Agreement will (1) entitle any current or former employee of the Company or any
of the Subsidiaries to severance pay, unemployment compensation or any payment
contingent upon a change in control or ownership of the Company or any of the
Subsidiaries, or (2) accelerate the time of payment or vesting, or
increase the amount, of any compensation due to any such employee or former
employee.
(j) Except as disclosed on Schedule 2.22, all
individuals participating in (or eligible to participate in) any Employee
Benefit Plan maintained (or contributed to) by the Company or any of the
Subsidiaries are common-law employees.
2.23 CONTRACTS.
(a) Description.
(i) Real Property. Schedule 2.23(a)(i) is a
list or brief description of all Material Contracts affecting or relating to the
Real Property, including, without limitation, Contracts evidencing Material
Liens (including those referred to in Schedule 2.11).
(ii) Personal Property. Schedule 2.23(a)(ii)
is a list of all Contracts affecting or relating to the Personal Property,
including, without limitation, Contracts evidencing Liens (including those
referred to in Schedule 2.11) (other than Contracts affecting rights in the
Personal Property each of which does not involve the payment by the Company or
any of the Subsidiaries of more than $25,000 per year).
(iii) Purchase Orders -- Non-Capital Assets.
Schedule 2.23(a)(iii) is a list of all outstanding Contracts of the Company or
any of the Subsidiaries or that relate to the Business, for the acquisition or
sale of goods, assets or services (other than purchase orders or other
commitments for the acquisition of capital assets), all of which were executed
in the ordinary course of business consistent with past practice of the Company
or any of the Subsidiaries (other than purchase orders and other commitments
which do not exceed $25,000 each).
(iv) Purchase Orders -- Capital Assets.
Schedule 2.23(a)(iv) is a list of all outstanding Contracts of the Company or
any of the Subsidiaries or that relate to the Business, for the acquisition of
capital assets and that were executed in the ordinary course of business
consistent with past practice of the Company or any of the Subsidiaries (other
than purchase orders and other commitments which do not exceed $25,000 each).
(v) Sales. Schedule 2.23(a)(v) is a list or
brief description of all Contracts of the Company or any of the Subsidiaries or
that relate to the Business, for the sale of products or the performance of
services by the Company or any of the Subsidiaries and which exceed $5,000 each.
(vi) Employment; Other Affiliate Contracts.
Schedule 2.23(a)(vi) contains a list of all Material Contracts of the Company or
any of the Subsidiaries or that relate to the Business, with any employee,
officer, agent, consultant, distributor, dealer or Affiliate of the Company or
any of the Subsidiaries (other than those entered into in the ordinary course of
business consistent with past practice that are immediately terminable at will
by the Company or any of the Subsidiaries, as the case may be, without any
Liability).
(vii) Sales Representatives. Schedule
2.23(a)(vii) is a list of all Material Contracts of the Company or any of the
Subsidiaries or that relate to the Business, with any agent, broker,
17
<PAGE>
sales representative of, or any Person in a similar representative capacity for,
the Company or any of the Subsidiaries (other than those entered into in the
ordinary course of business consistent with past practice that are terminable
within sixty (60) days by the Company or any of the Subsidiaries, as the case
may be, without Liability).
(viii) Powers of Attorney. Schedule
2.23(a)(viii) is a list of all powers of attorney given by the Company or any of
the Subsidiaries, whether limited or general, to any Person continuing in
effect.
(ix) Programming, Network Affiliation,
Operating and Cable Retransmission Agreements. Schedule 2.23(a)(ix) is a list of
all network affiliation agreements, operating agreements, cable retransmission
agreements and all programming agreements of the Company or that relate to the
Business (correct and complete copies of which previously have been delivered to
Purchaser), including for each of those agreements the amounts and availability
dates of programming and the dollar amount and schedule of payments thereunder.
(x) Barter and Trade Agreements. Schedule
2.23(a)(x) is a list of all "barter" and "trade" agreements of the Company or
any of the Subsidiaries or that relate to the Business (correct and complete
copies of which previously have been delivered to Purchaser) and includes an
estimate of the positive or negative trade balances associated with each such
agreement.
(xi) Any Other Contracts. Schedule 2.23(a)(xi)
is a list or brief description of any other Contracts of the Company or any of
the Subsidiaries or that relate to the Business and that: (A) payments provided
for or actually made thereunder by or to the Company or any of the Subsidiaries
in any calendar year exceed $25,000, (B) require performance by the Company or
any of the Subsidiaries of any obligation for a period of time extending beyond
six (6) months from the Closing Date or which is not terminable by the Company
or any of the Subsidiaries without penalty upon sixty (60) days or less notice,
(C) evidence, create, guarantee or service indebtedness of the Company or any of
the Subsidiaries, (D) establish or provide for any joint venture, partnership or
similar arrangement involving any of the Stockholders, the Company or any of the
Subsidiaries, or (E) guarantee or endorse the Liabilities of any other Person.
The lists in all Schedules referred to above are correct and
complete as of the date hereof unless otherwise noted thereon.
(b) Copies. Correct and complete copies of all the
written Contracts, and correct and complete descriptions of all oral Contracts,
referred to in Section 2.23(a) have been delivered to Purchaser on or before the
date hereof.
(c) No Default. None of the Company, any of the
Subsidiaries or, to the Knowledge of the Company, any of the Subsidiaries or any
of the Stockholders, any other party is in Default under any of the Contracts or
any Liens referred to in Section 2.23(a) and, to the Knowledge of the Company,
any of the Subsidiaries or any of the Stockholders, there is no basis for any
claim of Material Default under any of the foregoing.
(d) Assurances. Each of the Contracts referred to in
this Section 2.23 is in full force and effect and constitutes a valid, legal and
binding agreement of the Company or the Subsidiaries party thereto and, to the
Knowledge of the Company, any of the Subsidiaries or any of the Stockholders,
the other parties thereto, enforceable in accordance with its terms except for
bankruptcy, insolvency,
18
<PAGE>
fraudulent conveyance, reorganization, moratorium or other Laws affecting
creditors' rights generally, or general equitable principles (regardless of
whether considered in a proceeding in equity or at law) or by an implied
covenant of good faith and fair dealing, and as otherwise set forth in Schedule
2.23 . Neither the Company nor any of the Subsidiaries is a party to or bound by
any Contract or Contracts that, either separately or in the aggregate has or
will have a Material Adverse Effect with respect to the Company, any of the
Subsidiaries, their respective assets, or the Business. The continuation,
validity and effectiveness of each of the Contracts referred to in this Section
2.23 will not be affected in any way by the consummation of the transactions
contemplated by this Agreement.
2.24 SUPPLIERS AND CUSTOMERS. Schedule 2.24 sets forth each
supplier to whom payments were made that equaled or exceeded five percent (5%)
of the Company's and each of the Subsidiaries' aggregate operating expenses for
the fiscal year ended December 28, 1997 (the "Large Suppliers"). Schedule 2.24
sets forth each customer or group of related customers from whom payments were
received that equaled or exceeded five percent (5%) of the Company's and each of
the Subsidiaries' aggregate gross sales for the fiscal year ended December 28,
1997 (the "Large Customers"). Except as reflected in Schedule 2.24, no Large
Supplier is a sole source of supply of any good or service to the Company or any
of the Subsidiaries. To the Knowledge of the Company, any of the Subsidiaries or
any of the Stockholders, the relationships of the Company and each of the
Subsidiaries with its Large Suppliers and Large Customers are good commercial
working relationships and, except as set forth on Schedule 2.24, neither (i) any
of the Large Suppliers or any of the Large Customers, nor (ii) any Large
Supplier who at any time during 1997 was or now is the sole source of supply of
any good or service, has terminated, or, to the Knowledge of the Company, any of
the Subsidiaries or any of the Stockholders, made any threat reasonably likely
to be acted upon to terminate, its relationship with the Company or any of the
Subsidiaries or has during the last twelve (12) months Materially decreased or
Materially limited, or, to the Knowledge of the Company, any of the Subsidiaries
or any of the Stockholders, made any threat reasonably likely to be acted upon
to Materially decrease or Materially limit, its services, supplies or materials
to the Company or any of the Subsidiaries or its usage or purchase of the goods
or services of the Company or any of the Subsidiaries, as the case may be. None
of the Company, any of the Subsidiaries or any of the Stockholders has any
Knowledge and belief that any of the Large Suppliers or an of the Large
Customers intends to terminate or otherwise modify adversely to the Company or
any of the Subsidiaries its relationship with the Company or any of the
Subsidiaries or to decrease or limit its services, supplies or materials to the
Company or any of the Subsidiaries or its usage or purchase of the goods or
services of the Company or any of the Subsidiaries, as the case may be, and the
acquisition of the Stock by Purchaser will not, to the Knowledge of the Company,
any of the Subsidiaries or an of the Stockholders adversely affect the
relationship of the Business or of the Company or any of the Subsidiaries with
any of the Large Suppliers or any of the Large Customers.
2.25 LABOR MATTERS. Schedule 2.25 contains a correct and
complete list of all employees of the Company and each of the Subsidiaries whose
direct annual compensation exceeds $50,000. Except as disclosed on Schedule
2.25, the employment of all employees of the Company and each of the
Subsidiaries is terminable at will by the Company and each of the Subsidiaries,
respectively, without any penalty or severance obligation incurred by the
Company or any of the Subsidiaries. Except as set forth on Schedule 2.25 and
other than in the ordinary course of business consistent with past practices,
neither the Company nor any of the Subsidiaries will owe any amounts to any of
its employees as of the Closing Date, including, without limitation, any amounts
incurred for wages, bonuses, vacation pay, sick leave or any severance
obligations other than amounts owed with respect to the then current pay period.
Except as and to the extent set forth in Schedule 2.25, (i) neither the Company
nor any of the Subsidiaries is a party to any union agreement or collective
bargaining agreement or work rules or practices agreed to with any labor
organization or employee association applicable to any employees of the Company
or any of
19
<PAGE>
the Subsidiaries and, to the Knowledge of the Company, any of the Subsidiaries
or any of the Stockholders, no attempt to organize any of the employees of the
Business has been made, proposed or threatened in the past three years, (ii)
neither the Company nor any of the Subsidiaries is, or within the past three
years has been, subject to any Equal Employment Opportunity Commission charges
or other claims of employment discrimination made against it, (iii) no Wage and
Hour Department investigations have been made in the past 3 years of the Company
or any of the Subsidiaries, (iv) no labor strike, dispute, slowdown, stoppage or
lockout is pending or, to the Knowledge of the Company, any of the Subsidiaries
or any of the Stockholders, threatened against or affecting the Company, any of
the Subsidiaries, their respective assets or the Business and during the past
five (5) years there has not been any such action, (v) no unfair labor practice
charge or complaint against the Company or any of the Subsidiaries is pending
or, to the Knowledge of the Company, any of the Subsidiaries or any of the
Stockholders, threatened before the National Labor Relations Board or any
similar Governmental Authority, and (vi) neither the Company nor any of the
Subsidiaries has received any formal notice (other than as set forth in Section
6.07 hereof) that any of the employees listed on Schedule 2.25 will terminate or
contemplates terminating his or her employment currently or at any time within
sixty (60) days after the Closing Date or will otherwise not be available to the
Company or any of the Subsidiaries. Since the enactment of the Worker Adjustment
and Retraining Notification Act (the "WARN Act"), neither the Company nor any of
the Subsidiaries has effectuated (a) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of the Company or any of the
Subsidiaries; or (b) a "mass layoff" (as defined in the WARN Act) affecting any
site of employment or facility of the Company or any of the Subsidiaries; nor
has either the Company or any of the Subsidiaries been affected by any
transaction or engaged in layoffs or employment terminations sufficient in
number to trigger application of any simila state or local Law. Except as set
forth in Schedule 2.25, none of the Company's or any of the Subsidiaries'
employees has suffered an "employment loss" (as defined in the WARN Act) since
six (6) months prior to the date hereof.
