SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1998
[ ] 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
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GRAY COMMUNICATIONS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 52-0285030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4370 PEACHTREE ROAD, NE
ATLANTA, GA 30319
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 504-9828
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Securities registered pursuant to Section 12(b) of the Act:
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
----------------------------------------
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. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 11, 1999: CLASS A AND CLASS B COMMON STOCK; NO PAR
VALUE - $128,319,479
The number of shares outstanding of the registrant's classes of common
stock as of March 11, 1999: CLASS A COMMON STOCK; NO PAR VALUE - 6,832,042
SHARES; CLASS B COMMON STOCK, NO PAR VALUE - 5,125,465 SHARES
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<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 BUSSE-WALB TRANSACTIONS (AS HEREINAFTER DEFINED) ON JULY 31, 1998. EXCEPT
WITH RESPECT TO HISTORICAL FINANCIAL STATEMENTS AND UNLESS THE CONTEXT INDICATES
OTHERWISE, THE BUSSE-WALB TRANSACTIONS (AS HEREINAFTER DEFINED) ARE INCLUDED IN
THE DESCRIPTION OF THE COMPANY. UNLESS OTHERWISE INDICATED, THE INFORMATION
HEREIN HAS BEEN ADJUSTED TO GIVE EFFECT TO (I) A THREE FOR TWO STOCK 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 AND (II) A
THREE FOR TWO SPLIT OF THE COMPANY'S CLASS A COMMON STOCK AND THE COMPANY'S
CLASS B COMMON STOCK, NO PAR VALUE, (THE "CLASS B COMMON STOCK") EFFECTED IN THE
FORM OF A STOCK DIVIDEND DECLARED ON THE RESPECTIVE CLASS OF COMMON STOCK ON
AUGUST 20, 1998. 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 1998, AS PREPARED BY A.C. NIELSEN COMPANY
("NIELSEN").
GENERAL
The Company currently owns ten network-affiliated television stations in
nine medium-size markets in the southeastern ("Southeast") and midwestern
(`Midwest") United States. In seven of the nine markets served by the Company,
its stations are ranked number one in their respective markets and has the
second ranked station in the remaining two markets. The Company has the leading
local news operation in eight of the nine markets in which it operates. Seven 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 of WJHG-TV ("WJHG"), its NBC affiliate in
Panama City, Florida. For a discussion of the Company's plans regarding such
divestiture, see "Divestiture Requirements." The Company also owns and operates
four daily newspapers, a weekly advertising only publication ("shopper"), a
paging business and a transportable satellite uplink business, located in the
Southeast and the Midwest.
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 and certain select divestitures. Since January 1, 1994,
the Company's significant acquisitions have included nine television stations,
three newspapers, a transportable satellite uplink business and a paging
business located in the Southeast and Midwest and the divestiture of two
stations 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.
ACQUISITIONS AND DIVESTITURES
ACQUISITION OF THE GOSHEN NEWS
On March 1, 1999, the Company acquired substantially all of the assets of
THE GOSHEN NEWS from News Printing Company, Inc. and affiliates thereof, for
aggregate cash consideration of approximately $16.7 million including a
non-compete agreement. THE GOSHEN NEWS is a 17,000 circulation afternoon
newspaper published Monday through Saturday and serves Goshen, Indiana and
surrounding areas. The Company funded this acquisition through its $200.0
million bank loan agreement (the "Senior Credit Facility.")
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ACQUISITIONS AND DIVESTITURES (CONTINUED)
OPTION TO ACQUIRE INVESTMENT IN SARKES TARZIAN, INC.
On January 28, 1999, Bull Run Corporation ("Bull Run"), a principal
stockholder of the Company, acquired 301,119 shares of the outstanding common
stock of Sarkes Tarzian, Inc. ("Tarzian") from the Estate of Mary Tarzian (the
"Estate") for $10.0 million. The acquired shares (the "Tarzian Shares")
represent 33.5% of the total outstanding common stock of Tarzian (both in terms
of the number of shares of common stock outstanding and in terms of voting
rights), but such investment represents 73% of the equity of Tarzian for
purposes of dividends as well as distributions in the event of any liquidation,
dissolution or other termination of Tarzian. Tarzian has filed a complaint in
the United States District Court for the Southern District of Indiana, claiming
that it had a binding contract with the Estate to purchase the Tarzian Shares
from the Estate prior to Bull Run's purchase of the shares, and requests
judgment providing that the Estate be required to sell the Tarzian Shares to
Tarzian. Bull Run believes that a binding contract between Tarzian and the
Estate did not exist, prior to Bull Run's purchase of the Tarzian Shares from
the Estate, and in any case, Bull Run's purchase agreement with the Estate
provides that in the event that a court of competent jurisdiction awards title
to the Tarzian Shares to a person or entity other than Bull Run, the purchase
agreement is rescinded and the Estate is required to pay Bull Run the full $10.0
million purchase price, plus interest. Tarzian owns and operates two television
stations and four radio stations: WRCB-TV Channel 3 in Chattanooga, Tennessee,
an NBC affiliate; KTVN-TV Channel 2 in Reno, Nevada, a CBS affiliate; WGCL-AM
and WTTS-FM in Bloomington, Indiana; and WAJI-FM and WLDE-FM in Fort Wayne,
Indiana. The Chattanooga and Reno markets rank as the 87th and the 108th largest
television markets in the United States, respectively, as ranked by Nielsen.
The Company has executed an option agreement with Bull Run, whereby the
Company has the option of acquiring the Tarzian investment from Bull Run. Upon
exercise of the option, the Company will pay Bull Run an amount equal to Bull
Run's purchase price for the Tarzian investment and related costs. The option
agreement currently expires on May 31, 1999; however, the Company may extend the
option period at an established fee. In connection with the option agreement,
the Company granted to Bull Run warrants to purchase up to 100,000 shares of the
Company's Class B Common Stock at $13.625 per share. The warrants vest
immediately upon the Company's exercise of its option to purchase the Tarzian
investment. Neither Bull Run's investment nor the Company's potential investment
is presently attributable under the ownership rules of the FCC. If the Company
successfully exercises the option agreement, the Company plans to fund the
acquisition through its Senior Credit Facility.
BUSSE-WALB TRANSACTIONS
On July 31, 1998, the Company completed the purchase of all of the
outstanding capital stock of Busse Broadcasting Corporation ("Busse"). The
purchase price was $120.5 million less the accreted value of Busse's 11 5/8%
Senior Secured Notes due 2000 ("Busse Senior Notes"). The purchase price of the
capital stock consisted of the contractual purchase price of $112.0 million,
associated transaction costs of $2.9 million and Busse's cash and cash
equivalents of $5.6 million. Immediately following the acquisition of Busse, the
Company exercised its right to satisfy and discharge the Busse Senior Notes,
effectively prefunding the Busse Senior Notes at the October 15, 1998 call price
of 106 plus accrued interest. The amount necessary to satisfy and discharge the
Busse Senior Notes was approximately $69.9 million. Based on the preliminary
allocation of the purchase price, the excess of the purchase price over the fair
value of net tangible assets acquired was approximately $122.8 million.
Immediately prior to the Company's acquisition of Busse, Cosmos
Broadcasting Corporation acquired the assets of WEAU-TV ("WEAU") from Busse and
exchanged them for the assets of WALB-TV, Inc. ("WALB"), the Company's NBC
affiliate in Albany, Georgia. In exchange for the assets of WALB, the Company
received the assets of WEAU, which were valued at $66.0 million, and
approximately $12.0 million in cash for a total value of $78.0 million. The
Company recognized a pre-tax
3
<PAGE>
ACQUISITIONS AND DIVESTITURES (CONTINUED)
BUSSE-WALB TRANSACTIONS (CONTINUED)
gain of approximately $70.6 million and estimated deferred income taxes of
approximately $27.5 million in connection with the exchange of WALB. The Company
funded the remaining costs of the acquisition of Busse's capital stock through
its Senior Credit Facility.
As a result of these transactions, the Company added the following
television stations to its existing broadcast group: KOLN-TV("KOLN"), the CBS
affiliate serving the Lincoln-Hastings-Kearney, Nebraska market; its satellite
station KGIN-TV ("KGIN"), the CBS affiliate serving Grand Island, Nebraska; and
WEAU, a NBC affiliate serving the La Crosse-Eau Claire, Wisconsin market. These
transactions also satisfied the FCC's requirement for the Company to divest
itself of WALB. The transactions described above are referred to herein as the
"Busse-WALB Transactions."
WITN ACQUISITION
In August 1997, the Company acquired substantially all of the assets of
WITN-TV ("WITN"), a NBC affiliate serving the Greenville-New Bern-Washington,
North Carolina market (the "WITN Acquisition"). The purchase price for the WITN
Acquisition was approximately $41.7 million, including fees, expenses, and
working capital and other adjustments.
GULFLINK ACQUISITION
In April 1997, the Company acquired all of the issued and outstanding
common stock of GulfLink Communications, Inc. ("GulfLink") of Baton Rouge,
Louisiana (the "GulfLink Acquisition"). The GulfLink operations included nine
transportable satellite uplink trucks. The purchase price for the GulfLink
Acquisition approximated $5.2 million, including fees, expenses, and certain
assumed liabilities. Subsequent to the GulfLink Acquisition, certain other
satellite uplink truck operations of the Company were combined with GulfLink and
the operating name was changed to Lynqx Communications.
THE FIRST AMERICAN ACQUISITION
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. The purchase price for the
First American Acquisition was approximately $183.9 million, including fees,
expenses, and working capital and other adjustments. Subsequent to the First
American Acquisition, the Company rebranded WKXT with the call letters WVLT
("WVLT').
AUGUSTA ACQUISITION
In January 1996, the Company acquired substantially all of the assets of
WRDW-TV ("WRDW"), a CBS affiliate serving Augusta, Georgia (the "Augusta
Acquisition"). The purchase price of the Augusta Acquisition was approximately
$37.2 million, including fees, expenses, and certain assumed liabilities.
KTVE SALE
In August 1996, the Company sold the assets of KTVE Inc. ("KTVE"), its NBC
affiliate 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 to the extent collected by the buyer to be paid
4
<PAGE>
ACQUISITIONS AND DIVESTITURES (CONTINUED)
KTVE SALE (CONTINUED)
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.
PRO FORMA OPERATING RESULTS
For the year ended December 31, 1998, on a pro forma basis giving effect to
the Busse-WALB Transactions as if they had occurred on January 1, 1998, the
Company had net revenues, Media Cash Flow, as defined herein, Operating Cash
Flow (defined as Media Cash Flow less corporate expenses) and a net loss of
$133.7 million, $49.0 million, $46.0 million and $4.6 million, respectively. On
a pro forma basis giving effect to the Busse-WALB Transactions, the WITN
Acquisition and the GulfLink Acquisition as if they had occurred on January 1,
1997, the Company had net revenues, Media Cash Flow, as defined herein,
Operating Cash Flow and a net loss of $118.0 million, $44.9 million, $42.4
million and $6.6 million, respectively.
DIVESTITURE REQUIREMENTS
In connection with the First American Acquisition, the FCC ordered the
Company to divest itself of WALB in Albany, Georgia and WJHG in Panama City,
Florida to comply with regulations governing common ownership of television
stations with overlapping service areas. The Company complied with the FCC order
regarding WALB on July 31, 1998. 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 for
WJHG, conditioned upon the outcome of the rulemaking proceedings. At this time,
it can not be determined when the FCC will complete its rulemaking on this
subject.
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<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 1998 MARKET REPORT, FOURTH EDITION
NOVEMBER 1998 RATINGS PUBLISHED BY BIA PUBLICATIONS, INC. (THE "BIA GUIDE"),
EXCEPT FOR REVENUES IN WYMT-TV'S ("WYMT") 18-COUNTY TRADING AREA WHICH IS NOT
SEPARATELY REPORTED IN THE BIA GUIDE; (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 AS REPORTED BY NIELSEN FOR NOVEMBER 1998; (III) "STATION RANK IN DMA" IS
BASED ON NIELSEN ESTIMATES FOR NOVEMBER 1998 FOR THE PERIOD FROM 6 A.M. TO 2
A.M. SUNDAY THROUGH SATURDAY; (IV) AVERAGE HOUSEHOLD INCOME, EFFECTIVE BUYING
INCOME AND RETAIL BUSINESS SALES GROWTH PROJECTIONS ARE AS REPORTED IN THE BIA
GUIDE; AND (V) ESTIMATES OF POPULATION ARE AS REPORTED BY THE SEPTEMBER 1998,
NIELSEN STATION INDEX-U.S. TELEVISION HOUSEHOLD ESTIMATES PUBLISHED BY NIELSEN.
<TABLE>
<CAPTION>
Total In-Market
Commercial Station Market Share of
DMA Stations Rank Television Revenues in Households
Station Market Rank(1) in DMA(2) in DMA Households(3) DMA for 1998 Viewing TV
------- ------ ------- --------- ------ ------------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
WVLT Knoxville, TN 63 6 2 447,000 $68,000 25%
WKYT Lexington, KY 67 6 1 408,000 54,100 40
WYMT(4) Hazard, KY 67 N/A 1 167,000 5,600 30
KOLN/ Lincoln-Hastings
KGIN (5) -Kearney, NE 101 5 1 255,000 24,800 55
WITN Greenville-
New Bern-
Washington, NC 105 4 2 238,000 31,000 30
WRDW Augusta, GA 111 4 1 228,000 34,000 36
WCTV Tallahassee, FL-
Thomasville, GA 114 4 1 225,000 24,500 61
WEAU La Crosse-
Eau Claire, WI 129 4 1 179,000 25,100 39
WJHG(6) Panama City, FL 157 4 1 120,000 11,700 49
</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 1998 Nielsen
estimates.
(2) Includes independent broadcasting stations and excludes satellite stations.
(3) Based upon the approximate number of television households in the DMA as
reported by Nielsen for November 1998.
(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) KGIN is a VHF station located in Grand Island, Nebraska and is operated
primarily as a satellite station of KOLN which is located in Lincoln,
Nebraska.
(6) The Company is required to divest WJHG under current FCC regulations. For a
discussion of the Company's plan, see "Divestiture Requirements."
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TELEVISION BROADCASTING (CONTINUED)
THE COMPANY'S STATIONS AND THEIR MARKETS (CONTINUED)
The percentage of the Company's total revenues contributed by the Company's
television broadcasting segment was approximately 70.6%, 69.8% and 69.3% for
each of the years ended December 31, 1998, 1997 and 1996, respectively.
In the following description of each of the Company's stations, 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. Estimates of population have been obtained from
the September 1998 Nielsen Station Index-U.S. Television Household Estimates.
WVLT, THE CBS AFFILIATE IN KNOXVILLE, TENNESSEE
WVLT, acquired by the Company in September 1996, began operations in 1988.
Knoxville, Tennessee is the 63rd DMA in the United States, with approximately
447,000 television households and a total population of approximately 1.2
million. Total Market Revenues in the Knoxville DMA in 1998 were approximately
$68.0 million. According to the BIA Guide, the average household income in the
Knoxville DMA in 1996 was $35,651, with effective buying income projected to
grow at an annual rate of 5.4% through 2001. Retail business sales growth in the
Knoxville DMA is projected by the BIA Guide to average 6.1% annually during the
same period. The Knoxville DMA has six 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 408,000 television households and a total population of
approximately 1.1 million. Total Market Revenues in the Lexington DMA in 1998
were approximately $54.1 million. According to the BIA Guide, the average
household income in the Lexington DMA in 1996 was $33,507, with effective buying
income projected to grow at an annual rate of 4.4% through 2001. Retail business
sales growth in the Lexington DMA is projected by the BIA Guide to average 4.3%
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 39 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.
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TELEVISION BROADCASTING (CONTINUED)
WKYT, THE CBS AFFILIATE IN LEXINGTON, KENTUCKY (CONTINUED)
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.
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 167,000 television households and a
total population of approximately 452,000. 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, 1998, were approximately
$5.6 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 area 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.
KOLN\KGIN, THE CBS AFFILIATES IN LINCOLN-HASTINGS-KEARNEY, NEBRASKA
KOLN and KGIN, acquired by the Company in July 1998, began operations in
1953 and 1961, respectively. KOLN is a full power VHF television station located
in Lincoln, Nebraska. KGIN is a full power VHF television station located in
Grand Island, Nebraska and is operated primarily as a satellite station to KOLN
in order to serve the western portion of the Lincoln-Hastings-Kearney DMA.
Lincoln-Hastings-Kearney, Nebraska is the 101st largest DMA in the United
States, with approximately 255,000 television households and a total population
of approximately 660,000. Total Market Revenues in the Lincoln-Hastings-Kearney
DMA in 1998 were approximately $24.8 million. According to the BIA Guide, the
average household income in the Lincoln-Hastings-Kearney DMA in 1996 was
$38,800, with effective buying income projected to grow at an annual rate of
4.6% through 2001. Retail business sales growth in the Lincoln-Hastings-Kearney
DMA is projected by the BIA Guide to average 4.3% annually during the same
period. The Lincoln-Hastings-Kearney DMA has five licensed commercial television
stations, all of which are affiliated with major networks. The
Lincoln-Hastings-Kearney DMA also has one public television station.
MARKET DESCRIPTION. The Lincoln-Hastings-Kearney DMA consists of 51
counties covering a large portion of the western two thirds of Nebraska and the
northern tier of Kansas. The city of Lincoln is the primary economic center of
the region, the capital of Nebraska and home to the University of Nebraska. The
Lincoln-Hastings-Kearney economy centers around state government, education,
medical services and agriculture. Leading employers in the area include: the
State of Nebraska, the University of Nebraska, the Lincoln Public School System
and several area hospitals.
8
<PAGE>
TELEVISION BROADCASTING (CONTINUED)
WITN, THE NBC AFFILIATE IN GREENVILLE-NEW BERN-WASHINGTON, NORTH CAROLINA
WITN, acquired by the Company in August 1997, began operations in 1955.
Greenville-New Bern-Washington, North Carolina is the 105th largest DMA in the
United States, with approximately 238,000 television households and a total
population of approximately 678,000. Total Market Revenues in the Greenville-New
Bern-Washington DMA in 1998 were approximately $31.0 million. According to the
BIA Guide, the average household income in the Greenville-New Bern-Washington
DMA in 1996 was $36,500, with effective buying income projected to grow at an
annual rate of 4.8% through 2001. Retail business sales growth in the
Greenville-New Bern-Washington DMA is projected by the BIA Guide to average 5.2%
annually during the same period. The Greenville-New Bern-Washington DMA has four
licensed commercial television stations, all of which are affiliated with major
networks. The Greenville-New Bern-Washington DMA also has three public
television stations.
MARKET DESCRIPTION. The Greenville-New Bern-Washington 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-New Bern-Washington 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 111th largest DMA in the United States, with
approximately 228,000 television households and a total population of
approximately 639,000. Total Market Revenues in the Augusta DMA in 1998 were
approximately $34.0 million. According to the BIA Guide, the average household
income in the Augusta DMA in 1996 was $34,238, with effective buying income
projected to grow at an annual rate of 3.9% through 2001. Retail business sales
growth in the Augusta DMA is projected by the BIA Guide to average 2.9% 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 43 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 114th largest DMA in the United
States, with approximately 225,000 television households and a total population
of approximately 628,000. Total Market Revenues in the Tallahassee-Thomasville
DMA in 1998 were approximately $24.5 million. According to the BIA Guide, the
average household income in the Tallahassee, Florida-Thomasville, Georgia DMA in
1996 was $35,338, with effective buying income projected to grow at an annual
rate of 5.3% through 2001. Retail business sales growth in the Tallahassee,
Florida-Thomasville, Georgia DMA is projected by the BIA
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TELEVISION BROADCASTING (CONTINUED)
WCTV, THE CBS AFFILIATE IN TALLAHASSEE, FLORIDA-THOMASVILLE, GEORGIA (CONTINUED)
Guide to average 5.8% 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 17
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.
WEAU, THE NBC AFFILIATE IN LA CROSSE-EAU CLAIRE, WISCONSIN
WEAU, acquired by the Company in July 1998, began operations in 1953. La
Crosse-Eau Claire, Wisconsin is the 129th largest DMA in the United States, with
approximately 179,000 television households and a total population of
approximately 490,000. Total Market Revenues in the La Crosse-Eau Claire,
Wisconsin DMA in 1998 were approximately $25.1 million. According to the BIA
Guide, the average household income in the La Crosse-Eau Claire, Wisconsin DMA
in 1996 was $34,150, with effective buying income projected to grow at an annual
rate of 3.6% through 2001. Retail business sales growth in the La Crosse-Eau
Claire, Wisconsin DMA is projected by the BIA Guide to average 4.6% annually
during the same period. The La Crosse-Eau Claire, Wisconsin DMA has four
licensed commercial television stations, all of which are affiliated with major
networks. The La Crosse-Eau Claire, Wisconsin DMA also has one public television
station.
MARKET DESCRIPTION. The La Crosse-Eau Claire, Wisconsin DMA, consists of 10
counties in west central Wisconsin and 2 counties in eastern Minnesota. The La
Crosse and Eau Claire, Wisconsin economy centers around skilled industry,
medical services, agriculture, education and retail businesses. The University
of Wisconsin maintains a 10,000 student campus in Eau Claire. Leading employers
include Hutchenson Technologies, the University of Wisconsin at Eau Claire and
several area hospitals.
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
120,000 television households and a total population of approximately 324,000.
Total Market Revenues in the Panama City DMA in 1998 were approximately $11.7
million. According to the BIA Guide, the average household income in the Panama
City DMA in 1996 was $34,256, with effective buying income projected to grow at
an annual rate of 6.0% through 2001. Retail business sales growth in the Panama
City DMA is projected by the BIA Guide to average 6.2% 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
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TELEVISION BROADCASTING (CONTINUED)
WJHG, THE NBC AFFILIATE IN PANAMA CITY, FLORIDA (CONTINUED)
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. Subsequent to the GulfLink Acquisition, certain other satellite uplink
truck operations of the Company were combined with GulfLink and the operating
name was changed to Lynqx Communications.
INDUSTRY BACKGROUND
There are currently a limited number of channels available for broadcasting
in any one geographic area, and the license to operate a television station is
granted by the FCC. Television stations which broadcast over the very high
frequency ("VHF") band (channels 2-13) of the spectrum generally have some
competitive advantage over television stations which broadcast over the
ultra-high frequency ("UHF") band (channels above 13) of the spectrum, because
the former usually have better signal coverage and operate at a lower
transmission cost. However, the improvement of UHF transmitters and receivers,
the complete elimination from the marketplace of VHF-only receivers and the
expansion of cable television systems have reduced the VHF signal advantage.
Television station revenues are primarily derived from local, regional and
national advertising and, to a much lesser extent, from network compensation and
revenues from studio and tower space rental and commercial production
activities. Advertising rates are based upon a variety of factors, including a
program's popularity among the viewers an advertiser wishes to attract, the
number of advertisers competing for the available time, the size and demographic
makeup of the market served by the station and the availability of alternative
advertising media in the market area. Rates are also determined by a station's
overall ratings and in-market share, as well as the station's ratings and share
among particular demographic groups which an advertiser may be targeting.
Because broadcast stations rely on advertising revenues, they are sensitive to
cyclical changes in the economy. The size of advertisers' budgets, which are
affected by broad economic trends, affect the broadcast industry in general and
the revenues of individual broadcast television stations.
All television stations in the country are grouped by Nielsen, a national
audience measuring service, into approximately 210 generally recognized
television markets that are ranked in size according to various formulae based
upon actual or potential audience. Each DMA is an exclusive geographic area
consisting of all counties in which the home-market commercial stations receive
the greatest percentage of total viewing hours. Nielsen periodically publishes
data on estimated audiences for the television stations in the various
television markets throughout the country.
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.
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TELEVISION BROADCASTING (CONTINUED)
INDUSTRY BACKGROUND (CONTINUED)
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.
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 agreement for WJHG
renews automatically every five years unless the station notifies NBC otherwise.
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TELEVISION BROADCASTING (CONTINUED)
NETWORK AFFILIATION OF THE STATIONS (CONTINUED)
The NBC affiliation agreements with WITN and WEAU expire on June 30, 2006 and
December 31,2005, respectively and the WEAU agreement renews automatically every
five years unless the station notifies NBC otherwise. The CBS affiliation
agreements expire as follows: (i) WVLT, WKYT, WYMT and WCTV, on December 31,
2004, (ii) WRDW on March 31, 2005 and (iii) KOLN and KGIN on December 31, 2005.
NEWSPAPER PUBLISHING
At December 31, 1998, the Company owned and operated four publications
comprising three newspapers and a shopper, all located in the Southeast. The
percentage of total company revenues contributed by the newspaper publishing
segment was approximately 22.8%, 23.7% and 28.8% for each of the years ended
December 31, 1998, 1997 and 1996, 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 Albany Herald also
publishes two other weekly editions in Georgia, THE LEE COUNTY HERALD AND THE
WORTH COUNTY HERALD, which both provide regional news coverage. Other niche
publications include FARM AND PLANTATION, an agricultural paper; and a monthly
coupon clipper. 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 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.
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 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.
Effective March 1, 1998 the Gwinnett Daily Post entered into a similar agreement
with Genesis Cable Communications LLC ("Genesis") increasing paid circulation
for the GWINNETT DAILY POST to approximately 64,000.
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NEWSPAPER PUBLISHING (CONTINUED)
THE GOSHEN NEWS
The Company acquired THE GOSHEN NEWS on March 1, 1999. It is a 17,000
circulation afternoon newspaper published Monday through Saturday and serves
Goshen, Indiana and surrounding areas.
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 can result 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, Thomasville, and
Valdosta, Georgia, in Dothan, Alabama, in Tallahassee, Gainesville, Orlando and
Panama City, Florida and in certain contiguous areas. In 1998, the Company's
paging and specialized mobile radio ("SMR") business had approximately 86,000
units in service compared to approximately 67,000 units in service in 1997. The
percentage of total Company revenues contributed by the paging segment was
approximately 6.6%, 6.5% and 1.9% for each of the years ended December 31, 1998,
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
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PAGERS AND PAGING SERVICES (CONTINUED)
THE PAGING BUSINESS (CONTINUED)
focusing its marketing efforts on increasing its base of COAM users.
The Company's goal is to increase the number of pagers in service, revenues
and cash flow from operations by implementing a plan that focuses on improved
operating methods and controls and innovative marketing programs. The Company's
paging business has grown in recent years by: (i) acquiring smaller independent
paging operations; (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.
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 J 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
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COMPETITION (CONTINUED)
TELEVISION INDUSTRY (CONTINUED)
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 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.
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COMPETITION (CONTINUED)
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.
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 each station are
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FEDERAL REGULATION OF THE COMPANY'S BUSINESS (CONTINUED)
TELEVISION BROADCASTING (CONTINUED)
effective through the following dates: WVLT - August 1, 2005; WKYT - August 1,
2005; WYMT August 1, 2005; KOLN and KGIN - June 1, 2006; WITN - December 1,
2004; WRDW - April 1, 2005; WCTV - April 1, 2005; WEAU - December 1, 2005 and
WJHG - February 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 "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 1999 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
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FEDERAL REGULATION OF THE COMPANY'S BUSINESS (CONTINUED)
TELEVISION BROADCASTING (CONTINUED)
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 stockholder exception (pursuant to which
voting interests in excess of five percent are not considered cognizable if a
single majority stockholder owns more than 50% of the voting power); (iv)
whether to relax insulation standards for business development companies and
other widely-held limited partnerships; (v) how to treat limited liability
companies and other new business forms for attribution purposes; (vi) whether to
eliminate or codify the cross-interest policy; and (vii) whether to adopt a new
policy which would consider whether multiple "cross interests" or other
significant business relationships (such as time brokerage agreements, debt
relationships or holdings of nonattributable interests), which individually do
not raise 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 attributable 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.
19
<PAGE>
FEDERAL REGULATION OF THE COMPANY'S BUSINESS (CONTINUED)
TELEVISION BROADCASTING (CONTINUED)
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 (hard liquor), the rules and policies to be
applied in enforcing the FCC's equal employment opportunity regulations, cable
carriage of digital television signals, viewing of distant network signals by
direct broadcast satellite services, 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 federal appeals
court decision has cast doubt upon the continued validity of many of the FCC's
programs designed to increase minority employment in the broadcast industry.
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
20
<PAGE>
FEDERAL REGULATION OF THE COMPANY'S BUSINESS (CONTINUED)
TELEVISION BROADCASTING (CONTINUED)
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 certain "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.
DIGITAL TELEVISION SERVICE. The FCC has proposed the adoption of rules for
implementing advanced television ("DTV") service in the United States.
Implementation of digital DTV 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 DTV service rules and a table of DTV 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 DTV, 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 reconsideration and issued a new table of allotments that expands
the channels (2-51) available for permanent digital broadcasting operations.
21
<PAGE>
FEDERAL REGULATION OF THE COMPANY'S BUSINESS (CONTINUED)
TELEVISION BROADCASTING (CONTINUED)
The Telecommunications Act directs the FCC, if it issues licenses for DTV,
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. The
FCC will assign all existing television licensees a second channel on which to
provide DTV 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 DTV 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 DTV 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 DTV 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 DTV,
partially from operations or expanded channel capacity through multicasting.
Although the Company believes the FCC will authorize DTV in the United States,
The Company cannot predict precisely the overall effect the transition to DTV
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 AND SMR
FEDERAL REGULATION. The Company's paging and 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.
22
<PAGE>
FEDERAL REGULATION OF THE COMPANY'S BUSINESS (CONTINUED)
PAGING AND SMR (CONTINUED)
Pursuant to Congressional mandate, the FCC has adopted rules regarding the
award of site-by-site and market area license authorizations by competitive
bidding. Pursuant to those rules, the FCC may award licenses for new or existing
services by auction, as done with the 800 MHz and 900 MHz SMR bands, and as it
has proposed to do so with the paging services. Accordingly, there can be no
assurance that the Company will be able to procure additional spectrum, or
expand its existing paging and SMR networks into new service areas.
The winner of the geographic area license has the right to use a certain
frequency or block of frequencies throughout the licensed service area, may
construct and operate its transmitters in its authorized service area without
prior FCC approval, provided that the construction of the transmitter would not
constitute a major environmental action under the FCC rules. The market area
licensee is required, however, to protect incumbent licensees from the potential
for harmful co-channel 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. The Company was the high bidder for the Tallahassee, Florida;
Albany and Columbus, Georgia and Auburn, Alabama Economic Area Markets. The
Company has received grants of its market area licenses. The FCC has conditioned
the continued validity of these licenses on the Company meeting certain coverage
benchmarks, which the Company believes will be attained. In this regard, the
Company enterd into an asset purchase agreement with Nextel South Corporation
(Nextel) for the purchase and sale of its 800MHz geographic area licenses
covering the Tallahassee, Florida; Albany and Columbus, Georgia Economic Areas.
Prior FCC consent to the proposed transaction is required before the Company may
consumate the sale to Nextel. The Company anticipates that it will obtain the
FCC's consent to the transaction in the normal course, although it is possible a
competitor could file a protest against the transaction. In the event a protest
is filed, any grant of the FCC's consent would be delayed, or could possibly be
withheld.
With respect to its paging operations, the Company may choose 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
calendar year 1999. 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 2000. There is no assurance that
the Company will be able to successfully bid on its existing frequencies;
however, the market area licensee will be required to protect the Company and
any other incumbent licensees from the potential for harmful co-channel
interference.
EMPLOYEES
As of March 11, 1999, the Company had 1,233 full-time employees, of which
757 were employees of the Company's stations, 393 were employees of the
Company's publications, 70 were employees of the Company's paging operations and
13 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.
23
<PAGE>
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 4370 Peachtree
Road, NE, Atlanta, Georgia, 30319.
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.
TELEVISION BROADCASTING
<TABLE>
<CAPTION>
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 --
WJHG
Panama City, FL Office and studio Owned 14,000 sq. ft. --
Youngstown, FL Transmission tower site Owned 17 acres --
WVLT
Knoxville, TN Office and studio Owned 18,000 sq. ft. --
Transmission tower site Leased Tower space Month to Month
WCTV
Tallahassee, FL Office and studio Owned 20,000 sq. ft. on
Leased 37 acres Dec. 2014
Metcalf, GA Transmission tower site Leased 182 acres Nov. 1999
WEAU
Eau Claire, WI Office and studio Owned 16,116 sq. ft. of --
buildings on 2
acres
Township of Transmitter building Owned 2,304 sq. ft. --
Fairchild, WI & Transmission tower site building on 6
acres
</TABLE>
24
<PAGE>
TELEVISION BROADCASTING (CONTINUED)
<TABLE>
<CAPTION>
Station/Approximate Owned or
Property Location Use Leased Approximate Size Expiration of Lease
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KOLN
Beaver Crossing, NE Transmission tower site Owned 120 acres --
Lincoln, NE Office and studio Owned 28,044 sq. ft. --
building on 5
acres
Bradshaw, NE Transmission tower site Owned 8 acres --
KGIN
Heartwell, NE Transmission tower site Owned 71 acres --
Grand Island, NE Office and studio Leased 5,153 sq. ft. Dec. 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. 2000
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
Approximate Owned or
Property Location Use Leased Approximate Size Expiration of Lease
- --------------------------------------------------------------------------------------------------
The Albany Herald
Publishing Company,
Inc.
Albany, GA Offices, printing Owned 83,000 sq. ft. --
press and production
facility for The
Albany Herald
Publishing Company,
Inc.