2.26 BROKERS AND FINDERS. Except as set forth on Schedule
2.26, no finder or any agent, broker or other Person acting pursuant to
authority of the Company, any of the Subsidiaries or any of the Stockholders is
entitled to any commission or finder's fee in connection with the transactions
contemplated by this Agreement.
2.27 INTERESTED TRANSACTIONS. Except as set forth in Schedule
2.27, neither the Company nor any of the Subsidiaries is a party to any Contract
or other transaction with any Affiliate of the Company or any of the
Subsidiaries, any Related Party of any Affiliate of the Company or any of the
Subsidiaries (other than as a stockholder or employee of the Company or any of
the Subsidiaries), or any Person in which any of the foregoing (individually or
in the aggregate) beneficially or legall owns, directly or indirectly, five
percent (5%) or more of the equity or voting interests (other than, in each
case, Contracts or transactions between or among the Company and its
Subsidiaries). Each of such Contracts and other transactions described in the
preceding sentence was negotiated on an arm's length basis, contains pricing
terms that reflected fair market value at the time entered into and otherwise
contains terms and conditions comparable to those customarily contained in
similar transactions between unrelated parties. Except as described in Schedule
2.27 and other than the Stockholders and their Affiliates, none of the Persons
described in the first sentence of this Section 2.27 owns, or during the last
three (3) years has owned, directly or indirectly, beneficially or legally,
(individually or in the aggregate) five percent (5%) or more of the equity or
voting interests of any Person that competes with the Company, any of the
Subsidiaries or the Business.
2.28 OFFICERS, DIRECTORS AND BANK ACCOUNTS. Schedule 2.28
lists (i) the names of all officers and directors of the Company and each of the
Subsidiaries and (ii) the name and location of each
20
<PAGE>
bank or other institution in which the Company or any of the Subsidiaries has
any deposit account or safe deposit box in which the Company or any of the
Subsidiaries has any interest or access, all account numbers and names of all
Persons authorized to draw thereon or to have access thereto.
2.29 REPORTS AND FINANCIAL STATEMENTS. The Company has filed
all reports required to be filed with the Securities and Exchange Commission
since January 1, 1997 (collectively, the "SEC Reports"). None of such SEC
Reports, as of their respective dates or as of the date of any amendment or
supplement thereto, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading . Each of the financial statements (including the related notes)
included in the SEC Reports presents fairly, in all Material respects, the
consolidated financial position and consolidated results of operations and cash
flows of the Company and its subsidiaries as of the respective dates or for the
respective periods set forth therein, all in conformity with GAAP consistently
applied during the periods involved, except as otherwise noted therein, and
subject, in the case of the unaudited interim financial statements, to normal
year-end adjustments and any other adjustments described therein. All of such
SEC Reports, as of their respective dates, complied in all material respects
with the requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
2.30 STATEMENTS TRUE AND CORRECT. No representation or warranty
made by the Company or the Stockholders, nor any statement, certificate or
instrument furnished or to be furnished to Purchaser pursuant to this Agreement,
the Other Agreements or any other document, agreement or instrument referred to
herein or therein, including, without limitation, the Financial Statements,
contains or will contain any untrue statement of fact or omits or will omit to
state a Material fact necessary to make the statements contained therein not
misleading in light of the circumstances under which they were made.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Company and the
Stockholders that:
3.01 ORGANIZATION. Purchaser is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Georgia,
with the corporate power and authority to carry on its business and to own,
lease and operate its assets.
3.02 CAPACITY AND VALIDITY. Purchaser has the full corporate
power and authority necessary to enter into and perform its obligations under
this Agreement and the Other Agreements to which it is a party and to consummate
the transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement and the Other Agreements will have been approved
by all necessary action of the Board of Directors and stockholders of Purchaser
on or before Closing. This Agreement has been, and the Other Agreements will be
when executed and delivered, duly executed and delivered by duly authorized
officers of Purchaser, and the Agreement and each of the Other Agreements
constitutes, or will constitute when executed and delivered, the legal, valid
and binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other simila
laws relating to or affecting creditors' rights generally or general equitable
principles (regardless of whether considered in a proceeding in equity or at
law) or by an implied covenant of good faith and fair dealing.
21
<PAGE>
3.03 NO CONFLICT. Except as disclosed on Schedule 3.03,
neither the execution, delivery and performance of this Agreement and the Other
Agreements to which it is a party by Purchaser nor the consummation of the
transactions contemplated hereby or thereby, will (i) conflict with or result in
a violation, contravention or breach of any of the terms, conditions or
provisions of the Articles of Incorporation, as amended, or By-laws, as amended,
of Purchaser, (ii) result in a Default under or require the consent or approval
of any party to, Contract or License of Purchaser, (iii) result in the violation
of any Law or Order, or (iv) result in the creation or imposition of any Lien.
3.04 BROKERS AND FINDERS. Except as set forth in Schedule
3.04, no finder or any agent, broker or other Person acting pursuant to
authority of Purchaser is entitled to any commission or finder's fee in
connection with the transactions contemplated by this Agreement.
3.05 INVESTMENT REPRESENTATION. Purchaser is purchasing the
Stock for investment and is not acquiring the Stock with a view to or for sale
in connection with any distribution thereof within the meaning of the Securities
Act of 1933, as amended.
3.06 QUALIFICATION OF PURCHASER. Purchaser is fully qualified
to assume control and operation of the Stations and, to the best of Purchaser's
knowledge and belief, there exists no reason for the FCC to refuse to consent to
the assignment of the broadcast Licenses to Purchaser.
3.07 FINANCING. Purchaser has all necessary financial
resources or has secured a binding commitment for all financing necessary for
Purchaser to consummate the transactions contemplated by this Agreement.
3.08 STATEMENTS TRUE AND CORRECT. No representation or
warranty made by Purchaser, nor any statement, certificate or instrument
furnished or to be furnished to the Company or the Stockholders pursuant to this
Agreement, the Other Agreements or any other document, agreement or instrument
referred to herein or therein, contains or will contain any untrue statement of
fact or omits or will omit to state a fact necessary to make the statements
contained therein not misleading.
ARTICLE IV ,
COVENANTS AND ADDITIONAL AGREEMENTS OF THE COMPANY, THE STOCKHOLDERS
AND PURCHASER
4.01 CONDUCT OF BUSINESS. Prior to the Closing Date, except
with the prior written consent of Purchaser and except as necessary to effect
the transactions contemplated in this Agreement, the Company shall, and the
Stockholders shall cause the Company and each of the Subsidiaries to:
(a) conduct the Business in substantially the same
manner as presently being conducted, and refrain from entering into any
transaction or Contract other than in the ordinary course of business consistent
with past practice, except as otherwise contemplated by this Agreement;
(b) confer on a regular and frequent basis with
Purchaser to report Material operational matters and to report the general
status of ongoing operations;
(c) notify Purchaser of any unexpected emergency or
other change in the normal course of the Business or the operation of the assets
of the Company or any of the Subsidiaries, and of any Litigation (or
communications indicating that the same may be contemplated), affecting the
22
<PAGE>
Company, any of the Subsidiaries, the Business or any Material assets, and keep
Purchaser fully informed of such events and permit its representatives prompt
access to all materials prepared i connection therewith in each case where such
emergency, change, Litigation or other event could cause a Material Adverse
Effect;
(d) except in the ordinary course of business
consistent with past practice, not make any Material capital expenditure;
(e) not take any action, or omit to take any action,
that would cause the representations and warranties contained in Article II
hereof to be incorrect or incomplete in any Material respect;
(f) promptly notify Purchaser in writing of any
Material Adverse Change with respect to the Company, the Business or any of the
Subsidiaries, or any condition or event which threatens to result in a Material
Adverse Change with respect to the Company, the Business or any of the
Subsidiaries;
(g) notwithstanding the $1,000,000 threshold contained
in the definition of Material Adverse Change in Article IX, use all reasonable
efforts to promptly remedy any adverse change, condition or event that causes or
is reasonably likely to cause any of the Stations to be or go off the air; and
(h) not make any agreement or commitment which will
result in or cause to occur a Default of any of the items contained in
paragraphs (a) through (g) above.
Notwithstanding any of the foregoing provisions of this Section 4.01, prior to
the Closing, control of the operation of the Stations shall remain exclusively
with the Company, any of the Subsidiaries and the Stockholders.
4.02 RIGHT OF INSPECTION; ACCESS. In order to allow Purchaser
to conduct its due diligence investigation, including, without limitation,
environmental due diligence, the Company shall give to Purchaser and its
designees, during normal working hours, full and free access to all of its and
each of the Subsidiaries' respective assets, Contracts, reports and other
records and shall furnish to Purchaser and its designees all additional
financial, legal and other information with respect to the Company, any of the
Subsidiaries, their respective assets and the Business that Purchaser may
reasonably request. The Company shall also allow and arrange for Purchaser and
its designees free and full access and opportunity, during normal business
hours, to consult and meet with the officers, directors, employees, attorneys,
accountants and other agents of the Company and each of the Subsidiaries. The
Company shall instruct such individuals to cooperate fully with Purchaser and
its designees. Purchaser and its designees shall have the right to make copies
of any of the records referred to above. In addition to the foregoing, the
Company and the Stockholders shall provide to Purchaser such evidence as
Purchaser reasonably requires to verify the accuracy of the representation and
warranty contained in paragraph (m) of Section 2.10. Within thirty (30) days
after the date of this Agreement, the Stockholders shall provide to Purchaser a
letter from Arthur Andersen in form and substance reasonably satisfactory to
Purchaser and its counsel that verifies that since April 20, 1995 there has not
been an ownership change (within the meaning of Section 382 of the Code) with
respect to the Company. Further, at Closing, the Stockholders shall provide to
Purchaser an updated letter from Arthur Andersen bringing current to the Closing
Date the letter provided pursuant to the foregoing sentence. Purchaser agrees to
indemnify against and hold the Company, the Subsidiaries and the Stockholders
harmless from any claim for Liability, costs, expenses (including reasonable
attorneys' fees
23
<PAGE>
actually incurred), damages or injuries arising out of or
resulting from the inspection of the Company by Purchaser or its agents.