The Rockdale Citizen
Publishing Company
Conyers, GA Offices for The Owned 20,000 sq. ft. --
Rockdale Citizen
Conyers, GA Offices, printing Leased 20,000 sq. ft. May 2002
press and production
facility for The
Rockdale Citizen and
the Gwinnett Daily
Post
Lawrenceville, GA Offices for the Leased 11,000 sq. ft. Nov. 1999
Gwinnett Daily Post
25
<PAGE>
PAGING
Approximate Owned or
Property Location Use Leased Approximate Size Expiration of
Lease
- --------------------------------------------------------------------------------------------------
Albany, GA Sales Office Leased 1,500 sq. ft. May 2001
Columbus, GA Sales Office Leased 1,000 sq. ft. July 2001
Macon Road #2 Sales Office Leased 1,200 sq. ft. Jan. 2001
Veterans Parkway Sales Office Leased 300 sq. ft. Month to Month
Cross Co. Sales Office Leased 1,374 sq. ft. June 2002
Lumpkin Road Sales Office Leased 2,800 sq. ft. May 2002
Dothan, AL Sales Office Leased 800 sq. ft. Feb. 2000
Macon, GA Sales Office Leased 1,260 sq. ft. July 1999
Tallahassee, FL Sales Office Leased 1,800 sq. ft. Sept. 2000
Tallahassee, FL General and Leased 2,400 sq. ft. Mar. 2002
Administrative Office
Thomasville, GA Sales Office Leased 300 sq. ft. May 2000
Valdosta, GA Sales Office Leased 800 sq. ft. Oct. 2000
Panama City, FL Sales Office Leased 1,050 sq. ft. Jan. 2001
Gainesville, FL Sales Office Leased 1,100 sq. ft. Oct. 2000
Orlando, FL Sales Office Leased 2,000 sq. ft. Apr. 2001
Melbourne, FL Sales Office Leased 960 sq. ft. Sept. 2001
Kissimmee, FL Sales Office Leased 840 sq. ft. Nov. 2001
Tampa, FL Sales Office Leased 300 sq. ft. Month to month
Lakeland, FL Sales Office Leased 300 sq. ft. Month to month
</TABLE>
The paging operations also lease space on various towers in Florida,
Georgia and Alabama. These tower leases have expiration dates ranging from 1999
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.
26
<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, no par value, (the
"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 Common Stock 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 A
Common Stock and the Class B Common Stock are as reported by the NYSE. On August
20, 1998, the Board of Directors declared a 50% stock dividend, payable on
September 30, 1998, to stockholders of record of the Class A Common Stock and
Class B Common Stock on September 16, 1998. This stock dividend effected a three
for two stock split. All applicable share and per share data have been adjusted
to give effect to the stock split.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
-------------------------------------------------------------------
CASH CASH
DIVIDENDS DIVIDENDS
DECLARED DECLARED
HIGH LOW PER SHARE HIGH LOW PER SHARE
--------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1998
First Quarter $19.67 $16.00 $0.013 $19.33 $15.75 $0.013
Second Quarter 21.75 19.33 0.013 20.58 19.00 0.013
Third Quarter 22.00 18.83 0.013 21.50 16.54 0.013
Fourth Quarter 19.00 16.63 0.020 16.63 12.50 0.020
FISCAL 1997
First Quarter $13.83 $11.75 $0.013 $13.00 $10.92 $0.013
Second Quarter 14.96 11.17 0.013 13.92 10.25 0.013
Third Quarter 17.08 13.54 0.013 17.00 12.58 0.013
Fourth Quarter 18.58 16.67 0.013 17.42 16.04 0.013
</TABLE>
As of March 11, 1999, the Company had 6,832,042 outstanding shares of Class
A Common Stock held by 1,111 stockholders and 5,125,465 outstanding shares of
Class B Common Stock held by 951 stockholders. The number of stockholders
includes stockholders 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.
27
<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, 1998, are derived
from the Audited Consolidated Financial Statements of the Company and its
subsidiaries. Also see pro forma data for the Busse-WALB Transactions, WITN
Acquisition, the GulfLink Acquisition, the First American Acquisition, the
Augusta Acquisition and the KTVE Sale in Note B to the Company's Audited
Consolidated Financial Statements included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1998(1) 1997(2) 1996 (3) 1995 (4) 1994
--------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues $128,890 $103,548 $79,305 $ 58,616 $36,518
Operating income (5) 24,927 20,730 16,079 6,860 6,276
Income (loss) from continuing operations 41,659 (1,402) 5,678 931 2,766
Income (loss) from continuing operations
available to common stockholders 40,342 (2,812) 5,302 931 2,766
Income (loss) from continuing operations
available to common stockholders
per common share (6)(7):
Basic 3.38 (0.24) 0.65 0.14 0.39
Diluted 3.25 (0.24) 0.62 0.14 0.39
Cash dividends per common share (6)(7) $ 0.06 $ 0.05 $ 0.05 $ 0.05 $ 0.05
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets $468,974 $ 345,051 $298,664 $78,240 $68,789
Long-term debt (including current
portion) 270,655 227,076 173,368 54,324 52,940
Total stockholders' equity $126,703 $ 92,295 $95,226 $ 8,986 $ 5,001
</TABLE>
(1) The financial data reflects the operating results of the Busse-WALB
Transactions, which were completed on July 31, 1998, as of their respective
acquisition dates. See Note B to the Company's Audited Consolidated
Financial Statements included elsewhere herein.
(2) 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 B to the Company's Audited
Consolidated Financial Statements included elsewhere herein.
(3) 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 and C to the Company's Audited
Consolidated Financial Statements included elsewhere herein.
(4) The financial data reflects the operating results of the acquisition of The
Gwinnett Daily Post in January 1995.
28
<PAGE>
(5) Operating income excludes gain on disposition of television stations of
$70.6 million recognized for the exchange of WALB in 1998 and $5.7 million
recognized for the sale of KTVE in 1996.
(6) On August 20, 1998, the Company's Board of Directors declared a 50% stock
dividend, payable on September 30, 1998, to stockholders of record of the
Class A Common Stock and Class B Common Stock on September 16, 1998. This
stock dividend effected a three for two stock split. All applicable share
and per share data have been adjusted to give effect to the stock split.
(7) 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.
THESE SUMMARIES SHOULD BE READ IN CONJUNCTION WITH THE RELATED CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED UNDER ITEM 8.
29
<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.
On July 31, 1998, the Company completed the purchase of all of the
outstanding capital stock of Busse Broadcasting Corporation ("Busse"). The
purchase price was $120.5 million less the accreted value of Busse's 11 5/8%
Senior Secured Notes due 2000 ("Busse Senior Notes"). The purchase price of the
capital stock consisted of the contractual purchase price of $112.0 million,
associated transaction costs of $2.9 million and Busse's cash and cash
equivalents of $5.6 million. Immediately following the acquisition of Busse, the
Company exercised its right to satisfy and discharge the Busse Senior Notes,
effectively prefunding the Busse Senior Notes at the October 15, 1998 call price
of 106 plus accrued interest. The amount necessary to satisfy and discharge the
Busse Senior Notes was approximately $69.9 million. Based on the preliminary
allocation of the purchase price, the excess of the purchase price over the fair
value of net tangible assets acquired was approximately $122.8 million.
Immediately prior to the Company's acquisition of Busse, Cosmos
Broadcasting Corporation acquired the assets of WEAU-TV ("WEAU") from Busse and
exchanged them for the assets of WALB-TV, Inc. ("WALB"), the Company's NBC
affiliate in Albany, Georgia. In exchange for the assets of WALB, the Company
received the assets of WEAU, which were valued at $66.0 million, and
approximately $12.0 million in cash for a total value of $78.0 million. The
Company recognized a pre-tax gain of approximately $70.6 million and estimated
deferred income taxes of approximately $27.5 million in connection with the
exchange of WALB. The Company funded the remaining costs of the acquisition of
Busse's capital stock through its $200.0 million bank loan agreement (the
"Senior Credit Facility"). The transactions described above are referred to
herein as the "Busse-WALB Transactions."
On August 1, 1997 the Company purchased substantially all of the assets of
WITN-TV ("WITN"), the NBC affiliate in the Greenville-New Bern-Washington, North
Carolina market (the "WITN Acquisition"). The WITN Acquisition 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 that were
assumed by the Company. On April 24, 1997, the Company purchased all of the
issued and outstanding common stock of GulfLink Communications, Inc. (the
"GulfLink Acquisition"), which is in the transportable satellite uplink
business, a business in which the Company was already engaged. The GulfLink
Acquisition 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 that were assumed by the Company. During 1998, the
Company consolidated all of its transportable satellite uplink operations under
the name Lynqx Communications, Inc.
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"). 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. Subsequent to the First
American Acquisition, the Company rebranded WKXT with the call letters WVLT
("WVLT"). On January 4, 1996, the Company purchased substantially all of the
assets of WRDW-TV (the "Augusta Acquisition"). The purchase price of
approximately $37.2 million included assumed liabilities of approximately $1.3
million. The First
30
<PAGE>
RESULTS OF OPERATIONS OF THE COMPANY (CONTINUED)
INTRODUCTION (CONTINUED)
American Acquisition and the Augusta Acquisition are collectively referred to as
the "1996 Acquisitions."
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.
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 completed
acquisitions. 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 (dollars in thousands).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996
------------------- -------------------- --------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- -------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
BROADCASTING
Revenues $91,007 70.6% $72,300 69.8% $54,981 69.3%
Operating income(1) 23,327 83.1% 19,309 82.9% 16,989 84.0%
PUBLISHING
Revenues $29,330 22.8% $24,536 23.7% $22,845 28.8%
Operating income(1) 3,579 12.8% 2,810 12.1% 3,167 15.7%
PAGING
Revenues $ 8,553 6.6% $ 6,712 6.5% $ 1,479 1.9%
Operating income(1) 1,161 4.1% 1,181 5.0% 71 0.3%
</TABLE>
(1) Represents income before miscellaneous income (expense), allocation of
corporate overhead, interest expense, income taxes and extraordinary
charge. Operating income excludes gain on disposition of television
stations of $70.6 million recognized for the exchange of WALB in 1998 and
$5.7 million recognized for the KTVE Sale in 1996.
The Company derives its revenues from its television broadcasting,
publishing and paging operations. 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.
31
<PAGE>
RESULTS OF OPERATIONS OF THE COMPANY (CONTINUED)
INTRODUCTION (CONTINUED)
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 52% of the gross revenues of the Company's
television stations for the year ended December 31, 1998, 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 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.
32
<PAGE>
RESULTS OF OPERATIONS OF THE COMPANY (CONTINUED)
INTRODUCTION (CONTINUED)
The following table sets forth certain operating data for the broadcast,
publishing and paging operations for the years ended December 31, 1998, 1997 and
1996 (in thousands).
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
----------------------------------
Operating income (1) $24,927 $20,730 $16,079
Add:
Amortization of program license rights 4,251 3,501 2,743
Depreciation and amortization 18,117 14,519 7,663
Corporate overhead 3,063 2,528 3,219
Non-cash compensation and contribution
to 401(k) plan, paid in Common Stock 476 412 1,125
Less:
Payments for program license liabilities (4,210) (3,629) (2,877)
------- ------- -------
Media Cash Flow (2) $46,624 $38,061 $27,952
======= ======= =======
(1) Operating income excludes gain on disposition of television stations of
$70.6 million recognized for the exchange of WALB in 1998 and $5.7 million
recognized for the KTVE Sale in 1996.
(2) Of Media Cash Flow, $38.4 million, $30.5 million and $22.6 million was
attributable to the Company's broadcasting operations in 1998, 1997 and
1996, respectively; $5.2 million, $4.9 million and $5.0 million was
attributable to the Company's publishing operations in 1998, 1997 and 1996,
respectively; and $3.0 million, $2.7 million and $401,000 was attributable
to the Company's paging operations in 1998, 1997 and 1996, 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 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.
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, 1998, 1997 and 1996 (in thousands).
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
--------------------------------------
Cash flows provided by (used in)
Operating activities $ 20,074 $ 9,744 $ 12,092
Investing activities (55,299) (57,498) (205,068)
Financing activities 34,744 49,071 193,467
33
<PAGE>
RESULTS OF OPERATIONS OF THE COMPANY (CONTINUED)
BROADCASTING, PUBLISHING AND PAGING REVENUES
As discussed in the INTRODUCTION, the Company exchanged the assets of WALB
for the assets of WEAU and acquired Busse which included KOLN-TV("KOLN") and
KGIN-TV ("KGIN") during 1998. The Company completed the WITN Acquisition and the
GulfLink Acquisition during 1997. WEAU, KOLN and KGIN are collectively referred
to as the "Busse Stations." 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 (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1998 1997 1996
------------------- -------------------- --------------------
AMOUNT % AMOUNT % AMOUNT %
--------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
BROADCASTING
Net Revenues:
Local $ 47,258 36.7% $ 40,486 39.1% $30,046 37.9%
National 23,824 18.5% 21,563 20.8% 15,611 19.7%
Network compensation 5,549 4.3% 4,977 4.8% 3,661 4.6%
Political 7,876 6.1% 137 0.1% 3,612 4.6%
Production and other 6,500 5.0% 5,137 5.0% 2,051 2.5%
-------- ------ -------- ------ ------- ------
$ 91,007 70.6% $ 72,300 69.8% $54,981 69.3%
======== ====== ======== ====== ======= ======
PUBLISHING
Revenues:
Retail $ 14,159 11.0% $ 11,936 11.5% $11,090 14.0%
Classifieds 9,106 7.1% 7,344 7.1% 6,150 7.8%
Circulation 5,315 4.1% 4,779 4.6% 4,271 5.4%
Other 750 0.6% 477 0.5% 1,334 1.6%
------- ----- ------- ----- ------- -----
$ 29,330 22.8% $ 24,536 23.7% $22,845 28.8%
======= ===== ======= ===== ======= =====
PAGING
Revenues:
Paging lease, sales and
service $ 8,553 6.6% $ 6,712 6.5% $ 1,479 1.9%
======== ===== ======== ===== ======= =====
TOTAL $128,890 100.0% $103,548 100.0% $79,305 100.0%
======== ===== ======== ===== ======= =====
</TABLE>
YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Total revenues for the year ended December 31, 1998 increased
$25.3 million, or 24.5%, over the same period of the prior year, from $103.5
million to $128.9 million. This increase was primarily attributable to the net
effect of (i) increased revenues resulting from the acquisition of the Busse
Stations and the WITN Acquisition, (ii) increased political revenue, (iii)
increased publishing revenues and (iv) increased paging revenues partially
offset by decreased revenues resulting from the disposition of WALB.
Broadcast net revenues increased $18.7 million, or 25.9%, over the same
period of the prior year, to $91.0 million from $72.3 million. The acquisition
of the Busse Stations and the WITN Acquisition accounted for $9.3 million and
$5.5 million of the broadcast net revenue increase, respectively. On a pro forma
basis, assuming the Busse-WALB Transactions had been effective on January 1,
1997, broadcast net revenues for the Busse Stations for the year ended December
31, 1998, increased $1.9 million, or 10.1%, over the same period of the prior
year, to $20.9 million from $19.0 million. On a pro forma basis,
34
<PAGE>
YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997 (CONTINUED)
assuming the WITN Acquisition had been effective on January 1, 1997, broadcast
net revenues for WITN for the year ended December 31, 1998 increased $939,000,
or 12.0%, over the same period of the prior year, to $8.8 million from $7.8
million. Broadcast net revenues, excluding the acquisition of the Busse
Stations, the WITN Acquisition and the GulfLink Acquisition and excluding the
operating results of WALB, increased $6.1 million, or 10.6%, over the same
period of the prior year, to $63.6 million from $57.5 million. This increase was
due primarily to an increase in political advertising revenue of $5.4 million.
The disposition of WALB resulted in a decrease in net broadcast revenue of
approximately $3.3 million.
Publishing revenues increased $4.8 million, or 19.5%, over the same period
of the prior year, to $29.3 million from $24.5 million. The increase in
publishing revenues was due primarily to an increase in retail advertising,
classified advertising, circulation and other revenue of $2.2 million, $1.8
million, $536,000 and $273,000, respectively. The increase in retail advertising
and classified advertising revenue was due primarily to linage increases.
Paging revenue increased $1.8 million or 27.4%, over the same period of the
prior year, to $8.6 million from $6.7 million. The increase was attributable
primarily to an increase in the number of pagers in service. The Company had
approximately 86,000 pagers and 67,000 pagers in service at December 31, 1998
and 1997, respectively.
OPERATING EXPENSES. Operating expenses for the year ended December 31, 1998
increased $21.1 million, or 25.5%, over the same period of the prior year, to
$104.0 million from $82.8 million, due primarily to the acquisition of the Busse
Stations, the WITN Acquisition, increased expenses at the Company's existing
television stations (exclusive of the Busse Stations and WALB) and the expense
associated with the increase in circulation at the Gwinnett Daily Post. The
acquisition of the Busse Stations, the WITN Acquisition, increased expenses at
existing television stations and the cost associated with the increase in
circulation at the Gwinnett Daily Post accounted for $4.1 million, $3.4 million,
$4.1 million and $4.1 million (exclusive of depreciation and amortization),
respectively, of the operating expense increase. The increase in operating
expenses was partially offset by the disposition of WALB which reduced operating
expenses by approximately $1.5 million.
Broadcast expenses increased $11.0 million, or 26.2%, over the year ended
December 31, 1998, to $53.0 million from $42.0 million. The acquisition of the
Busse Stations and the WITN Acquisition accounted for $4.1 million and $3.4
million of the broadcast expenses increase, respectively. On a pro forma basis,
assuming the Busse-WALB Transactions had been effective on January 1, 1997,
broadcast expenses for the Busse Stations for the year ended December 31, 1998,
increased $802,000, or 9.2%, over the same period of the prior year, to $9.5
million from $8.7 million. On a pro forma basis, assuming the WITN Acquisition
had been effective on January 1, 1997, broadcast expenses for WITN for the year
ended December 31, 1998 increased $668,000, or 14.5%, over the same period of
the prior year, to $5.3 million from $4.6 million. Broadcast expenses, excluding
the acquisition of the Busse Stations, the WITN Acquisition and the GulfLink
Acquisition and excluding the operating results of WALB, increased $4.1 million,
or 11.9%, over the same period of the prior year, to $38.6 million from $34.4
million. This increase was due primarily to an increase in payroll expense and
other expenses of $2.6 million and $1.3 million, respectively. The increase in
broadcast expenses was partially offset by the disposition of WALB which reduced
broadcast expenses by approximately $1.5 million.
Publishing expenses for the year ended December 31, 1998 increased $4.4
million, or 22.5%, from the same period of the prior year, to $24.2 million from
$19.8 million. This increase resulted primarily from an increase in the expense
associated with the increase in circulation at the Gwinnett Daily Post to
35
<PAGE>
YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997 (CONTINUED)
64,000 at December 31, 1998 from 49,000 at December 31, 1997.
Paging expenses increased $1.6 million or 38.7%, over the same period of
the prior year, to $5.6 million from $4.1 million. The increase was attributable
primarily to an increase in payroll and other costs associated with an increase
in the number of pagers in service.
Corporate and administrative expenses increased $535,000 or 21.1%, over the
same period of the prior year, to $3.1 million from $2.5 million. This increase
was primarily attributable to increased payroll expense.
DEPRECIATION AND AMORTIZATION. Depreciation of property and equipment and
amortization of intangible assets was $18.1 million for the year ended December
31, 1998, as compared to $14.5 million for the same period of the prior year, an
increase of $3.6 million, or 24.8%. This increase was primarily the result of
higher depreciation and amortization costs resulting from the WITN Acquisition
and the acquisition of the Busse Stations.
GAIN ON DISPOSITION OF TELEVISION STATIONS. The Company recognized a
pre-tax gain of approximately $70.6 million and estimated deferred income taxes
of approximately $27.5 million in connection with the exchange of WALB.
INTEREST EXPENSE. Interest expense increased $3.6 million, or 16.4%, to
$25.5 million for the year ended December 31, 1998 from $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 acquisition of the
Busse Stations and the WITN Acquisition.
INCOME TAX EXPENSE (BENEFIT). Income tax expense for the year ended
December 31, 1998 primarily reflects the provision of approximately $27.5
million of deferred income taxes recognized in conjunction with the exchange of
WALB.
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS. Net income available to
common stockholders of the Company was $40.3 million for the year ended December
31, 1998, as compared with a net loss available to common stockholders of $2.8
million for the same period of the prior year, reflecting the $43.1 million gain
net of related tax provisions on the exchange of WALB.
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,
36
<PAGE>
YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
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 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, 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 the
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
37
<PAGE>
YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
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.
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 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 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.
GAIN ON DISPOSITION OF TELEVISION STATIONS. During 1996, the Company
recognized a pre-tax gain of approximately $5.7 million as a result of the KTVE
Sale.
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 WITN Acquisition,
the GulfLink Acquisition and the First American Acquisition.
INCOME TAX EXPENSE (BENEFIT). Income tax expense for the year ended
December 31, 1996 primarily reflects the provision of approximately $2.8 million
of income taxes recognized in conjunction with the KTVE Sale.
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.
38
<PAGE>
YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS. Net loss available to
common stockholders for the Company was $2.8 million for the year ended December
31, 1997, compared with net income available to common stockholders of $2.1
million for the year ended December 31, 1996, a decrease of $4.9 million, or
231.2%.
INTEREST RATE RISK
Based on the Company's floating rate debt outstanding at December 31, 1998,
a 100 basis point increase in market rates would increase interest expense and
decrease income before income taxes by approximately $1.1 million. The amount
was determined by calculating the effect of the hypothetical interest rate on
the Company's floating rate debt.
The fair market value of long-term fixed interest rate debt is also subject
to interest rate risk. Generally, the fair market value of fixed interest rate
debt will increase as interest rates fall and decrease as interest rates rise.
The estimated fair value of the Company's total long-term fixed rate debt at
December 31, 1998 was approximately $170.4 million which exceeded its carrying
value by approximately $10.4 million. A hypothetical 100 basis point decrease in
the prevailing interest rates at December 31, 1998 would result in an increase
in fair value of total long-term debt by approximately $7.0 million. Fair market
values are determined from quoted market prices where available or based on
estimates made by the investment bankers.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $10.2 million and $10.1 million at
December 31, 1998, and 1997, respectively. The Company's cash provided from
operations was $20.1 million, $9.7 million and $12.1 million in 1998, 1997 and
1996, 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 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 Company's 10 5/8 % Senior
Subordinated Notes due 2006 contain restrictive provisions similar to the
provisions of the Senior Credit Facility. The amount borrowed by the Company and
the amount available to the Company under the Senior Credit Facility at December
31, 1998, was $109.5 million and $90.5 million, respectively.
The Company's cash used in investing activities was $55.3 million, $57.5
million and $205.1 million in 1998, 1997 and 1996, respectively. The amount of
cash used in 1998 resulted primarily from the acquisition of Busse partially
offset by the exchange of WALB. 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 Acquisitions in 1996.
The Company was provided $34.7 million, $49.1 million and $193.5 million in
cash by financing activities in 1998, 1997 and 1996, respectively. In 1998, net
cash provided by financing activities resulted primarily from borrowings on
long-term debt (net of repayments) of $43.5 million partially offset by
redemptions of preferred stock of $7.6 million. In 1997, the decrease in cash
provided by financing activities resulted primarily from the funding obtained
for the 1996 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. The cash provided in 1996 resulted
primarily from (i)
39
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
the issuance of $160.0 million principal amount of 10 5/8 % 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 1998, 1997 and 1996, the Company purchased 30,750 Class A Common
Stock Shares, 259,350 Class A Common Stock shares and 258,450 Class B Common
Stock shares, respectively. The 1998, 1997 and 1996 treasury shares were
purchased at prevailing market prices with an average effective price of $18.95,
$13.33 and $10.60 per share, respectively.
Effective July 31, 1998, the Senior Credit Facility was modified to
increase the committed credit limit of $125.0 million to $200.0 million. This
modification also allows for an additional uncommitted $100.0 million in
available credit which is in addition to the committed $200.0 million credit
limit. This $100.0 million in uncommitted available credit can be borrowed by
the Company only after approval of the bank consortium. The modification also
extended the maturity date from June 30, 2004 to June 30, 2005. The modification
required a one-time fee of approximately $750,000.
As discussed in the INTRODUCTION, on July 31, 1998, the Company completed
the Busse-WALB Transactions. These transactions resulted in a net increase in
long-term debt of approximately $43.4 million. At December 31, 1998, the Company
had approximately $109.5 million borrowed under the Senior Credit Facility with
approximately $90.5 million available under the agreement. The interest rate on
the balance outstanding was based on Prime and a spread over LIBOR of 1.75%.
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 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, 1998,
payments on program license liabilities due in 1999, which will be paid with
cash from operations, were approximately $4.6 million.
In 1998, the Company made $9.3 million in capital expenditures, relating
primarily to the broadcasting and publishing operations, and paid $4.2 million
for program broadcast rights. The Company anticipates making $10.0 million in
capital expenditures in 1999.
In connection with the First American Acquisition, the Federal
Communications Commission (the "FCC") ordered the Company to divest itself of
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 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
40
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
will complete its rulemaking on this subject. On July 31, 1998, the assets of
WALB were exchanged for the assets of WEAU. This exchange transaction satisfied
the FCC's divestiture requirement for WALB.
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,
1998, 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.
On March 1, 1999, the Company acquired substantially all of the assets of
THE GOSHEN NEWS from News Printing Company, Inc. and affiliates thereof, for
aggregate cash consideration of approximately $16.7 million including a
non-compete agreement. THE GOSHEN NEWS is a 17,000 circulation afternoon
newspaper published Monday through Saturday and serves Goshen, Indiana and
surrounding areas. The Company funded this acquisition through its Senior Credit
Facility.
On January 28, 1999, Bull Run Corporation ("Bull Run"), a principal
stockholder of the Company, acquired 301,119 shares of the outstanding common
stock of Sarkes Tarzian, Inc. ("Tarzian") from the Estate of Mary Tarzian (the
"Estate") for $10.0 million. The acquired shares (the "Tarzian Shares")
represent 33.5% of the total outstanding common stock of Tarzian (both in terms
of the number of shares of common stock outstanding and in terms of voting
rights), but such investment represents 73% of the equity of Tarzian for
purposes of dividends as well as distributions in the event of any liquidation,
dissolution or other termination of Tarzian. Tarzian has filed a complaint in
the United States District Court for the Southern District of Indiana, claiming
that it had a binding contract with the Estate to purchase the Tarzian Shares
from the Estate prior to Bull Run's purchase of the shares, and requests
judgment providing that the Estate be required to sell the Tarzian Shares to
Tarzian. Bull Run believes that a binding contract between Tarzian and the
Estate did not exist, prior to Bull Run's purchase of the Tarzian Shares from
the Estate, and in any case, Bull Run's purchase agreement with the Estate
provides that in the event that a court of competent jurisdiction awards title
to the Tarzian Shares to a person or entity other than Bull Run, the purchase
agreement is rescinded and the Estate is required to pay Bull Run the full $10.0
million purchase price, plus interest. Tarzian owns and operates two television
stations and four radio stations: WRCB-TV Channel 3 in Chattanooga, Tennessee,
an NBC affiliate; KTVN-TV Channel 2 in Reno, Nevada, a CBS affiliate; WGCL-AM
and WTTS-FM in Bloomington, Indiana; and WAJI-FM and WLDE-FM in Fort Wayne,
Indiana. The Chattanooga and Reno markets rank as the 87th and the 108th largest
television markets in the United States, respectively, as ranked by A. C.
Nielsen Company.
The Company has executed an option agreement with Bull Run, whereby the
Company has the option of acquiring the Tarzian investment from Bull Run. Upon
exercise of the option, the Company will pay Bull Run an amount equal to Bull
Run's purchase price for the Tarzian investment and related costs. The option
agreement currently expires on May 31, 1999; however, the Company may extend the
option period at an established fee. In connection with the option agreement,
the Company granted to Bull Run warrants to purchase up to 100,000 shares of the
Company's Class B Common Stock at $13.625 per share. The warrants vest
immediately upon the Company's exercise of its option to purchase the Tarzian
investment. Neither Bull Run's investment nor the Company's potential investment
is presently attributable under the ownership rules of the FCC. If the Company
successfully exercises the option agreement, the Company plans to fund the
acquisition through its Senior Credit Facility.
41
<PAGE>
YEAR 2000 ISSUE
The problems created by systems that are unable to interpret dates
accurately after December 31, 1999 is referred to as the "Year 2000 Issue." Many
software programs have historically categorized the "year" in a two-digit format
rather than a four-digit format. As a result, those computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. The Year 2000 Issue creates potential risks for the Company,
including potential problems in the Company's Information Technology ("IT") and
non-IT systems. The Year 2000 Issue could cause a system failure,
miscalculations or disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices, or engage in similar
normal business activities. The Company may also be exposed to risks from third
parties who fail to adequately address their own Year 2000 Issue.
The Company has implemented a multiphase program designed to address the
Year 2000 Issue. Each phase of this program and its state of completion is
described below:
ASSESSMENT: This phase of the program includes the identification of the
Company's IT and non-IT systems. After these systems have been
identified, they are evaluated to determine whether they will correctly
recognize dates after December 31, 1999 ("Year 2000 Compliant"). If it
is determined that they are not Year 2000 Compliant, they are replaced
or modified in the REMEDIATION phase of the program. The majority of the
Company's systems are non-proprietary. The Company is in the process of
obtaining from each system vendor a written or oral representation as to
each significant system's status of compliance. The Company has
commenced an ongoing process of contacting suppliers and other key third
parties to assess their Year 2000 Compliance status. It appears that all
of these third parties are currently Year 2000 Compliant or they plan to
be Year 2000 Compliant prior to December 31, 1999. This phase is
substantially complete and the Company has identified the majority of
the systems that need to be replaced.
REMEDIATION: For those systems which are not Year 2000 Compliant, a plan
is derived to make the systems Year 2000 Compliant. These solutions have
included modification or replacement of existing systems. The
REMEDIATION phase is approximately 50% complete.
TESTING: Test remediated systems to assure normal function when placed
in their original operating environment and further test for Year 2000
Compliance. The TESTING phase of the program is approximately 25%
complete and the Company anticipates that it will be completed by
September 30, 1999.
CONTINGENCY: As a result of the Company's Year 2000 Compliance program,
the Company does not believe that it has significant risk resulting from
this issue. However, the Company is in the process of developing
contingency plans for the possibility that one of its systems or one of
a third party's systems may not be Year 2000 Compliant. The Company
believes that the most reasonable likely worst case scenario is a
temporary loss of functionality at one or more of the Company's
operating units. In the unlikely event that this were to occur, the
Company would experience decreased revenue and slightly higher operating
costs at the affected location. However, due to the decentralized nature
of the Company's operations, it is not likely that all locations would
be affected by a single non-functioning system.
The Company does not presently believe that the estimated total Year 2000
project cost will exceed $750,000. Most of this cost will be realized over the
estimated useful lives of the new hardware and
42
<PAGE>
YEAR 2000 ISSUE (CONTINUED)
software; however, any third party consulting fees would be expensed in the
period the services are rendered. To date, the Company has identified several
minor systems that are not Year 2000 Compliant and these systems are in the
process of being replaced. However, the Company has not incurred significant
expenses associated with the Year 2000 Issue. As of December 31, 1998, no IT
projects have been deferred due to the Company's efforts related to the Year
2000 Issue.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
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 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Response to this item is included in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
43
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Consolidated Financial Statements of Gray Communications Systems, Inc.
Report of Independent Auditors ...................................................45
Consolidated Balance Sheets at December 31, 1998 and 1997 .......................46
Consolidated Statements of Operations for the years ended December 31, 1998,
1997 and 1996 ...............................................................48
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1998, 1997 and 1996 ...........................................................49
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996 ..................................................................51
Notes to Consolidated Financial Statements .......................................52
</TABLE>
44
<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, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Gray
Communications Systems, Inc., at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
Atlanta, Georgia
January 26, 1999
45
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
--------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,886,723 $ 2,367,300
Trade accounts receivable, less allowance for doubtful
accounts of $1,212,000 and $1,253,000, respectively 22,859,119 19,527,316
Recoverable income taxes 1,725,535 2,132,284
Inventories 1,191,284 846,891
Current portion of program broadcast rights 3,226,359 2,850,023
Other current assets 741,007 968,180
-------------- --------------
Total current assets 31,630,027 28,691,994
Property and equipment (NOTES B AND C):
Land 2,196,021 889,696
Buildings and improvements 12,812,112 11,951,700
Equipment 65,226,835 52,899,547
-------------- --------------
80,234,968 65,740,943
Allowance for depreciation (28,463,460) (23,635,256)
-------------- --------------
51,771,508 42,105,687
Other assets:
Deferred loan costs (NOTE C) 8,235,432 8,521,356
Goodwill and other intangibles (NOTE B) 376,014,972 263,425,447
Other 1,322,483 2,306,143
-------------- --------------
385,572,887 274,252,946
-------------- --------------
$468,974,422 $345,050,627
============== ==============
</TABLE>
46
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
--------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable (includes $880,000 and $850,000
payable to Bull Run Corporation, respectively) $ 2,540,770 $ 3,321,903
Employee compensation and benefits 5,195,777 3,239,694
Accrued expenses 1,903,226 2,265,725
Accrued interest 5,608,134 4,533,366
Current portion of program broadcast obligations 3,070,598 2,876,060
Deferred revenue 2,632,564 1,966,166
Current portion of long-term debt 430,000 400,000
-------------- --------------
Total current liabilities 21,381,069 18,602,914
Long-term debt (NOTES B AND C) 270,225,255 226,676,377
Other long-term liabilities:
Program broadcast obligations, less current portion 735,594 617,107
Supplemental employee benefits (NOTE D) 1,128,204 1,161,218
Deferred income taxes (NOTE G) 44,147,642 1,203,847
Other acquisition related liabilities (NOTE B) 4,653,788 4,494,016
-------------- --------------
50,665,228 7,476,188
Commitments and contingencies (NOTES B, C AND I)
Stockholders' equity (NOTES B, C AND E)
Serial Preferred Stock, no par value; authorized
20,000,000 shares; issued and outstanding 1,350 and
2,060 shares, respectively ($13,500,000 and $20,600,000
aggregate liquidation value, respectively) 13,500,000 20,600,000
Class A Common Stock, no par value; authorized 15,000,000
shares; issued 7,961,574 shares, respectively 10,683,709 10,358,031
Class B Common Stock, no par value; authorized 15,000,000
shares; issued 5,273,046 shares, respectively 66,792,385 66,397,804
Retained earnings 45,737,601 6,603,191
-------------- --------------
136,713,695 103,959,026
Treasury Stock at cost, Class A Common, 1,129,532 and
1,172,882 shares, respectively (8,578,682) (9,011,369)
Treasury Stock at cost, Class B Common, 135,080 and 250,185
shares, respectively (1,432,143) (2,652,509)
-------------- --------------
126,702,870 92,295,148
-------------- --------------
$468,974,422 $345,050,627
============== ==============
</TABLE>
See accompanying notes.