4.03 OTHER OFFERS AND EXCLUSIVE DEALING. Unless and until this
Agreement is terminated prior to Closing pursuant to Section 8.01, the Company
and each of the Stockholders shall, and shall cause each of the Subsidiaries to,
deal exclusively with Purchaser with respect to the sale of the Stock or any
assets or properties of the Company or any of the Subsidiaries. In addition,
unless and until this Agreement is terminated prior to Closing pursuant to
Section 8.01, neither the Company no any of the Stockholders, acting in any
capacity, shall, and the Company and the Stockholders shall direct each of the
Subsidiaries and the officers, directors, limited partners, general partners (as
applicable), financial advisors, accountants and counsel of the Company, any of
the Subsidiaries and the Stockholders not to, either directly or indirectly,
through the Company, any of the Subsidiaries, any officer, director, employee,
agent or otherwise, (a) solicit, initiate or encourage submission of proposals
or offers from any Person relating to any purchase of the Stock, or any merger,
sale of substantial assets, or purchase of securities or similar transaction
involving the Company or any of the Subsidiaries, (b) participate in any
discussions or negotiations regarding, or, except as required by a legal or
judicial process, furnish to any other Person any information with respect to,
or otherwise cooperate in any way with, or assist or participate in, facilitate
or encourage, any effort or attempt by any other Person to purchase the assets
of the Company or any of the Subsidiaries, or engage in a merger, purchase of
substantial assets or purchase of stock or similar transaction involving the
Company or any of the Subsidiaries, or (c) approve or undertake any such
transaction. If, notwithstanding the foregoing, the Company, the Stockholders or
any of their respective shareholders, directors, partners, officers, employees
or agents shall receive any written proposal or inquiry regarding any such
transaction, the Company and the Stockholders shall, and shall cause any of the
Subsidiaries to, promptly communicate to Purchaser the terms of any such
proposal or offer upon Knowledge or receipt of such written proposal or offer.
4.04 CONFIDENTIALITY. For a period of one (1) year from and
after the date hereof, each of Purchaser, the Company and the Stockholders
agrees that it will not, and will use reasonable efforts to ensure that none of
its representatives or Affiliates will, use in the conduct of its business
(except as contemplated by this Agreement), or disclose to or file with any
other Person (other than financing sources, financial advisors, accountants and
attorneys for the foregoing who will be informed of the confidential nature of
such information and who have a need to know such information), (a) any
confidential or non-public information relating to the other parties to this
Agreement or (b) the existence of this Agreement or the fact of the transactions
contemplated hereby, except (i) for a disclosure that is required by Law or by a
Governmental Authority or is reasonably believed to be so required, including,
without limitation, disclosures to the FCC and the Department of Justice for
purposes of obtaining consents to the transactions contemplated hereby and
disclosures to the Securities and Exchange Commission and related public
disclosures (in connection with public offerings or otherwise); (ii) information
that is ascertainable or obtained from public or published information; (iii)
information received from a Third Party not known to the disclosing party to be
under an obligation to keep such information confidential; (iv) information
independently developed by the disclosing party or (v) information disclosed to
or filed with any Persons necessary to obtaining the consents or the equity and
debt financing relating to the transactions contemplated by this Agreement.
Notwithstanding the foregoing, (i) neither Purchaser nor its assignees, in the
course of any investigation it shall deem necessary and desirable in connection
with the transactions contemplated by this Agreement, shall be prohibited from
discussing the Company, any of the Subsidiaries, their respective assets and the
Business with others having business dealings with the Company or any of the
Subsidiaries, and (ii) the foregoing provisions of this Section 4.04 shall not
apply to Purchaser or any of its representatives or Affiliates after
consummation of the transactions contemplated hereby at the Closing with respect
to information relating to the Company or its Subsidiaries. If the transaction
24
<PAGE>
contemplated by this Agreement is not consummated, each party will return or
destroy as much of such written information as the party furnishing such
information may reasonably request.
4.05 CONSENTS AND APPROVALS. The Company and the Stockholders
shall obtain the waiver, consent and approval of all Persons whose waiver,
consent or approval (i) is required in order to consummate the transactions
contemplated by this Agreement, or (ii) is required by any Material Contract,
Order, Law or License to which the Company, any of the Subsidiaries or any of
the Stockholders is a party or subject on the Closing Date, and Purchaser shall
cooperate with the Company and the Stockholders in connection therewith. All
written waivers, consents and approvals obtained by the Company and the
Stockholders shall be produced at Closing in form and content reasonably
satisfactory to Purchaser.
4.06 SUPPLYING OF FINANCIAL STATEMENTS. The Stockholders shall
cause the Company and each of the Subsidiaries to deliver to Purchaser within
twenty (20) days following the end of each month true and complete copies of all
unaudited monthly financial statements of the Company and each of the
Subsidiaries for each calendar month ending subsequent to the date hereof and
prior to the Closing Date in the format historically utilized internally by the
Company and each of the Subsidiaries. In addition, the Stockholders shall cause
the Company and each of the Subsidiaries to deliver to Purchaser as soon as
practicable consolidated audited financial statements as of December 28, 1997
and for the year then ended.
4.07 QUALIFICATION AND CORPORATE EXISTENCE. The Company shall
deliver to Purchaser (i) certificates of the Secretary of State of the State of
Delaware, dated within ten (10) days prior to the Closing Date, stating that the
Company and each of the Subsidiaries are corporations in good standing under the
laws of the State of Delaware, and have paid all applicable franchise and other
fees and Taxes due to such state and (ii) certificates of the appropriate
officials of the states and foreign jurisdictions listed on Schedule 2.03, each
dated not more than ten (10) days prior to the Closing Date, stating that each
of the Company and each of the Subsidiaries is duly qualified and in good
standing to transact business as a foreign corporation as stated in Section 2.03
in each such state and foreign jurisdiction and has paid all applicable
franchise and other fees and Taxes due to each such state and foreign
jurisdiction.
4.08 PUBLIC ANNOUNCEMENTS. Upon execution of this Agreement,
Purchaser and the Company shall each issue a press release and public
announcement regarding this Agreement and the transactions contemplated hereby,
each of which press releases shall be reasonably satisfactory to the other
party. Except as permitted by the foregoing sentence or Section 4.04, none of
Purchaser, the Company, or the Stockholders, nor any of their representatives or
Affiliates, shall make any public announcement with respect to this Agreement or
the transactions contemplated hereby without the prior consent of the other
parties hereto unless required by Law or judicial process, in which case
notification shall be given to the other parties hereto prior to such
disclosure.
4.09 CLOSING CONDITIONS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to take, or cause to be
taken, all commercially reasonable actions to consummate the transactions
contemplated by this Agreement and to satisfy the conditions precedent to
Closing set forth in Article VI and Article VII of this Agreement.
4.10 SUPPLEMENTS TO SCHEDULES. The Company and the
Stockholders shall from time to time after the date hereof, supplement
or amend the Schedules referred to in Article II with respect to any
matter arising after the date hereof which, if existing or occurring at
the date hereof, would have been required to be set forth or described
in such Schedules. Purchaser may unilaterally extend the Closing Date if
necessary to allow Purchaser five (5) business days to review such
supplements to the Schedules prior to the Closing Date. If, in
Purchaser's reasonable determination, any such supplements to the
Schedules
25
<PAGE>
reveal any Material Adverse Change with respect to the Company, any of
the Subsidiaries or the Business, or any condition or event which
threatens to result in a Material Adverse Change with respect to the
Company, any of the Subsidiaries or the Business, Purchaser may, subject
to the Stockholder's right to cure any such Material Adverse Change or
reduce the Purchase Price in the manner contemplated herein, terminate
this Agreement pursuant to Section 8.01.
4.11 CERTAIN TAX MATTERS.
(a) Purchaser, on the one hand, and the Company and
the Stockholders, on the other hand, shall provide the other parties to this
Agreement, at the expense of the requesting party, with such assistance as may
reasonably be requested by any of them in connection with the preparation of any
Tax Return, any audit or other examination by any Governmental Authority, or any
judicial or administrative proceedings relating to any Liability for Taxes, and
each will retain and provide the requesting party with any records or
information that may be relevant to any of the foregoing.
(b) The Stockholders shall cause the Company to
prepare and file on or before the due date therefor (including any extensions
thereof) all Tax Returns and amendments thereto required to be filed by the
Company on or before the Closing Date, and shall cause the Company to pay, or
cause to be paid, all Taxes (including estimated taxes) due on such Tax Return
or which are otherwise required to be paid at any time prior to or during such
period. Such Tax Returns shall be prepare in accordance with the most recent Tax
practices as to elections and accounting method. Purchaser shall have a
reasonable opportunity to review all Material Tax Returns and amendments thereto
prior to their filing.
(c) The Stockholders shall not, without the prior
written consent of Purchaser, file or cause to be filed, any amended Tax Return
or claim for Tax Refund with respect to the Company or any Subsidiary for any
period ending on or before the Closing Date, to the extent that any such filing
may affect the Tax Liability of Purchaser, any of its Affiliates, the Company or
any Subsidiary for any period ending after the Closing Date (including, but not
limited to, the imposition of Tax deficiencies, the reduction of asset basis or
cost adjustments, the lengthening of any amortization or depreciation periods,
the denial of amortization or depreciation deductions, or the reduction of loss
or credit carryforwards).
(d) To the extent the Company, any of the
Subsidiaries or any of the Stockholders have Knowledge of the commencement or
scheduling of any Tax audit, the assessment of any Tax, the issuance of any
notice of Tax due or any bill for collection of any Tax, or the commencement or
scheduling of any other administrative or judicial proceeding with respect to
the determination, assessment or collection of any Tax of the Company or any of
the Subsidiaries, the Company, the Subsidiarie or the Stockholders shall provide
prompt notice to Purchaser of such matter, setting forth information (to the
extent Known) describing any asserted Tax Liability in reasonable detail and
including copies of any notice or other documentation received from the
applicable Tax authority with respect to such matter.
(e) The Stockholders shall furnish Purchaser on or
before the Closing Date an affidavit, stating, under penalty of perjury, the
transferor's United States taxpayer identification number and that the
transferor is not a foreign person, pursuant to Section 1445(b)(2) of the Code.
(f) The Stockholders shall not agree to settle any
Tax Liability or compromise any claim with respect to Taxes which settlement or
compromise may affect the Liability
26
<PAGE>
for Taxes hereunder (or right to Tax benefit hereunder) of the Company or
Purchaser without Purchaser's prior written consent.