47
<PAGE>
GRAY COMMUNCIATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
---------------------------- --------------
<S> <C> <C> <C>
Operating revenues:
Broadcasting (less agency commissions) $ 91,006,506 $ 72,300,105 $54,981,317
Publishing 29,330,080 24,536,348 22,845,274
Paging 8,552,936 6,711,426 1,478,608
------------ ------------ -----------
128,889,522 103,547,879 79,305,199
Expenses:
Broadcasting 52,967,142 41,966,493 32,438,405
Publishing 24,197,169 19,753,387 17,949,064
Paging 5,618,421 4,051,359 1,077,667
Corporate and administrative 3,062,995 2,528,461 3,218,610
Depreciation 9,690,757 7,800,217 4,077,696
Amortization of intangible assets 8,425,821 6,718,302 3,584,845
Non-cash compensation paid in common stock
(NOTE D) -0- -0- 880,000
------------ ------------ -----------
103,962,305 82,818,219 63,226,287
------------ ------------ -----------
24,927,217 20,729,660 16,078,912
Gain on disposition of television stations (net of
$780,000 paid to Bull Run Corporation in 1998)
(NOTE B) 70,572,128 -0- 5,671,323
Miscellaneous income and (expense), net (241,522) (30,851) 33,259
------------ ------------ -----------
95,257,823 20,698,809 21,783,494
Interest expense 25,454,476 21,861,267 11,689,053
------------ ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY CHARGE 69,803,347 (1,162,458) 10,094,441
Federal and state income taxes (NOTE G) 28,143,981 240,000 4,416,000
------------ ------------ -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY CHARGE 41,659,366 (1,402,458) 5,678,441
Extraordinary charge on extinguishment of debt, net
of applicable income tax benefit of $2,157,000
(NOTE C) -0- -0- 3,158,960
------------ ------------ -----------
NET INCOME (LOSS) 41,659,366 (1,402,458) 2,519,481
Preferred dividends (NOTE E) 1,317,830 1,409,690 376,849
------------ ------------ -----------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $40,341,536 (2,812,148) $2,142,632
=========== ========== ==========
Average outstanding common shares-basic 11,922,852 11,852,546 8,097,654
Stock compensation awards 481,443 -0- 340,668
------------ ------------ -----------
Average outstanding common shares-diluted 12,404,295 11,852,546 8,438,322
=========== ========== ==========
Basic earnings per common share:
Income (loss) before extraordinary charge
available to common stockholders $ 3.38 (0.24) $ 0.65
Extraordinary charge -0- -0- (0.39)
------------ ------------ -----------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ 3.38 $ (0.24) $ 0.26
=========== ========== ==========
Diluted earnings per common share:
Income (loss) before extraordinary charge
available to common stockholders $ 3.25 (0.24) $ 0.62
Extraordinary charge -0- -0- (0.37)
------------ ------------ -----------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ 3.25 $ (0.24) $ 0.25
=========== ========== ==========
</TABLE>
See accompanying notes.
48
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT EARNINGS
---------------------------------------------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 -0- $ -0- 7,624,134 $ 6,795,976 -0- $ -0- $ 8,827,906
Net Income -0- -0- -0- -0- -0- -0- 2,519,481
Common Stock Cash Dividends:
Class A ($0.05 per share) -0- -0- -0- -0- -0- -0- (357,598)
Class B ($0.01 per share) -0- -0- -0- -0- -0- -0- (69,000)
Purchase of Class B Common Stock
(NOTE E) -0- -0- -0- -0- -0- -0- -0-
Issuance of Class A Common Stock
(NOTES E, F AND H):
401(k) Plan -0- -0- 19,837 262,426 -0- -0- -0-
Directors' Stock Plan -0- -0- 33,750 228,749 -0- -0- -0-
Non-qualified Stock Plan -0- -0- 55,275 358,417 -0- -0- -0-
Preferred Stock Dividends -0- -0- -0- -0- -0- -0- (376,849)
Issuance of Class A Common Stock
Warrants (NOTES B AND E) -0- -0- -0- 2,600,000 -0- -0- -0-
Issuance of Series A Preferred Stock in
exchange for Subordinated Note
(NOTES B AND E) 1,000 10,000,000 -0- (2,383,333) -0- -0- -0-
Issuance of Series B Preferred Stock
(NOTES B AND E) 1,000 10,000,000 -0- -0- -0- -0- -0-
Issuance of Class B Common Stock, net
of expenses (NOTES B AND E) -0- -0- -0- -0- 5,250,000 66,065,762 -0-
Income tax benefits relating to stock
plans -0- -0- -0- 132,000 -0- -0- -0-
---------------------------------------------------- ----------- ------------- -------------
Balance at December 31, 1996 2,000 20,000,000 7,732,996 7,994,235 5,250,000 66,065,762 10,543,940
Net Loss -0- -0- -0- -0- -0- -0- (1,402,458)
Common Stock Cash Dividends
($0.05) per share -0- -0- -0- -0- -0- -0- (628,045)
Preferred Stock Dividends -0- -0- -0- -0- -0- -0- (1,409,690)
Issuance of Class A Common Stock
(NOTES E AND F):
Directors' Stock Plan -0- -0- 752 9,645 -0- -0- -0-
Non-qualified Stock Plan -0- -0- 44,775 317,151 -0- -0- -0-
Stock Award Restricted Stock Plan -0- -0- 183,051 1,200,000 -0- -0- -0-
Issuance of Class B Common Stock
(NOTES E AND H):
401(k) Plan -0- -0- -0- -0- 23,046 282,384 -0-
Issuance of Series B Preferred Stock
(NOTE E) 60 600,000 -0- -0- -0- -0- -0-
Issuance of Treasury Stock
(NOTES E, F, AND H):
401(k) Plan -0- -0- -0- -0- -0- 49,658 -0-
Non-qualified Stock Plan -0- -0- -0- -0- -0- -0- (500,556)
Purchase of Class A Common Stock
(NOTE E) -0- -0- -0- -0- -0- -0- -0-
Income tax benefits relating to stock
plans -0- -0- -0- 837,000 -0- -0- -0-
---------------------------------------------------- ----------- ------------- -------------
Balance at December 31, 1997 2,060 $20,600,000 7,961,574 $10,358,031 5,273,046 $66,397,804 $ 6,603,191
<CAPTION>
CLASS A CLASS B
TREASURY STOCK TREASURY STOCK
SHARES AMOUNT SHARES AMOUNT TOTAL
------------ ------------------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 (994,770) $(6,638,284) -0- $ -0- $8,985,598
Net Income -0- -0- -0- -0- 2,519,481
Common Stock Cash Dividends:
Class A ($0.05 per share) -0- -0- -0- -0- (357,598)
Class B ($0.01 per share) -0- -0- -0- -0- (69,000)
Purchase of Class B Common Stock
(NOTE E) -0- -0- (258,450) (2,740,137) (2,740,137)
Issuance of Class A Common Stock
(NOTES E, F AND H):
401(k) Plan -0- -0- -0- -0- 262,426
Directors' Stock Plan -0- -0- -0- -0- 228,749
Non-qualified Stock Plan -0- -0- -0- -0- 358,417
Preferred Stock Dividends -0- -0- -0- -0- (376,849)
Issuance of Class A Common Stock
Warrants (NOTES B AND E) -0- -0- -0- -0- 2,600,000
Issuance of Series A Preferred Stock in
exchange for Subordinated Note
(NOTES B AND E) -0- -0- -0- -0- 7,616,667
Issuance of Series B Preferred Stock
(NOTES B AND E) -0- -0- -0- -0- 10,000,000
Issuance of Class B Common Stock, net
of expenses (NOTES B AND E) -0- -0- -0- -0- 66,065,762
Income tax benefits relating to stock
plans -0- -0- -0- -0- 132,000
------------ ------------------------- ------------- ---------------
Balance at December 31, 1996 (994,770) (6,638,284) (258,450) (2,740,137) 95,225,516
Net Loss -0- -0- -0- -0- (1,402,458)
Common Stock Cash Dividends
($0.05) per share -0- -0- -0- -0- (628,045)
Preferred Stock Dividends -0- -0- -0- -0- (1,409,690)
Issuance of Class A Common Stock
(NOTES E AND F):
Directors' Stock Plan -0- -0- -0- -0- 9,645
Non-qualified Stock Plan -0- -0- -0- -0- 317,151
Stock Award Restricted Stock Plan -0- -0- -0- -0- 1,200,000
Issuance of Class B Common Stock
(NOTES E AND H):
401(k) Plan -0- -0- -0- -0- 282,384
Issuance of Series B Preferred Stock
(NOTE E) -0- -0- -0- -0- 600,000
Issuance of Treasury Stock
(NOTES E, F, AND H):
401(k) Plan -0- -0- 8,265 87,628 137,286
Non-qualified Stock Plan 81,238 1,082,390 -0- -0- 581,834
Purchase of Class A Common Stock
(NOTE E) (259,350) (3,455,475) -0- -0- (3,455,475)
Income tax benefits relating to stock
plans -0- -0- -0- -0- 837,000
------------ ------------- ----------- ------------- ---------------
Balance at December 31, 1997 (1,172,882) $(9,011,369) (250,185) $(2,652,509) $92,295,148
</TABLE>
See accompanying notes.
49
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK RETAINED
--------------------------- -------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT EARNINGS
--------------------------- -------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 2,060 $20,600,000 7,961,574 $10,358,031 5,273,046 $66,397,804 $6,603,191
Net Income -0- -0- -0- -0- -0- -0- 41,659,366
Common Stock Cash Dividends
($0.06) per share -0- -0- -0- -0- -0- -0- (715,209)
Preferred Stock Dividends -0- -0- -0- -0- -0- -0- (1,317,830)
Issuance of Treasury Stock
(NOTES E, F, AND H):
401(k) Plan -0- -0- -0- -0- -0- 180,821 -0-
Directors' Stock Plan -0- -0- -0- -0- -0- 30,652 -0-
Non-qualified Stock Plan -0- -0- -0- -0- -0- 9,597 (491,917)
Purchase of Class A Common Stock
(NOTE E) -0- -0- -0- -0- -0- -0- -0-
Issuance of Series B Preferred Stock
(NOTE E) 51 509,384 -0- -0- -0- -0- -0-
Purchase of Series B Preferred Stock
(NOTE E) (761) (7,609,384) -0- -0- -0- -0- -0-
Income tax benefits relating to stock
plans -0- -0- -0- 325,678 -0- 173,511 -0-
--------------------------- -------------------------- ---------------------------------------
Balance at December 31, 1998 1,350 $13,500,000 7,961,574 $10,683,709 5,273,046 $66,792,385 $45,737,601
=========================== ========================== =======================================
<CAPTION>
CLASS A CLASS B
TREASURY STOCK TREASURY STOCK
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT TOTAL
--------------------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 (1,172,882) $(9,011,369) (250,185) $(2,652,509) $92,295,148
Net Income -0- -0- -0- -0- 41,659,366
Common Stock Cash Dividends
($0.06) per share -0- -0- -0- -0- (715,209)
Preferred Stock Dividends -0- -0- -0- -0- (1,317,830)
Issuance of Treasury Stock
(NOTES E, F, AND H):
401(k) Plan -0- -0- 29,305 310,703 491,524
Directors' Stock Plan -0- -0- 84,300 893,763 924,415
Non-qualified Stock Plan 74,100 1,015,254 1,500 15,900 548,834
Purchase of Class A Common Stock
(NOTE E) (30,750) (582,567) -0- -0- (582,567)
Issuance of Series B Preferred Stock
(NOTE E) -0- -0- -0- -0- 509,384
Purchase of Series B Preferred Stock
(NOTE E) -0- -0- -0- -0- (7,609,384)
Income tax benefits relating to stock -0- -0-
plans -0- -0- 499,189
--------------------------- ----------- ------------- ---------------
Balance at December 31, 1998 (1,129,532) $(8,578,682) (135,080) $(1,432,143) $126,702,870
=========================== =========== ============= ===============
</TABLE>
See accompanying notes.
50
<PAGE>
GRAY COMMUNCIATIONS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
--------------- ------------------ -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 41,659,366 $ (1,402,458) $ 2,519,481
Items which did not use (provide) cash:
Depreciation 9,690,757 7,800,217 4,077,696
Amortization of intangible assets 8,425,821 6,718,302 3,584,845
Amortization of deferred loan costs 1,097,952 1,083,303 270,813
Amortization of program broadcast rights 4,250,714 3,501,330 2,742,712
Amortization of original issue discount on 8% subordinated note -0- -0- 216,667
Write-off of loan acquisition costs from early extinguishment of debt -0- -0- 1,818,840
Gain on disposition of television stations (70,572,128) -0- (5,671,323)
Payments for program broadcast rights (4,209,811) (3,629,350) (2,877,128)
Compensation paid in Common Stock -0- -0- 880,000
Supplemental employee benefits (252,611) (196,057) (855,410)
Common Stock contributed to 401(K) Plan 491,524 419,670 262,426
Deferred income taxes 26,792,795 1,283,000 (44,000)
Loss on asset sales 332,042 108,998 201,792
Changes in operating assets and liabilities:
Trade accounts receivable (302,905) (369,675) (1,575,723)
Recoverable income taxes 406,749 (384,597) (400,680)
Inventories (344,393) (101,077) 254,952
Other current assets 342,674 (569,745) (21,248)
Trade accounts payable (797,447) (2,825,099) 2,256,795
Employee compensation and benefits 1,283,150 (2,848,092) 2,882,379
Accrued expenses 79,644 1,279,164 (2,936,155)
Accrued interest 1,074,768 (325,409) 3,794,284
Deferred revenue 625,149 201,657 710,286
--------------- ------------------ -----------------
Net cash provided by operating activities 20,073,810 9,744,082 12,092,301
INVESTING ACTIVITIES
Acquisition of television businesses (122,455,774) (45,644,942) (210,944,547)
Disposition of television business 76,440,419 -0- 9,480,699
Purchases of property and equipment (9,270,623) (10,371,734) (3,395,635)
Proceeds from asset sales 318,697 24,885 174,401
Deferred acquisition costs -0- (89,056) -0-
Payments on purchase liabilities (551,917) (764,658) (243,985)
Other 220,390 (652,907) (139,029)
--------------- ------------------ -----------------
Net cash used in investing activities (55,298,808) (57,498,412) (205,068,096)
FINANCING ACTIVITIES
Proceeds from borrowings on long-term debt 90,070,000 75,350,000 238,478,310
Repayments of borrowings on long-term debt (46,609,122) (22,678,127) (109,434,577)
Deferred loan costs (854,235) (463,397) (9,410,078)
Dividends paid (1,642,709) (1,428,045) (426,598)
Common Stock transactions 499,189 1,163,796 719,166
Proceeds from equity offering - Class B Common Stock, net of expenses -0- -0- 66,065,762
Proceeds from offering of Series B Preferred Stock -0- -0- 10,000,000
Proceeds from settlement of interest rate swap agreement -0- -0- 215,000
Proceeds from sale of treasury shares 1,473,249 581,834 -0-
Purchase of Class A Common Stock (582,567) (3,455,475) -0-
Purchase of Class B Common Stock -0- -0- (2,740,137)
Redemption of Preferred Stock (7,609,384) -0- -0-
--------------- ------------------ -----------------
Net cash provided by financing activities 34,744,421 49,070,586 193,466,848
--------------- ------------------ -----------------
Increase (decrease) in cash and cash equivalents (480,577) 1,316,256 491,053
Cash and cash equivalents at beginning of year 2,367,300 1,051,044 559,991
--------------- ------------------ -----------------
Cash and cash equivalents at end of year $ 1,886,723 $ 2,367,300 $ 1,051,044
=============== ================== =================
</TABLE>
See accompanying notes.
51
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company's operations, which are located in ten southeastern and
midwestern states, include ten television stations, a transportable satellite
uplink business, three daily newspapers, a weekly advertising only publication
and paging operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
REVENUE RECOGNITION
The Company recognizes revenues as services are performed.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit with a bank. Deposits
with the bank are generally insured in limited amounts.
INVENTORIES
Inventories, principally newsprint and supplies, are stated at the lower of
cost or market. The Company uses the last-in, first-out ("LIFO") method of
determining costs for substantially all of its inventories. Current cost
exceeded the LIFO value of inventories by approximately $13,000 and $15,000 at
December 31, 1998, and 1997, respectively.
PROGRAM BROADCAST RIGHTS
Rights to programs available for broadcast under program license agreements
are initially recorded at the beginning of the license period for the amounts of
total license fees payable under the license agreements and are charged to
operating expense on the basis of total programs available for use on the
straight-line method. The portion of the unamortized balance expected to be
charged to operating expense in the succeeding year is classified as a current
asset, with the remainder classified as a non-current asset. The liability for
the license fees payable under the program license agreements is classified as
current or long-term, in accordance with the payment terms of the various
license agreements. The capitalized costs of the rights are recorded at the
lower of unamortized costs or estimated net realizeable value.
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,
52
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT (CONTINUED)
improvements and equipment are depreciated over estimated useful lives of
approximately 35 years, 10 years and 5 years, respectively.
INTANGIBLE ASSETS
Intangible assets are stated at cost and are amortized using the
straight-line method. Goodwill is amortized over 40 years. Loan acquisition fees
are amortized over the life of the applicable indebtedness. Non-compete
agreements are amortized over the life of the specific agreement. Accumulated
amortization of intangible assets resulting from business acquisitions was $21.2
million and $11.5 million as of December 31, 1998, and 1997, respectively.
If facts and circumstances indicate that the goodwill, property and
equipment or other assets may be impaired, an evaluation of continuing value
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with these assets would be compared to their
carrying amount to determine if a write down to fair market value or discounted
cash flow value is required.
INCOME TAXES
Deferred income taxes are provided on the differences between the financial
statement and income tax basis of assets and liabilities. The Company and its
subsidiaries file a consolidated federal income tax return. Consolidated state
income tax returns are filed when appropriate and separate state tax returns are
filed when consolidation is not available. Local tax returns are filed
separately.
CAPITAL STOCK
On August 20, 1998, the Board of Directors declared a 50% stock dividend,
payable on September 30, 1998, to stockholders of record of the Class A Common
Stock and Class B Common Stock on September 16, 1998. This stock dividend
effected a three for two stock split. All applicable share and per share data
have been adjusted to give effect to the stock split.
STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its stock options. Under APB 25, if the
exercise price of the stock options granted by the Company equals the market
price of the underlying stock on the date of the grant, no compensation expense
is recognized.
CONCENTRATION OF CREDIT RISK
The Company provides print advertising and advertising air time to
national, regional and local advertisers within the geographic areas in which
the Company operates. Credit is 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.
53
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of long-term debt at December 31, 1998, and 1997
exceeded book value by $10.4 million and $13.2 million, respectively. The fair
value of the Preferred Stock at December 31, 1998, and 1997 approximates its
carrying value at that date. The Company does not anticipate settlement of
long-term debt or preferred stock at other than book value.
The fair value of other financial instruments classified as current assets
or liabilities approximates their carrying values due to the short-term
maturities of these instruments.
RECLASSIFICATIONS
Certain amounts in the accompanying consolidated financial statements have
been reclassified to conform to the 1998 format.
B. BUSINESS ACQUISITIONS AND DISPOSITIONS
The Company's acquisitions have been accounted for under the purchase
method of accounting. Under the purchase method of accounting, the results of
operations of the acquired businesses are included in the accompanying
consolidated financial statements as of their respective acquisition dates. The
assets and liabilities of acquired businesses are included based on an
allocation of the purchase price.
RECENT AND PENDING ACQUISITIONS
On March 1, 1999, the Company acquired substantially all of the assets of
THE GOSHEN NEWS from News Printing Company, Inc. and affiliates thereof, for
aggregate cash consideration of approximately $16.7 million including a
non-compete agreement. THE GOSHEN NEWS is a 17,000 circulation afternoon
newspaper published Monday through Saturday and serves Goshen, Indiana and
surrounding areas. The Company financed the acquisition through its $200.0
million bank loan agreement (the "Senior Credit Facility").
On January 28, 1999, Bull Run Corporation ("Bull Run"), a principal
stockholder of the Company, acquired 301,119 shares of the outstanding common
stock of Sarkes Tarzian, Inc. ("Tarzian") from the Estate of Mary Tarzian (the
"Estate") for $10.0 million. The acquired shares (the "Tarzian Shares")
represent 33.5% of the total outstanding common stock of Tarzian (both in terms
of the number of shares of common stock outstanding and in terms of voting
rights), but such investment represents 73% of the equity of Tarzian for
purposes of dividends as well as distributions in the event of any liquidation,
dissolution or other termination of Tarzian. Tarzian has filed a complaint in
the United States District Court for the Southern District of Indiana, claiming
that it had a binding contract with the Estate to purchase the Tarzian Shares
from the Estate prior to Bull Run's purchase of the shares, and requests
judgment providing that the Estate be required to sell the Tarzian Shares to
Tarzian. Bull Run believes that a binding contract between Tarzian and the
Estate did not exist, prior to Bull Run's purchase of the Tarzian Shares from
the Estate, and in any case, Bull Run's purchase agreement with the Estate
provides that in the event that a court of competent jurisdiction awards title
to the Tarzian Shares to a person or entity other than Bull Run, the purchase
agreement is rescinded and the Estate is required to pay Bull Run the full $10.0
million purchase price, plus interest. Tarzian owns and operates two television
stations and four radio stations: WRCB-TV Channel 3 in Chattanooga, Tennessee,
an NBC affiliate; KTVN-TV Channel 2 in Reno, Nevada, a CBS affiliate; WGCL-AM
and WTTS-FM in Bloomington, Indiana; and WAJI-FM and WLDE-FM in Fort Wayne,
Indiana. The Chattanooga and Reno markets rank as the 87th and the 108th largest
television markets in the United States, respectively, as ranked by A. C.
Nielsen Company.
54
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. BUSINESS ACQUISITIONS AND DISPOSITIONS (CONTINUED)
RECENT AND PENDING ACQUISITIONS (CONTINUED)
The Company has executed an option agreement with Bull Run, whereby the
Company has the option of acquiring the Tarzian investment from Bull Run. Upon
exercise of the option, the Company will pay Bull Run an amount equal to Bull
Run's purchase price for the Tarzian investment and related costs. The option
agreement currently expires on May 31, 1999; however, the Company may extend the
option period at an established fee. In connection with the option agreement,
the Company granted to Bull Run warrants to purchase up to 100,000 shares of the
Company's Class B Common Stock at $13.625 per share. The warrants vest
immediately upon the Company's exercise of its option to purchase the Tarzian
investment. Neither Bull Run's investment nor the Company's potential investment
is presently attributable under the ownership rules of the Federal
Communications Commission ("FCC"). If the Company successfully exercises the
option agreement, the Company plans to fund the acquisition through its Senior
Credit Facility.
1998 ACQUISITIONS AND DISPOSITION
On July 31, 1998, the Company completed the purchase of all of the
outstanding capital stock of Busse Broadcasting Corporation ("Busse"). The
purchase price was $120.5 million less the accreted value of Busse's 11 5/8%
Senior Secured Notes due 2000 ("Busse Senior Notes"). The purchase price of the
capital stock consisted of the contractual purchase price of $112.0 million,
associated transaction costs of $2.9 million and Busse's cash and cash
equivalents of $5.6 million. Immediately following the acquisition of Busse, the
Company exercised its right to satisfy and discharge the Busse Senior Notes,
effectively prefunding the Busse Senior Notes at the October 15, 1998 call price
of 106 plus accrued interest. The amount necessary to satisfy and discharge the
Busse Senior Notes was approximately $69.9 million. Based on the preliminary
allocation of the purchase price, the excess of the purchase price over the fair
value of net tangible assets acquired was approximately $122.8 million.
Immediately prior to the Company's acquisition of Busse, Cosmos
Broadcasting Corporation acquired the assets of WEAU-TV ("WEAU") from Busse and
exchanged them for the assets of WALB-TV, Inc. ("WALB"), the Company's NBC
affiliate in Albany, Georgia. In exchange for the assets of WALB, the Company
received the assets of WEAU, which were valued at $66.0 million, and
approximately $12.0 million in cash for a total value of $78.0 million. The
Company recognized a pre-tax gain of approximately $70.6 million and estimated
deferred income taxes of approximately $27.5 million in connection with the
exchange of WALB. The Company funded the remaining costs of the acquisition of
Busse's capital stock through its Senior Credit Facility.
As a result of these transactions, the Company added the following
television stations to its existing broadcast group: KOLN-TV("KOLN"), the CBS
affiliate serving the Lincoln-Hastings-Kearney, Nebraska market; its satellite
station KGIN-TV ("KGIN"), the CBS affiliate serving Grand Island, Nebraska; and
WEAU, an NBC affiliate serving the La Crosse-Eau Claire, Wisconsin market. These
transactions also satisfied the FCC's requirement for the Company to divest
itself of WALB. The transactions described above are referred to herein as the
"Busse-WALB Transactions."
The Company's Board of Directors has agreed to pay Bull Run a fee of
approximately $2.0 million for services performed in connection with the
Busse-WALB Transactions. Of this fee, $1.1 million had been paid to Bull Run and
$880,000 remained in accounts payable at December 31, 1998.
Unaudited pro forma operating data for the years ended December 31 , 1998
and 1997 are presented below and assumes that the Busse-WALB Transactions and
the 1997 Broadcasting Acquisitions (as
55
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. BUSINESS ACQUISITIONS AND DISPOSITIONS (CONTINUED)
1998 ACQUISITIONS AND DISPOSITION (CONTINUED)
defined in 1997 ACQUISITIONS) were completed on January 1, 1997. The above
described unaudited pro forma operating data excludes a pre-tax gain of
approximately $70.6 million and estimated deferred income taxes of approximately
$27.5 million in connection with the disposition of WALB.
This unaudited pro forma operating data does not purport to represent the
Company's actual results of operations had the Busse-WALB Transactions and the
1997 Broadcasting Acquisitions been completed on January 1, 1997, and should not
serve as a forecast of the Company's operating results for any future periods.
The pro forma adjustments are based solely upon certain assumptions that
management believes are reasonable under the circumstances at this time.
Unaudited pro forma operating data for the years ended December 31, 1998 and
1997, are as follows (in thousands, except per common share data):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Revenues, net $ 133,661 $ 117,981
========== ==========
Net loss available to common stockholders $ (4,562) $ (6,647)
============ ============
Loss per share available to common stockholders:
Basic $ (0.38) $ (0.56)
============= =============
Diluted $ (0.38) $ (0.56)
============= =============
</TABLE>
The pro forma results presented above include adjustments to reflect (i)
the incurrence of interest expense to fund the respective acquisitions, (ii)
depreciation and amortization of assets acquired, (iii) the elimination of the
corporate expense allocation net of additional accounting and administrative
expenses and (iv) the income tax effect of such pro forma adjustments.
1997 ACQUISITIONS
On August 1, 1997, the Company purchased the assets of WITN-TV ("WITN").
The purchase price of approximately $41.7 million consisted of $40.7 million
cash, $600,000 in acquisition related costs, and approximately $400,000 in
liabilities which were assumed by the Company. The excess of the purchase price
over the fair value of net tangible assets acquired was approximately $37.4
million. The Company funded the costs of this acquisition through its Senior
Credit Facility. WITN operates on Channel 7 and is the NBC affiliate in the
Greenville-New Bern-Washington, North Carolina market. In connection with the
purchase of the assets of WITN ("WITN Acquisition"), the Company paid Bull Run a
fee of $400,000 for services performed.
On April 24, 1997, the Company acquired all of the issued and outstanding
common stock of GulfLink Communications, Inc. ("GulfLink") of Baton Rouge,
Louisiana. The GulfLink operations included nine transportable satellite uplink
trucks. The purchase price of approximately $5.2 million consisted of $4.1
million cash, $127,000 in acquisition related costs, and approximately $1.0
million in liabilities which were assumed by the Company. The excess of the
purchase price over the fair value of net tangible assets acquired was
approximately $3.6 million. The Company funded the costs of this acquisition
through its Senior Credit Facility. In connection with the purchase of the
common stock of GulfLink Communications, Inc. (the "GulfLink Acquisition"), the
Company paid Bull Run a fee equal to
56
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. BUSINESS ACQUISITIONS AND DISPOSITIONS (CONTINUED)
1997 ACQUISITIONS (CONTINUED)
$58,000 for services performed. The WITN Acquisition and the GulfLink
Acquisition are hereinafter referred to as the "1997 Broadcasting Acquisitions."
Unaudited pro forma operating data for the year ended December 31, 1997,
and 1996 are presented below and assumes that the 1997 Broadcasting
Acquisitions, the First American Acquisition (as defined in 1996 ACQUISITIONS
AND DISPOSITION) and the KTVE Sale (as defined in 1996 ACQUISITIONS AND
DISPOSITION) occurred on January 1, 1996.
This unaudited pro forma operating data does not purport to represent the
Company's actual results of operations had these transactions occurred on
January 1, 1996, and should not serve as a forecast of the Company's operating
results for any future periods. The pro forma adjustments are based solely upon
certain assumptions that management believes are reasonable under the
circumstances at this time. Unaudited pro forma operating data for the years
ended December 31, 1997 and 1996, are as follows (in thousands, except per
common share data):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Revenues, net $ 109,099 $ 108,908
========== ==========
Net loss available to common stockholders $ (3,769) $ (2,397)
============ ============
Loss per share available to common stockholders:
Basic $ (0.32) $ (0.20)
============= =============
Diluted $ (0.32) $ (0.20)
============= =============
</TABLE>
The pro forma results presented above include adjustments to reflect (i)
the incurrence of interest expense to fund the 1997 Broadcasting Acquisitions,
and the First American Acquisition (as defined in 1996 ACQUISITIONS AND
DISPOSITION), (ii) depreciation and amortization of assets acquired, (iii) the
reduction of employee compensation related to severance and vacation
compensation for 1996, (iv) the elimination of the corporate expense allocation
net of additional accounting and administrative expenses for the WITN
Acquisition and the First American Acquisition, (v) increased pension expense
for the First American Acquisition, and (vi) the income tax effect of such pro
forma adjustments. Average outstanding shares used to calculate pro forma
earnings per share data for 1996 include the 5,250,000 Class B Common shares
issued in connection with the First American Acquisition.
1996 ACQUISITIONS AND DISPOSITION
On September 30, 1996, the Company purchased from First American Media,
Inc. substantially all of the assets used in the operation of two CBS-affiliated
television stations, WCTV-TV ("WCTV") serving Tallahassee, Florida-Thomasville,
Georgia and WKXT-TV ("WKXT") in Knoxville, Tennessee, as well as those assets
used in the operations of a satellite uplink and production services business
and a communications and paging business (the "First American Acquisition").
Subsequent to the First American Acquisition, the Company rebranded WKXT with
the call letters WVLT ("WVLT"). The purchase price of approximately $183.9
million consisted of $175.5 million cash, $1.8 million in acquisition related
costs, and the assumption of approximately $6.6 million of liabilities. The
excess of the purchase price over the fair value of net tangible assets acquired
was approximately $160.2 million. The Company paid Bull Run, a fee equal to
approximately $1.7 million for services performed in
57
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. BUSINESS ACQUISITIONS AND DISPOSITIONS (CONTINUED)
1996 ACQUISITIONS AND DISPOSITION (CONTINUED)
connection with this acquisition.