4.12 EXPENSES.
(a) Except as provided below, regardless of whether
the transactions contemplated by this Agreement are consummated, the Company
shall be responsible for all expenses and fees incurred by it and by the
Stockholders in connection with the transactions contemplated hereby and
Purchaser shall be responsible for all expenses and costs incurred by it in
connection with the transactions contemplated hereby.
(b) At the Closing the Stockholders shall pay out of
the Purchase Price all Taxes, if any, relating to the transfer of the Stock to
Purchaser. The Stockholders shall file all necessary documentation and Tax
Returns required to be filed by them with respect to such Taxes.
(c) The Company and Purchaser each shall pay one-half
of the costs and fees relating to the environmental report or reports required
by Section 6.13.
(d) The Company and Purchaser shall each pay one-half
of the initial $45,000 filing fee associated with the pre-merger notifications
and reports required by the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
(e) The Company shall bear the costs and expenses
associated with delivery of the title documents described in Section 6.14.
(f) The Company and Purchaser shall each pay one-half
of the processing fees incident to the filing of the transfer of control
applications with the FCC; provided that none of the Company or any Stockholder
shall have any obligation to pay any such processing fees arising out of the
transactions contemplated by Section 4.16.
4.13 FURTHER ASSURANCES. At any time and from time to time
after the Closing, the Company and the Stockholders shall, at the request of
Purchaser, take any and all actions necessary to fulfill their respective
obligations hereunder, to put Purchaser in actual possession and control of the
Stock and execute and deliver such further instruments of conveyance, sale,
transfer and assignment, and take such other actions necessary or desirable to
effectuate, record or perfect the transfer o the Stock to Purchaser free and
clear of all Liens, to confirm the title of the Stock to Purchaser, to assist
Purchaser in exercising rights relating thereto, or to otherwise effectuate or
consummate any of the transactions contemplated hereby.
4.14 DELIVERY OF BOOKS AND RECORDS. The Company and the
Stockholders shall deliver to Purchaser at the Closing all original documents,
books and records pertaining to the Company, the Business and the Stock,
including without limitation, the original minute books and stock record books.
The Company and the Stockholders may retain copies of any of the foregoing for
their own use. Without limiting the generality of the foregoing, the Company and
the Stockholders shall deliver to Purchaser at the Closing all documents and
records relating to the Intellectual Property, including without limitation,
Certificates of Registration for all letters patent, trademarks and service
marks listed on Schedule 2.14 and all such documents relating thereto.
27
<PAGE>
4.15 FCC MATTERS.
(a) If not previously filed, then as promptly as
practical following the date of this Agreement, the Company and Purchaser or its
assignees shall prepare and file, and the Company shall cause each of the
Subsidiaries as may be required or necessary to prepare and file, with the FCC
all necessary applications for approval of the transactions contemplated in this
Agreement. In connection therewith, Purchaser or its assignees shall provide the
information requested by the FCC and take actions reasonably necessary to enable
the FCC to grant the applications including, but not limited to, authority for
KGIN-TV to operate as a satellite of KOLN-TV within the time periods
contemplated by this Agreement.
(b) The Company, each of the Stockholders and
Purchaser further covenant that from the date hereof until the Closing Date,
without the prior written consent of the Company or Purchaser, as the case may
be, neither the Company nor Purchaser shall take any action, and neither the
Company nor any of the Stockholders shall permit any of the Subsidiaries to take
any action, that is reasonably likely to adversely affect, or delay or interfere
with, obtaining the FCC Order or complying with or satisfying the terms thereof,
including without limitation, acquiring any new or increased attributable
interest, as defined in the FCC rules, in any media property, which property
could not be held (without the need for a waiver) in common control by the
Company, any of the Subsidiaries and Purchaser following the Closing Date.
4.16 COOPERATION TO EFFECT STATION EXCHANGE. Each of the
Stockholders and the Company shall use reasonable efforts to cooperate with
Purchaser to effect a tax-free, like-kind exchange of Purchaser's Albany station
with a designated purchaser of one or more of the Stations, provided that such
exchange shall not be likely to cause the Closing to occur subsequent to
September 1, 1998. Purchaser will bear all costs and expenses resulting from or
arising out of any such like-kind exchange In addition, the identification of
such purchaser, the closing of such transaction or the execution of documents
relating thereto shall not be a condition to the Closing. The provisions of this
Section will expire if Purchaser has not identified to the Stockholders such
designated purchaser and the terms of such like-kind exchange by April 15, 1998.
4.17 NAME CHANGE. Immediately following the Closing, Purchaser
shall cause the Company to take all action necessary to change its name to
delete any references to "Busse" therein.
4.18 SEVERANCE AND INCENTIVE PAYMENTS. The parties intend that
either (i) prior to the Closing, the Company will make payments to certain of
its employees or former employees pursuant to the Company's obligations to make
severance or incentive payments as a result of the transactions contemplated by
this Agreement, which payments include payments required under the Company's
Long Term Incentive Plan, the Company's Incentive Fee Plan, the Amended and
Restated Employment Agreement with Lawrence A. Busse and the Amended and
Restated Employment Agreement with James C. Ryan or (ii) the amount of such
obligations will be a reduction in the Purchase Price pursuant to Section 1.02.
Further, the Company and the Stockholders shall provide Purchaser with such
evidence as it shall reasonably require to verify that such payments were made
prior to the Closing or to verify the amount of such obligations for purposes of
calculating the Purchase Price.
4.19 HSR FILINGS. Purchaser, the Company and the Stockholders
shall, as promptly as practicable following the execution of this Agreement, and
in cooperation with each other, file with the Department of Justice and the
Federal Trade Commission the premerger notification forms and any other
documents required under the HSR Act, and each shall use its best efforts to
obtain earliest termination of all waiting periods under the HSR Act.
28
<PAGE>
4.20 FURTHER ACTIONS. Subject to the terms and conditions of
this Agreement, the Stockholders, the Company and Purchaser each agrees to use
all reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated in this Agreement and to satisfy
the conditions hereto, in each case in as prompt a manner as is reasonably
possible.
ARTICLE V .
NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES .
None of the representations or warranties made by the parties in
this Agreement and the Other Agreements shall survive the Closing hereunder.
ARTICLE VI .
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Closing Date, of each and every one of the following conditions, all
or any of which may be waived, in whole or in part, by Purchaser for purposes of
consummating such transactions, but without prejudice to any other right or
remedy which Purchaser may have hereunder as a result of any misrepresentation
by, or breach of any agreement, covenant or warranty of the Company or the
Stockholders contained in this Agreement or any Other Agreement:
6.01 REPRESENTATIONS TRUE AND COVENANTS PERFORMED AT CLOSING.
The representations and warranties made by the Company and each of the
Stockholders shall be correct and complete in all Material respects on the
Closing Date with the same force and effect as if such representations and
warranties had been made on and as of the Closing Date. The Company and each of
the Stockholders shall have each duly performed and complied in all Material
respects with all of the agreements, covenants, acts and undertakings to be
performed or complied with by it in all Material respects on or prior to the
Closing Date. The Company and each of the Stockholders shall have delivered to
Purchaser a certificate or certificates dated as of the Closing Date certifying
as to the fulfillment of the conditions of this Section 6.01. Notwithstanding
any other provision of this Agreement to the contrary, for purposes of this
Section 6.01, all Materiality qualifications contained in the representations
and warranties made by the Company and each of the Stockholders shall be
disregarded and given no effect.
6.02 INCUMBENCY CERTIFICATE. Purchaser shall have
received an appropriate incumbency certificate or certificates, dated
the Closing Date, certifying the incumbency of all officers of the
Company and the partners and agents of each Stockholder who have
executed this Agreement and the Other Agreements. The certificate or
certificates shall contain specimens of the signatures of each of the
officers, agents and partners whose incumbency is certified and shall be
executed by officers of the Company and partners of each Stockholder
other than officers and partners, respectively, whose incumbency is
certified.
6.03 CERTIFIED COPIES OF RESOLUTIONS. Purchaser shall have
received copies, certified by the duly qualified and acting Secretary or
Assistant Secretary of the Company and each corporate general partner of any
Stockholder, of resolutions adopted by the Board of Directors of the Company and
each such corporate partner of any Stockholder approving this Agreement and the
Other Agreements and the consummation of the transactions contemplated hereby
and thereby.
29
<PAGE>
6.04 OPINIONS OF COUNSEL. Purchaser shall have received (i) a
written opinion of Cadwalader, Wickersham & Taft, counsel to the Stockholders,
dated the Closing Date and substantially in the form of Exhibit 6.04(i) attached
hereto and made a part hereof by this reference, (ii) a written opinion of
Winston & Strawn, counsel to the Company and the Subsidiaries, dated the Closing
Date and substantially in form and substance reasonably satisfactory to
Purchaser and its counsel, and (iii) a written opinion of Pepper & Corazzini
L.L.P., FCC counsel to the Company and each of the Subsidiaries, dated the
Closing Date and substantially in the form of Exhibit 6.04(ii) attached hereto
and made a part hereof by this reference.
6.05 NO MATERIAL ADVERSE CHANGE. There shall not have occurred
any Material Adverse Change, or any condition or event that is reasonably likely
to cause a Material Adverse Change, with respect to the Business, the Company,
or any of the Subsidiaries, taken as a whole, or any of their respective assets
from the Balance Sheet Date. The Company and each of the Stockholders shall have
delivered to Purchaser a certificate or certificates dated as of the Closing
Date executed by the Company and each of the Stockholders certifying the
foregoing statement.
6.06 NO INJUNCTION, ETC. No Litigation, Law, Order or
legislation shall have been instituted, threatened or proposed by a Third Party
before any court or Governmental Authority to enjoin, restrain, prohibit or
obtain damages in respect of this Agreement or the consummation of the
transactions contemplated hereby, if such Litigation, Law, Order or legislation,
in the reasonable judgment of Purchaser, would make it inadvisable to consummate
the transactions contemplate hereby.
6.07 RESIGNATIONS. Purchaser shall have received a written
instrument signed by each of the directors and officers of the Company and each
of the Subsidiaries resigning from the Board of Directors and as corporate
officers of the Company and each of the Subsidiaries, as the case may be,
effective the Closing Date.
6.08 APPROVAL OF LEGAL MATTERS. All actions, proceedings,
instruments and documents reasonably deemed necessary or appropriate by
Purchaser or its attorneys to effectuate this Agreement and to consummate the
transactions contemplated hereby shall have been approved by such attorneys in
the exercise of their reasonable discretion.
6.09 FCC APPROVALS. The FCC shall have given all requisite
approvals and consents, without any condition or qualification Materially
adverse to Purchaser or its assignee, the Company or any of the Subsidiaries or
Materially adverse to the operations of the Business, to the acquisition of
control of the Company or any of the Subsidiaries by Purchaser as provided in
this Agreement (whether or not any appeal or request for reconsideration or
review is pending or the time for filing any appeal or request for
reconsideration or review, or for any sua sponte action by the FCC with similar
effect has expired), including without limitation, any Materially Adverse
Condition on Purchaser's acquisition or operation of any of the Stations. In
addition, the FCC shall have granted the renewal of the FCC Licenses of each
Station for a full eight (8) year term from the date of the expiration of the
most recent License term.