The First American Acquisition and the early retirement of the Company's
existing bank credit facility and other senior indebtedness, were funded as
follows: net proceeds of $66.1 million from the sale of 5,250,000 shares of the
Company's Class B Common Stock; net proceeds of $155.2 million from the sale of
$160.0 million principal amount of the Company's 10 5/8% Senior Subordinated
Notes due 2006; $16.9 million of borrowings under the Senior Credit Facility;
and $10.0 million net proceeds from the sale of 1,000 shares of the Company's
Series B Preferred Stock with warrants to purchase 750,000 shares of the
Company's Class A Common Stock at $16 per share. The shares of Series B
Preferred Stock were issued to Bull Run and to J. Mack Robinson, Chairman of the
Board of Bull Run and President and Chief Executive Officer of the Company, and
certain of his affiliates. The Company obtained an opinion from an investment
banker as to the fairness of the terms of the sale of such Series B Preferred
Stock with warrants.
In connection with the First American Acquisition, the FCC ordered the
Company to divest itself of WALB in Albany, Georgia and WJHG-TV ("WJHG") in
Panama City, Florida by March 31, 1997 to comply with regulations governing
common ownership of television stations with overlapping service areas. The FCC
is currently reexamining these regulations, and if it revises them in accordance
with the interim policy it has adopted, divestiture of WJHG would not be
required. Accordingly, the Company requested and in July of 1997 received an
extension of the divestiture deadline with regard to WJHG conditioned upon the
outcome of the rulemaking proceedings. It can not be determined when the FCC
will complete its rulemaking on this subject. On July 31, 1998, the assets of
WALB were exchanged for the assets of WEAU. This exchange transaction satisfied
the FCC's divestiture requirement for WALB.
Condensed unaudited balance sheets of WALB and WJHG are as follows (in
thousands):
<TABLE>
<CAPTION>
WALB WJHG
DECEMBER 31, DECEMBER 31,
--------------------------
1997 1998 1997
-------------- --------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current assets $2,379 $1,163 $1,053
Property and equipment 1,473 1,323 848
Other assets 471 148 346
------ ------ ------
Total assets $4,323 $2,634 $2,247
====== ====== ======
Current liabilities $ 994 $ 583 $ 350
Other liabilities 215 118 127
Stockholder's equity 3,114 1,933 1,770
------ ------ ------
Total liabilities and stockholder's equity $4,323 $2,634 $2,247
====== ====== ======
</TABLE>
58
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. BUSINESS ACQUISITIONS AND DISPOSITIONS (CONTINUED)
1996 ACQUISITIONS AND DISPOSITION (CONTINUED)
Condensed unaudited income statement data of WALB and WJHG are as follows
(in thousands):
<TABLE>
<CAPTION>
WALB WJHG
---------------------------------------------------------------------
SEVEN
MONTHS YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
ENDED ----------------------------------------------------------
JULY 31, 1997 1996 1998 1997 1996
1998
---------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Broadcasting revenues $6,773 $10,090 $10,611 $5,057 $4,896 $5,217
Expenses 3,130 4,770 5,070 4,038 3,757 4,131
--------- --------- --------- ----- ----- -----
Operating income 3,643 5,320 5,541 1,019 1,139 1,086
Other income (expense) (33) 3 7 1 (5) 6
--------- --------- --------- ----- ----- -----
Income before income taxes $ 3,610 $5,323 $5,548 $1,020 $1,134 $1,092
======= ====== ====== ====== ====== ======
Net income $ 2,238 $3,295 $3,465 $ 632 $ 737 $ 685
======= ====== ====== ===== ===== =====
</TABLE>
On January 4, 1996, the Company purchased substantially all of the assets
of WRDW-TV, a CBS television affiliate serving the Augusta, Georgia television
market (the "Augusta Acquisition"). The purchase price of approximately $37.2
million which included assumed liabilities of approximately $1.3 million, was
financed primarily through long-term borrowings. The assets acquired consisted
of office equipment and broadcasting operations located in North Augusta, South
Carolina. The excess of the purchase price over the fair value of net tangible
assets acquired was approximately $32.5 million. In connection with the Augusta
Acquisition, the Company paid a fee of $360,000 to Bull Run for services
performed.
Funds for the Augusta Acquisition were obtained from the modification of
the Company's existing bank debt on January 4, 1996 (the "Bank Loan") to a
variable rate reducing revolving credit facility (the "Old Credit Facility") and
the sale to Bull Run of an 8% subordinated note due January 3, 2005 in the
principal amount of $10.0 million (the "8% Note"). In connection with the sale
of the 8% Note, the Company also issued warrants to Bull Run to purchase 731,250
shares of Class A Common Stock at $11.92 per share. Of these warrants, 450,000
vested upon issuance with the remaining warrants vesting in five equal annual
installments commencing on the first anniversary of the date of issuance.
Approximately $2.6 million of the $10.0 million of proceeds from the 8% Note was
allocated to the warrants and increased Class A Common Stock. The Old Credit
Facility provided for a credit line up to $54.2 million. This transaction also
required a modification of the interest rate of the Company's $25.0 million
senior secured note with an institutional investor (the "Senior Note") from
10.08% to 10.7%.
As part of the financing arrangements for the First American Acquisition,
the Old Credit Facility and the Senior Note were retired and the Company issued
to Bull Run, in exchange for the 8% Note, 1,000 shares of Series A Preferred
Stock. The warrants issued with the 8% Note were retired and the warrants issued
with the Series A Preferred Stock will vest in accordance with the same schedule
described above provided the Series A Preferred Stock remains outstanding. The
Company recorded an extraordinary charge of $5.3 million ($3.2 million after
taxes or $0.39 per basic common share and $0.37 per diluted common share for
1996) in connection with the early retirement of the $25.0 million Senior Note
and the write-off of loan acquisition costs from the early extinguishment of
debt.
The Company sold the assets of KTVE Inc. (the "KTVE Sale"), its
NBC-affiliated television station, in Monroe, Louisiana-El Dorado, Arkansas on
August 20, 1996. The sales price included $9.5 million in
59
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. BUSINESS ACQUISITIONS AND DISPOSITIONS (CONTINUED)
1996 ACQUISITIONS AND DISPOSITION (CONTINUED)
cash plus the amount of the accounts receivable on the date of closing to the
extent collected by the buyer, to be paid to the Company within 150 days
following the closing date (approximately $829,000). The Company recognized a
pre-tax gain of approximately $5.7 million and estimated income taxes of
approximately $2.8 million in connection with the sale.
Unaudited pro forma operating data for the years ended December 31, 1996
and 1995 is presented below and assumes that the Augusta Acquisition, the First
American Acquisition, and the KTVE Sale occurred on January 1, 1995.
This unaudited pro forma operating data does not purport to represent the
Company's actual results of operations had the Augusta Acquisition, the First
American Acquisition, and the KTVE Sale occurred on January 1, 1995, and should
not serve as a forecast of the Company's operating results for any future
periods. The pro forma adjustments are based solely upon certain assumptions
that management believes are reasonable under the circumstances at this time.
Unaudited pro forma operating data for the years ended December 31, 1996 and
1995, are as follows (in thousands, except per common share data):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1995
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Revenues, net $ 97,540 $ 90,637
=========== ===========
Net loss available to common stockholders $ (1,388) $ (6,073)
============ ============
Loss per share available to common stockholders:
Basic $ (0.11) $ (0.51)
============ ============
Diluted $ (0.11) $ (0.51)
============ ============
</TABLE>
The pro forma results presented above include adjustments to reflect (i)
the incurrence of interest expense to fund the First American Acquisition and
the WRDW Acquisition, (ii) depreciation and amortization of assets acquired,
(iii) the reduction of employee compensation related to severance and vacation
compensation for 1996, (iv) the elimination of the corporate expense allocation
net of additional accounting and administrative expenses for the First American
Acquisition, (v) increased pension expense for the First American Acquisition,
and (vi) the income tax effect of such pro forma adjustments. Average
outstanding shares used to calculate pro forma earnings per share data for 1996
and 1995 include the 5,250,000 Class B Common shares issued in connection with
the First American Acquisition.
C. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
10 5/8 % Senior Subordinated Notes due 2006 $ 160,000 $ 160,000
Senior Credit Facility 109,500 65,630
Other 1,155 1,446
-------------- --------------
270,655 227,076
-------------- --------------
Less current portion (430) (400)
-------------- --------------
$ 270,225 $ 226,676
=========== ===========
</TABLE>
60
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. LONG-TERM DEBT (CONTINUED)
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 Credit Facility included scheduled reductions in the $125.0
million credit limit which commenced on March 31, 1997, interest rates based
upon a spread over LIBOR and/or the lender's prime rate, an unused commitment
fee of 0.50% applied to available funds and a maturity date of June 30, 2003.
Effective September 17, 1997, the Senior Credit Facility was modified to
reinstate the original credit limit of $125.0 million which had been reduced by
the scheduled reductions. The modification also reduced the interest rate spread
over LIBOR and/or Prime. The modification also extended the maturity date from
June 30, 2003 to June 30, 2004. The modification required a one-time fee of
$250,000.
Effective July 31, 1998, the Senior Credit Facility was modified to
increase the committed credit limit from $125.0 million to $200.0 million. This
modification also allows for an additional uncommitted $100.0 million in
available credit which is in addition to the committed $200.0 million credit
limit. This $100.0 million in uncommitted available credit can be borrowed by
the Company only after approval of the bank consortium. The modification also
extended the maturity date from June 30, 2004 to June 30, 2005. The modification
required a one-time fee of approximately $750,000.
At December 31, 1998, the Company had approximately $109.5 million borrowed
under the Senior Credit Facility with approximately $90.5 million available
under the agreement. The interest rate on the outstanding balance was based on
the lender's prime rate and a spread over LIBOR of 1.75%. Additionally, the
effective interest rate of the Senior Credit Facility can be changed based upon
the Company's maintenance of certain operating ratios as defined by the Senior
Credit Facility, not to exceed the lender's prime rate plus 0.50% or LIBOR plus
2.25%. The effective interest rate on the Senior Credit Facility at December 31,
1998 and 1997 was 7.1% and 7.9%, respectively. The Company is charged a
commitment fee on the excess of the aggregate average daily available credit
limit less the amount outstanding. At December 31, 1998, the commitment fee was
0.50% per annum.
The Company's $200.0 million Senior Credit Facility, as amended, is
comprised of a term loan (the "Term Commitment") of $100.0 million and a
revolving credit facility (the "Revolving Commitment") of $100.0 million.
As of December 31, 1998, the Company had $9.5 million borrowed under the
Senior Credit Facility's Revolving Commitment. The Revolving Commitment will
automatically reduce as follows: 10% in 2000, 15% in 2001, 15% in 2002, 20% in
2003, 25% in 1994 and 15% in 2005.
As of December 31, 1998, the Company had $100.0 million borrowed under the
Senior Credit Facility's Term Commitment. The amount outstanding under the Term
Commitment will become fixed as of December 30, 1999 and it will be reduced as
follows: 2.5% in 1999, 10.0% in 2000, 10.0% in 2001, 17.5% in 2002, 17.5% in
2003, 21.2% in 2004 and 21.3% in 2005.
The agreement pursuant to which the Senior Credit Facility was issued
contains certain restrictive provisions, which, among other things, limit
additional indebtedness and require minimum levels of cash flows. The Senior
Subordinated Notes also contained similar restrictive provisions as well as
limitations on restricted payments.
61
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. LONG-TERM DEBT (CONTINUED)
The Senior Subordinated Notes are jointly and severally guaranteed (the
"Subsidiary Guarantees") by all of the Company's subsidiaries (the "Subsidiary
Guarantors"). The obligations of the Subsidiary Guarantors under the Subsidiary
Guarantees is subordinated, to the same extent as the obligations of the Company
in respect of the Senior Subordinated Notes, to the prior payment in full of all
existing and future senior debt of the Subsidiary Guarantors (which will include
any guarantee issued by such Subsidiary Guarantors of any senior debt).
The Company is a holding company with no material independent assets or
operations, other than its investment in its subsidiaries. The aggregate assets,
liabilities, earnings and equity of the Subsidiary Guarantors are substantially
equivalent to the assets, liabilities, earnings and equity of the Company on a
consolidated basis. The Subsidiary Guarantors are, directly or indirectly,
wholly-owned subsidiaries of the Company and the Subsidiary Guarantees are full,
unconditional and joint and several. All of the current and future direct and
indirect subsidiaries of the Company will be guarantors of the Senior
Subordinated Notes. Accordingly, separate financial statements and other
disclosures of each of the Subsidiary Guarantors are not presented because
management has determined that they are not material to investors. The Senior
Subordinated Notes and the Senior Credit Facility are secured by substantially
all of the Company's existing and hereafter acquired assets.
Aggregate minimum principal maturities on long-term debt as of December 31,
1998, were as follows (in thousands):
MINIMUM PRINCIPAL
YEAR MATURITIES
--------------- -------------------------
1999 $ 430
2000 330
2001 209
2002 62
2003 27,067
Thereafter 242,557
------------
$ 270,655
============
The Company made interest payments of approximately $22.9 million, $21.3
million, and $7.6 million during 1998, 1997 and 1996, respectively.
In the year ended December 31, 1996, the Company recorded an extraordinary
charge of $5.3 million ($3.2 million after taxes or $0.39 per basic common share
or $0.37 per diluted common share) in connection with the early retirement of
the Senior Note and the write-off of unamortized loan acquisition costs of the
Senior Note and the Old Credit Facility resulting from the early extinguishment
of debt.
D. SUPPLEMENTAL EMPLOYEE BENEFITS AND OTHER AGREEMENTS
The Company had an employment agreement with its former President, Ralph W.
Gabbard, which provided for an award of 183,051 shares of the Company's Class A
Common Stock if his employment with the Company continued until September 1999.
Mr. Gabbard died unexpectedly in September 1996. The Company awarded these
shares to the estate of Mr. Gabbard. Approximately $880,000 of expense was
recorded in 1996.
The Company has entered into supplemental retirement benefit and other
agreements with certain key employees. These benefits are to be paid primarily
in equal monthly amounts over the employees' life for a period not to exceed 15
years after retirement. The Company charges against operations
62
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. SUPPLEMENTAL EMPLOYEE BENEFITS AND OTHER AGREEMENTS (CONTINUED)
amounts sufficient to fund the present value of the estimated lifetime
supplemental benefit over each employee's anticipated remaining period of
employment.
The following summarizes activity relative to certain officers' agreements
and the supplemental employee benefits (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
------------ ----------------- ---------------
<S> <C> <C> <C>
Beginning liability $ 1,526 $ 3,158 $ 2,938
--------- ---------- ---------
Provision 180 161 918
Forfeitures (61) -0- -0-
-------- --------- ---------
Net expense 119 161 918
Payments (202) (1,793) (698)
-------- --------- ---------
Net change (83) (1,632) 220
-------- --------- ---------
Ending liability 1,443 1,526 3,158
Less current portion (315) (365) (1,801)
-------- --------- ---------
$ 1,128 $ 1,161 $ 1,357
======== ========= =========
</TABLE>
E. STOCKHOLDERS' EQUITY
During 1996, the Company amended its Articles of Incorporation to increase
to 50,000,000 the number of shares of all classes of stock which the Company has
the authority to issue, of which, 15,000,000 shares are designated Class A
Common Stock, 15,000,000 shares are designated Class B Common Stock, and
20,000,000 shares are designated "blank check" preferred stock for which the
Board of Directors has the authority to determine the rights, powers,
limitations and restrictions. The rights of the Company's Class A and Class B
Common Stock are identical, except that the Class A Common Stock has 10 votes
per share and the Class B Common Stock has one vote per share. The Class A and
Class B Common Stock receive cash dividends on an equal per share basis.
As part of the financing for the Augusta Acquisition in 1996, funding was
obtained from the 8% Note, which included the issuance of detachable warrants to
Bull Run to purchase 731,250 shares of Class A Common Stock at $11.92 per share.
Of these warrants 450,000 vested upon issuance, with the remaining warrants
vesting in five equal annual installments commencing on the first anniversary of
the date of issuance. Approximately $2.6 million of the $10.0 million of
proceeds from the 8% Note was allocated to the warrants and increased Class A
Common Stock. This allocation of the proceeds was based on an estimate of the
relative fair values of the 8% Note and the warrants on the date of issuance.
The Company amortized the original issue discount on a ratable basis in
accordance with the original terms of the 8% Note through September 30, 1996.
The Company recognized approximately $217,000 in amortization costs for the $2.6
million original issue discount. In September 1996, the Company exchanged the 8%
Note with Bull Run for 1,000 shares of liquidation preference Series A Preferred
Stock yielding 8%. The warrants issued with the 8% Note were retired and the
warrants issued with the Series A Preferred Stock will vest in accordance with
the same schedule described above provided the Series A Preferred Stock remains
outstanding. The holder of the Series A Preferred Stock will receive cash
dividends at an annual rate of $800 per share. The liquidation or redemption
price of the Series A Preferred Stock is $10,000 per share.
As part of the financing for the First American Acquisition in 1996, the
Company also issued 1,000 shares of Series B Preferred Stock, with warrants to
purchase an aggregate of 750,000 shares of Class A Common Stock at an exercise
price of $16.00 per share. Of these warrants 450,000 vested upon issuance, with
the remaining warrants vesting in five equal annual installments commencing on
the first anniversary
63
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. STOCKHOLDERS' EQUITY (CONTINUED)
of the date of issuance. The shares of Series B Preferred Stock were issued to
Bull Run and to J. Mack Robinson, Chairman of the Board of Bull Run and
President and Chief Executive Officer of the Company, and certain of his
affiliates. The Company obtained a written opinion from an investment banker as
to the fairness of the terms of the sale of such Series B Preferred Stock with
warrants. The holders of the Series B Preferred Stock will receive dividends at
an annual rate of $600 per share, except the Company at its option may pay these
dividends in cash or in additional shares. The liquidation or redemption price
of the Series B Preferred Stock is $10,000 per share. In August 1998 and
September 1997, the Company issued 50.9 shares and 60.0 shares of Series B
Preferred Stock, respectively, as payment of dividends to the holders of its
then outstanding Series B Preferred Stock. During 1998, the Company redeemed
760.9 shares of Series B Preferred Stock at a cost of $7.6 million.
On September 24, 1996, the Company completed a public offering of 5.25
million shares of its Class B Common Stock at an offering price of $13.67 per
share. The proceeds, net of expenses, from this public offering of approximately
$66.1 million were used in the financing of the First American Acquisition.
The Company is authorized by its Board of Directors to purchase up to two
million shares of the Company's Class A or Class B Common Stock to either be
retired or reissued in connection with the Company's benefit plans, including
the Capital Accumulation Plan and the Incentive Plan. During 1998, 1997 and
1996, the Company purchased 30,750 Class A Common Stock Shares, 259,350 Class A
Common Stock shares and 258,450 Class B Common Stock shares, respectively, under
this authorization. The 1998, 1997 and 1996 treasury shares were purchased at
prevailing market prices with an average effective price of $18.95, $13.33 and
$10.60 per share, respectively, and were funded from the Company's operating
cash flow.
F. LONG-TERM INCENTIVE PLAN AND STOCK PURCHASE PLAN
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123 "Accounting for Stock-Based Compensation" ("Statement 123") requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of the grant, no compensation expense is recognized.
The Company has a long-term incentive plan (the "Incentive Plan") under
which 300,000 shares of the Company's Class A Common Stock and 600,000 shares of
the Company's Class B Common Stock are reserved for grants to key personnel for
(i) incentive stock options, (ii) non-qualified stock options, (iii) stock
appreciation rights, (iv) restricted stock and (v) performance awards, as
defined by the Incentive Plan. Shares of Common Stock underlying outstanding
options or performance awards are counted against the Incentive Plan's maximum
shares while such options or awards are outstanding. Under the Incentive Plan,
the options granted typically vest after a two year period and expire three
years after full vesting. Options granted through December 31, 1998, have been
granted at a price which approximates fair market value on the date of the
grant. On December 11, 1998, the Company repriced certain Class B Common Stock
grants made under the Incentive Plan, at a price which approximated the market
price of the Class B Common Stock on that day.
The Company also has a Stock Purchase Plan which grants outside directors
up to 7,500 shares of the Company's Common Stock. Under this Stock Purchase
Plan, the options granted vest at the beginning of the upcoming calendar year
and expire at the end of January following that calendar year.
64
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. LONG-TERM INCENTIVE PLAN AND STOCK PURCHASE PLAN (CONTINUED)
Prior to 1996, grants under the Incentive Plan and the Stock Purchase Plan
were made with the Company's Class A Common Stock. In 1996, the Company amended
its Incentive Plan and Stock Purchase Plan for grants to be made with Class A or
Class B Common Stock.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of Statement
123. The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997 and 1996, respectively: risk-free interest rates of
4.57%, 5.82% and 5.43%; dividend yields of 0.55%, 0.32% and 0.50%; volatility
factors of the expected market price of the Company's Class A Common Stock of
0.28, 0.28 and 0.33; and a weighted-average expected life of the options of 4.0,
4.5 and 2.0 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and which are fully transferable. In addition, option valuation models require
the input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands, except per common share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Pro forma income (loss) before extraordinary charge available to
common stockholders $39,523 $(3,174) $5,190
Pro forma income (loss) before extraordinary charge per common
share:
Basic $ 3.31 $(0.27) $ 0.64
Diluted $ 3.20 $(0.27) $ 0.62
</TABLE>
65
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. 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, 1998, 1997, and 1996 is
as follows (in thousands, except weighted average data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1998 1997 1996
------------------- --------- --------- --------- ----------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stock options outstanding --
beginning of year 92 $ 7.43 297 $ 8.74 394 $ 8.26
Options granted 19 17.81 -0- -0-
Options exercised (74) 7.08 (127) 7.17 (78) 6.62
Options forfeited (1) 8.89 -0- (9) 8.29
Options expired -0- (78) 12.83 (10) 6.78
------- -------- --------
Stock options outstanding --
end of year 36 $ 13.71 92 $ 7.43 297 $ 8.74
======= ======= =======
Exercisable at end of year 16 $ 8.89 92 $ 7.43 246 $ 8.71
Weighted-average fair value of
options granted during the
year $ 5.59
</TABLE>
Exercise prices for Class A Common Stock options outstanding as of December
31, 1998, ranged from $8.89 to $17.81 for the Incentive Plan. The
weighted-average remaining contractual life of the Class A Common Stock options
outstanding for the Incentive Plan is 3.2 years.
A summary of the Company's stock option activity for Class B Common Stock,
and related information for the years ended December 31, 1998, 1997, and 1996 is
as follows (in thousands, except weighted average data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1998 1997 1996
------------------- --------- ---------- -------- ----------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- --------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Stock options outstanding --
beginning of year 630 $15.80 102 $10.58 -0-
Options granted 589 14.43 528 16.80 102 $ 10.58
Options exercised (86) 11.05 -0- -0-
Options forfeited (474) 16.95 -0- -0-
------- ----- -----
Stock options outstanding --
end of year 659 $14.36 630 $15.80 102 $ 10.58
======= ===== =====
Exercisable at end of year 84 $14.65 79 $10.58 -0-
Weighted-average fair value of
options granted during the
year $ 3.95 $ 5.40 $2.15
</TABLE>
66
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. LONG-TERM INCENTIVE PLAN AND STOCK PURCHASE PLAN (CONTINUED)
Exercise prices for Class B Common Stock options outstanding as of December
31, 1998, ranged from $10.58 to $14.50 for the Incentive Plan and $14.00 to
$16.13 for the Stock Purchase Plan. The weighted-average remaining contractual
life of the Class B Common Stock options outstanding for the Incentive Plan and
Stock Purchase Plan is 4.0 and 0.5 years, respectively.
G. INCOME TAXES
The Company uses the liability method in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Federal and state income tax expense (benefit) included in the consolidated
financial statements are summarized as follows (in thousands):
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
--------- ---------- -----------
Current
Federal $ 414 $ (1,620) $1,462
State and local 937 577 841
Deferred 26,793 1,283 (44)
-------- -------- -------
$ 28,144 $ 240 $2,259
======== ======== =======
The total provision for income taxes for 1998 included a deferred tax
charge of $27.5 million which related to the exchange of WALB's assets for the
assets of WEAU. For income tax purposes, the gain on the exchange of WALB
qualified for deferred capital gains treatment under the "like-kind exchange"
provision of Section 1031 of the Internal Revenue Code of 1986. The total
provision for income taxes for 1996 included a tax benefit of $2.2 million which
related to an extraordinary charge on extinguishment of debt.
67
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
G. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---------- -----------
<S> <C> <C>
Deferred tax liabilities:
Net book value of property and equipment $ 6,597 $ 2,670
Goodwill and other intangibles 45,546 6,281
Other 122 120
---------- ---------
Total deferred tax liabilities 52,265 9,071
Deferred tax assets:
Liability under supplemental retirement plan 528 526
Allowance for doubtful accounts 465 499
Difference in basis of assets held for sale 1,106 941
Federal operating loss carryforwards 3,825 4,412
State and local operating loss carryforwards 2,534 1,952
Other 457 290
---------- ---------
Total deferred tax assets 8,915 8,620
Valuation allowance for deferred tax assets (798) (753)
---------- ---------
Net deferred tax assets 8,117 7,867
---------- ---------
Deferred tax liabilities, net $ 44,148 $ 1,204
========== =========
</TABLE>
Approximately $11.3 million in federal operating loss carryforwards will
expire by the year ended December 31, 2012. Additionally, the Company has
approximately $56.0 million in state operating loss carryforwards.
A reconciliation of income tax expense at the statutory federal income tax
rate and income taxes as reflected in the consolidated financial statements is
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- ----------- ----------
<S> <C> <C> <C>
Statutory rate applied to income (loss) $ 24,431 $ (395) $ 1,625
State and local taxes, net of federal tax benefits 3,472 572 (7)
Permanent difference relating to sale of KTVE -0- -0- 602
Other items, net 241 63 39
-------- ------ -------
$ 28,144 $ 240 $ 2,259
======== ====== =======
</TABLE>
The Company made income tax payments of approximately $1.5 million,
$275,000 and $3.6 million during 1998, 1997 and 1996, respectively. At December
31, 1998 and 1997, the Company had current recoverable income taxes of
approximately $1.7 million and $2.1 million, respectively.
H. RETIREMENT PLANS
PENSION PLAN
The Company has a retirement plan covering substantially all full-time
employees. Retirement benefits are based on years of service and the employees'
highest average compensation for five
68
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
H. RETIREMENT PLANS (CONTINUED)
PENSION PLAN (CONTINUED)
consecutive years during the last ten years of employment. The Company's funding
policy is to contribute annually the minimum amounts deductible for federal
income tax purposes.
The following summarizes the plan's funded status and related assumptions
(dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
--------- ----------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $7,053 $6,483
Service cost 616 429
Interest cost 496 443
Actuarial losses 203 31
Change in benefit obligation due to change in discount rate 303 -0-
Benefits paid (349) (333)
------ ------
Benefit obligation at end of year $8,322 $7,053
====== ======
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $6,926 $6,241
Actual return on plan assets 618 644
Company contributions 212 374
Benefits paid (349) (333)
------ ------
Fair value of plan assets at end of year $7,407 $6,926
====== ======
COMPONENTS OF ACCRUED BENEFIT COSTS
Underfunded status of the plan $ (915) $ (134)
Unrecognized net actuarial (gain) loss 297 (58)
Unrecognized net transition amount (188) (242)
Unrecognized prior service cost (3) (4)
------ ------
Accrued benefit cost $ (809) $ (438)
====== ======
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate 6.8% 7.0%
Expected long-term rate of return on plan assets 6.8% 7.0%
Estimated rate of increase in compensation levels 5.0% 5.0%
</TABLE>
The net periodic pension cost includes the following components (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC PENSION COST
Service cost $ 616 $ 429 $ 360
Interest cost 496 443 409
Expected return on plan assets (475) (433) (393)
Amortization of prior service cost (1) (1) (1)
Amortization of transition (asset) or obligation (54) (54) (54)
------ ------ ------
Pension cost $ 582 $ 384 $ 321
====== ====== ======
</TABLE>
69
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
H. RETIREMENT PLANS (CONTINUED)
CAPITAL ACCUMULATION PLAN
Effective October 1, 1994, the Company adopted the Gray Communications
Systems, Inc. Capital Accumulation Plan (the "Capital Accumulation Plan") for
the purpose of providing additional retirement benefits for substantially all
employees. The Capital Accumulation Plan is intended to meet the requirements of
section 401(k) of the Internal Revenue Code of 1986.
On November 14, 1996, the Company amended its Capital Accumulation Plan to
allow an investment option in the Company's Class B Common Stock. The amendment
also allowed for the Company's percentage match to be made by a contribution of
the Company's Class B Common Stock, effective in 1997. On December 13, 1996, the
Company reserved 300,000 shares of the Company's Class B Common Stock for
issuance under the Capital Accumulation Plan.
Employee contributions to the Capital Accumulation Plan, not to exceed 6%
of the employees' gross pay, are matched by Company contributions. Until 1997,
the Company's percentage match was made by a contribution of the Company's Class
A Common Stock. Since 1997, the Company's percentage match has been made by a
contribution of the Company's Class B Common Stock. The Company's percentage
match amount is declared by the Company's Board of Directors before the
beginning of each plan year. The Company's percentage match was 50% for the
three years ended December 31, 1998. The Company contributions vest, based upon
each employee's number of years of service, over a period not to exceed five
years.
Company matching contributions aggregating $491,524, $419,670 and $262,426
were charged to expense for 1998, 1997 and 1996, respectively, for the issuance
of 29,305 and 31,311 Class B shares and 19,837 Class A shares, respectively.
I. COMMITMENTS AND CONTINGENCIES
The Company has various operating lease commitments for equipment, land and
office space. The Company has also entered into commitments for various
television film exhibition rights for which the license periods have not yet
commenced. Rent expense resulting from operating leases for the years ended
December 31, 1998, 1997 and 1996 were $1.8 million, $1.4 million and $501,000,
respectively. Future minimum payments under operating leases with initial or
remaining noncancelable lease terms in excess of one year and obligations under
film exhibition rights for which the license period have not yet commenced are
as follows (in thousands):
LEASE FILM TOTAL
---------- ---------- ---------
1999 $1,411 $1,550 $ 2,961
2000 877 3,656 4,533
2001 661 2,428 3,089
2002 344 1,535 1,879
2003 137 302 439
Thereafter 714 421 1,135
------ ------ -------
$4,144 $9,892 $14,036
====== ====== =======
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.
70
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
J. INFORMATION ON BUSINESS SEGMENTS
The Company operates in three business segments: broadcasting, publishing
and paging. The broadcasting segment operates ten television stations located in
the southeastern and midwestern United States at December 31, 1998. The
publishing segment operates three daily newspapers in three different markets,
and an area weekly advertising only publication in Georgia. The paging
operations are located in Florida, Georgia, and Alabama. The following tables
present certain financial information concerning the Company's three operating
segments (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
--------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating revenues:
Broadcasting $ 91,007 $ 72,300 $ 54,981
Publishing 29,330 24,536 22,845
Paging 8,553 6,712 1,479
-------- -------- --------
$128,890 $103,548 $ 79,305
======== ======== ========
Operating income:
Broadcasting (1) $ 21,113 $ 17,509 $ 14,106
Publishing 2,867 2,206 1,980
Paging 947 1,015 (7)
-------- -------- --------
Total operating income (1) 24,927 20,730 16,079
Gain on disposition of television stations 70,572 -0- 5,671
Miscellaneous income and (expense), net (242) (31) 33
Interest expense (25,454) (21,861) (11,689)
-------- -------- --------
Income (loss) before income taxes $ 69,803 $ (1,162) $ 10,094
======== ======== ========
</TABLE>
Operating income is total operating revenue less operating expenses,
excluding gain on disposition of television stations, miscellaneous income and
expense (net) and interest. Corporate and administrative expenses are allocated
to operating income based on net segment revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Depreciation and amortization expense:
Broadcasting $14,713 $11,024 $ 5,554
Publishing 1,554 1,973 1,730
Paging 1,773 1,480 329
------- ------- -------
18,040 14,477 7,613
Corporate 77 42 50
------- ------- -------
Total depreciation and amortization expense $18,117 $14,519 $ 7,663
======= ======= =======
</TABLE>
71
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
J. INFORMATION ON BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Media cash flow:
Broadcasting $ 38,446 $ 30,519 $ 22,594
Publishing 5,214 4,856 4,957
Paging 2,964 2,686 401
-------- -------- --------
$ 46,624 $ 38,061 $ 27,952
======== ======== ========
Media cash flow reconciliation:
Operating income (1) $ 24,927 $ 20,730 $ 16,079
Add:
Amortzation of program license rights 4,251 3,501 2,743
Depreciation and amortization 18,117 14,519 7,663
Corporate overhead 3,063 2,528 3,219
Non-cash compensation and contribution to 401(k)
Plan, paid in Common Stock 476 412 1,125
Less:
Payments for program license liabilities (4,210) (3,629) (2,877)
-------- -------- --------
$ 46,624 $ 38,061 $ 27,952
======== ======== ========
Capital expenditures:
Broadcasting $ 6,718 $ 5,000 $ 2,674
Publishing 934 4,235 692
Paging 1,461 975 -0-
-------- -------- --------
9,113 10,210 3,366
Corporate 158 162 30
-------- -------- --------
Total capital expenditures $ 9,271 $ 10,372 $ 3,396
======== ======== ========
DECEMBER 31,
--------------------------------
1998 1997 1996
-------- --------- -----------
(IN THOUSANDS)
Identifiable assets:
Broadcasting $410,039 $287,254 $245,614
Publishing 17,196 19,818 16,301
Paging 25,563 23,950 23,764
-------- -------- --------
452,798 331,022 285,679
Corporate 16,176 14,029 12,985
-------- -------- --------
Total identifiable assets $468,974 $345,051 $298,664
======== ======== ========
</TABLE>
(1) Operating income excludes gain on disposition of television stations of
$70.6 million recognized for the exchange of WALB in 1998 and $5.7 million
recognized for the KTVE Sale in 1996.
72
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL QUARTERS
-----------------------------------------
FIRST SECOND THIRD FOURTH
--------- -------- ---------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Operating revenues $27,982 $32,061 $31,845 $37,002
Operating income (1) 4,868 7,210 5,020 7,829
Net income (loss) (1,483) 837 41,830 475
Net income (loss) available to common stockholders (1,842) 478 41,484 221
Basic income (loss) per share (0.16) 0.04 3.48 0.02
Diluted income (loss) per share $ (0.16) $ 0.04 $ 3.31 $ 0.02
YEAR ENDED DECEMBER 31, 1997:
Operating revenues $22,761 $25,499 $25,984 $29,304
Operating income 4,337 6,124 4,271 5,998
Net income (loss) (461) 622 (1,162) (401)
Net income (loss) available to common stockholders (811) 272 (1,513) (760)
Basic income (loss) per share (0.07) 0.02 (0.13) (0.06)
Diluted income (loss) per share $ (0.07) $ 0.02 $ (0.13) $ (0.06)
</TABLE>
(1) Operating income excludes $70.6 million gain on exchange of television
station recognized from the disposition of WALB.
Because of the method used in calculating per share data, the quarterly per
share data will not necessarily add to the per share data as computed for the
year.
The third quarter of 1998 includes the Busse-WALB Transactions. As a result
of the exchange of WALB for WEAU, the Company recognized a pre-tax gain of
approximately $70.6 million and estimated deferred income taxes of approximately
$27.5 million (SEE NOTE B).
On August 20, 1998, the Board of Directors declared a 50% stock dividend,
payable on September 30, 1998, to stockholders of record of the Class A Common
Stock and Class B Common Stock on September 16, 1998. This stock dividend
effected a three for two stock split. All applicable share and per share data
have been adjusted to give effect to the stock split.
73
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
74
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information with respect to the directors and
executive officers of the Company as of March 11, 1999:
<TABLE>
<CAPTION>
EXECUTIVE
DIRECTOR OFFICER
NAME SINCE SINCE AGE POSITION
- ------------------------ ---------- ----------- ------ -----------------------------------------
<S> <C> <C> <C> <C>
J. Mack Robinson 1993 1996 75 Director, President and Chief Executive
Officer
Robert S. Prather, Jr. 1993 1996 54 Director and Executive Vice President
Robert A. Beizer N/A 1996 59 Vice President for Law and Development
and Secretary
James C. Ryan N/A 1998 38 Vice President - Finance and Chief
Financial Officer
Thomas J. Stultz N/A 1996 47 Vice President and President-Publishing
Division
Wayne M. Martin N/A 1998 52 Regional Vice President - Television
William E. Mayher, III 1990 N/A 60 Chairman of the Board of Directors
Richard L. Boger 1991 N/A 52 Director
Hilton H. Howell, Jr. 1993 N/A 37 Director
Zell Miller 1999 N/A 66 Director
Howell W. Newton 1991 N/A 52 Director
Hugh Norton 1987 N/A 66 Director
Harriett J. Robinson 1997 N/A 68 Director
</TABLE>
J. MACK ROBINSON has served as a director of the Company since 1993 and as
the Company's President and Chief Executive Officer since 1996. Mr. Robinson has
served as Chairman of the Board of Bull Run Corporation, a principal stockholder
of the Company since 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. He serves as a director of the following companies: Bankers Fidelity Life
Insurance Company, American Independent Life Insurance Company, Georgia Casualty
& Surety Company, American Southern Insurance Company and American Safety
Insurance Company. He is director EMERITUS of Wachovia Corporation. He is a
member of the Executive Committee and Management Personnel Committee of the
Company's Board of Directors. Mr. Robinson is the husband of Harriett J.
Robinson.
ROBERT S. PRATHER, JR. has served as a director of the Company since 1993
and as Executive Vice President of the Company since 1996. He has served as
President and Chief Executive Officer and a director of Bull Run Corporation
since 1992. He serves as a director of the following companies: Host
Communications, Inc., Capital Sports Properties, Inc., Universal Sports America,
Inc., Rawlings Sporting Goods Company, Inc. and The Morgan Group, Inc. He is a
member of the Executive Committee and Management Personnel Committee of the
Company's Board of Directors.
ROBERT A. BEIZER has served as Vice President for Law and Development and
Secretary of the Company since 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 in
the law firm of Sidley & Austin and was head of their communications practice
group in Washington, D.C. He is a past president of the Federal Communications
Bar Association and has served as a member of the ABA House of Delegates.
75
<PAGE>
JAMES C. RYAN has served as the Company's Vice President-Finance and Chief
Financial Officer since October 1998. He was the Chief Financial Officer of
Busse Broadcasting Corporation from 1987 until its acquisition by the Company in
1998.
THOMAS J. STULTZ has served as Vice President of the Company and President
of the Company's Publishing Division since 1996. Prior to joining the Company,
he served as Vice President of Multimedia, Inc. from 1988 to 1995, having
responsibility for developing and coordinating Multimedia's newspaper marketing
initiatives and directly supervising several Multimedia daily and non-daily
publications.
WAYNE M. MARTIN has served as the Company's Regional Vice
President-Television since July 1998. He was also appointed President of
WVLT-TV, the Company's subsidiary in Knoxville, Tennessee. Since 1993, Mr.
Martin has served as President of Gray Kentucky Television, Inc., a subsidiary
of the Company, which operates WKYT-TV, in Lexington, Kentucky and WYMT-TV, in
Hazard, Kentucky. Wayne has over twelve years of experience in the broadcast
industry.
WILLIAM E. MAYHER, III has served as a director of the Company since 1990
and was a neurosurgeon in Albany, Georgia from 1970 to 1998. He also serves as a
director of the following: Medical College of Georgia Foundation, American
Association of Neurological Surgeons, Gaston Loughlin, Inc. and Palmyra Medical
Centers. Dr. Mayher is a member of the Executive Committee and Management
Personnel Committee of the Company's Board of Directors and has served as
Chairman of the Company's Board of Directors since August 1993.
RICHARD L. BOGER has served as a director of the Company since 1991. Mr.
Boger has also been President and Chief Executive Officer of Export Insurance
Services, Inc., an insurance organization, and a director of CornerCap Group of
Funds, a "Series" investment company since prior to 1992. Mr. Boger is a member
of the Executive Committee of the Company's Board of Directors and he is
Chairman of the Management Personnel Committee of the Company's Board of
Directors.
HILTON H. HOWELL, JR. has served as a director of the Company since 1993.
Mr. Howell has served as President and Chief Executive Officer of Atlantic
American Corporation, an insurance holding company, since 1995 and Executive
Vice President from 1992 to 1995. He has been Executive Vice President and
General Counsel of Delta Life Insurance Company and Delta Fire and Casualty
Insurance Company since 1991, and Vice Chairman and Executive Vice President of
Bankers Fidelity Life Insurance Company and Georgia Casualty & Surety Company
since 1992. He has been a director, Vice President and Secretary of Bull Run
Corporation since 1994. He also serves as a director of the following companies:
Atlantic American Corporation, Bankers Fidelity Life Insurance Company, American
Independent Life Insurance Company, Delta Life Insurance Company, Delta Fire and
Casualty Insurance Company, Georgia Casualty & Surety Company, American Southern
Insurance Company, and American Safety Insurance Company. Mr. Howell is a member
of the Audit Committee of the Company's Board of Directors. He is the son-in-law
of J. Mack Robinson and Harriett J. Robinson.
ZELL MILLER has served as a director of the Company since January 1999. Mr.
Miller was Governor of the State of Georgia from January 1991 to January 1999.
He also serves as a director of the following companies: Post Properties, Inc.,
Georgia Power Company, United Community Banks, Inc. and Law Companies Group. He
is a professor at Young Harris College and Emory University.
HOWELL W. NEWTON has served as a director of the Company since 1991. He has
been President and Treasurer of Trio Manufacturing Co., a textile manufacturing
company since 1978. Mr. Newton is Chairman of the Audit Committee of the
Company's Board of Directors.
76
<PAGE>
HUGH NORTON has served as a director of the Company since 1987. Mr. Norton
has served as President of Norco, Inc., an insurance agency since 1973. He is
one of the founders and directors of Community Bank of Georgia. Mr. Norton is
also a real estate developer in Destin, Florida. He is a member of the
Management Personnel Committee of the Company's Board of Directors.
HARRIETT J. ROBINSON has served as a director of the Company since 1997 and
she has been a director of Atlantic American Corporation since 1989. Mrs.
Robinson has also been a director of Delta Life Insurance Company and Delta Fire
and Casualty Insurance Company since 1967. Mrs. Robinson is the wife of J.
Mack Robinson and mother-in-law of Hilton H. Howell, Jr.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
directors, executive officers and persons who own more than ten percent of a
registered class of a company's equity securities to file with the Securities
and Exchange Commission ("SEC") initial reports of ownership (Form 3) and
reports of changes in ownership (Forms 4 and 5) of such class of equity
securities. Officers, directors and greater than ten percent shareholders of the
Company are required by SEC regulation to furnish the Company with copies of all
such Section 16(a) reports that they file.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company during the year ended December 31, 1998,
all Section 16(a) filing requirements applicable to its officers, directors and
ten percent beneficial owners were met.
77
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth a summary of the compensation of the
Company's President and Chief Executive Officer and the other executive officers
whose annual compensation exceeded $100,000 during the year ended December 31,
1998 (the "named executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
--------------------------
SECURITIES
ANNUAL COMPENSATION RESTRICTED UNDERLYING
NAME AND ------------------------------------ STOCK OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARDS SARS (#) (1) COMPENSATION ($)
- -------------------- ------ ---------- --------- -------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
J. Mack Robinson,(3) 1998 72,308 -0- -0- 125,000 (2) 13,000 (4)
President, Chief 1997 -0- -0- -0- 75,000 (5) 14,620 (4)
Executive 1996 -0- -0- -0- 11,250 (6) 9,300 (4)
Officer and a
Director
Robert S. Prather, 1998 -0- -0- -0- 125,337 (2) 13,000 (4)
Jr., (7)
Executive Vice 1997 -0- -0- -0- 75,000 (5) 14,620 (4)
President and a 1996 -0- -0- -0- 11,250 (6) 8,800 (4)
Director
Robert A. Beizer, 1998 215,000 -0- -0- 21,000 (2) 13,080 (9)
Vice President-Law 1997 210,000 -0- -0- 10,500 6,619 (9)
& Development 1996 169,231 -0- -0- 22,500 -0-
James C. Ryan, (10) 1998 34,269 5,000 -0- 22,500 (2) 15,603 (11)
Vice President-
Finance and
Chief
Financial
Officer
Thomas J. Stultz, 1998 196,000 35,000 -0- 22,500 (2) 7,166 (8)
Vice President, 1997 187,000 25,000 -0- 22,500 (5) 59,199 (8)
President-Publishing 1996 152,788 150,000 -0- -0- -0-
Division
Wayne M. Martin,(12) 1998 219,326 170,454 -0- 11,250 (2) 8,829 (13)
Regional Vice
President-Television
Joseph A. Carriere, (14) 1998 125,524 -0- -0- -0- (2) 203,766 (15)
Vice President- 1997 187,000 -0- -0- 7,500 (16) 6,245 (17)
Television 1996 172,692 100,000 -0- -0- 5,698 (17)
</TABLE>
(1) On August 20, 1998, the Company's Board of Directors declared a 50%
stock dividend, payable on September 30, 1998, to stockholders of record
of the Class A and Class B Common Stock on September 16, 1998. This
stock dividend was effected by means of a three for two stock split. All
applicable share and per share data have been adjusted to give effect to
the stock split.
(2) These awards are set forth below in detail in the table titled
"Option/SAR Grants in 1998."
(3) Mr. Robinson was appointed President and Chief Executive Officer of the
Company in September 1996, but received no salary for this position
until September 1998. Mr.
Robinson is compensated at an annual salary of $200,000.
78
<PAGE>
(4) Represents compensation paid for services rendered as a member of the
Company's Board of Directors.
(5) Represents stock options to purchase Class B Common Stock pursuant to
the Company's 1992 Long Term Incentive Plan. This 1997 stock option
grant was replaced by a repricing grant, effective December 11, 1998.
The December 11, 1998 grant repriced the 1997 grant at a price which
approximated the market price of the Company's Class B Common Stock on
December 11, 1998. The repriced grant was included in 1998 stock options
granted as a 1998 grant.
(6) Represents stock options to purchase Class B Common Stock under the
Company's Non-Employee Director Stock Option Plan.
(7) Mr. Prather became an officer of the Company in September 1996.
(8) $4,000, $1,963 and $1,203 represent payments or accruals by the Company
in 1998 for matching contributions to the Company's 401(k) plan, term
life insurance premiums and long term disability premiums, respectively.
$54,700, $3,596 and $903 represent payments or accruals by the Company
in 1997 for relocation costs, matching contributions to the Company's
401(k) plan and long term disability premiums, respectively.
(9) $4,000, $5,589 and $3,491 represent payments or accruals by the Company
in 1998 for matching contributions to the Company's 401(k) plan, term
life insurance premiums and long term disability premiums, respectively.
$4,000 and $2,619 represent payments or accruals by the Company in 1997
for matching contributions to the Company's 401(k) plan and long term
disability premiums, respectively.
(10) Mr. Ryan joined the Company on October 1, 1998, compensated at an annual
salary of $135,000.
(11) Represents payments or accruals by the Company for relocation costs.
(12) Mr. Martin has served as the Company's Regional Vice
President-Television since July 1998. He was also appointed President of
WVLT-TV, the Company's subsidiary in Knoxville, Tennessee. Prior to his
appointment as an executive officer, Mr. Martin has served as President
of Gray Kentucky Television, Inc., a subsidiary of the Company, which
operates WKYT-TV, in Lexington, Kentucky and WYMT-TV, in Hazard,
Kentucky.
(13) $4,000, $3,249 and $1,580 represent payments or accruals by the Company
for matching contributions to the Company's 401(k) plan, term life
insurance premiums and long term disability premiums, respectively.
(14) Mr. Carriere resigned from the Company, effective August 1, 1998.
(15) $190,000, $2,919, $5,291 and $5,556 represent payments or accruals by
the Company for consulting, matching contributions to the Company's
401(k) plan, term life insurance premiums and health insurance premiums,
respectively.
(16) Upon Mr. Carriere's resignation, this unvested stock option grant was
forfeited.
(17) $4,000 and $2,245 represent payments or accruals by the Company in 1997
for matching contributions to the Company's 401(k) plan and term life
insurance premiums, respectively. $3,750 and $1,948 represent payments
or accruals by the Company in 1996 for matching contributions to the
Company's 401(k) plan and term life insurance premiums, respectively.
79
<PAGE>
STOCK OPTIONS GRANTED
The following table contains information on stock options granted to the
Company during the year ended December 31, 1998. Under the Company's 1992 Long
Term Incentive Plan (the "Incentive Plan"), all officers and key employees are
eligible for grants of stock options and other stock-based awards. Options
granted are exercisable over a three-year period beginning on the second
anniversary of the grant date and expire one month after termination of
employment. The total number of shares issuable under the Incentive Plan is not
to exceed 900,000 shares of which 300,000 are Class A Common Stock and 600,000
are Class B Common Stock, subject to adjustment in the event of any change in
the outstanding shares of such stock by reason of a stock dividend, stock split,
recapitalization, merger, consolidation or other similar changes generally
affecting shareholders of the Company.
The Incentive Plan is administered by the Incentive Plan Committee which
consists of members of the Management Personnel Committee of the Board of
Directors who are not eligible for selection as participants under the Incentive
Plan. The Incentive Plan is intended to provide additional incentives and
motivation for the Company's employees. The Incentive Plan Committee, by
majority action thereof, is authorized in its sole discretion to determine the
individuals to whom the benefits will be granted, the type and amount of such
benefits and the terms thereof; and to prescribe, amend and rescind rules and
regulations relating to the Incentive Plan, among other things.
On August 20, 1998, the Board of Directors declared a 50% stock dividend,
payable on September 30, 1998, to stockholders of record of the Class A Common
Stock and Class B Common Stock on September 16, 1998. This stock dividend was
effected by means of a three for two stock split. All applicable share and per
share data have been adjusted to give effect to the stock split.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN 1998
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
CLASS SECURITIES OPTIONS EXERCISE APPRECIATION FOR
OF UNDERLYING GRANTED OR OPTION TERM (1)
COMMON OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ------------------
NAME STOCK GRANTED 1998 ($/SHARE) DATE 5% ($) 10% ($)
- ----------------- --------------------- -------------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Mack Robinson Class A 10,000 (2) 1.8 17.81 11/19/03 49,213 108,747
Class B 40,000 (2) 7.1 14.00 11/19/03 154,718 341,886
Class B 75,000 (3) 13.3 14.50 9/25/02 234,363 504,709
Robert S. Class A 9,337 (2) 1.7 17.81 11/19/03 45,950 101,537
Prather, Jr. Class B 41,000 (2) 7.3 14.00 11/19/03 158,586 350,433
Class B 75,000 (3) 13.3 14.50 9/25/02 234,363 504,709
Robert A. Beizer Class B 10,500 (4) 1.9 16.08 2/12/03 46,647 103,079
Class B 10,500 (5) 1.9 14.50 2/12/03 42,064 92,950
James C. Ryan Class B 11,250 (6) 2.0 16.13 10/5/03 50,119 110,750
Class B 11,250 (5) 2.0 14.50 10/5/03 45,068 99,589
Thomas J. Stultz Class B 22,500 (3) 4.0 14.50 9/25/02 70,309 151,413
Wayne M. Martin Class B 11,250 (3) 2.0 14.50 9/25/02 35,154 75,706
Joseph A. Carriere N/A N/A N/A N/A N/A N/A N/A
</TABLE>
(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of options immediately prior to the expiration of their
term assuming the specified compounded
80
<PAGE>
rates of appreciation (5% and 10%) on the Class A or Class B Common
Stock over the term of the options. These numbers are calculated based
on rules promulgated by the SEC and do not reflect the Company's
estimate of future stock price growth. Actual gains, if any, on stock
option exercises and Class A or Class B Common Stock holdings will be
dependent on the timing of such exercise and the future performance of
the Class A or Class B Common Stock. There can be no assurance that the
rates of appreciation assumed in this table can be achieved or that the
amounts reflected will be received by the option holder.
(2) Stock options granted effective November 19, 1998 pursuant to the
Company's Incentive Plan.
(3) Effective December 11, 1998, the Company repriced certain 1997 Class B
Common Stock grants made pursuant to the Incentive Plan, at a price
which approximated the market price of the Company's Class B Common
Stock on that day. These repriced grants effectively replaced the stock
option grants made on September 25, 1997.
(4) Stock options granted effective February 12, 1998 pursuant to the
Company's Incentive Plan. This stock option grant was replaced on
December 11, 1998, by a repricing grant as described in (5).
(5) Effective December 11, 1998, the Company repriced certain 1998 Class B
Common Stock grants made pursuant to the Incentive Plan, at a price
which approximated the market price of the Company's Class B Common
Stock on that day. These repriced grants effectively replaced the
earlier 1998 stock option grant.
(6) Stock options granted effective October 5, 1998 pursuant to the
Company's Incentive Plan. This stock option grant was replaced on
December 11, 1998, by a repricing grant as described in (5).
81
<PAGE>
STOCK OPTIONS EXERCISED
The following table sets forth information about stock options that were
exercised during 1998 and the number of shares and the value of grants
outstanding as of December 31, 1998 for each named executive.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1998
AND DECEMBER 31, 1998 OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
CLASS SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
OF ACQUIRED OPTIONS AT 12/31/98 OPTIONS AT 12/31/98 ($) (1)
COMMON ON VALUE -------------------------- -----------------------------
NAME STOCK EXERCISE REALIZED$ EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----- -------- -------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Mack Robinson (2) Class A -0- -0- -0- 10,000 -0- 5,000
Class B 11,250 61,875 -0- 115,000 -0- -0-
Robert S. Prather, Jr. (2) Class A -0- -0- -0- 9,337 -0- 4,669
Class B 11,250 61,875 -0- 116,000 -0- -0-
Robert A. Beizer Class B -0- -0- 22,500 21,000 69,845 12,469
James C. Ryan Class B -0- -0- -0- 11,250 -0- -0-
Thomas J. Stultz Class B -0- -0- -0- 22,500 -0- -0-
Wayne M. Martin (3) Class A 6,750 68,531 -0- -0- -0- -0-
Class B -0- -0- -0- 11,250 -0- -0-
Joseph A. Carriere (3) Class A 5,625 65,547 -0- -0- -0- -0-
</TABLE>
(1) Value is based on the closing price of the Company's Class A and Class B
Common Stock of $18.31 and $13.69, respectively at December 31, 1998,
less the exercise price.
(2) On December 12, 1996, the Company granted Messrs. Robinson and Prather
an option to purchase 11,250 shares each of the Company's Class B Common
Stock, at an exercise price of $10.58 per share, pursuant to the
Company's Non-employee Director Stock Option Plan. The options were
exercised in 1998.
(3) On March 30, 1995, the Company granted Messrs. Martin and Carierre an
option to purchase 6,750 and 5,625 shares of the Company's Class A
Common Stock, respectively, at an exercise price of $8.89 per share,
pursuant to the Company's Incentive Plan. The options were exercised in
1998.
SUPPLEMENTAL PENSION PLAN
The Company has entered into agreements with certain key employees to
provide these employees with supplemental retirement benefits. The benefits will
be disbursed after retirement in contractually predetermined payments of equal
monthly amounts over the employee's life, or the life of a surviving eligible
spouse, for a maximum of 15 years. The Company maintains life insurance coverage
on these individuals in adequate amounts to fund the agreements.
RETIREMENT PLAN
The Company sponsors a defined benefit pension plan, intended to be tax
qualified, for certain of its employees and the employees of any of its
subsidiaries which have been designated as participating
82
<PAGE>
companies under the plan. A participating employee who retires on or after
attaining age 65 and who has completed five years of service upon retirement may
be eligible to receive during his lifetime, in the form of monthly payments, an
annual pension equal to (i) 22% of the employee's average earnings for the
highest five consecutive years during the employee's final 10 years of
employment multiplied by a factor, the numerator of which is the employee's
years of service credited under the plan before 1994 and the denominator of
which is the greater of 25 or the years of service credited under the plan, plus
(ii) .9% of the employee's monthly average earnings for the highest five
consecutive years in the employee's final 10 years of employment added to .6% of
monthly average earnings in excess of Social Security covered compensation, and
multiplied by the employee's years of service credited under the plan after
1993, with a maximum of 25 years minus years of service credited under (i)
above. For participants as of December 31, 1993, there is a minimum benefit
equal to the projected benefit under (i) at that time. For purposes of
illustration, pensions estimated to be payable upon retirement of participating
employees in specified salary classifications are shown in the following table:
<TABLE>
<CAPTION>
PENSION PLAN TABLE
YEARS OF SERVICE
-------------------------------------------------------------------------
REMUNERATION (1) 10 15 20 25 30 35
- ---------------------- ------------------------ ----------- ----------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 15,000 $ 1,335 $ 1,995 $ 2,655 $ 3,315 $ 3,300 $ 3,300
25,000 2,225 3,325 4,425 5,525 5,500 5,500
50,000 5,016 7,216 9,416 11,616 11,000 11,000
75,000 7,991 11,291 14,591 17,891 16,500 16,500
100,000 10,966 15,366 19,766 24,166 22,000 22,000
150,000 16,916 23,516 30,116 36,716 33,000 33,000
200,000 19,416 28,216 37,016 45,816 36,667 37,714
250,000 and above 20,262 29,908 39,554 49,199 40,191 41,339
</TABLE>
(1) Five-year average annual compensation.
Employees may become participants in the plan, provided that they have
attained age 21 and have completed one year of service. Average earnings are
based upon the salary paid to a participating employee by a participating
company. Pension compensation for a particular year as used for the calculation
of retirement benefits includes salaries, overtime pay, commissions and
incentive payments received during the year and the employee's contribution to
the Capital Accumulation Plan (as defined herein). Pension compensation for 1998
differs from compensation reported in the Summary Compensation Table in that
pension compensation includes any annual incentive awards received in 1998 for
services in 1997 rather than the incentive awards paid in 1999 for services in
1998. The maximum annual compensation considered for pension benefits under the
plan in 1998 was $160,000.
As of December 31, 1998, the named executive officers of the Company have
the following years of credited service:
NAME YEARS OF CREDITED SERVICE
- -------------------- ---------------------------
Thomas J. Stultz 2
Robert A. Beizer 2
Wayne M. Martin 4
Joseph A. Carriere 4
83
<PAGE>
CAPITAL ACCUMULATION PLAN
Effective October 1, 1994, the Company adopted the Gray Communications
Systems, Inc. Capital Accumulation Plan (the "Capital Accumulation Plan") for
the purpose of providing additional retirement benefits for substantially all
employees. The Capital Accumulation Plan is intended to meet the requirements of
Section 401(k) of the Internal Revenue Code of 1986, as amended.
Contributions to the Capital Accumulation Plan are made by the employees of
the Company. The Company matches a percentage of each employee's contribution
which does not exceed 6% of the employee's gross pay. The percentage match is
declared by the Board of Directors before the beginning of each Capital
Accumulation Plan Year and was made with a contribution of the Class A Common
Stock through the year ended December 31, 1996 and thereafter has been and will
be made with Class B Common Stock. The percentage match declared for the year
ended December 31, 1998 was 50%. The Company matching contributions vest based
upon an employee's number of years of service, over a period not to exceed five
years.
COMPENSATION OF DIRECTORS
The standard arrangement for directors' fees is set forth in the table
below.
DESCRIPTION AMOUNT
- -----------------------------------------------------------------------------
Chairman of the Board annual retainer fee $18,000
Director's annual retainer fee 12,000
Director's fee per Board of Directors' meeting 1,000
Chairman of the Board fee per Board of Directors' meeting 1,200
Committee Chairman fee per committee meeting 1,200
Committee member fee per Committee meeting 1,000
Directors are paid 40% of the above fee arrangement for participation by
telephone in any meeting of the Board of Directors or any committee thereof.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
Robert A. Beizer and the Company entered into an employment agreement dated
February 12, 1996, for a two-year term which automatically extends for three
successive one-year periods, subject to certain termination provisions. The
agreement provides that Mr. Beizer shall be employed as Vice President for Law
and Development of the Company with an initial annual base salary of $200,000
and a grant of options to purchase 22,500 shares of Class A Common Stock with an
exercise price of $12.917 per share under the Incentive Plan at the inception of
his employment. In December 1996, the Board of Directors approved an amendment
to Mr. Beizer's contract which replaced this option with the grant of an option
to purchase 22,500 shares of Class B Common Stock with an exercise price of
$10.583 per share. The amended Agreement provides that Mr. Beizer's base salary
shall be increased yearly based upon a cost of living index and he will receive
non-qualified options to purchase 10,500 shares of Class B Common Stock annually
during the term of the agreement at an exercise price per share equal to the
fair market value of the Class B Common Stock on the date of the grant.
Accordingly, on February 12, 1997, 1998, and 1999 , he was granted options to
purchase an additional 10,500 shares of Class B Common Stock at $12.50, $16.08
and $14.1875 per share, respectively. All options granted are exercisable over a
three-year period beginning upon the second anniversary of the grant date. If
there is a "change of control" of the Company, Mr. Beizer will be paid a lump
sum amount equal to his then current base salary for the remaining term of the
agreement and will be granted any remaining stock options to which he would have
been entitled. For purposes of the agreement, "change of control" is defined as
any change in the control of the Company that would be required to be reported
in response to Item 6(e) of Schedule 14A
84
<PAGE>
promulgated under the Securities Exchange Act of 1934. Mr. Beizer has agreed
that during the term of his agreement and for two years thereafter, he will be
subject to certain non-competition provisions.
The Management Personnel Committee recommended, and Mr. Beizer agreed, to
amend his employment contract to provide for options for Class B Common Stock
rather than Class A Common Stock since it had converted the Company's matching
contribution under the Capital Accumulation Plan and the non-employee director
options to Class B Common Stock. In an effort to make all future options
consistent, the Management Personnel Committee has recommended that all future
officer and employee executive stock options entitle the holders thereof to
purchase Class B Common Stock
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Richard L. Boger, William E. Mayher, III, Robert S. Prather, Jr., Hugh
Norton and J. Mack Robinson are the members of the Management Personnel
Committee which serves as the Compensation Committee of the Company. Messrs.
Robinson and Prather are President and Chief Executive Officer and Executive
Vice President of the Company, respectively.
J. Mack Robinson, President of the Company serves on the Compensation
Committee of Bull Run Corporation ("Bull Run"). Mr. Robinson and Robert S.
Prather, Jr., President of Bull Run and Executive Vice President of the Company
serve on the Compensation Committee of the Company.
Gray Kentucky Television, Inc., a subsidiary of the Company ("Gray
Kentucky"), is a party to a rights sharing agreement with Host Communications,
Inc. ("Host") and certain other parties not affiliated with the Company,
pursuant to which the parties agreed to exploit Host's rights to broadcast and
market certain University of Kentucky football and basketball games and related
activities. Pursuant to such agreement, Gray Kentucky is licensed to broadcast
certain University of Kentucky football and basketball games and related
activities. Under this agreement, Gray Kentucky also provides Host with
production and certain marketing services and Host provides accounting and
various marketing services. During the year ended December 31, 1998, the Company
received approximately $100,000 from this joint venture. See Item 13 "Certain
Relationships and Related Transactions" for a description of certain
relationships between Messrs. Prather and Robinson and the Company, Bull Run,
Host and CSP (as defined below).
Bull Run currently owns 51.5% of the outstanding common stock of Capital
Sports Properties, Inc. ("CSP"). CSP's assets consist of all of the outstanding
preferred stock of Host and 49.0% of Host's outstanding common stock. Bull Run's
direct common equity ownership in Host, plus Bull Run's indirect common equity
ownership in Host through its investment in CSP, was 32.6% as of December 31,
1998. Robert S. Prather, Jr., Executive Vice President and a member of the
Company's Board of Directors, is a member of the Board of Directors of both CSP,
Bull Run and Host.
The Company's Board of Directors approved payments to Bull Run of a finders
fee of approximately $1,980,000 in connection with the acquisition of all of the
outstanding capital stock of Busse Broadcasting Corporation ("Busse"). The
purchase price was $112,000,000 plus Busse's cash balance as of June 30, 1998.
The purchase price includes the assumption of Busse's indebtedness, including
its 11 5/8% Senior Secured Notes dues 2000. Immediately prior to the Company's
acquisition of Busse, Cosmos Broadcasting Corporation ("Cosmos") acquired the
assets of WEAU-TV ("WEAU") from Busse in exchange for the assets of WALB-TV,
Inc. ("WALB"), the Company's NBC affiliate in Albany, Georgia. In exchange for
the assets of WALB, the Company received the assets of WEAU, which were valued
at $66,000,000 and approximately $12,000,000 in cash for a total value of
$78,000,000. The finders fee was allocated, at $1,200,000 for the Busse
transaction and $780,000 for the WALB transaction.
85
<PAGE>
ISSUANCE OF PREFERRED STOCK AND WARRANTS
The Company paid cash dividends on the Series A Preferred Stock and Series
B Preferred Stock of $800,000 and $63,750, respectively to Bull Run in 1998.
Bull Run is the only owner of the Series A Preferred Stock of the Company and
owns 50% of the outstanding Series B Preferred Stock of the Company. Mr.
Robinson and certain affiliates own the remaining 50% of the Series B Preferred
Stock of the Company. In addition, the Company issued 25.4692 shares of Series B
Preferred Stock to Bull Run and 25.4692 shares of Series B Preferred Stock pro
rata to Mr. Robinson and certain affiliates as dividends on the Series B
Preferred Stock in 1998. Each share of Series B Preferred Stock is valued at
$10,000 per share. Of the total amount of 1,110.9384 Series B Preferred Shares
outstanding during 1998, the Company redeemed 760.9384 shares pro rata at a
total redemption price of $7,609,384. The Company executed an Option Agreement
with Bull Run in March 1996, whereby the Company has the option to purchase Bull
Run's investment in the common stock of Sarkes Tarzian, Inc. Upon exercise of
the option, the Company will pay Bull Run an amount equal to Bull Run's purchase
price for the Tarzian investment plus related costs. In connection with the
Option Agreement, the Company granted to Bull Run warrants to purchase up to
100,000 shares of the Company's Class B Common Stock at $13.625 per share. The
warrants will vest immediately upon the Company's exercise of its option to
purchase the Tarzian investment. The option currently expires May 31, 1999 but
may be extended month to month by the Company upon payment of an established fee
through December 31, 2001.