6.10 HART-SCOTT APPROVAL. All waiting periods applicable to
this Agreement and the transactions contemplated hereby under the Hart-Scott Act
shall have expired or been terminated.
6.11 ENVIRONMENTAL REPORT. Prior to the Closing, the Company
shall (i) provide to Purchaser a letter from the Nebraska Department of
Environmental Quality ("DEQ") stating that no further investigation or
remediation will be required by DEQ related to the two fuel oil underground
storage tanks formerly located at KOLN-TV, Lincoln, Nebraska and noted in
Section 4.7 of the Environmental Report
30
<PAGE>
related to KOLN-TV (the "Former USTs"), or (ii) cause, at its sole cost and
expense, Montgomery Watson or such other environmental consultant as shall be
reasonably acceptable to Purchaser (the "Environmental Consultant") to perform
an investigation, consistent with applicable state regulations (the
"Investigation"), of the area surrounding the Former USTs to determine if
contamination from the Former USTs is present. In the event actionable levels of
contamination related to the Former USTs are detected by such Investigation, the
Stockholders may, at their sole discretion, elect to cause the Company to
remediate the identified contamination in compliance with applicable state
regulations (the "Remedial Action"). In the event the Stockholders do not make
such election or the Remedial Action is not completed on or prior to the Closing
Date, then the Purchase Price shall be reduced by the amount determined by the
Environmental Consultant to be reasonably necessary to complete the Remedial
Action. The Company shall keep the Purchaser reasonably apprised of the status
of any Investigation or Remedial Action by providing the Purchaser with Material
documents and information relating to the performance of the Investigation and
Remedial Action.
Prior to the Closing, the Company shall further cause Montgomery
Watson or the Environmental Consultant to visually observe the towers located in
Beaver Crossing and Heartwell, Nebraska and provide a letter report summarizing
such observations to Purchaser and the Company. The Environmental Consultant's
costs to conduct such visual observations shall be paid equally by the
Stockholders and Purchaser. Such letter report shall state that no condition
exists with respect to the assets currently owned, leased, operated, or
controlled by the Company or any of the Subsidiaries that has resulted in, or
would reasonably be expected to result in, any violation of an Environmental
Law, any Environmental Claim, or in any Liability relating to an Environmental
Matter. Such report shall include an estimate of the total cost of remedying any
such condition reported therein. In the event such letter report indicates that
such a condition exists, the Stockholders shall remedy such condition to
Purchaser's reasonable satisfaction within ninety (90) days after the date of
the Stockholders' receipt of the final draft of the letter report. If such
condition cannot be remedied to Purchaser's reasonable satisfaction within
ninety (90) days, the Purchase Price shall be reduced by the amount determined
by Montgomery Watson or the Environmental Consultant to be reasonably necessary
to remedy such condition.
6.12 SALES AND USE TAXES. The Company shall have used its
reasonable best efforts to obtain and deliver to Purchaser an updated
certificate or certificates from the Michigan, Nebraska and Wisconsin
Departments of Revenue (or similar Taxing authorities) and from any other state
and foreign Tax authority listed on Schedule 2.03 stating that no sales or use
Taxes are due relating to the Business or the assets or operations of the
Company or any of the Subsidiaries prior to Closing.
6.13 TITLE DOCUMENTS. Purchaser shall have received an owner's
title insurance policy (or an endorsement to an existing owner's title insurance
policy) for each parcel of the Owned Real Property bringing forward the
effective date of the policy to the Closing Date subject to no additional Liens
other than Permitted Liens and reflecting no change in ownership of the Owned
Real Property. With respect to each parcel of Leased Real Property in which the
Company or any of its Subsidiaries is the lessee, except for the Kalamazoo,
Michigan leased property, Purchaser shall have received a leasehold insurance
policy insuring the Company or its Subsidiary, as the case may be, subject to no
Liens other than Permitted Liens and a current updated and revised ALTA survey.
Each of the title insurance policies described in this Section 6.13 shall
contain zoning endorsements in form and substance reasonably satisfactory to
Purchaser and shall be paid equally by the Stockholders and Purchaser. The title
insurance commitment for the owner's title insurance policy for the Owned Real
Property in Eau Claire County, Wisconsin will be endorsed to remove exception
No. 21 relating to a mortgage held by Chemical Bank so that the policy when
issued will contain no special exception for the mortgage held by Chemical Bank,
but
31
<PAGE>
will reference the estate, right, title and interest of Americus (successor
to Sage Broadcasting) and all parties claiming by, through or under Americus.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND STOCKHOLDERS
The obligations of the Company and the Stockholders to
consummate the transactions contemplated by this Agreement shall be subject to
the satisfaction, on or before the Closing Date, of each and every one of the
following conditions, all or any of which may be waived, in whole or in part, by
the Company and the Stockholders for purposes of consummating such transactions,
but without prejudice to any other right or remedy which the Company and the
Stockholders may have hereunder as a result of any misrepresentation by, or
breach of any agreement, covenant or warranty of Purchaser contained in this
Agreement or any Other Agreement:
7.01 REPRESENTATIONS TRUE AND COVENANTS PERFORMED AT CLOSING.
The representations and warranties made by Purchaser shall be correct and
complete in all Material respects on the Closing Date with the same force and
effect as if such representations and warranties had been made on and as of the
Closing Date. Purchaser shall have duly performed and complied with all of the
agreements, covenants, acts and undertakings to be performed or complied with by
it on or prior t the Closing Date. Purchaser shall have delivered to the Company
and the Stockholders a certificate dated as of the Closing Date certifying as to
the fulfillment of the conditions of this Section 7.01. Notwithstanding any
other provision of this Agreement to the contrary, for purposes of this Section
7.01, all Materiality qualifications contained in the representations and
warranties made by Purchaser shall be disregarded and given no effect.
7.02 INCUMBENCY CERTIFICATE. The Company and the Stockholders
shall have received an incumbency certificate or certificates dated the Closing
Date certifying the incumbency of all officers of Purchaser who have executed
this Agreement or documents in connection with this Agreement. The certificate
or certificates shall contain specimens of the signatures of each of the
officers whose incumbency is certified and shall be executed by an officer of
Purchaser other than an officer whose incumbency is certified.
7.03 CERTIFIED COPIES OF RESOLUTIONS. The Company and the
Stockholders shall have received copies, duly certified by the duly qualified
and acting Secretary or Assistant Secretary of Purchaser of resolutions adopted
by the Board of Directors of Purchaser approving this Agreement and the
consummation of the transactions contemplated herein.
7.04 NO INJUNCTION, ETC. No Litigation, Law, Order or
legislation shall have been instituted, threatened or proposed by a
Third Party before any court or Governmental Authority to enjoin,
restrain, prohibit or obtain damages in respect of this Agreement or the
consummation of the transactions contemplated hereby, if such
Litigation, Law, Order or legislation, in the reasonable judgment of
Purchaser, would make it inadvisable to consummate the transactions
contemplated hereby.
7.05 HART-SCOTT ACT APPROVAL. All waiting periods
applicable to this Agreement and the transactions contemplated hereby
under the Hart-Scott Act shall have expired or been terminated.
32
<PAGE>
7.06 APPROVAL OF LEGAL MATTERS. All actions, proceedings,
instruments and documents reasonably deemed necessary or appropriate by the
Stockholders or their attorneys to effectuate this Agreement and to consummate
the transactions contemplated hereby shall have been approved by such attorneys
in the exercise of their reasonable discretion.
7.07 FCC APPROVALS. The FCC shall have given all requisite
approvals and consents, without any condition or qualification Materially
adverse to Purchaser or its assignee, the Company or any of the Subsidiaries or
Materially adverse to the operations of the Business, to the acquisition of
control of the Company or any of the Subsidiaries by Purchaser as provided in
this Agreement (whether or not any appeal or request for reconsideration or
review is pending or the time for filing any appeal or request for
reconsideration or review, or for any sua sponte action by the FCC with similar
effect has expired), including without limitation, any Materially Adverse
Condition on Purchaser's acquisition or operation of any of the Stations. In
addition, the FCC shall have granted the renewal of the FCC Licenses of each
Station for a full eight (8) year term from the date of the expiration of the
most recent License term.
7.08 OPINIONS OF COUNSEL. The Stockholders shall have received
a written opinion of either Heyman & Sizemore or Alston & Bird, LLP, counsel to
Purchaser, dated the Closing Date and in form and substance reasonably
satisfactory to the Stockholders and their counsel.
ARTICLE VIII
TERMINATION
8.01 CAUSES FOR TERMINATION. This Agreement and the
transactions contemplated by this Agreement may be terminated at any time prior
to the Closing Date: (i) by the mutual consent of the Stockholders and
Purchaser; (ii) by Purchaser in the event the conditions set forth in Article VI
of this Agreement shall not have been satisfied or waived by September 1, 1998;
(iii) by the Stockholders in the event that the conditions set forth in Article
VII of this Agreement shal not have been satisfied or waived by September 1,
1998; (iv) by Purchaser pursuant to Sections 4.10 or 6.11; or (v) by Purchaser
or the Stockholders at any time if Purchaser determines in good faith that any
Material Adverse Change, or any condition or event that is reasonably likely to
cause a Material Adverse Change, with respect to the Company, any of the
Subsidiaries, their respective assets or the Business shall have occurred or
been discovered since the Balance Sheet Date.
8.02 NOTICE OF TERMINATION. Notice of termination of this
Agreement as provided for in this Article VIII shall be given by the party so
terminating to the other parties hereto in accordance with the provisions of
Section 10.01.
8.03 EFFECT OF TERMINATION. (a) In the event of a termination
of this Agreement pursuant to Section 8.01 hereof, except for the
confidentiality provisions of Section 4.04, which shall remain in full force and
effect, this Agreement shall become void and of no further force and effect, and
each party shall pay the costs and expenses incurred by it in connection with
this Agreement, and no party (or any of its agents, counsel, representatives,
Affiliates or assigns) shall be liable to any other party for any Loss
hereunder. Notwithstanding the foregoing sentence, if the non-occurrence of
Closing is the direct or indirect result of the Material Default by any of the
Stockholders or the Company of any of their or its respective obligations
hereunder, including without limitation, any Material inaccuracy in any
representation or warranty made by such party, and Purchaser has not Materially
Defaulted on any of its obligations hereunder, such Defaulting parties shall be
fully liable to Purchaser for any such Default; and if the non-occurrence of
33
<PAGE>
Closing is the direct or indirect result of the Material Default by Purchaser of
any of its obligations hereunder, and neither the Company nor any of the
Stockholders has Materially Defaulted on any of its respective obligations
hereunder, the LC shall be paid to the Stockholders as liquidated damages to
compensate the Stockholders and the Company for the damages resulting to such
parties from such Default. The parties agree that actual damages pursuant to a
breach o this Agreement prior to the Closing would be impossible to measure.
Receipt of the LC shall be the sole and exclusive remedy that the Stockholders
and the Company shall have in the event of such Default and shall constitute a
waiver of any and all other legal or equitable rights or remedies that any of
the Stockholders or the Company may otherwise have as a result of Purchaser's
Default, and that in consideration for the receipt of the LC as liquidated
damages, neither the Company nor any of the Stockholders may obtain any further
legal or equitable relief, including specific performance, to which it may
otherwise have been entitled and Purchaser shall have no further Liability to
the Company or any of the Stockholders as a result of such Default or the
non-occurrence of Closing.
(b) If the Closing does not occur due to the
nonfulfillment of any of the conditions in Article VI or for any other reason
except Purchaser's Material Default in the performance of any of its obligations
under this Agreement, neither the Company nor any of the Stockholders shall be
entitled to the LC and, promptly after the termination of this Agreement, the LC
shall be returned to Purchaser. In addition, the Company and each of the
Stockholders acknowledge that Purchaser, a its option (to be exercised in its
sole and absolute discretion), may elect to have the Agreement specifically
performed by the Company and the Stockholders in addition to receipt of the LC.
The Company and the Stockholders further acknowledge that any breach of this
Agreement by either the Company or any of the Stockholders will cause
irreparable damage and injury to Purchaser and that Purchaser will be entitled
to injunctive relief in any court of competent jurisdiction without the
necessity of posting any bond.
(c) It is agreed that time is of the essence in the
performance and satisfaction of this Agreement and each of the conditions
specified in Articles VI and VII of this Agreement are Material for purposes of
this Agreement.
8.04 RISK OF LOSS. The Stockholders assume all risk of
condemnation, destruction or Loss to the Company or any of the Subsidiaries due
to fire or other casualty from the date of this Agreement until the Closing.
ARTICLE IX
DEFINITIONS
The following terms (in their singular and plural forms as
appropriate) as used in this Agreement shall have the meanings set forth below
unless the context requires otherwise:
"ACCOUNTS RECEIVABLE" means, as of any applicable date, all
accounts receivable, notes receivable, and other monies due to the Company or
any of the Subsidiaries for sales and deliveries of goods, performance of
services and other business transactions (whether or not on the books of the
Company or any of the Subsidiaries).
"AFFILIATE" of a Person means: (i) any Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employee, agent, or representative or direct or indirect beneficial or legal
owner of any
34
<PAGE>
10% or greater equity or voting interest of such Person (other than
the limited partners of the Stockholders); (iii) any entity for which a Person
described in (ii) above acts in any such capacity.
"AGREEMENT" means this Stock Purchase Agreement, including the
Exhibits and Schedules delivered pursuant hereto or referred to herein, each of
which is incorporated herein by reference.
"BALANCE SHEET" means initially, the consolidated balance sheet
of the Company and each of the Subsidiaries as of September 28, 1997 and
included in the Financial Statements and, subsequently, when delivered to
Purchaser pursuant to Section 4.06, the consolidated audited balance sheet of
the Company and each of the Subsidiaries as of December 28, 1997 and included in
the Financial Statements.
"BALANCE SHEET DATE" means the date of the most recent Balance
Sheet.
"BOARD OF DIRECTORS" means the Board of Directors of a Person
that is a corporation.
"BUSINESS" means the Company's business conducted through the
Subsidiaries, of owning and operating (i) the television station KOLN/TV,
serving Lincoln, Nebraska, (ii) the television station KGIN-TV, serving Grand
Island, Nebraska and (iii) the television station WEAU-TV serving Eau Claire and
LaCrosse, Wisconsin.
"BUSINESS DAY" means a day other than a Saturday, a Sunday, a
day on which banking institutions in the State of Georgia are authorized or
obligated by law or required by executive order to be closed, or a day on which
the New York Stock Exchange is closed.
"CERTIFICATE OF INCORPORATION" means the certificate of
incorporation of a Person that is a corporation.
"CLOSING" means the consummation of the transactions
contemplated by this Agreement.
"CLOSING DATE" means the fifth business day after issuance of
the FCC Order as set forth in Section 4.15 and the satisfaction (or waiver) of
all of the conditions set forth in Articles VI and VII, or such other date as
the parties may agree in writing; provided that the Closing Date may be extended
to September 1, 1998 by Purchaser as necessary to effectuate the tax-free
like-kind exchange described in Section 4.16; provided, further, that the
provisions of Section 4.16 shall continue to b in effect on the date of issuance
of such FCC Order.
"CODE" means the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
"COMMITMENTS" means the owner's title insurance policy
commitments contained in Schedule 2.11.
"COMMON STOCK" means the $.01 par value per share common stock
of the Company.
"COMPUTER SOFTWARE" means all computer programs, materials,
tapes, source and object codes, and all prior and proposed versions, releases,
modifications, updates, upgrades and enhancements thereto, as well as all
documentation and listings related thereto used in the Business.
35
<PAGE>
"CONTRACT" means any written or oral contract, agreement,
understanding, lease, usufruct, license, plan, instrument, commitment,
restriction, arrangement, obligation, undertaking, practice or authorization of
any kind or character or other document to which any Person is a party or that
is binding on any Person or its securities, assets or business.
"DATABASES" means databases in all forms, versions and media,
together with prior and proposed updates, modifications and enhancements
thereto, as well as all documentation and listings therefor used in the
Business, other than Licenses.
"DEFAULT" means (1) a breach of, default under, or
misrepresentation in or with respect to any Contract or License, (2) the
occurrence of an event that with the passage of time or the giving of notice or
both would constitute a breach of, default under, or misrepresentation in any
Contract or License, or (3) the occurrence of an event that with or without the
passage of time or the giving of notice or both would give rise to a right to
terminate, change the terms of or renegotiate any Contract or License or to
accelerate, increase, or impose any Liability under any Contract or License.
"EMPLOYEE BENEFIT PLAN" means collectively, each pension,
retirement, profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, bonus or other incentive plan, any other
written or unwritten employee program, arrangement, agreement or understanding,
whether arrived at through collective bargaining or otherwise, any medical,
vision, dental or other health plan, any life insurance plan, or any other
employee benefit plan or fringe benefit plan, including, without limitation, any
"employee benefit plan," as that term is defined in Section 3(3) of ERISA
currently or previously adopted, maintained by, sponsored in whole or in part
by, or contributed to by the Company, any of the Subsidiaries or any other ERISA
Affiliate thereof or under which the Company, any of the Subsidiaries, any other
ERISA Affiliate thereof has any Liability for the benefit of employees,
retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors or other beneficiaries are eligible to
participate. "Employee Benefit Plans" also means any plans, programs,
agreements, arrangements or understandings previously maintained by, sponsored
in whole or in part by, or contributed to by the Company, any of the
Subsidiaries, or any other ERISA Affiliate thereof that could result in a
Material Liability to the Company or any of the Subsidiaries, including but not
limited to, any plan covered by or subject to Title IV of ERISA. Employee
Benefit Plans include (but are not limited to) "employee benefit plans" as
defined in Section 3(3) of ERISA and any other plan, fund, policy, program,
practice, custom, understanding or arrangement providing compensation or other
benefits to any current or former officer or employee or director or independent
contractor of the Company, any of the Subsidiaries or any dependent or
beneficiary thereof, maintained by the Company or any of the Subsidiaries or
under which the Company or any of the Subsidiaries has any obligation or
Liability, whether or not they are or are intended to be (i) covered or
qualified under the Code, ERISA or any other applicable Law, (ii) written or
oral, (iii) funding or unfunded, (iv) actual or contingent, or (v) generally
available to any or all employees (or former employees) of the Company or any of
the Subsidiaries (or their beneficiaries or dependents), including, without
limitation, all incentive, bonus, deferred compensation, flexible spending
accounts, cafeteria plans, vacation, holiday, medical, disability, share
purchase or other similar plans, policies, programs, practices or arrangements.
"ENVIRONMENTAL LAWS" means all Laws relating to pollution or
protection of the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata), including,
without limitation, the Comprehensive Environmental Response Compensation and
Liability Act, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et seq. ("RCRA"), and
other Laws relating
36
<PAGE>
to emissions, discharges, releases or threatened releases of any Hazardous
Substance, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of any Hazardous
Substance.
"ENVIRONMENTAL LITIGATION" means any Litigation against the
Company, any of the Subsidiaries, or the Business or the assets of the Company,
or any of the Subsidiaries (including, without limitation, written notice or
other written communication by any Person alleging potential Liability for
investigatory costs, cleanup costs, private or governmental response or remedial
costs, natural resources damages, property damages, personal injuries, or
penalties) arising out of, based upon, or resulting from (i) any Environmental
Matter or (ii) any circumstances or state of facts forming the basis of any
Liability or alleged Liability under, or violation or alleged violation of, any
Environmental Law.
"ENVIRONMENTAL MATTER" means any matter or circumstances related
in any manner whatsoever to (i) the emission, discharge, disposal, release or
threatened release of any Hazardous Substance into the environment, or (ii) the
transportation, treatment, storage, recycling or other handling of any Hazardous
Substance or (iii) the placement of structures or materials into waters of the
United States, by, in each case, the Company, any of the Subsidiaries or any of
their respective predecessors o (iv) the presence of any Hazardous Substance,
including, but not limited to, asbestos, in any building, structure or workplace
or on any of the Real Property.
"ENVIRONMENTAL REPORT" means collectively, the three independent
Phase I environmental site assessment reports of the Company's and its
Subsidiaries' properties and operations prepared for the Company and Purchaser
by Montgomery Watson, each dated February, 1998.
"ERISA" means Employee Retirement Income Security Act of 1974,
as amended.
"ERISA PLAN" means any Employee Benefit Plan which is an
"employee pension benefit plan," as that term is defined in Section 3(2) of
ERISA, or an "employee welfare benefit plan" as that term is defined in Section
3(1) of ERISA.
"FCC" means the Federal Communications Commission.
"FINANCIAL STATEMENTS" means (i) the consolidated audited
balance sheets of the Company and each of the Subsidiaries as of December 29,
1996 and December 31, 1995 and, when delivered to Purchaser pursuant to Section
4.06, December 28, 1997 and the related statements of income and cash flows for
the periods then ended and (ii) the consolidated unaudited balance sheets of the
Company and each of the Subsidiaries as of the end of each fiscal quarter from
December 30, 1996 through December 28, 1997 and the related statements of income
for the months then ended, and (iii) the monthly financial statements provided
to Purchaser pursuant to Section 4.06.
"GAAP" means generally accepted accounting principles as in
effect in the United States consistently applied.
"GOVERNMENTAL AUTHORITY" means any federal, state, county,
local, foreign or other governmental or public agency, instrumentality,
commission, authority, board or body.