86
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the ownership
of Class A Common Stock and Class B Common Stock as of March 11, 1999 by (i) any
person who is known to the Company to be the beneficial owner of more than five
percent of the Class A Common Stock or the Class B Common Stock, (ii) all
directors, (iii) all executive officers named in the Summary Compensation Table
herein and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK COMBINED
BENEFICIALLY OWNED BENEFICIALLY OWNED VOTING PERCENT
--------------------- --------------------- OF COMMON
NAME SHARES PERCENT SHARES PERCENT STOCK
- --------------------------------------- ----------- -------- ----------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Robert A. Beizer (1) -0- 0.0% 33,509 * *
Richard L. Boger (1) 11,651 * 13,744 * *
Joseph A. Carriere 6,075 * -0- 0.0% *
Hilton H. Howell, Jr. (1), (2), (3), (4) 3,523,782 45.4% 24,750 * 42.6%
Wayne M. Martin 362 * 517 * *
William E. Mayher, III (1) 13,500 * 18,750 * *
Zell Miller (1) -0- 0.0% 7,500 * *
Howell W. Newton (1) 2,625 * 9,500 * *
Hugh Norton (1) 13,500 * 18,750 * *
Robert S. Prather, Jr. (2), (5) 3,140,073 40.6% 24,200 * 38.1%
Harriett J. Robinson (1), (2), (4), (6) 4,472,082 55.8% 103,900 2.0% 52.5%
J. Mack Robinson (1), (2), (4), (7) 4,472,082 55.8% 103,900 2.0% 52.5%
James C. Ryan -0- 0.0% 2,019 * *
Thomas J. Stultz 2,250 * 1,474 * *
Bull Run Corporation (8) 2,921,397 37.8% 11,750 * 35.4%
The Capital Group Companies,
Inc. (9) -0- 0.0% 401,600 7.8% *
Mario J. Gabelli (10) -0- 0.0% 1,183,200 23.1% 1.6%
Mellon Bank Corporation (11) -0- 0.0% 450,000 8.8% *
George H. Nader (12) 359,998 5.3% -0- 0.0% 4.9%
Shapiro Capital Management
Company, Inc. (13) 27,598 * 1,562,993 30.5% 2.5%
Standish Ayer and Wood, Inc. (14) -0- 0.0% 474,100 9.2% *
All directors and executive
officers as a group 4,836,756 60.7% 241,722 4.6% 57.3%
</TABLE>
* Less than 1%.
(1) Includes options to purchase Class B Common Stock as follows: each of
Messrs. Boger, Howell, Mayher, Newton, Norton, Miller and Mrs. Robinson
- 7,500 shares of Class B Common Stock; Mr. Beizer - 33,000 shares of
Class B Common Stock.
(2) Includes 2,017,647 shares of Class A Common Stock and 11,750 shares of
Class B Common Stock owned by Bull Run Corporation and warrants to
purchase 903,750 shares of Class A Common Stock by Bull Run Corporation
as described in footnote (8) below, because Messrs. Howell, Prather and
Robinson are directors and officers of Bull Run Corporation and Messrs.
Prather and Robinson are principal shareholders of Bull Run Corporation
and Mrs. Robinson is the spouse of Mr. Robinson and, as such, may be
deemed to have the right to vote or dispose of such shares. Each of
Messrs. Howell, Prather, Robinson and Mrs. Robinson disclaims beneficial
ownership of the shares owned by Bull Run Corporation.
87
<PAGE>
(3) Includes 58,575 shares of Class A Common Stock owned by Mr. Howell's
wife, over which he disclaims beneficial ownership. Excludes 97,500
Class A shares held in trust for Mr. Howell's wife.
(4) Includes as to Messrs. Robinson and Howell and Mrs. Robinson, an
aggregate of 480,060 shares of Class A Common Stock and 6,000 shares of
Class B Common Stock owned by certain companies of which Mr. Howell is
an officer and a director. Mr. Robinson is also an officer, director and
a principal or sole shareholder and Mrs. Robinson is also a director of
these companies. Also includes warrants to purchase 28,500 shares of
Class A Common Stock by one of the above described companies.
(5) Includes 225 shares of Class A Common Stock owned by Mr. Prather's wife,
over which he disclaims beneficial ownership.
(6) Includes an aggregate of 366,875 shares of Class A Common Stock and
66,250 shares of Class B Common Stock owned by Mrs. Robinson's husband
directly. Also includes warrants to purchase 85,500 shares of Class A
Common Stock held by Mrs. Robinson and warrants to purchase 57,000
shares of Class A Common Stock held by Mrs. Robinson's husband. Includes
243,750 shares of Class A Common Stock and 10,000 shares of Class B
Common Stock held as trustee for their daughters. Includes warrants to
purchase 114,000 shares of Class A Common Stock held as trustee for
their daughters. Does not include warrants held by Mrs. Robinson's
husband and certain of his affiliates to purchase shares of Class A
Common Stock which are not vested and therefore are not exercisable
within 60 days. Does not include 1,000 shares of Series A Preferred
Stock owned by Bull Run Corporation, none of which is voting or
convertible. Also does not include 350 shares of Series B Preferred
stock none of which is voting or convertible owned by Mr. Robinson and
certain of his affiliates. See "Issuance of Preferred Stock and
Warrants." Mrs. Robinson's address is 3500 Tuxedo Road, NW, Atlanta,
Georgia 30305.
(7) Includes an aggregate of 418,750 shares of Class A Common Stock and
12,400 shares of Class B Common Stock owned by Mr. Robinson's wife
directly and as trustee for their daughters, over which he disclaims
beneficial ownership. Also includes warrants to purchase 57,000 shares
of Class A Common Stock held by Mr. Robinson and warrants to purchase
85,500 shares of Class A Common Stock held by Mr. Robinson's wife.
Includes warrants to purchase 114,000 shares of Class A Common Stock
owned held by Mr. Robinson's wife as trustee for their daughters.
Does not include warrants held by Mr. Robinson and certain of his
affiliates to purchase shares of Class A Common Stock which have not
vested and therefore are not exercisable within 60 days. Does not
include 1,000 shares of Series A Preferred Stock owned by Bull Run
Corporation, none of which is voting or convertible. Also does not
include 350 shares of Series B Preferred stock none of which is voting
or convertible owned by Mr. Robinson and certain of his affiliates. See
"Issuance of Preferred Stock and Warrants." Mr. Robinson's address is
4370 Peachtree Road NE, Atlanta, Georgia 30319.
(8) Owned by Bull Run Corporation through its wholly-owned subsidiary,
DataSouth Computer Corporation. Includes warrants to purchase 903,750
shares of Class A Common Stock which are exercisable within 60 days.
Does not include 1,000 shares of Series A Preferred Stock and 175 shares
of Series B Preferred Stock none of which is voting or convertible. Does
not include warrants to purchase shares of Class A Common Stock which
are not vested and therefore are not exercisable within 60 days. See
"Issuance of Preferred Stock and Warrants." The address of Bull Run
Corporation is 4370 Peachtree Road NE, Atlanta, Georgia 30319.
88
<PAGE>
(9) This information was furnished to the Company on a Schedule 13G filed by
The Capital Group Companies, Inc. and Capital Guardian Trust Company.
Capital Guardian Trust Company, a wholly owned subsidiary of The Capital
Group Companies, Inc., is the beneficial owner of these shares as a
result of its serving as the investment manager of various institutional
accounts, but has authority to vote only 167,750 Class B shares. The
address of The Capital Group Companies, Inc. and Capital Guardian Trust
Company is 333 South Hope Street, Los Angeles, California 90071.
(10) This information was furnished to the Company on a Schedule 13D filed by
Gabelli Funds, Inc. and also by Mario J. Gabelli and various entities
which he directly or indirectly controls or for which he acts as chief
investment officer. The Schedule 13D reports the beneficial ownership of
Class B Common Stock as follows: Gabelli Funds, Inc.-522,000 shares;
GAMCO Investors, Inc.-634,950 shares; and Gabelli International
Limited-26,250 shares. Mr. Gabelli is deemed to have beneficial
ownership of all of the securities listed. Gabelli Funds, Inc. is deemed
to have beneficial ownership of all of the shares. GAMCO Investors, Inc.
only has the authority to vote 604,200 of the shares beneficially held
by it. The address of Mr. Gabelli and Gabelli Funds, Inc. is One
Corporate Center, Rye, New York 10580.
(11) This information was furnished to the Company on a Schedule 13G filed by
Mellon Bank Corporation. The Dreyfus Corporation, a subsidiary of Mellon
Bank Corporation, is the beneficial owner of these shares of Class B
Common Stock as the result of its serving as an investment adviser. The
address of Mellon Bank Corporation is One Mellon Bank Center,
Pittsburgh, Pennsylvania 15258.
(12) Mr. Nader's address is P.O. Box 271, 1011 Fifth Avenue, West Point,
Georgia 31833.
(13) This information was furnished to the Company by a representative of
Shapiro Capital Management Company, Inc., an investment adviser, and
also by Samuel R. Shapiro, President, Director and majority shareholder
of Shapiro Capital Management Company, Inc. The address of Shapiro
Capital Management Company, Inc. is 3060 Peachtree Road NW, Atlanta,
Georgia 30306.
(14) This information was furnished to the Company on a Schedule 13G filed by
Standish, Ayer & Wood, Inc., One Financial Center, Boston, Massachusetts
02111-2662.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
J. Mack Robinson, President, Chief Executive Officer and a director of the
Company, is Chairman of the Board of Bull Run Corporation ("Bull Run") and the
beneficial owner of approximately 29.6% of the outstanding shares of common
stock, par value $.01 per share ("Bull Run Common Stock"), of Bull Run
Corporation (including certain shares as to which such beneficial ownership is
disclaimed by Mr. Robinson). Robert S. Prather, Jr., Executive Vice
President-Acquisitions and a director of the Company, is President, Chief
Executive Officer and a director of Bull Run Corporation and the beneficial
owner of approximately 13.3% of the outstanding shares of Bull Run Common Stock
(including certain shares as to which such beneficial ownership is disclaimed by
Mr. Prather). Bull Run is the owner of 17.0% of the total outstanding common
stocks of the Company. Mr. Prather is also a member of the Board of Directors of
CSP and Host. Hilton H. Howell, Jr., a director of the Company, is Vice
President, Secretary and a director of Bull Run. See "Compensation Committee
Interlocks and Insider Participation" for a description of certain business
relationships between the Company and Messrs. Prather and Robinson, Host, CSP
and Bull Run as set forth in Item 11 hereof.
89
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) (1) AND (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT 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, 1998 and 1997
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
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 report on Form 8-K was filed on August 14, 1998, reporting the exchange
of the assets of WALB-TV for the assets of WEAU-TV. This report on Form 8-K also
reported the acquisition of all of the outstanding common and preferred stock of
Busse Broadcasting Corporation. A current report on Form 8K/A was filed on
October 14, 1998 as an amendment to the current report on Form 8-K that was
filed on August 14, 1998.
(C) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------ ----------- ------
<S> <C> <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)
90
<PAGE>
EXHIBIT
NO. DESCRIPTION PAGE
- ------------ ----------- ------
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)
3.3 Amendment of the Bylaws of Gray Communications Systems, Inc., 97
January 6, 1999
4.1 Indenture for the Company's 10 5/8% 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 Amended and Restated Loan Agreement by and among Gray
Communications Systems, Inc. as Borrower, NationsBank, NA as
Syndication Agent and Administrative Agent, Key Corporate Capital
Inc., as Documentation Agent and The Financial Institutions
Listed Herein as of July 31, 1998 with NationsBanc Montgomery
Securities LLC, as Lead Arranger. ( incorporated by reference to
Exhibit 10.5 to the Company's Form 10-Q for the quarter ended
June 30, 1998)
4.3 Amended and Restated Borrower Security Agreement dated July 31, 98
1998 by and between Gray Communications Systems, Inc. and
NationsBank N.A. as Administrative Agent
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)
4.5 Amended and Restated Borrower Pledge Agreement dated July 31, 1998 117
between Gray Communications Systems, Inc. and NationsBank N.A.
as Administrative Agent
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 Amended and Restated Loan Agreement dated as of 141
the 13th day of November, 1998, by and among Gray Communications
Systems, Inc., as Borrower, the Banks (as defined in the loan
agreement) and NationsBank, N.A., as administrative agent (the
"Administrative Agent') on behalf of the Banks
4.9 Second Amendment to Amended and Restated Loan Agreement dated as of 156
the 3rd day of March, 1999, by and among Gray Communications
Systems, Inc., as Borrower, the Banks (as defined in the loan
agreement) and NationsBank, N.A., as administrative agent on
behalf of the Banks
91
<PAGE>
EXHIBIT
NO. DESCRIPTION PAGE
- ------------ ----------- ------
4.10 Consent Agreement entered into as of the 26th day of February, 1999 167
by and among Gray Communications Systems, Inc., as Borrower, the
Banks (as defined in the Loan Agreement) and NationsBank N.A. as
administrative agent on behalf of the Banks
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 Warrant, dated January 4, 1996, to purchase 487,500 shares of
Class A Common Stock (incorporated by reference to the Note S-1)
10.4 Employment Agreement, dated February 12, 1996 between the Company
and Robert A. Beizer (incorporated by reference to the Note S-1)
10.5 Form of Preferred Stock Exchange and Purchase Agreement between
the Company and Bull Run Corporation (incorporated by reference
to the Note S-1)
10.6 Form of Warrant to purchase 500,000 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
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)
10.8 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)
10.9 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)
10.10 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 ( incorporated by reference to
Exhibit 10.15 to the Company's Form 10-K for the year ended
December 31, 1997)
92
<PAGE>
EXHIBIT
NO. DESCRIPTION PAGE
- ------------ ----------- ------
10.11 Amended and Restated 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 June 22, 1998 (incorporated by reference to
Exhibit 10.1 to the Company's Form 10-Q for the quarter ended
June 30, 1998)
10.12 Asset Purchase Agreement by and among Busse Broadcasting
Corporation, WEAU License, Inc. and Cosmos Broadcasting
Corporation dated as of June 22, 1998 (incorporated by reference
to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended
June 30, 1998)
10.13 Exchange Agreement by and among Gray Communications Systems,
Inc., WALB-TV, Inc., WALB Licensee Corporation, Cosmos
Broadcasting Corporation, Busse Broadcasting Corporation, and
WEAU License, Inc. dated as of June 22, 1998 (incorporated by
reference to Exhibit 10.3 to the Company's Form 10-Q for the
quarter ended June 30, 1998)
10.14 Escrow Agreement by and among WALB-TV, Inc. WALB Licensee
Corporation, Cosmos Broadcasting Corporation and NationsBank, N.
A. dated as of June 22, 1998 (incorporated by reference to
Exhibit 10.4 to the Company's Form 10-Q for the quarter ended
June 30, 1998)
10.15 Asset Purchase Agreement by and among WALB-TV, Inc., WALB-TV
Licensee Corp. and Cosmos Broadcasting Corporation dated as of
June 22, 1998 (incorporated by reference to Exhibit 10.6 to the
Company's Form 10-Q for the quarter ended June 30, 1998)
10.16 Asset Purchase Agreement by and among Gray Communications Systems, 179
Inc., Gray Communications of Indiana, Inc., News Printing
Company, Inc., Jane Gemmer and John Gemmer dated as of February
28, 1999
21 List of Subsidiaries 229
23 Consent of Ernst & Young L.L.P. for the financial statements of Gray 230
Communications Systems, Inc.
27 Financial Data Schedule for Gray Communications Systems, Inc. 231
- ------------------------------------------------------------------------------------------------
</TABLE>
(D) FINANCIAL STATEMENT SCHEDULES - The response to this section is submitted as
a part of (a)(1) and (2).
93
<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.
<TABLE>
<CAPTION>
<S> <C>
GRAY COMMUNICATIONS SYSTEMS, INC.
Date: March 19, 1999 By: /s/ J. MACK ROBINSON
------------------------------------------
J. Mack Robinson,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: March 19, 1999 By: /s/ JAMES C. RYAN
------------------------------------------
James C. Ryan,
VICE PRESIDENT-FINANCE &
CHIEF FINANCIAL OFFICER
Date: March 19, 1999 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 19, 1999 By: /s/ WILLIAM E. MAYHER, III
------------------------------------------
William E. Mayher, III,
CHAIRMAN OF THE BOARD
Date: March 19, 1999 By: /s/ J. MACK ROBINSON
------------------------------------------
J. Mack Robinson,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER AND DIRECTOR
Date: March 19, 1999 By: /s/ RICHARD L. BOGER
------------------------------------------
Richard L. Boger, DIRECTOR
Date: March 19, 1999 By: /s/ HILTON H. HOWELL, JR.
------------------------------------------
Hilton H. Howell, Jr., DIRECTOR
Date: March 19, 1999 By: /s/ HOWELL W. NEWTON
------------------------------------------
Howell W. Newton, DIRECTOR
Date: March 19, 1999 By: /s/ HUGH NORTON
------------------------------------------
Hugh Norton, DIRECTOR
Date: March 19, 1999 By: /s/ ROBERT S. PRATHER, JR.
------------------------------------------
Robert S. Prather, Jr., DIRECTOR
Date: March 19, 1999 By: /s/ HARRIETT J. ROBINSON
------------------------------------------
Harriett J. Robinson, DIRECTOR
Date: March 19, 1999 By: /s/ ZELL MILLER
------------------------------------------
Zell Miller, DIRECTOR
</TABLE>
94
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Gray
Communications Systems, Inc. as of December 31, 1998 and 1997, and for each of
the three years in the period ended December 31, 1998, and have issued our
report thereon dated January 26, 1999. Our audits also included the financial
statement schedule 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 26, 1999
95
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------- ----------- ----------------------- ------------ ------------
ADDITIONS
-----------------------
BALANCE AT CHARGED CHARGED TO BALANCE AT
BEGINNING TO OTHER END OF
OF PERIOD COSTS AND ACCOUNTS DEDUCTIONS PERIOD
DESCRIPTION EXPENSES (1)
----------- ---------- ------------ -------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts $1,253,000 $831,000 $ 61,000(2) $933,000 $1,212,000
YEAR ENDED DECEMBER 31, 1997 $1,450,000 $188,000 $ 31,000(2) $416,000 $1,253,000
Allowance for doubtful accounts
YEAR ENDED DECEMBER 31, 1996 $ 450,000 $894,000 $583,000(2) $477,000 $1,450,000
Allowance for doubtful accounts
</TABLE>
- ---------------------
(1) Deductions are write-offs of amounts not considered collectible.
(2) Represents amounts recorded in connection with acquisitions.
96
EXHIBIT 3.3
AMENDMENT TO THE BYLAWS
OF GRAY COMMUNICATIONS SYSTEMS, INC.
JANUARY 6, 1999
The Bylaws of Gray Communications Systems, Inc. were amended by the
Board of Directors by Unanimous Written Consent on January 6, 1999 deleting the
following sections in their entirety and substituting in lieu thereof the
following:
NOW, THEREFORE, BE IT RESOLVED, that the Bylaws of the Company be, and
the same hereby are, amended by deleting the current Section 2 of Article III
thereof, in its entirety and substituting in lieu thereof the following:
Section 2 NUMBER, TENURE AND QUALIFICATIONS.
"The number of directors of the Corporation shall be not less than 3 nor
more than 15, the exact number of which may be established by the Board
of Directors. Each Director shall hold office until the next annual
meeting of stockholders and until his or her successor shall have been
elected and qualified. A majority of the directors shall be bona fide
residents of the State of Georgia."
FURTHER RESOLVED, that the Bylaws of the Company be, and the same hereby
are, amended by deleting the current Section 8 of Article III thereof, in its
entirety and substituting in lieu thereof the following:
Section 8 VACANCIES.
"Any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors though less
than a quorum of the Board of Directors. A director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in
office. Any directorship to be filled by reason of an increase in the
number of directors shall be filled by the affirmative vote of a
majority of the Board of Directors but only for a term of office
continuing until the next election of directors by the stockholders and
until the election and qualification of the successor."
97
EXHIBIT 4.3
AMENDED AND RESTATED BORROWER SECURITY AGREEMENT
THIS AMENDED AND RESTATED BORROWER SECURITY AGREEMENT is made and
entered into as of July 31, 1998, by and between GRAY COMMUNICATIONS SYSTEMS,
INC., a Georgia corporation (the "Debtor"), and NATIONSBANK, N.A. (the "Secured
Party"), as administrative agent for itself and the other financial institutions
listed on the signature pages of the Loan Agreement (as defined below), and
their successors and assigns. The Secured Party and such other financial
institutions may be referred to hereinafter individually as a "Bank" or
collectively as the "Banks."
RECITALS
A. The Debtor, NationsBank, N.A., as Administrative Agent and
Syndication Agent (each as defined in the Loan Agreement defined below), KeyBank
National Association, as Documentation Agent (as defined in the Loan Agreement
defined below), and the other Banks (as defined in the Loan Agreement defined
below) have entered into that certain Amended and Restated Loan Agreement dated
as of July 31, 1998 (as the same may be extended, amended, restated or modified
from time to time, the "Loan Agreement"), which is hereby incorporated herein by
this reference, pursuant to which the Banks have agreed to make available to the
Debtor up to $100,000,000 on a reducing revolving credit basis and up to
$100,000,000 on a term loan basis. All capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the Loan
Agreement. The Debtor may also be indebted to a Bank or an Affiliate of a Bank
from time to time in respect of Rate Hedging Obligations.
B. In order to induce the Secured Party and the Banks to enter into the
Loan Agreement and to ensure that the Loans made pursuant to the Loan Agreement
will be secured as provided herein, the Debtor has agreed to enter into this
Agreement.
C. The Banks have appointed the Secured Party as their agent for the
purpose, among other things, of protecting and preserving the security for the
repayment of the Debtor's obligations under the Loan Agreement.
AGREEMENTS
In consideration of the foregoing Recitals, and of the agreements made
herein, and of the Loans made or to be made by the Banks to the Debtor, the
Debtor and the Secured Party, on behalf of the Banks, agree as follows:
1. GRANT OF SECURITY INTEREST
1.1 Collateral. The Debtor hereby grants to the Secured Party, for the
benefit of the Banks, ratably in proportion to the total Secured Obligations (as
that term is defined below) owing at any time to the Banks, a first priority
security interest in all of the Debtor's personal property, both tangible and
intangible, whether presently owned or existing or hereafter acquired or arising
and wheresoever located, and all books, records, computer printouts, tapes,
disks, ledger sheets, files and other data relating thereto, including, without
limitation:
<PAGE>
(a) all inventory of the Debtor, including all goods, raw
materials, work in process, merchandise, goods in transit to the Debtor for
which payment has been made, and other tangible personal property held for sale
or lease or furnished or to be furnished under contracts of service or used or
consumed in the Debtor's business (all hereinafter called the "Inventory");
(b) all accounts receivable, contracts, contract rights
(including, without limitation, any arising out of leases or licenses of real or
personal property), rights to payment, programming agreements, tax refunds,
claims, chattel paper, letters of credit, documents, drafts and accounts,
including, without limitation, all of the same evidencing or representing
indebtedness due or to become due to the Debtor for its own account or on
account of goods sold or leased or to be sold or leased by the Debtor, or
services rendered or to be rendered by the Debtor (all hereinafter called the
"Accounts");
(c) all right, title and interest of the Debtor in and to:
(i) all copyrights, copyright registrations and
applications for copyright registrations, including, without
limitation, all renewals and extensions thereof, the right to
recover for all past, present and future infringements thereof,
and all other rights of any kind whatsoever accruing thereunder
or pertaining thereto (collectively, the "Copyrights");
(ii) all patents and patent applications, including,
without limitation, the inventions and improvements described and
claimed therein together with the reissues, divisions,
continuations, renewals, extensions and continuations-in-part
thereof, all income, royalties, damages and payments now or
thereafter due and/or payable under and with respect thereto,
including, without limitation, damages and payments for past or
future infringements thereof, the right to sue for past, present
and future infringements thereof, and all rights corresponding
thereto throughout the world (collectively, the "Patents");
(iii) all trade names, trademarks and service marks,
logos, trademark and service mark registrations, and applications
for trademark and service mark registrations, including, without
limitation, all renewals of trademark and service mark
registrations, all rights corresponding thereto throughout the
world, the right to recover for all past, present and future
infringements thereof, all other rights of any kind watsoever
accruing thereunder or pertaining thereto, together in each case,
with the product lines and goodwill of the business connected
with the use of, and symbolized by, each such trade name,
trademark and service mark (collectively, the "Trademarks");
(iv) (A) all inventions, processes, production methods,
proprietary information, know-how and trade secrets used or
useful in the business of the Debtor; (B) all licenses or user or
other agreements granted to the Debtor with respect to the
Copyrights, Patents, Trademarks or any of the foregoing; (C) all
information, customer lists, identification of suppliers, data,
plans, blueprints
2
<PAGE>
specifications, designs, drawings, recorded knowledge, surveys,
engineering reports, test reports, manuals, materials standards,
processing standards, performance standards, catalogs, computer
and automatic machinery software and programs, and the like
pertaining to the operation by the Debtor of its business; (D)
all field repair data, sales data and other information relating
to sales or service of products now or hereafter manufactured and
which pertain to the Debtor's business; (E) all accounting
information which pertains to the Debtor's business and all media
in which or on which any of the information or knowledge or data
or records which pertain to such business may be recorded or
stored and all computer programs used for the compilation or
printout of such information, knowledge, records or data; (F) all
licenses, consents, permits, variances, certifications and
approvals of governmental agencies now or hereafter held by the
Debtor pertaining to the operation of it's business; and (G) all
causes of action, claims and warranties now or hereafter owned or
acquired by the Debtor in respect of any of the items listed
above;
(v) all money, deposit accounts, insurance proceeds,
securities, partnership interest, notes, instruments, licenses,
franchises, permits, authorizations, agreements, leases, and
general intangibles of the Debtor, including, without limitation,
goodwill, going concern value, all of the Debtor's rights under
or relating to any Licenses and the proceeds of any Licenses, and
all rights incident or appurtenant to such Licenses and the right
to receive all proceeds derived from or in connection with the
sale, assignment or transfer thereof; provided, however, that
such security interest shall include the Licenses granted by the
FCC only at such times and to the extent (but only to the extent)
that the Debtor is permitted to grant a security interest therein
under applicable provisions of the Communications Act of 1934, as
amended, and the rules and regulations of the FCC promulgated
thereunder, but shall include at all times, to the maximum extent
permitted by law, all rights incident or appurtenant to such
Licenses and the right to receive all proceeds derived from or in
connection with the sale, assignment or transfer of such Licenses
or any Station (all of the foregoing items of collateral
referenced in this Subsection 1.1(c), including, without
limitation, the Copyrights, the Patents and the Trademarks, being
hereinafter called the "Intangibles");
(d) all of the Debtor's furniture, fixtures, trade fixtures,
machinery, equipment, antennas, towers, transmitting and receiving equipment,
computers, pagers, satellite earth stations, microwave equipment, appliances,
motor vehicles, furnishings, leasehold improvements, operating and testing
equipment, amplifiers and other electronic equipment, parts, supplies and tools
(all hereinafter called the "Equipment");
(e) all of the Debtor's rights as a seller of goods under Article
2 of the Uniform Commercial Code or otherwise with respect to Inventory and
Equipment, and, as to goods represented by or securing any of the Accounts, all
of the Debtor's rights therein, including, without limitation, rights as an
unpaid vendor or lien or and including rights of stoppage in transit, replevin
and reclamation;
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(f) all guarantees, mortgages or security interests in real or
personal property, leases or other agreements or property now or hereafter
securing or relating to any of the items referred to above in favor of the
Debtor, or now or hereafter acquired for the purpose of securing and enforcing
any of such items in favor of the Debtor, and the proceeds thereof;
(g) all rents, revenues, proceeds, issues, profits, royalties,
income and other benefits derived from real estate, and from any improvements or
fixtures thereon owned by the Debtor;
(h) all right, title and interest of Debtor in and to all
proceeds of insurance and any and all awards made for the taking by eminent
domain, or by any proceeding or purchase in lieu thereof, of any real estate, or
any improvements or fixtures thereon, including, without limitation, any awards
resulting from any damage to any real estate, improvements or fixtures for which
compensation shall by given by any governmental authority;
(i) all the proceeds, products, income and profits of any of the
foregoing and the proceeds of any such proceeds, products, income and profits;
and
(j) all right, title and interest of the Debtor in or to all
instruments and documents covering or relating to the above described Collateral
(as defined below) or to the property described in or represented by the
Accounts (all such instruments and documents being called the "Related
Documents");
provided, however, that, with respect to any agreement, lease or contract right
which prohibits the grant of a security interest in the Debtor's interest
therein or the assignment thereof, such grant of a security interest or
assignment shall be limited to the account or general intangible for money due
or to become due relating to or arising out of such agreement, lease or contract
right. All of the foregoing property in which the Secured Party has been granted
a security interest is hereinafter collectively referred to as the "Collateral".
1.2 Obligations Secured. The security interests of the Secured Party
under this Agreement secure (a) the payment and performance of all indebtedness,
obligations and liabilities of the Debtor arising at any time and from time to
time, now or in the future, pursuant to the Loan Agreement or any Collateral
Document, including, without limitation, such obligations as are evidenced by
the Notes; (b) the payment and performance of all obligations and liabilities of
the Debtor arising at any time and from time to time, now or in the future,
pursuant to any agreement with a Bank or an Affiliate of a Bank with respect to
Rate Hedging Obligations; (c) performance by the Debtor of the agreements set
forth herein, in the Loan Agreement and in the Collateral Documents; (d) all
payments made or expenses incurred by the Secured Party under this Agreement,
the Loan Agreement or the Collateral documents, including, without limitation,
reasonable attorneys fees and legal expenses, in the exercise, preservation or
enforcement of any of the rights, powers or remedies of the Secured Party, or in
the enforcement of the obligations of the Debtor, hereunder; and (e) any
renewals, continuations or extensions of any of the foregoing (all of which are
referred to herein as the "Secured Obligations").
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2. THE DEBTOR'S REPRESENTATIONS AND WARRANTIES. The Debtor represents
and warrants to the Secured Party as follows, and these representations and
warranties shall survive the execution hereof and the making of the Loans and
shall be continuing until the termination of this Agreement.
2.1 Authority. The execution, delivery and performance of this Agreement
and any instruments or documents executed and delivered by the Debtor pursuant
hereto are within the Debtor's corporate powers, have been duly authorized by
all proper and necessary corporate and stockholder action, are not in
contravention of law or the terms of the Certificate of Incorporation, By-Laws
or other organizational documents of the Debtor or any provision of any material
indenture, contract or agreement to which the Debtor is a party or by which it
or any of its property is bound; and this Agreement constitutes a legal, valid
and binding obligation of the Debtor enforceable in accordance with its terms
except to the extent that the enforceability hereof may be limited by
bankruptcy, insolvency or like laws affecting creditors' rights generally and
the application of equitable principles.
2.2 Title. Except for Permitted Liens, the Debtor is and will be the
sole owner of all of the Collateral, whenever acquired or arising, free and
clear of all Liens or adverse claims.
2.3 Accounts. Each account (as that term is defined in the Uniform
Commercial Code) included in the Debtor's Accounts as shown on the Debtor's
books and records, whether currently existing or hereafter arising, is or will
be genuine and in all respects is or will be what it purports to be. The whole
of the balance indicated as being unpaid and owing with respect to each such
account on the books of the Debtor, is, and shall be, unpaid and owing, net any
reserves on the books of the Debtor.
2.4 No Other Names. Debtor has not conducted business under any name
other than the name in which it executed this Agreement.
2.5 Intellectual Property. Schedule A attached hereto sets forth a
complete and accurate list of all registered Copyrights, Patents and Trademarks
owned by the Debtor on the date hereof. The Debtor owns and possesses the right
to use, and has done nothing to authorize or enable any other Person to use, any
Copyright, Patent or Trademark listed on Schedule A. All registrations for such
Copyrights, Patents and Trademarks are valid and in full force and effect, and
the Debtor owns or possesses the right to use all material Copyrights, Patents
and Trademarks necessary for the operation of its business. To the Debtor's
knowledge, (a) there is no violation by others of any right of the Debtor with
respect to any material Copyright, Patent or Trademark and (b), to the best of
Debtor's knowledge, the Debtor is not infringing in any respect upon any
copyright, patent or trademark of any other Person; and no proceedings have been
instituted or are pending against the Debtor or, to the Debtor's knowledge,
threatened, and no claim against the Debtor has been received by the Debtor,
alleging any such violation.
2.6 Solvency. The Debtor has received, or has the right to receive, by
contribution or otherwise, consideration which is the reasonably equivalent
value of the obligations and liabilities that it has incurred to the Banks. The
Debtor is not insolvent as defined in Title 11 of
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the United States Code or any other applicable federal or state bankruptcy or
insolvency statute, nor, after giving effect to the consummation of the
transactions contemplated in the Loan Agreement, will the Debtor be rendered
insolvent by the execution and delivery of this Agreement. The Debtor has not
engaged, nor is the Debtor about to engage, in any business or transaction for
which the assets retained by it shall be an unreasonably small capital, taking
into consideration the obligations to the Secured Party incurred under the Loan
Agreement and hereunder. The Debtor does not intend to, nor does the Debtor
believe that it will, incur debts beyond its ability to pay them as they mature.
3. COVENANTS OF THE DEBTOR. The Debtor agrees and covenants with the
Secured Party as follows:
3.1 Maintenance and Use of Collateral. The Debtor (a) shall keep all its
Inventory and Equipment in good condition and repair, reasonable wear and tear
expected, and shall not commit any material waste thereof or permit anything to
be done which may materially impair the value thereof; (b) shall observe and
perform all material terms, conditions and covenants contained in any material
agreements, leases, licenses, permits, Operating Agreements and franchises
evidencing the Intangibles, including, without limitation, the Licenses; (c)
shall use the Collateral only in the ordinary course of its business and not in
material violation of any applicable License, permit, authorization, law,
ordinance, regulation, rule, order, franchise or policy of insurance; and (d)
shall take all commercially reasonable actions as may be necessary to keep all
material Patents, Copyrights and Trademarks from becoming invalidated or subject
to any claim of abandonment for non-use.
3.2 Taxes. Except as expressly provided in the Loan Agreement, the
Debtor shall pay and discharge promptly all taxes, assessments, license or
permit fees and governmental charges or levies imposed upon it or in respect of
the Collateral before the imposition of any penalty, as well as all lawful
claims for labor, materials, supplies or other matters which, if unpaid, might
become a lien or charge upon the Collateral or any part thereof, and, upon
request, deliver to the Secured Party evidence of the discharge of such taxes,
assessments, charges or claims.
3.3 Sale or Transfer. Except as expressly provided in the Loan Agreement
or herein, the Debtor shall not voluntarily or involuntarily sell, assign,
lease, transfer, pledge, hypothecate or otherwise dispose of or encumber any of
the Collateral or any interest therein, or permit any of it to become a fixture
on or an accession to other goods or property. For purposes of this Section 3.3,
the term "Collateral" shall be deemed to include the Licenses whether or not the
Secured Party is permitted under existing law to hold a security interest
therein.
3.4 Insurance. The Debtor will obtain and maintain a policy or policies
of insurance insuring the Collateral in accordance with Section 7.3 of the Loan
Agreement, the terms and provisions of which are hereby incorporated herein by
this reference. In the event of any damage or destruction to the Collateral or
any part thereof, any and all proceeds of such insurance shall be delivered to
the Secured Party. Such proceeds of insurance shall, (a) if no Event of Default
or Possible Default then exists, be paid to the Debtor to be used solely for
repair or replacement of the property so damaged, or (b) if an Event of Default
or Possible Default then exists, be applied, in the Secured Party's discretion,
against the Secured Obligations then outstanding, whether or
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not then due and payable. The Debtor hereby appoints the Secured Party as its
agent and attorney-in-fact (which appointment is coupled with an interest) with
full power and authority to make proof of loss, to give a receipt for any sums
collected under said policies and, in the event any insurance losses are paid by
check, draft or other instrument payable to the Debtor and the Secured Party, to
endorse the Debtor's name thereon and take such further steps on behalf of the
Debtor as may be necessary to realize on such Instance.
3.5 Maintenance of Security Interest. The Debtor shall do all things
necessary or reasonably requested by the Secured Party to preserve and maintain
the security interests of the Secured Party hereunder as a first lien in the
Collateral, except for Permitted Liens, and shall not permit the creation of any
other Lien (other than Permitted Liens) in the Collateral. The Debtor shall
protect and defend the Collateral from and against any and all claims, demands
or legal proceedings brought or asserted by any party other than the Secured
Party in such capacity. The Debtor shall, if requested by the Secured Party,
execute and deliver and shall file or record, or cause to be filed or recorded,
such notices, financing statements, continuation statements, certificates of
title and other documents as the Secured Party may reasonably deem appropriate,
and shall deliver to the Secured Party upon request therefor such insurance
policies, securities, agreements, leases, franchises, licenses, permits,
writings, documents, certificates, instruments or other Intangibles, as may be
necessary to perfect the security interests of the Secured Party hereunder. The
Debtor shall bear the expenses of all such filings and actions. All documents
which are being filed or recorded shall be in form and substance satisfactory to
the Secured Party. The Debtor shall do such further acts and things and execute
and deliver to the Secured Party such additional conveyances, assignments,
agreements and instruments as the Secured Party may reasonably require or deem
advisable to carry into effect the purposes of this Agreement or to better
perfect, assure and confirm unto the Secured Party its rights, powers and
remedies hereunder. Upon request by the Secured Party, the Debtor shall mark
conspicuously all chattel paper and instruments with a legend, in form and
substance satisfactory to the Secured Party, indicating that such Collateral is
subject to the security interest granted hereby.
3.6 Records, Statements and Related Documents. The Debtor agrees, (a)
when reasonably requested to do so by the Secured Party, to prepare and deliver
to the Secured Party a schedule in form reasonably satisfactory to the Secured
Party, certified by an authorized officer of the Debtor, listing the location by
county and state of all Collateral; (b) to keep accurate and complete records at
all times with respect to the Collateral and to deliver to the Secured Party
copies of such records and such other information regarding the Collateral or
account debtors which the Secured Party may reasonably request; and (c) that at
any reasonable time the Secured Party or its authorized representatives may
enter the premises of the Debtor to examine the Collateral and inspect and copy
the books and records of the Debtor. The Debtor shall furnish to the Secured
Party from time to time statements and schedules further identifying and
describing the Copyrights, the Patents and the Trademarks, respectively, and
such other reports in connection with the Copyrights, the Patents and the
Trademarks as the Secured Party may reasonably request, all in reasonable
detail.
3.7 Location. The principal and chief executive office of the Debtor is
located at 126 North Washington Street, Albany, Georgia 31701, and all of the
Collateral is located in the jurisdictions listed on Schedule B attached hereto.
The Debtor shall not move its principal and
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chief executive office or any of the Collateral, or any records relating
thereto, from a county or other filing location listed on Schedule B, without
thirty days prior written notice to the Secured Party. If the Debtor acquires
any Collateral at any other location not listed on Schedule B, it shall
immediately notify the Secured Party and amend Schedule B to reflect such
acquisition.
3.8 Notice. The Debtor shall promptly notify the Secured Party of any
loss, destruction or damage to any material portion of the Collateral.
3.9 Collection of Accounts. The Debtor agrees that it will use
commercially reasonable efforts to collect all Accounts as the same become due.
3.10 Change of Name, Identity or Corporate Structure. The Debtor shall
not change its name, identity or corporate structure, voluntarily or
involuntarily, except as expressly permitted in the Loan Agreement.
4. RIGHT TO PERFORM FOR THE DEBTOR. If an Event of Default shall occur,
subject to compliance with all applicable law, including, without limitation,
the rules and regulations of the FCC and the applicable provisions of the
Licenses, the Secured Party may, but shall not be obligated to, on behalf of the
Debtor and in its name and stead, in addition to any other rights or remedies
provided to the Secured Party by law or by this Agreement, perform any act, make
any payment, discharge any obligation, collect any Account or money owed to the
Debtor or otherwise act for the Debtor in such manner as the Secured Party in
its sole discretion may deem necessary or advisable to protect, secure or
enforce its interests, rights or remedies hereunder. The Debtor shall pay to the
Secured Party on demand the amounts of all such payments made or expenses
incurred by the Secured Party, including reasonable attorneys' fees and legal
expenses, in exercising any of the rights granted in this Section 4. The
obligation to repay such amounts shall be one of the Secured Obligations secured
hereby and shall bear interest at the Default Interest Rate.
5. DEFAULT. The occurrence of any Event of Default under the Loan
Agreement shall constitute an Event of Default under this Agreement.
6. REMEDIES. The Secured Party shall have all of rights and remedies of
a secured party under the Uniform Commercial Code in effect in any applicable
jurisdiction, as well as all rights and remedies provided by any other
applicable law, at law or in equity, or herein, in the Loan Agreement or in any
other instrument executed by the Debtor in favor of the Secured Party or the
Banks. Without limiting the generality of the foregoing, the Secured Party shall
also have the right to do any or all of the following (as set forth in Sections
6.1 through 6.7 below) upon the occurrence and during the continuance of an
Event of Default and subject to compliance with all applicable rules and
regulations of the FCC and any other applicable federal or state regulatory
authority, and other applicable requirements of law:
6.1 Possession. Without notice, demand or hearing, any right to which
is hereby waived by the Debtor, the Secured Party may take
possession of all or any part of the Collateral and enter and
remain upon the premises where such Collateral is
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located for the purpose of such possession and the exercise of
the remedies provided herein, without the same being a trespass.
6.2 Assembling Collateral. The Secured Party may require the Debtor to
assemble the Collateral and to make it available to the Secured Party at any
mutually convenient place designated by the Secured Party.
6.3 Operation. The Secured Party may take such measures, including the
use or operation of the Collateral in the Debtor's business, or the repair,
dismantling, removal or transportation of all or any part of the Collateral, as
the Secured Party may deem necessary or proper for the care, protection,
maintenance and preservation of the Collateral, for the Preparation of the
Collateral for sale, lease, or other disposition, or for the most advantageous
beneficial exercise of its remedies hereunder. Without limiting the generality
of the foregoing, the Secured Party shall have the right to apply for and have a
trustee or receiver appointed by a court of competent jurisdiction in any action
taken by the Secured Party to enforce its rights and remedies hereunder in order
to manage, protect and preserve the Collateral and continue the operation of the
business of the Debtor and to collect all revenues and profits thereof and apply
the same to the payment of all expenses and other charges of such receivership,
including the compensation of the receiver, and to the payment of the Secured
Obligations until a sale or other disposition of such Collateral shall be
finally made and consummated. Furthermore, the Debtor shall take any action
which the Secured Party may reasonably request in order to obtain and enjoy the
full rights and benefits granted to the Secured Party by this Agreement,
including specifically, at the Debtor's own cost and expense, the use of its
best efforts to assist in obtaining the approval of the FCC and any other
applicable state regulatory authority and any other third party for any action
or transaction contemplated by this Agreement which is then required by law or
the terms of any contract, agreement or License, permit or authorization.
6.4 Collection of Accounts; Special Account.
(a) Without notice to the Debtor, the Secured Party may notify
the account debtor obligated under any Account of the Secured Party's security
interest therein and may direct such account debtor to make payment of all
amounts due or to become due the Debtor thereunder directly to the Secured Party
or any agent selected by it and, upon such notification, may enforce, or cause
such agent to enforce, collection of any such Account in the same manner and to
the same extent as the Debtor might have done. Effective upon the occurrence and
during the continuance of an Event of Default, the Debtor hereby constitutes and
appoints the Secured Party its true and lawful attorney (which appointment is
coupled with an interest), with full power of substitution, either in the
Secured Party's own name or in the name of the Debtor, to ask for, demand, sue
for, collect, receive, receipt and give acquittance for any and all moneys due
or to become due under or by virtue of any Account; to endorse checks, drafts,
orders and order instruments for the payment of money payable to the Debtor on
account thereof; to settle, compromise, prosecute or defend any action, claim or
proceeding with respect thereto; and to sell, assign, pledge, transfer and make
any agreement respecting, or otherwise deal with, the same.
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(b) Nothing in this Agreement shall be construed as requiring or
obligating the Secured Party to make any demand or inquiry as to the nature or
sufficiency of any payment received by it. The Secured Party shall not be
obligated to present or file any claim or notice or to take any action with
respect to any such Account, or the monies due or to become due thereunder, or
the property covered thereby or by any Related Document. No action taken by the
Secured Party or omitted to be taken with respect to any such Account shall give
rise to any defense, counterclaim or offset in favor of the Debtor or to any
claim or action against the Secured Party or any Bank.
(c) The Debtor agrees that all cash, proceeds, checks, drafts,
orders and other instruments for the payment of money received by it on account
of any Account or as a result of the sale, lease, destruction, condemnation or
other voluntary or Involuntary disposition of any Collateral, whether pursuant
to the exercise of a right granted herein to the Debtor or otherwise, shall be
the property of the Secured Party. All such proceeds shall be deposited in the
form received (properly endorsed collection where required) not later than the
Banking Day following the day of receipt in a special bank account maintained
with the Secured Party in the Debtor's name, over which the Secured Party alone
shall have the right of withdrawal, for payment of all of the Secured
Obligations. Debtor shall not commingle any such collections or proceeds with
any of its other funds or property and shall hold the same upon an express trust
for the Secured Party until deposited in the special account, as aforesaid. In
the event the Debtor shall obtain possession of any goods (as a result of their
return or repossession or otherwise), the sale, lease or other disposition of
which gave rise to an Account, the Debtor shall hold the same subject to the
security interest of the Secured Party hereunder and to dispose of such goods,
at its own expense and sole risk but for the account of the Secured Party, in
such manner as the Secured Party may direct.
6.5 Transfer of Intangibles.
(a) The Secured Party shall have the right to take possession of
any agreement, lease, License, permit or other document evidencing any of the
Collateral, and may apply for or seek, on behalf of and as attorney-in-fact for
the Debtor, any necessary consent to the voluntary or involuntary assignment,
transfer, conveyance, sale, renewal, reissuance or other disposition of the
same, and the Debtor shall cooperate fully with the Secured Party in doing so
and shall take all actions requested by the Secured Party in furtherance
thereof.
(b) The Debtor hereby constitutes and appoints the Secured Party
its true and lawful attorney (which appointment is coupled with an interest)
with full power of substitution, either in the Secured Party's own name or in
the name of the Debtor, to assign, transfer and convey any and all of the
Debtor's rights in and to any of the Intangibles, including without limitation,
any License (to the extent permitted by law), to any purchaser of all or any of
the Collateral pursuant to Section 6.6 hereof.
(c) In connection with the exercise of its remedies under the
Loan Agreement and this Agreement, the Secured Party may obtain the appointment
of a trustee or receiver to obtain, upon receipt of all necessary judicial or
other federal or state regulatory authority consents or approvals, an assignment
of any Intangible, including, without limitation, any
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License. Such trustee or receiver shall have all rights and powers provided to
it by law or by court order or provided to the Secured Party under this
Agreement.
(d) For the purpose of enabling the Secured Party to exercise
rights and remedies under this Section 6 at such time as the Secured party shall
be lawfully entitled to exercise such rights and remedies, and for no other
purpose, the Debtor hereby grants to the Secured Party, to the extent assignable
without violation of any third party rights, an irrevocable non-exclusive
license (exercisable without payment of royalty or other compensation) to use,
assign, license or sublicense any of the Intangibles, wherever the same may be
located, including in such license reasonable access to all media in which any
of the licensed items may be recorded or stored and to all computer programs
used for the compilation or printout thereof.
(e) In the event of any sale, assignment or other disposition of
any of the Trademarks, the goodwill of the Debtor's business connected with and
symbolized by such Trademarks subject to such disposition shall be included, and
the Debtor shall supply to the Secured Party or its designee, for inclusion in
such sale, assignment or other disposition, all Intangibles relating to such
Trademarks.
6.6 Sale or Disposition.
(a) The Secured Party may sell, lease, assign, transfer, convey
or otherwise dispose of any or all of the Collateral, as the Secured Party in
its discretion may determine, by public or private sale. Except for items of
Inventory or Equipment which are perishable or threaten to decline speedily in
value or are of a type customarily sold on a recognized market, the Secured
Party shall give the Debtor at least ten days prior written notice of the time
and place of any public sale thereof or of the time after which any private sale
or other intended disposition thereof is to be made. At any such sale, the
Collateral may be sold in one lot as an entirety or in separate parcels, as the
Secured Party may determine, and the price and other terms shall be such as the
Secured Party deems to be commercially reasonable. At any sale hereunder, to the
extent permitted by law, the Secured Party or any Bank may become the purchaser.
Any purchaser of any or all of the Collateral shall hold the same free from any
claim or right of whatsoever kind, including, without limitation, any right or
equity of redemption (statutory or otherwise), of the Debtor, any such right or
equity being hereby expressly waived.
(b) The Secured Party and the Banks shall incur no liability as a
result of the sale of the Collateral, or any part thereof, at any private sale
pursuant to this Section conducted in a commercially reasonable manner. The
Debtor hereby waives any claims against the Secured Party and the Banks arising
by reason of the fact that the price at which the Collateral may have been sold
at such a private sale was less than the price that might been obtained at a
public sale or less than the aggregate amount of the Secured Obligations, even
if the Secured Party accepts the first offer received and does not offer the
Collateral to more than one offeree, provided that such private sale is
conducted in a commercially reasonable manner.
6.7 Proceeds. All proceeds from the sale or other disposition of
Collateral by the Secured Party hereunder, all other moneys received by the
Secured Party pursuant to the terms of this Agreement (whether through the
exercise by the Secured Party of its right of collection of
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accounts or otherwise) and all balances from time to time remaining in the
special account required to be maintained by the Debtor under Section 6.4 shall
be applied as follows:
(a) First, to the payment of (i) all expenses incurred by the
Secured Party in connection with this Agreement or the exercise of any right or
remedy hereunder, or any sale or disposition, including, but not limited to, the
expenses of taking, advertising, processing, insuring, preparing and scoring the
Collateral to be sold, all court costs and the Secured Party's legal fees in
connection therewith, and (ii) all advances made by the Secured Party hereunder
for the account of the Debtor;
(b) Next, to the payment of the unpaid principal amount due and
owing on any of the Secured Obligations in accordance with the terms thereof,
together with interest thereon to the date of payment; the remainder to be held
as security for, the Debtor's payment of any Secured Obligations not then due
and owing, together with interest accrued and accruing thereon; and
(c) Finally, any surplus remaining to be paid over to the Debtor
or as a court of competent jurisdiction may direct.
With respect to any application pursuant to clause (b) above, such proceeds,
moneys or balances may be applied, at the sole discretion of the Secured Party
and to the extent of the amount thereof, to discharge in whole or in part the
most recently incurred and unpaid Secured Obligation, notwithstanding any
manifestation of an intent to the contrary expressed in writing or otherwise by
the Debtor at any time. Upon any sale of Collateral by the Secured Party
(whether pursuant to a power of sale granted by a statute or under a judicial
proceeding), the receipt of the Secured Party or of the officer making the sale
shall be a sufficient discharge to the purchaser or purchasers of the Collateral
so sold and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the Secured Party or
such officer, or be answerable in any way for the misapplication thereof.
Notwithstanding the sale or other disposition of any Collateral by the Secured
Party hereunder, the Debtor shall remain liable for any deficiency.
7. REMEDIES CUMULATIVE. All rights, remedies or powers conferred upon
the Secured Party herein or by law shall be cumulative and concurrent at the
option of the Secured Party, and the Secured Party may foreclose or exercise the
power of sale or any other remedy available to it successively upon, and during
the continuance of, any Event of Default or successive Events of Default. Upon
any such occasion, the Secured Party shall be authorized to sell, lease or
dispose of all or any such par of the Collateral as it shall elect and as
permitted by law. The remaining Collateral shall continue as security for any
other sums remaining due after such sale, lease or disposition or thereafter to
become due or payable on any of the Secured Obligations.
8. WAIVERS.
(a) No delay, omission or forbearance by the Secured Party in the
exercise of any right, power or remedy conferred upon it herein or by law or
equity, nor any continuance by the Secured Party of its performance shall be a
waiver or excuse of the event giving rise to the
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same. The single or partial exercise of a right, power or remedy does not
preclude its further exercise from time to time and as often as may be deemed
expedient by the Secured Party. No waiver by the Secured Party of any Event of
Default or of any right, power or remedy hereunder shall operate as a waiver of
any other Event of Default, right, power or remedy on a future occasion.
(b) The Debtor hereby waives, releases and discharges, to the
full extent permitted by law, any right which it has or may have at law, in
equity or by statute, to require the Secured Party to pursue or otherwise avail
itself of any rights or remedies which it has or may have against any other
Person with respect to the payment of the Notes or performance of the terms,
covenants and conditions of the Loan Agreement and Collateral Documents or to
pursue or exhaust any of its rights or remedies with respect to any other
security for the satisfaction of the Secured Obligations or the performance of
the terms, covenants and conditions of the Loan Agreement The Debtor hereby
waives and releases any right of marshalling of assets which it might otherwise
have.
(c) No failure on the part of the Secured Party to exercise, and
no delay on its part in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or the further exercise thereof
or the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies at law or in equity. All
rights of the Secured Party, the security interests granted hereunder, and all
obligations of the Debtor hereunder, shall be absolute and unconditional
irrespective of:
(i) any lack of validity or enforceability of the Loan
Agreement, the Notes, the Other Collateral Documents, any other
related instrument or any other agreement or instrument relating
thereto;
(ii) any change in the time, manner or place of payment
of, or in any other term in respect of, all or any of the Secured
Obligations, or any other amendment or waiver of or any consent
to any departure from the Loan Agreement, the Notes, the other
Collateral Documents or any other related instrument;
(iii) any exchange or release of, or non-perfection of any
Lien or security on or in, any other collateral, or any release
or amendment or waiver of or consent to departure from any
guarantee, for all or any of the Secured Obligations.
9. DEBTOR LIABILITY AND INDEMNITIES. Anything herein to the contrary
notwithstanding, (a) the Debtor shall remain liable under all contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of the duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Secured Party or the
Banks of any of its or their rights hereunder shall not release the Debtor from
any of its duties or obligations under the contracts and agreements included in
the Collateral, and (c) neither the Secured Party nor any Bank shall have any
obligation or liability
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under the contracts and agreements included in the Collateral or be obligated to
perform any of the obligations or duties of the Debtor thereunder or to take any
action to collect or enforce any claim for payment assigned hereunder. The
Debtor hereby agrees to indemnify and hold harmless the Secured Party and the
Banks, and their respective directors, officers, attorneys, agents and employees
(all such indemnified persons, including their heirs, successors, assigns and
administrators, being referred to as "Indemnified Persons" for purposes of this
Section 9), from and against any and all claims, demands, losses, costs,
expenses, judgments and liabilities (including liabilities for penalties) of any
nature whatsoever arising in connection with this Agreement or the exercise or
enforcement by the Secured Party or any other indemnified Person of any right,
power or remedy hereunder, except for losses which are found in a final
non-appealable judgment by a court of competent- jurisdiction to have resulted
from the gross negligence or willful misconduct of such Indemnified Person. In
no event shall the Secured Party, any Bank or any director, officer, attorney,
agent or employee of the Secured Party or any Bank be liable to the Debtor for
any action, matter or thing in connection with this Agreement other than gross
negligence or willful misconduct and to account for moneys actually received by
the Secured Party in accordance with the terms hereof.
10. POSSESSION OF COLLATERAL. So long as no Event of Default hereunder
has occurred and is continuing, the Debtor may have and retain possession of the
Collateral and use it in any lawful manner not inconsistent with the Loan
Agreement, this Agreement, any Collateral Document or any policy of insurance
thereon, unless possession of such Collateral by the Secured Party is necessary
or appropriate to perfect the Secured Party's security interest therein.
11. TERMINATION OF SECURITY INTERESTS. This Agreement: and the security
interests granted hereunder shall terminate when all amounts due and owing on
account of, and all obligations and liabilities of the Debtor in respect of, the
Secured Obligations shall have been fully, irrevocably and indefeasibly
performed, satisfied and paid in cash, but only if the Banks shall then have no
obligation or commitment to make further loans to the Debtor under the Loan
Agreement. Upon the termination of the Secured Party's security interest in any
Collateral, the Secured Party shall reassign and deliver to the Debtor, without
recourse or representation, against the Debtor's receipt and at the Debtor's
expense, such Collateral, all cash proceeds therefrom and all Related Documents
relating thereto then held by the Secured Party. Upon such termination, at the
request of the Debtor and at its expense, the Secured Party shall execute and
deliver to the Debtor termination statements with respect to financing
statements filed hereunder. Notwithstanding the foregoing, this Agreement shall
continue to be effective or be reinstated and relate back to such time as though
this Agreement had always been in effect, as the case may be, if at any time any
amount received by the Secured Party or any Bank in respect of the Secured
Obligations is rescinded or must otherwise be restored or returned by the
Secured Party or any Bank upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of the Debtor or upon the appointment of any
intervenor or conservator of, or trustee or similar official for, the Debtor or
any substantial part of its properties, or otherwise, all as though such
payments had not been made.
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12. MISCELLANEOUS.
12.1 Certain Regulatory Requirements.
(a) Debtor shall take all action that the Secured Party may
reasonably request in the exercise of its rights and remedies hereunder, which
includes the right to require the Debtor after the occurrence and during the
continuance of an Event of Default to transfer or assign the FCC Licenses to any
party or parties. In furtherance of this right, the Debtor shall, upon the
occurrence and during the continuance of any Event of Default, (i) cooperate
fully with the Secured Party in obtaining all approvals and consents from the
FCC that the Secured Party may deem necessary or advisable to accomplish any
such transfer or assignment of the FCC Licenses and (ii) for consent,
certificate or instrument that the Secured Party may deem necessary or advisable
to accomplish any such transfer or assignment of the FCC Licenses. If the Debtor
fails to execute such applications, requests for consent, certificates or
instruments, the clerk of any court that has jurisdiction over this Agreement
may execute and file the same on behalf of the Debtor. To enforce the provisions
of this Section, the Secured Party is authorized to request the consent or
approval of the FCC to a voluntary or an involuntary transfer of control of the
Debtor.
(b) Notwithstanding anything to the contrary contained in this
Agreement:
(i) the Secured Party shall not take any action hereunder
that would constitute or result in any transfer of control of the
FCC Licenses or the Debtor without obtaining all necessary FCC
approvals. The Secured Party and the Banks shall be entitled to
rely on the advice of FCC counsel selected by the Secured Party
to determine whether FCC approval is required, and
(ii) the Secured Party shall not foreclose on, sell,
transfer or otherwise dispose of, or exercise any right to
control the FCC Licenses as provided herein or take any other
action that would affect the operational, voting, or other
control of the Debtor, unless such action is taken in accordance
with the provisions of the Communications Act of 1934, as from
time to time amended, and the rules, regulations and policies of
the FCC.
(c) The Debtor acknowledges that the approval of the FCC to the
assignment of the FCC Licenses or the transfer of control of the Debtor is
integral to the Secured Party's realization of the value of the Collateral,
including the FCC Licenses, that there is no adequate remedy at law for failure
by the Debtor to comply with the provisions of this Section and that such
failure could not be adequately compensated by damages. Therefor, the Debtor
agrees that the provisions of this Section may be specifically enforced.
12.2 Modification. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either Generally or a
particular instance and either retroactively or prospectively) only with the
written consent of the Debtor and the Secured Party. No waiver or any single
breach or default under this Agreement shall be deemed a waiver of any other
breach or default
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12.3 Successors and Assigns. Subject to the limitations upon the sale,
lease, transfer or other disposition of the Collateral by the Debtor set forth
herein and in the Loan Agreement, all of the covenants, conditions and
agreements herein contained shall be binding upon the Debtor and its successors
and assigns; provided, however, that the Debtor may not assign or transfer any
of its rights or obligations hereunder without the prior written consent of all
of the Banks and the Secured Party. This Agreement shall inure to the benefit of
the permitted successors and assigns of the Secured Party and the Banks, and, in
the event of any transfer or assignment of rights by the Secured Party or the
Banks, the rights and privileges herein conferred upon the Secured Party or the
Banks shall automatically extend to and be vested in such permitted transferee
or assignee, all subject to the terms and conditions hereof.
12.4 GOVERNING LAW. THIS AGREEMENT AND THE DUTIES, RIGHTS, POWERS AND
REMEDIES OF THE PARTIES, HERETO SHALL BE CONSTRUED IN ACCORDANCE WITH, AND
GOVERNED BY THE LAWS OF THE STATE OF GEORGIA WITHOUT REGARD TO THE CONFLICTS OF
LAW PROVISIONS THEREOF, EXCEPT TO THE EXTENT THAT THE LOCAL LAW OF ANY
JURISDICTION WHERE ANY COLLATERAL IS LOCATED GOVERNS THE GRANT, PERFECTION OR
ENFORCEMENT OF THE SECURITY INTERESTS AND LIENS GRANTED PURSUANT TO THIS
AGREEMENT. THE PROVISIONS OF THIS SECTION HAVE BEEN FULLY DISCUSSED BY THE
SECURED PARTY ON BEHALF OF THE BANKS AND THE DEBTOR AND SHALL BE SUBJECT TO NO
EXCEPTIONS. THE DEBTOR HAS MADE THIS CHOICE OF GOVERNING LAW KNOWLINGLY AND
WILLINGLY AND AFTER CONSULTING WITH ITS COUNSEL. NEITHER THE SECURED PARTY NOR
THE DEBTOR HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF
THIS SECTION WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
12.5 ENFORCEMENT. THE DEBTOR (A) HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF THE STATE COURTS OF THE STATE OF GEORGIA AND TO THE JURISDICTION
OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA, FOR
THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR BASED UPON
THIS AGREEMENT OR THE SUBJECT MATTER HEREOF BROUGHT BY THE SECURED PARTY OR THE
BANKS OR THEIR SUCCESSORS OR ASSIGNS AND (B) HEREBY WAIVES, AND AGREES NOT TO
ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH SUIT, ACTION
OR PROCEEDING, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE JURISDICTION
OF THE ABOVE-NAMED COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT
OR EXECUTON, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT
FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THIS
AGREEMENT OR THE SUBJECT MATTER HEREOF MAY NOT BE ENFORCED IN OR BY SUCH COURT,
AND (C) HEREBY WAIVES AND AGREES NOT TO SEEK ANY REVIEW BY ANY COURT OF ANY
OTHER JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF THE
JUDGMENT OF ANY SUCH GEORGIA STATE OR FEDERAL COURT. THE DEBTOR HEREBY CONSENTS
TO SERVICE OF
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PROCESS BY REGISTRED MAIL AT THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN. THE
DEBTOR AGREES THAT ITS SUBMISSION TO JURISDICTION AND ITS CONSENT TO SERVICE OF
PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF THE SECURED PARTY AND THE
BANKS. FINAL JUDGMENT AGAINST THE DEBTOR IN ANY SUCH ACTION, SUIT OR PROCEEDING
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT, ACTION OR PROCEEDING ON THE
JUDGMENT, OR IN ANY OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF SUCH
OTHER JURISDICTION; PROVIDED, HOWEVER, THAT THE SECURED PARTY OR THE BANKS MAY
AT THEIR OPTION BRING SUIT OR INSTITUTE OTHER JUDICIAL PROCEEDINGS, AGAINST THE
DEBTOR OR ANY OF ITS ASSETS IN ANY STATE OR FEDERAL COURT OF THE UNITED STATES
OR OF ANY COUNTRY OR PLACE WHERE THE DEBTOR, OR SUCH ASSETS, MAY BE FOUND.
12.6 JURY TRIAL-WAIVER. THE DEBTOR AND THE SECURED PARTY, EACH WAIVE
IRREVOCABLY, TO THE EXTENT PERMITTED BY LAW, ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, BETWEEN THE SECURED PARTY OR ANY BANK AND THE DEBTOR ARISING OUT OF,
IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR THE NOTES OR OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE
TRANSACTIONS RELATED HERETO. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF
DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE DEBTOR AND THE
SECURED PARTY ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER
INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN
ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER
IN THEIR RELATED FUTURE DEALINGS. THE DEBTOR AND THE SECURED PARTY FURTHER
WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL,
AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING (UNLESS EXPRESSLY MODIFIED IN
WRITING BY ALL PARIES HERETO), AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
12.7 Notices. All notices, demands and requests required or permitted to
be given under the provisions of this Agreement shall be in writing and shall be
deemed to have been duly delivered and received if given in accordance with the
provisions of the Loan Agreement.
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12.8 Separability. If any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of all remaining provisions shall not in
any way be affected or impaired. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
12.9 Administrative Agent. The parties hereby acknowledge and reaffirm
that the Secured Party has been designated to act as administrative for the
Banks. All rights and remedies of the Secured Party hereunder may be exercised
by the Secured Party on behalf of, and as administrative agent for, the Banks.
The Banks may, pursuant to the terms of the Loan Agreement, appoint a successor
administrative agent, who shall, upon appointment, succeed to all the rights and
obligations of the Secured Party hereunder. The Debtor acknowledges that the
rights of the Secured Party hereunder are for the benefit of each Bank, and
that, upon the termination of the appointment of an agent under the Loan
Agreement and the failure of the Banks to appoint a successor agent thereunder,
the rights of the Secured Party under the covenants, conditions and agreements
hereof shall inure to the benefit of the Banks. At any time or times, in order
to comply with any legal requirement in any jurisdiction, the Secured Party may
in good faith appoint one or more other Persons, either to act as co-agent or
co-agents, jointly with the Secured Party, or to act as separate agent or agents
on behalf of the Secured Party and the holders of the Secured Obligations, with
such power and authority as may be necessary for the effectual operation of the
provisions hereof and may be specified in the instrument of appointment (which
may, in the discretion of the Secured Party, include provisions for the
protection of such co-agent or separate agent similar to the provisions herein).
12.10 Section Headings. The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
12.11 Pronouns. Any pronoun used herein shall be construed in the
person, number and gender which is appropriate in the context.
12.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and same instrument.
[Remainder of This Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the undersigned have executed this Borrower Security
Agreement on the day and year first above written.
SECURED PARTY:
NATIONSBANK, N.A., as Administrative Agent
c/Melinda Bergbom
-----------------------------------------
Melinda Bergbom
Senior Vice President
DEBTOR:
GRAY COMMUNICATIONS SYSTEMS, INC.
c/Frederick J. Erickson
-----------------------------------------
Frederick J. Erickson
Chief Financial Officer
AMENDED AND RESTATED
BORROWER SECURITY AGREEMENT
Signature Page 1
EXHIBIT 4.5
AMENDED AND RESTATED BORROWER PLEDGE AGREEMENT
THIS AMENDED AND RESTATED BORROWER PLEDGE AGREEMENT is made and
entered into as of July 31, 1996, by and between GRAY COMMUNICATIONS SYSTEMS,
INC., a Georgia corporation (the "Pledgor"), and NATIONSBANK, N.A. (the
"Pledgee"), as administrative agent for itself and the other financial
institutions listed on the signature pages of the Loan Agreement (as defined
below), and their successors and assigns. The Pledgee and such other financial
institutions may be referred to hereinafter individually as a "Bank" or
collectively as the "Banks".