"HART-SCOTT ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, 15 U.S.C.A. ss. 18(a), as amended, and all Laws
promulgated thereunder.
37
<PAGE>
"HAZARDOUS SUBSTANCE" means (i) any hazardous substance,
hazardous material, hazardous waste pollutants, contaminants, or toxic substance
(as those terms are defined by any applicable Environmental Laws) and (ii) any
petroleum, petroleum products, or oil.
"IMPROVEMENTS" means all buildings, structures, fixtures and
other improvements included in the Real Property.
"INTELLECTUAL PROPERTY" means, with the exception of the Option
Property, (i) patents and pending patent applications together with any and all
continuations, divisions, reissues, extensions and renewals thereof, (ii) trade
secrets, know-how, inventions, formulae and processes, whether trade secrets or
not, (iii) trade names, trademarks, service marks, logos, assumed names, brand
names and all registrations and applications therefor together with the goodwill
of the business symbolized thereby, (iv) copyrights and any registrations and
applications therefor, (v) technology rights and licenses, and (vi) Computer
Software and all other intellectual property owned by, registered in the name
of, or used in the business of a Person or in which a Person or its business has
any interest.
"INVENTORY" means all inventories of raw materials, supplies,
products, advertising materials, and other inventories.
"IRS" means the Internal Revenue Service of the United States of
America.
"KNOWLEDGE" or "KNOWN" with respect to the Company, any of the
Subsidiaries or any of the Stockholders, means collectively those facts that any
of the Company, any of the Subsidiaries, any of its officers and employees
listed on Exhibit IX hereto or Alfred C. Eckert, III, after due inquiry, knew or
reasonably should have known.
"LAW" means any code, law, order, ordinance, regulation, rule,
or statute of any Governmental Authority.
"LEASED PERSONAL PROPERTY" means all Personal Property that is
not owned by the Company or any of the Subsidiaries that the Company or any of
the Subsidiaries either uses or has the right to use.
"LEASED REAL PROPERTY" means all Real Property that is not owned
in fee simple by the Company or any of the Subsidiaries that the Company or any
of the Subsidiaries either occupies or uses or has the right to occupy or use.
"LIABILITY" means any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, expense (including, without
limitation, costs of investigation, collection and defense), claim, deficiency,
guaranty or endorsement of or by any Person (other than endorsements of notes,
bills and checks presented to banks for collection or deposit in the ordinary
course of business) of any type, whether accrued, absolute, contingent,
liquidated, unliquidated, matured, unmatured or otherwise.
"LICENSE" means any license, franchise, notice, permit,
easement, right, certificate, authorization, approval or filing with any
Governmental Authority or court to which any Person is a party or that is or may
be binding on any Person or its securities, property or business.
38
<PAGE>
"LIEN" means any mortgage, lien, security interest, pledge,
hypothecation, encumbrance, restriction, reservation, encroachment,
infringement, easement, conditional sale agreement, title retention, lease,
right of occupancy or other security arrangement, defect of title, adverse right
or interest, charge or claim of any nature whatsoever of, on, or with respect to
any property or property interest.
"LITIGATION" means any action, administrative or other
proceeding, arbitration, cause of action, claim, complaint, criminal
prosecution, inquiry, hearing, investigation (governmental or otherwise),
litigation, notice (written or oral) before any Governmental Authority or
arbitration, mediation or similar tribunal by any Person alleging potential
Liability or requesting information relating to or affecting the Company or any
of the Subsidiaries, their respective assets (including, without limitation,
Contracts relating to the Company or any of the Subsidiaries), the Business or
the transactions contemplated by this Agreement.
"LOSS" means any and all direct or indirect demands, claims,
payments, obligations, recoveries, deficiencies, fines, penalties, interest,
assessments, actions, causes of action, suits, losses, diminution in the value
of assets, damages, punitive, exemplary or consequential damages (including, but
not limited to, lost income and profits and interruptions of business),
liabilities, costs, expenses (including without limitation, (i) interest,
penalties and reasonable attorneys' fees and expenses, (ii) attorneys' fees and
expenses necessary to enforce rights to indemnification hereunder, and (iii)
consultants' fees and other costs of defense or investigation), and interest on
any amount payable to a Third Party as a result of the foregoing, whether
accrued, absolute, contingent, known, unknown, or otherwise as of the Closing
Date or thereafter.
"MATERIAL" or "MATERIALLY" shall be determined in light of the
facts and circumstances of the matter in question; provided, however, that any
specific monetary amount cited in this Agreement shall be deemed to determine
materiality in that instance.
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means any
Material adverse change in or effect on (i) the business, operations, assets,
Liabilities, financial condition or results of operations of such Person,
including, without limitation, any Material adverse change in the value of the
Company or its Subsidiaries, taken as a whole, (ii) the ability of such party to
consummate the transactions contemplated by this Agreement or any of the Other
Agreements to which it is or will be a party, or (iii) the ability of such party
to perform any of its obligations under this Agreement or any of the Other
Agreements to which it is or will be a party, if such change or effect
Materially impairs the ability of such party to perform its obligations
hereunder or thereunder, taken as a whole. If any change, condition or event
shall have an adverse effect or a reasonably likely adverse effect of less than
$1,000,000, no Material Adverse Change or Material Adverse Effect will be deemed
to have occurred. If any change, condition or event shall have an adverse effect
or a reasonably likely adverse effect of $1,000,000 or more but less than
$7,500,000, no Material Adverse Effect will be deemed to have occurred and the
Stockholders shall have the option to either (i) cure such change, condition or
event or (ii) reduce the Purchase Price by the amount of the adverse effect
caused by such change, condition or event. If any change, condition or event
shall have an adverse effect or a reasonably likely adverse effect of $7,500,000
or more, either Purchaser or the Stockholders may terminate this Agreement at
their discretion. Neither a Material Adverse Change nor a Material Adverse
Effect shall be deemed to result from an adverse change in general economic
conditions, industry conditions or general conditions in the markets in which
the Company operates. Further, notwithstanding the $1,000,000 threshold
contained in the third sentence of this definition, the Stockholders shall cause
the Company to use all reasonable efforts to promptly remedy any adverse change,
condition or event that causes or is reasonably likely to cause any of the
Company's stations to be or go off the air.
39
<PAGE>
"OPTION PROPERTY" means all of the Personal Property subject to
Lawrence A. Busse's option to purchase under that certain letter agreement dated
the date hereof, 1998 between Mr. Busse and the Company, a correct and complete
list of each item of Option Property is contained on Exhibit X.
"ORDER" means any decree, injunction, judgment, order, ruling,
writ, quasi-judicial decision or award or administrative decision or award of
any federal, state, local, foreign or other court, arbitrator, mediator,
tribunal, administrative agency or Governmental Authority to which any Person is
a party or that is or may be binding on any Person or its securities, assets or
business (including, in the case of the FCC, a public notice or other written
authorization).
"OTHER AGREEMENTS" means the agreements, documents, assignments
and instruments to be executed and delivered by the Company or the Stockholders
pursuant to this Agreement.
"OWNED REAL PROPERTY" means all Real Property other than Leased
Real Property.
"PERMITTED LIENS" means (i) Liens for current real property
Taxes not yet due and payable, (ii) non-monetary Liens that do not affect the
value or use of any parcel of Real Property, (iii) Liens related to the
Company's 11-5/8% Senior Secured Notes due 2000 referred to in Section 1.02 and
(iv) all Special Exceptions (but not General Exceptions) to title contained in
the Commitments.
"PERSON" means a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a business association,
corporation, general partnership, joint venture, limited partnership, limited
liability company, trust, or any person acting in a representative capacity.
"PERSONAL PROPERTY" means collectively and with the exception of
the Option Property all of the personal property or interests therein owned,
leased, used or controlled by the Company or any of the Subsidiaries including,
without limitation, machinery, tools, equipment (including office equipment and
supplies), furniture, furnishings, fixtures (including trade fixtures),
vehicles, leasehold improvements, all other tangible personal property other
than Inventory (which is specifically excluded from the Personal Property).
"PREFERRED STOCK" means the $.01 par value per share Series A
preferred stock of the Company.
"PUC LAWS" means public utility commission laws, rules and
regulations.
"PURCHASE PRICE" means the total consideration to be paid to the
Stockholders by Purchaser for the purchase of the Stock pursuant to this
Agreement and which shall be paid in accordance with Section 1.02 of this
Agreement.
"REAL PROPERTY" means collectively all the real property or
interests therein owned, leased, occupied, or used by the Company or any of the
Subsidiaries as of the date of this Agreement, together with (i) all rights,
easements, tenements, hereditaments, appurtenances, privileges, immunities,
mineral rights and other benefits belonging or appertaining thereto which run
with said real property and (ii) all right, title and interest, if any, of the
Company or any of the Subsidiaries in and to (A) any land lying in the bed of
any street, road, avenue, open or proposed, adjoining said real property, (B)
any award made or to be made in lieu of the land described in the preceding
clause (A), (C) any unpaid award for damage to said real property, and (D) all
strips and rights-of-way abutting or adjoining said real property, if any. The
40
<PAGE>
Real Property includes, without limitation, all buildings, structures, fixtures
and other improvements located on the land described in the preceding sentence.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration
Rights Agreement dated May 3, 1995 entered into by the Company and KOLN/KGIN,
Inc., as amended.
"RELATED PERSON" means, with regard to any natural Person, its
spouse, parent, sibling, child, aunt, uncle, niece, nephew, in-law, grandparent
and grandchild (including by adoption) and any trustees or other fiduciaries for
the benefit of such relatives.
"STOCK" means the Common Stock and the Preferred Stock.
"SUBSIDIARY" means any of WEAU License, Inc., a Delaware
corporation, KOLN/KGIN, Inc., a Delaware corporation, and KOLN/KGIN License,
Inc., a Delaware corporation.
"TAX" or "TAXES" means any federal, state, county, local,
foreign and other taxes, assessments, charges, fees, and impositions, including
interest and penalties thereon or with respect thereto, whether disputed or not,
and including Liabilities relating to unclaimed property.
"TAX RETURNS" means all returns, reports, filings, declarations
and statements relating to Taxes that are required to be filed, recorded, or
deposited with any Governmental Authority, including any attachment thereto or
amendment thereof.
"THIRD PARTY" or "THIRD PARTIES" means any Person that is not
Purchaser, the Company, the Stockholders, the Subsidiaries or an Affiliate of
any of the foregoing.
"UNDISCLOSED LIABILITIES" means any Liability that is not fully
reflected or reserved against in the Financial Statements or fully disclosed in
a Schedule to this Agreement.
ARTICLE X
MISCELLANEOUS
10.01 NOTICES.
(a) All notices, requests, demands and other
communications hereunder shall be (i) delivered by hand, (ii) mailed by
registered or certified mail, return receipt requested, first class postage
prepaid and properly addressed, (iii) sent by national overnight courier
service, or (iv) sent by facsimile, graphic scanning or other telegraphic
communications equipment to the parties or their assignees, addressed as
follows:
To the Company: Busse Broadcasting Corporation
141 East Michigan Avenue
Suite 300
Kalamazoo, Michigan 49007
Attention: Mr. Lawrence A. Busse
Telephone: (616) 388-8019
Facsimile: (616) 388-6089
41
<PAGE>
with copies to: Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601-9703
Attention: Steven J. Gavin, Esquire
Telephone: (312) 558-5600
Facsimile: (312) 558-5700
To the Stockholders: SSP, Inc.
c/o Greenwich Street Capital Partners, Inc.
388 Greenwich Street -- 36th Floor
New York, New York 10013
Attention: Mr. Alfred C. Eckert, III
Telephone: (212) 816-9506
Facsimile: (212) 816-0166
with copies to: Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attn: Jonathan M. Wainwright, Esquire
Telephone: (212) 504-6122
Facsimile: (212) 504-6666
and to: Morgan, Stanley & Co. Incorporated
1585 Broadway -- 35th Floor
New York, New York 10036
Attention: Mr. Michael F. Wyatt
Telephone: (212) 761-4000
Facsimile: (212) 761-0501
To Purchaser: Gray Communications Systems, Inc.
4370 Peachtree Road, N.E.
Atlanta, Georgia 30319-3099
Attention: Mr. Robert S. Prather, Jr.
Telephone: (404) 266-8333
Facsimile: (404) 261-9607
42
<PAGE>
<PAGE>
with copies to: Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: Stephen A. Opler, Esquire
Telephone: (404) 881-7693
Facsimile: (404) 881-4777
(b) All notices, requests, instructions or documents
given to any party in accordance with this Section 10.01 shall be deemed to have
been given (i) on the date of receipt if delivered by hand, overnight courier
service or if sent by facsimile, graphic scanning or other telegraphic
communications equipment or (ii) on the date three (3) business days after
depositing with the United States Postal Service if mailed by United States
registered or certified mail, return receipt requested, first class postage
prepaid and properly addressed.
(c) Any party hereto may change its address specified
for notices herein by designating a new address by notice in accordance with
this Section 10.01.
10.02 ENTIRE AGREEMENT. This Agreement, the Schedules, the
Exhibits and the Other Agreements constitute the entire agreement between the
parties relating to the subject matter hereof and thereof and supersede all
prior oral and written, and all contemporaneous oral negotiations, discussions,
writings and agreements relating to the subject matter of this Agreement.
10.03 MODIFICATIONS, AMENDMENTS AND WAIVERS. The failure or
delay of any party at any time or times to require performance of any provision
of this Agreement shall in no manner affect its right to enforce that provision.
No single or partial waiver by any party of any condition of this Agreement, or
the breach of any term, agreement or covenant or the inaccuracy of any
representation or warranty of this Agreement, whether by conduct or otherwise,
in any one or more instances shall be construed or deemed to be a further or
continuing waiver of any such condition, breach or inaccuracy or a waiver of any
other condition, breach or inaccuracy.
10.04 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of and be enforceable by the parties hereto,
and their respective estates, successors, legal or personal representatives,
heirs, distributees, designees and assigns, but no assignment shall relieve any
party of the obligations hereunder. This Agreement or any portion thereof cannot
be assigned by any party without the prior written consent of the other parties
hereto; provided, however, that Purchaser may assign this Agreement with the
prior written consent of the Company and the Stockholders, to an Affiliate of
Purchaser; provided, further, such assignment shall not relieve Purchaser of its
obligations hereunder. With respect to such assignments, all representations,
warranties, covenants and indemnification rights shall be binding upon, and
inure to the benefit of, the assignee or assignees as if such representations,
warranties, covenants and indemnification rights were made directly between the
original parties to this Agreement.
10.05 TABLE OF CONTENTS; CAPTIONS; REFERENCES. The table of
contents and the captions and other headings contained in this Agreement as to
the contents of particular articles, sections, paragraphs or other subdivisions
contained herein are inserted for convenience of reference only and are in no
way to be construed as part of this Agreement or as limitations on the scope of
the particular articles, sections, paragraphs or other subdivisions to which
they refer and shall not affect the interpretation or
43
<PAGE>
meaning of this Agreement. All references in this Agreement to "Section" or
"Article" shall be deemed to be references to a Section or Article of this
Agreement.
10.06 GOVERNING LAW. This Agreement shall be controlled,
construed and enforced in accordance with the substantive Laws of the State of
New York, without respect to the Laws related to choice or conflicts of Laws.
10.07 PRONOUNS. All pronouns used herein shall be deemed to
refer to the masculine, feminine or neuter gender as the context requires.
10.08 SEVERABILITY. Should any one or more of the provisions
of this Agreement be determined to be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
practicable to that of the invalid, illegal or unenforceable provisions.
10.09 REMEDIES NOT EXCLUSIVE. Except for the liquidated
damages provided for in Section 8.03(a), no remedy conferred by any of the
specific provisions of this Agreement is intended to be, nor shall be, exclusive
of any other remedy available at law, in equity or otherwise.
10.10 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original; but all of such
counterparts shall together constitute one and the same instrument.
10.11 INTERPRETATIONS. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against
Purchaser, the Company, or the Stockholders whether under any rule of
construction or otherwise. No party to this Agreement shall be considered the
draftsman. On the contrary, this Agreement has been reviewed, negotiated and
accepted by all parties and their attorneys and shall be construed and
interpreted according to the ordinary meaning of the words used so as fairly to
accomplish the purposes and intentions of all parties hereto.
10.12 EXCLUSIVE REMEDY.. The parties acknowledge and agree
that this Agreement shall provide the exclusive remedies of Purchaser, the
Stockholders, the Company and the Subsidiaries with respect to the transactions
contemplated by this Agreement. Without limiting the generality of the
foregoing, on and after the Closing, Purchaser, the Stockholders, the Company
and the Subsidiaries hereby waive any statutory, equitable or common law rights
or remedies relating to any environmental health and safety matters, including
without limitation, any such matters arising under any Environmental , Health
and Safety Requirements, the Comprehensive Environmental Response, Compensation
and Liability Act or any analogous state law.
[SIGNATURES ON FOLLOWING PAGES]
44
<PAGE>
IN WITNESS WHEREOF, the Company, each of the Stockholders and
Purchaser have duly executed this Agreement under seal as of the date first
above written.
THE COMPANY
BUSSE BROADCASTING CORPORATION
By: /s/ James C. Ryan
Name: James C. Ryan
Title: Treasurer
THE STOCKHOLDERS
SOUTH STREET CORPORATE RECOVERY FUND I, L.P.
By: SSP Advisors, L.P., its general partner
By: SSP, Inc., its general partner
By: /s/ Alfred C. Eckert III
Name: Alfred C. Eckert III
Title: President
GREYCLIFF LEVERAGED FUND 1993, L.P.
By: SSP Partners, L.P., its general partner
By: SSP, Inc., its general partner
By: /s/ Alfred C. Eckert III
Name: Alfred C. Eckert III
Title: President
SOUTH STREET LEVERAGED CORPORATE RECOVERY
FUND, L.P.
By: SSP Partners, L.P., its general partner
By: SSP, Inc., its general partner
By: /s/ Alfred C. Eckert III
Name: Alfred C. Eckert III
Title: President
45
<PAGE>
SOUTH STREET CORPORATE RECOVERY FUND I
(INTERNATIONAL) L.P.
By: Greycliff Partners, its authorized agent
By: /s/ Alfred C. Eckert III
Name: Alfred C. Eckert III
Title: Partner
PURCHASER
GRAY COMMUNICATIONS SYSTEMS, INC.
By: /s/ Robert S. Prather, Jr.
Name Robert S. Prather, Jr.
Title: Executive Vice President
46
<PAGE>
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
GRAY COMMUNICATIONS SYSTEMS INC.
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
- ------------------------------------------------------ -----------------------------------------------------
<S> <C>
The Albany Herald Publishing Co. Georgia
The Rockdale Citizen Publishing Co. Georgia
The Southwest Georgia Shopper, Inc. Georgia
WALB-TV, Inc. Georgia
WVLT-TV, Inc. Georgia
WRDW-TV, Inc. Georgia
WITN-TV, Inc Georgia
Gray Kentucky Television, Inc. Georgia
WALB Licensee Corp. Delaware
WJHG Licensee Corp. Delaware
WCTV Licensee Corp. Delaware
WVLT Licensee Corp. Delaware
WRDW Licensee Corp. Delaware
WITN Licensee Corp. Delaware
WKYT Licensee Corp. Delaware
WYMT Licensee Corp. Delaware
Gray Television Management, Inc. Delaware
KTVE, Inc. Arkansas
Porta-Phone Licensee Corp. Delaware
Gray Transportation Company, Inc. Georgia
Gray Florida Holdings, Inc. Georgia
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-84656 and Form S-8 No. 333-17773) pertaining to the
Gray Communications Systems, Inc. Capital Accumulation Plan, in the Registration
Statement (Form S-8 No. 333-15711) pertaining to the Gray Communications
Systems, Inc. 1992 Long-Term Incentive Plan and in the Registration Statement
(Form S-8 No. 333-42377) pertaining to the Gray Communications Systems, Inc.
Non-Employee Directors Stock Option Plan of our report dated January 27, 1998,
except for the Pending Acquisition of Note C, as to which the date is February
13, 1998, with respect to the consolidated financial statements and schedule of
Gray Communications Systems, Inc. included in the Annual Report (Form 10-K) for
the year ended December 31, 1997.
Ernst & Young LLP
Atlanta, Georgia
February 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1997 AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF GRAY
COMMUNICATIONS SYSTEMS INC., AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,367,300
<SECURITIES> 0
<RECEIVABLES> 20,780,316
<ALLOWANCES> 1,253,000
<INVENTORY> 846,891
<CURRENT-ASSETS> 28,691,994
<PP&E> 65,740,943
<DEPRECIATION> 23,635,256
<TOTAL-ASSETS> 345,050,627
<CURRENT-LIABILITIES> 18,602,914
<BONDS> 226,676,377
0
20,600,000
<COMMON> 65,091,957
<OTHER-SE> 6,603,191
<TOTAL-LIABILITY-AND-EQUITY> 345,050,627
<SALES> 103,547,879
<TOTAL-REVENUES> 103,547,879
<CGS> 0
<TOTAL-COSTS> 82,818,219
<OTHER-EXPENSES> 30,851
<LOSS-PROVISION> 188,000
<INTEREST-EXPENSE> 21,861,267
<INCOME-PRETAX> (1,162,458)
<INCOME-TAX> 240,000
<INCOME-CONTINUING> (1,402,458)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,402,458)
<EPS-PRIMARY> (0.36)<F1>
<EPS-DILUTED> (0.36)
<FN>
<F1>EPS-BASIC
</FN>
</TABLE>