RECITALS
A. The Pledgor owns issued and outstanding capital stock of the
corporations listed on Exhibit A attached hereto (collectively, the "Companies"
and individually, a "Company") in the amounts set forth on Exhibit A, in each
case, as Exhibit A may be supplemented from time to time in accordance with
Section 29 hereof.
B. The Pledgor, NationsBank, N.A., as Administrative Agent and
Syndication Agent (each as defined in the Loan Agreement defined below), KeyBank
National Association, as Documentation Agent (as defined in the Loan Agreement
defined below), and the other Banks (as defined in the Loan Agreement defined
below) have entered into that certain Amended and Restated Loan Agreement dated
as of even date herewith (as the same may be extended, amended, restated or
modified from time to time, the "Loan Agreement"), which is hereby incorporated
herein by this reference, pursuant to which the Banks have agreed to make
available to the Pledgor up to $100,000,000 on a reducing revolving credit basis
and up to $100,000,000 on a term loan basis. All capitalized terms used herein
and not otherwise defined herein shall have the meanings assigned to them in the
Loan Agreement. The Pledgor may also be indebted to a Bank or an Affiliate of a
Bank from time to time in respect of Rate Hedging Obligations.
C. In order to induce the Pledgee and the Banks to enter into the
Loan Agreement and to ensure that the Loans made pursuant to the Loan Agreement
will be secured as provided herein, the Pledgor has agreed to pledge its capital
stock in the Companies to the Pledgee and grant to the Pledgee a first priority
security interest in all of such capital stock as security for the Obligations
incurred by the Pledgor under the Loan Agreement.
D. The Banks have appointed the Pledgee as their agent for the
purpose, among other things, of protecting and preserving the security for the
repayment of the Pledgor's Obligations under the Loan Agreement.
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AGREEMENTS
In consideration of the foregoing Recitals, and of the agreements
made herein, and of the Loans made or to be made by the Banks to the Pledgor,
the Pledgor and the Pledgee, on behalf of the Banks, agree as follows:
1. GRANT OF SECURITY INTEREST; PLEDGE.
1.1. Pledged Collateral. The Pledgor hereby grants to the
Pledgee, as agent for the Banks, ratably in proportion to the total Pledge
Obligations (as that term is defined below), owing at any time to the Banks, a
security interest in, and pledges, assigns and sets over to the Pledgee, for the
benefit of the Banks, (a) all of the capital stock and other equity interests in
each Company held by it (the "Pledged Shares"), (b) any additional capital stock
or other equity interests of any Company hereafter issued or delivered to the
Pledgor for any reason, (c) all options, warrants or rights exercisable for or
convertible into any such capital stock or other equity interests and (d) all
dividends, distributions, cash, property or other securities at any time and
from time to time receivable or otherwise distributable in respect thereof,
exchanged therefor, derived therefrom, substituted therefor, or otherwise
subjected to the lien hereof pursuant to any provision hereof, and the proceeds
thereof, including any and all distributions made on or in respect of the
foregoing, whether resulting from a subdivision, combination, reorganization of
any Company, a reclassification of outstanding capital stock of any Company or
received in exchange for any of the foregoing or any part thereof or as a result
of any merger, consolidation, acquisition or other sale or exchange of assets or
on the liquidation, whether voluntary or involuntary, of any issuer of the
Pledged Shares or otherwise (all of which Pledged Shares, additional capital
stock or other equity interests, options, warrants, rights, dividends,
distributions, cash, property, securities and proceeds are herein called the
"Pledged Collateral").
1.2. Possession of Pledged Collateral. All certificates for the
Pledged Shares, certificate for the Pledged Shares, certificates for any
additional capital stock, other equity interests, options, warrants or rights,
dividends, distributions, cash, property and securities comprising part of the
Pledged Collateral shall be delivered to the Pledgee by the Companies or the
Pledgor, and the Pledgor hereby authorizes and directs each Company to make such
delivery to the Pledgee, and the Pledgor shall deliver to the Pledgee proper
instruments of assignment therefor duly executed and endorsed by the Pledgor and
such other instruments or documents (including, without limitation, financing
statements) as the Pledgee may reasonably request sufficient to perfect the lien
of the Pledgee in the Pledged Collateral and, upon the occurrence of an Event of
Default, to transfer title thereto to the Pledgee or its nominee. Any Pledged
Collateral which may at any time be in the possession of the Pledgor shall be
promptly delivered to the Pledgee, and prior thereto, shall be deemed to be held
in trust on behalf of the Pledgee as the Pledgee's agent.
1.3 Obligations Secured. The security interests granted by the
Pledgor to the Pledgee under this Agreement secure (a) the payment and
performance of all indebtedness, Obligations and liabilities of the Pledgor,
arising at any time, now or in the future, pursuant to the Loan Agreement or any
Collateral Document, including, without limitation, such obligations
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as are evidenced by the Notes; (b) the payment and performance of all
obligations and liabilities of the Pledgor arising at any time and from time to
time, now or in the future, pursuant to any agreement with any Bank or any
Affiliate of a Bank with respect to Rate Hedging Obligations; (c) performance by
the Pledgor of its obligations and agreements set forth herein and in each other
Collateral Document to which it is a party; (d) all payments made or expenses
incurred by the Pledgee, including, without limitation, reasonable attorneys'
fees and legal expenses, in the exercise, preservation or enforcement of any of
the rights, powers or remedies of the Pledgee, or in the enforcement of the
obligations of the Pledgor, hereunder; and (e) any renewals, continuations or
extensions of any of the foregoing (all of which are referred to herein as the
"Pledge Obligations").
1.4 Pledge a First Lien. The security interest of the Pledgee in
the Pledged Collateral shall at all times be a first priority lien and security
interest securing all of the Pledge Obligations.
1.5 Stockholder Liability. The security interests granted
pursuant hereto are granted as security only and shall not subject the Pledgee
or any Bank to any obligation or liability of the Pledgor with respect to any of
the Pledged Collateral or any transaction in connection therewith.
2. VOTING RIGHTS; ETC. So long as no Event of Default, as defined
in Section 9 below, shall have occurred and be continuing:
(a) The Pledgor shall have the right, from time to time,
and for any purpose not inconsistent with the Loan Agreement or this Agreement,
to vote and give consents with respect to the Pledged Shares and any additional
capital stock, shares or other equity interests of each Company owned by it
constituting part of the Pledged Collateral and to consent to or ratify any
action taken at, or waive notice of, any meeting of stockholders or any
committee of any Company with the same force and effect as if such capital stock
were not pledged hereunder;
(b) The Pledgee shall, from time to time upon the written
request of the Pledgor, give any necessary waivers of notice, consents and
powers of attorney or proxies necessary to enable the Pledgor to exercise any of
the foregoing rights;
(c) The Pledgor shall be entitled to retain and use any
and all cash distributions paid on Pledged Collateral which are permitted by and
in a manner consistent with the provisions of the Loan Agreement; provided,
however, that any and all other distributions made on or in respect of the
Pledged Collateral, whether resulting from a subdivision, combination,
reorganization of any Company, a reclassification of outstanding shares of any
Company or received in exchange for Pledged Collateral or any part thereof or as
a result of any merger, consolidation, acquisition or other sale or exchange of
assets or on the liquidation, whether voluntary or involuntary, of any issuer of
the Pledged Collateral, or otherwise, shall be and become part of the Pledged
Collateral pledged hereunder and, if received by any Company
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or the Pledgor, shall forthwith be delivered to the Pledgee to be held subject
to the terms of this Agreement; and
(d) The Pledgor shall be entitled to exercise any
subscription or conversion privileges accruing to it as the owner of the Pledged
Collateral to the extent permitted in the Loan Agreement, provided that any
additional capital stock or other equity interests of any Company or any other
issuer obtained or purchased on account of any such subscription or conversion
privileges shall be delivered to and pledged with the Pledgee as part of the
Pledged Collateral.
3. THE PLEDGOR'S REPRESENTATIONS AND WARRANTIES. The Pledgor
represents and warrants that:
(a) The Pledged Shares constitute all of the issued and
outstanding capital stock of each Company;
(b) The Pledged Shares constitute all of the shares of
capital stock or other equity interests owned by the Pledgor;
(c) The Pledgor has, and has duly exercised, all requisite
corporate power and authority to execute, deliver and perform this Agreement;
(d) This Agreement has been duly authorized and executed
by the Pledgor and constitutes the legal, valid and binding obligation of the
Pledgor, enforceable against the Pledgor in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or limiting creditors' rights
generally or by general principles of equity;
(e) The Pledgor is the full legal and beneficial owner of,
and has good and marketable title to, the Pledged Shares set forth under its
name on Exhibit A hereto, and such Pledged Shares are fully and accurately
described on Exhibit A hereto (in each case, as Exhibit A may be supplemented
from time to time in accordance with Section 29 hereof.
(f) The Pledged Shares have been duly and validly issued,
are fully paid and non-assessable, and are free and clear of any Liens, claims,
options, demands and equities of third parties, except for the security interest
granted hereunder to the Pledgee;
(g) The Pledgor's execution and delivery of this Agreement
and the performance of its terms will not violate or constitute a default under
the terms of (A) any organizational document of the Pledgor or any Company, or
(B) any provision of any agreement, indenture, certificate or other instrument,
license, judgment, decree, order, law, statute, ordinance or other governmental
rule or regulation applicable to the Pledgor or any Company or the property of
the Pledgor or any Company;
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(h) Upon delivery to the Pledgee of the stock certificates
evidencing the Pledged Shares, duly endorsed in blank, the Pledgee will have,
for the benefit of the Banks, a valid first lien upon and perfected security
interest in the Pledged Shares and the proceeds thereof;
(i) The principal place of business and chief executive
office of the Pledgor is set forth below the Pledgor's name on the signature
pages hereof;
(j) No consent or approval of, or filing with, any
governmental authority or other Person, and no waiver of any lien or right of
distraint or other similar right, and no license, authorization or declaration
of any governmental authority, bureau or agency, is or will be required in
connection with the execution, delivery, performance, validity, enforcement or
priority of this Agreement or the security interest granted hereby or any
agreements, instruments or documents to be executed or delivered pursuant
hereto, except that the consent of the FCC may be required in order for the
Pledgee to enforce certain of its rights hereunder upon the occurrence and
during the continuance of an Event of Default;
(k) The pledge of the Pledged Collateral hereunder is
effective to vest in the Pledgee the rights of the Pledgee in the Pledged
Collateral as set forth herein; and
(l) The Pledgor has received, or is entitled to receive,
reasonably equivalent value for the obligations and liabilities that it has
incurred to the Pledgee and the Banks; the Pledgor is not insolvent as defined
in Title 11 of the United States Code, or any other applicable federal or state
bankruptcy or insolvency statute, nor, after giving effect to the consummation
of the transactions contemplated in the Loan Agreement, including, without
limitation, the execution and delivery of the Notes, will the Pledgor be
rendered insolvent by the execution and delivery of this Agreement to the
Pledgee; the Pledgor has not engaged, nor does it expect to engage, in any
business or transaction for which the assets retained by it shall be an
unreasonably small capital, taking into consideration the obligations to the
Pledgee incurred hereunder; and the Pledgor does not intend to, nor does it
believe that it will, incur debts beyond its ability to pay them as they mature.
4. CERTAIN COVENANTS.
4.1 Negative Covenants. The Pledgor shall not:
(a) sell, convey or otherwise dispose of any of the
Pledged Collateral or any interest therein or create, incur, or permit to exist
any Lien, claim, option, demand or equity of third parties on or with respect to
any of the Pledged Collateral or the proceeds thereof, other than as created
hereby;
(b) enter into or consent to any agreement, indenture,
license or other instrument or any amendment or modification thereof which would
be violated by, or require the consent or approval of any Person to, the
performance or enforcement of this Agreement or permit any of its Subsidiaries
to do any of the foregoing;
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(c) consent to or approve the issuance of (i) any
additional capital stock or other equity interests of any class of any issuer of
Pledged Collateral, (ii) any securities convertible voluntarily by the holder
thereof or automatically upon the occurrence or nonoccurrence of any event or
condition into, or exchangeable for, any such capital stock or other equity
securities, or (iii) any warrants, options, rights or other commitments
entitling any Person to purchase or otherwise acquire any such capital stock or
other equity securities;
(d) vote, consent or otherwise act in a manner with
respect to the Pledged Collateral which would cause or constitute an Event of
Default under or would otherwise be inconsistent with the terms of the Loan
Agreement, this Agreement, any other Collateral Document or any related
instrument, and nothing contained in Section 2 shall be construed to vary or
modify any such terms;
(e) agree to amend, modify or supplement the Certificate
or Articles of Incorporation or By-Laws of any Company or any other organization
or governing documents, unless required by law, if such amendment, modification
or supplement would adversely affect in any respect any of the Pledgee's
interest, rights or remedies under this Agreement or the Collateral Documents or
the ability of the Pledgor or any of its Subsidiaries to pay or perform the
Obligations;
(f) do or permit any act in contravention of the
Certificate or Articles of Incorporation or By-Laws of any Company; or
(g) take any action which could reasonably be expected to
interfere with, hinder or delay the exercise of the Pledgee's rights under this
Agreement or any other Collateral Documents or any other instrument, document or
agreement relating to any of the foregoing.
4.2 Affirmative Covenants. The Pledgor shall:
(a) at its own expense, defend the Pledgee's right, title
and security interest in and to the Pledged Collateral against the claims of any
other Person;
(b) use its best efforts to obtain any consent of the FCC
and each other Licensing Authority and each other Person which may be required
in connection with the performance or enforcement of this Agreement and any
transfer of the Pledged Collateral contemplated hereby, and will cooperate fully
with the Pledgee in effecting any such transfer or in connection with the
Pledgee's exercise of the rights and remedies granted to the Pledgee pursuant
hereto or pursuant to any other Collateral Document;
(c) pay and discharge promptly, and in any event before
the imposition of any penalty, all taxes and assessments upon any portion of the
Pledged Collateral owned by it, except that the Pledgor shall not be required to
pay any such tax or assessment the payment of
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which is being contested in good faith and by appropriate proceedings and
against which adequate reserves are being maintained;
(d) comply in all material respects with all federal,
state and local laws, rules and regulations applicable to it or its property or
business, the failure to comply with which could reasonably be expected to have
a Material Adverse Effect;
(e) notify the Pledgee in writing at least thirty days in
advance of any change in the Pledgor's chief executive office or principal place
of business and execute any financing statements or amendments covering the
Pledged Collateral as the Pledgee may from time to time reasonably request;
(f) promptly deliver to the Pledgee all material written
notices and communications given or received by it with respect to any Pledged
Collateral; and
(g) pledge hereunder, immediately upon its acquisition,
(directly or indirectly) thereof, any and all shares of stock or other equity
interest of any Person which, after the date of this Agreement, becomes a
Subsidiary of the Pledgor.
5. RIGHT OF THE PLEDGEE TO DEAL WITH COLLATERAL DOCUMENTS, ETC.
The Pledgee may deal in any manner with any Collateral Document to which the
Pledgor is not a party in accordance with or as permitted by the terms thereof
(as may be amended from time to time), subject in all cases to such approval or
agreement by the parties thereto as may be required by the terms of such
documents, without notice to or the consent of the Pledgor. No action which the
Pledgee may take or fail to take in accordance with or permitted by any
Collateral Document to which the Pledgor is not a party (as any of the foregoing
may be amended from time to time) pursuant to the foregoing powers shall operate
to release any of the Pledged Collateral, terminate or modify the terms of this
Agreement or impose any liability on the Pledgee.
6. RIGHTS OF THE PLEDGEE UPON DEFAULT. Upon the occurrence and
during the continuance of any Event of Default, the Pledgee shall, subject to
Section 17 and compliance with all applicable requirements of law, in addition
to all other rights and remedies it may have under the Uniform Commercial Code
or any other law, have the rights and remedies set forth in this Section 6:
6.1 Voting and Other Rights. Upon ten days prior written notice
to the Pledgor, whether or not the Pledged Collateral shall have been registered
in the name of the Pledgee or its nominee, the Pledgee or its nominee shall
have, with respect to the Pledged Collateral, the right to exercise all voting
rights, and all other stockholder rights and all conversion, exchange,
subscription and other rights, privileges or options pertaining thereto as if it
were the absolute owner thereof, including, without limitation, the right to
exchange any or all of the Pledged Collateral upon the merger, consolidation,
reorganization, recapitalization or other readjustment of any Company, or upon
the exercise by any Company of any right, privilege, or option pertaining to any
of
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the Pledged Collateral, and, in connection therewith, to deliver any of the
Pledged Collateral to any committee, depository, transfer agent, registrar or
other designated agency upon such terms and conditions as it may determine, all
without liability except to account for property actually received by it; but
the Pledgee shall have no duty to exercise any of the aforesaid rights,
privileges or options and shall not be responsible for any failure to do so or
delay in so doing.
6.2 Sale of Pledged Collateral.
(a) Upon at least ten days written notice to the Pledgor,
which notice the Pledgor agrees is reasonable, and without further demand,
advertisement or notice of any kind, all of which are hereby expressly waived,
the Pledgee shall have the right to sell, assign and deliver the whole or any
part of the Pledged Collateral, at any time or times, within or without
Charlotte, North Carolina, at public or private sale or at any broker's board or
on any securities exchange, for cash, on credit, or for other property, for
immediate or future delivery, and for such price or prices and on such terms as
the Pledgee may determine to be commercially reasonable, and in connection
therewith the Pledgee or any Bank at any sale may bid for or purchase the whole
or any part of the Pledged Collateral so offered for sale, free from any right
of redemption, stay or appraisal on the part of the Pledgor, all of which rights
the Pledgor hereby waives and releases, to the full extent permitted by law.
(b) (i) If at any time or times, in the opinion of the
Pledgee, it should be necessary or desirable, in order for the Pledgee to
dispose of all or any part of the Pledged Collateral in any sale or sales
pursuant hereto, to comply with or to register or quality all or any part of the
Pledged Collateral under the Securities Act of 1933, as amended (the "Securities
Act"), or under any similar Federal statute then in effect, or any rules or
regulations thereunder, and/or to comply with the laws, rules and regulations of
any state regulating the sale of securities, the Pledgor shall, upon the request
of the Pledgee, as expeditiously as possible and in good faith, use its best
efforts to cause each Company to effect and continue such registration,
qualification and compliance. The Pledgor further shall, and shall cause each
Company to, indemnify and hold harmless the Pledgee and any underwriter from and
against any claims and liabilities caused by any untrue statement of a material
fact or omission to state a material fact required to be stated in any
registration statement, offering circular or prospectus used in connection with
such registration, qualification or compliance, or necessary to make the
statements therein not misleading, except insofar as such claims or liabilities
are caused by any untrue statement or omission based upon or in conformity with
information furnished by the Pledgee expressly for the purpose of inclusion in
such registration statement, offering circular or prospectus.
(ii) Notwithstanding the foregoing, the Pledgor
recognizes that the Pledgee may be unable to effect a public sale of all or a
part of the Pledged Collateral or that it may be commercially unreasonable to do
so, and may find it appropriate or necessary to resort to one or more private
sales to a restricted group of purchasers who will be obligated to agree, among
other things, to acquire such securities for their own account, for investment
and not with a view to the distribution or resale thereof. The Pledgor
acknowledges that any such private sales may be at places and on terms less
favorable to the seller than if sold at public sales and
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agrees that such private sales shall not by reason thereof be deemed to have
been made in a commercially unreasonable manner, and that the Pledgee shall have
no obligation to delay the sale of any such securities for the period of time
necessary to permit the issuer of such securities to register such securities
for public sale under the Securities Act or any other applicable securities law.
(iii) The Pledgee shall be authorized at any sale
to restrict the prospective bidders or purchasers to Persons who will be
eligible to hold or control the applicable Licenses under FCC and other
governmental regulations, the terms of the Licenses and other applicable law,
rules and regulations.
(iv) The Pledgee may take all such further acts as
it may in its reasonable discretion deem necessary or advisable for the
Pledgee's or the Banks' protection or for compliance with any provision of law,
even if such act might, whether by limiting the market or by adding to the costs
of sale or otherwise, reduce prices that might otherwise be obtained for the
Pledged Collateral being sold or otherwise restrict the net proceeds available
from the sale thereof. Upon consummation of any such sale, the Pledgee shall
have the right to assign, transfer, endorse and deliver to the purchaser or
purchasers thereof the Pledged Collateral so sold. Each such purchaser at any
such sale shall hold the property sold absolutely free from any claim or right
on the part of the Pledgor, and the Pledgor hereby waives, to the full extent
permitted by law, all rights of redemption, stay or appraisal which the Pledgor
now has or may at any time in the future have under any rule of law or statute
now existing or hereafter enacted. For purposes of this Section 6.2, an
agreement to sell all or any part of the Pledged Collateral shall be treated as
a sale of such Pledged Collateral, and the Pledgee shall be free to carry out
the sale of any Pledged Collateral pursuant to any such agreement and the
Pledgor shall not be entitled to the return of any such Pledged Collateral
subject thereto, notwithstanding that after the Pledgee shall have entered into
such an agreement, all Events of Default may have been remedied.
(c) The proceeds of any sale, collection or other
realization upon or of the Pledged Collateral shall be applied (i) first, to the
actual expenses incurred by the Pledgee in connection with this Agreement or the
exercise of any right or remedy hereunder, or any sale or disposition,
including, without limitation, the expenses of taking, holding, advertising and
preparing the Pledged Collateral for sale or disposition, the expenses incurred
in registering the Pledged Collateral as provided in Section 6.2(b)(i), all
court costs and the Pledgee's reasonable attorneys' fees, (ii) next, to all
advances made by the Pledgee hereunder for the account of the Pledgor and all
costs and expenses paid or incurred by the Pledgee in connection with this
Agreement or any right or remedy hereunder, (iii) next, pro rata to the Banks,
to the principal of and interest on the Notes and all other Pledge Obligations,
and (iv) lastly, any surplus to the Pledgor, except as otherwise required by law
or as a court of competent jurisdiction may otherwise direct. The Pledgor and
each other Person which may become liable on or with respect to the Notes shall
nevertheless remain liable for any deficiency.
6.3 Rights Cumulative. The rights and the remedies provided in
this Agreement are cumulative and in addition to any rights and remedies which
the Pledgee may
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have under the Loan Agreement, the Notes, any other Collateral Document or at
law (including, without limitation, under the Uniform Commercial Code) or in
equity.
7. WAIVER. The Pledgor hereby waives, releases and discharges, to
the full extent permitted by law, any right which it has or may have at law, in
equity or by statute, to require the Pledgee to pursue or otherwise avail itself
of any rights or remedies which it has or may have against any Company or any
other Person with respect to the payment of the Notes or performance of the
terms, covenants and conditions of the Loan Agreement and Collateral Documents
or to pursue or exhaust any of its rights or remedies with respect to any other
security for the satisfaction of the Pledge Obligations or the performance of
the terms, covenants and conditions of the Loan Agreement. The Pledgor hereby
waives and releases any right of marshaling of assets which it might otherwise
have.
8. PLEDGOR'S RIGHT OF SUBROGATION OR REIMBURSEMENT. The Pledgor
shall not have any right of subrogation or reimbursement with respect to the
Loan Agreement, the Notes or any other Collateral Document unless and until such
time as the Pledgee and the Banks shall have received indefeasible payment in
full in cash of all principal of and interest owed to them with respect to the
Loan Agreement and the Notes and of all other Pledge Obligations.
9. EVENT OF DEFAULT DEFINED. The occurrence of any "Event of
Default", as defined in the Loan Agreement, shall be an "Event of Default" under
this Agreement.
10. THE PLEDGEE APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby
irrevocably constitutes and appoints the Pledgee as its attorney-in-fact,
effective upon, and during the continuance of, an Event of Default, with full
power of substitution, for the purpose of carrying out the provisions of this
Agreement and taking any action and executing any instrument which the Pledgee
may deem necessary or advisable to accomplish the purposes hereof, which
appointment is irrevocable and coupled with an interest. Without limiting the
generality of the foregoing, the Pledgee shall have the right with full power of
substitution, either in the name of the Pledgee or in the name of the Pledgor,
effective upon, and during the continuance of, an Event of Default, to ask for,
demand, sue for, collect, review, receipt and give acquittance for any and all
moneys due or to become due by virtue of any Pledged Collateral, to endorse
checks, drafts, orders and other instruments for the payment of money payable to
the Pledgor representing any interest or dividend or other distribution payable
in respect of the Pledged Collateral or any part thereof or on account thereof,
and to sell, assign, endorse, pledge, transfer and make any agreement
respecting, or otherwise deal with, the same; provided, however, that nothing
herein contained shall be construed as requiring or obligating the Pledgee to
make any commitment or to make any inquiry as to the nature or sufficiency of
any payment received by it, or to present or file any claim or notice, or take
any action with respect to the Pledged Collateral or any part thereof or the
moneys due or to become due in respect thereof or any property covered thereby,
and no action taken by the Pledgee or omitted to be taken with respect to the
Pledge Collateral or any part thereof shall give rise to any defense,
counterclaim or offset in favor of the Pledgor or to any claim or action against
the Pledgee or the Banks, except
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for the gross negligence or willful misconduct of the Pledgee or such Bank as
finally determined by a court of competent jurisdiction.
11. DISCHARGE OF THE PLEDGOR. At such time as all of the
principal of and interest on the Notes, together with any and all other Pledge
Obligations shall have been fully, irrevocably and indefeasibly paid in cash and
satisfied, and the Pledgee and the Banks shall not have any further obligations
or commitments under the Loan Agreement, then all rights and interests in such
Pledged Collateral as shall not have been sold or otherwise applied by the
Pledgee pursuant to the terms hereof and shall still be held by it shall
forthwith be transferred and delivered, together with any termination statements
or other instruments necessary to evidence the termination of the interests of
the Pledgee therein, without recourse or representation, to the Pledgor at the
Pledgor's expense, and the right, title and interest of the Pledgee therein
shall cease. Notwithstanding the foregoing, this Agreement shall continue to be
effective or be reinstated and relate back to such time as though this Agreement
had always been in effect, as the case may be, if at any time any amount
received by the Pledgee or any Bank in respect of the Pledge Obligations is
rescinded or must otherwise be restored or returned by the Pledgee or such Bank
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
any Company or the Pledgor or any Affiliate of any Company or the Pledgor or
upon the appointment of any intervenor or conservator of, or trustee or similar
official for, any Company or the Pledgor or any Affiliate of any Company or the
Pledgor or any substantial part of its properties, or otherwise, all as though
such payments had not been made.
12. NOTICES. All notices, demands and requests required or
permitted to be given under the provisions of this Agreement shall be in writing
and shall be deemed to have been duly delivered and received if given in
accordance with the provisions of the Loan Agreement with the address of the
Pledgor being as set forth following its signature on the signature page of this
Agreement.
13. REIMBURSEMENT OF THE PLEDGEE.
13.1 Indemnity. The Pledgor hereby agrees to indemnify and hold
harmless the Pledgee, the Banks and their respective officers, directors,
employees and agents (to the full extent permitted by law) from and against any
and all claims, demands, losses, judgments and liabilities (including
liabilities for penalties) of any nature whatsoever, and to reimburse the
Pledgee, the Banks and their respective officers, directors, employees and
agents, for all costs and expenses, including legal fees and disbursements,
growing out of or resulting from the Pledgor's breach of, or failure to perform,
this Agreement. In no event shall the Pledgee or any Bank be liable to the
Pledgor for any action, matter or thing in connection with this Agreement other
than gross negligence or willful misconduct as determined by a final
non-appealable judgment of a court of competent jurisdiction and to account for
moneys or Pledged Collateral actually received by the Pledgee in accordance with
the terms hereof.
13.2 Action for the Pledgor. If the Pledgor shall fail to do any
act or thing which it has covenanted to do hereunder or if any representation or
warranty of the Pledgor hereunder shall be breached, the Pledgee may (but shall
not be obligated to) do the same or cause
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it to be done, or remedy any such breach, and there shall be added to the Pledge
Obligations the cost or expense incurred by the Pledgee in so doing, and any and
all amounts expended by the Pledgee in taking any such action shall be secured
by this Agreement and shall bear interest at the Default Interest Rate.
14. FURTHER ASSURANCES. The Pledgor shall join with the Pledgee
in executing, at the Pledgor's expense, such notices, financing statements or
other documents or instruments, in form and substance reasonably satisfactory to
the Pledgee, as the Pledgee may deem to be necessary or appropriate for the
perfection of the security interests of the Pledgee hereunder. In addition, the
Pledgor shall do such further acts and things and execute and deliver to the
Pledgee such additional conveyances, assignments, agreements, financing
statements and instruments as the Pledgee may at any time and from time to time
reasonably request in connection with the administration and enforcement of this
Agreement or relatives to the Pledged Collateral or any part thereof or in order
to assure and confirm unto the Pledgee its rights, powers and remedies
hereunder.
15. REGISTRATION OF PLEDGE. The Pledgor hereby agrees, to the
extent necessary to perfect the Pledgee's Lien in the Pledged Collateral, to
request and direct each Company to register on the books of such Company the
security interests and pledge granted by the Pledgor to the Pledgee pursuant to
this Agreement.
16. NO WAIVER; SECURITY INTEREST ABSOLUTE. No failure on the part
of the Pledgee to exercise, and no delay on its part in exercising, any right,
power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or the further exercise thereof or the exercise of any other right, power or
remedy. All remedies hereunder are cumulative and are not exclusive of any other
remedies at law or in equity. All rights of the Pledgee, the security interest
granted hereunder, and all obligations of the Pledgor hereunder, shall be
absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Loan
Agreement, the Notes, any other Collateral Document, any other related
instrument or any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of,
or in any other term in respect of, or any increase in the amount of, all or any
of the Pledge Obligations, or any other amendment or waiver of any term of, or
any consent to any departure from any requirement of, the Loan Agreement, the
Notes, any other Collateral Document or any other related instrument; or
(c) any exchange or release of, or non-perfection of any
Lien or security on or in, any other collateral, or any release or amendment or
waiver of any term of, or any consent to any departure from any requirement of,
the Loan Agreement, any other Collateral Document or any guarantee, for all or
any of the Pledge Obligations.
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17. FCC AND OTHER LICENSING AUTHORITY COMPLIANCE.
(a) Notwithstanding any other provision of this Agreement,
any foreclosure on, sale, transfer or other disposition of, or the exercise of
any right to vote or consent with respect to, any of the Pledged Collateral as
provided herein or any other action taken or proposed to be taken by the Pledgee
hereunder which would affect the operational, voting or other control of the
Pledgor or any or its Subsidiaries which holds any FCC License shall be made in
accordance with the Communications Act of 1934, as amended, the terms of any
applicable Licenses and any other applicable law, rules and regulations.
(b) If an Event of Default shall have occurred and be
continuing, the Pledgor shall take any action which the Pledgee may request in
the exercise of its rights and remedies under this Agreement in order to
transfer and assign to the Pledgee, any Bank, or to such one or more third
parties as the Pledgee may designate, or to a combination of the foregoing, any
or all of the Pledged Collateral. To enforce the provisions of this Section, the
Pledgee is empowered to seek from the FCC and any other Licensing Authority, to
the extent required, consent to or approval of an involuntary transfer of
control of the Pledgor and any of its Subsidiaries which holds an FCC License
for the purpose of seeking a bona fide purchaser to whom control will ultimately
be transferred. The Pledgor hereby agrees to authorize such an involuntary
transfer of control upon the request of the Pledgee and, without limiting any
rights of the Pledgee under this Agreement, authorize the Pledgee to nominate a
trustee or receiver to assume control, subject only to any required judicial,
FCC and other governmental consent, of the Pledgor or any such Subsidiary
pending and in order to effectuate the transactions contemplated by Section 6.2.
Such trustee or receiver shall have all the rights and powers as provided to it
by law, court order or to the Pledgee under this Agreement. The Pledgor shall
cooperate fully and cause each of its Subsidiaries to cooperate fully in
obtaining any required consent of the FCC or any other governmental body
required to effectuate the foregoing. The Pledgor shall further use its best
efforts to assist in obtaining any consent or approval of the FCC and any other
governmental body, if required, for any action or transactions contemplated by
this Agreement, including, without limitation, the preparation, execution and
filing with the FCC of the assignor's or transferor's portion of any application
or applications for consent to the assignment of the Pledgor's or any of its
Subsidiaries' FCC Licenses or the transfer of control necessary or appropriate
under the FCC's rules and regulations for approval of the transfer or assignment
of any portion of such FCC Licenses or the Pledged Collateral.
(c) The Pledgor acknowledges that consent of the FCC and
any other governmental body for transfer of control of the Licenses of the
Pledgor or any of its Subsidiaries is integral to the Pledgee's realization of
the value of the Pledged Collateral, that there is no adequate remedy at law for
failure by the Pledgor to comply with the provisions of this Section and that
such failure would not be adequately compensable in damages, and therefore
agrees that the agreements contained in this Section may be specifically
enforced.
(d) Notwithstanding anything to the contrary contained in
this Agreement, the Pledgee shall not, without first obtaining any consent or
approval of the FCC and any other applicable governmental body, taken any action
pursuant to this Agreement which
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would constitute or result in any change of control of the Pledgor or any of its
Subsidiaries which holds an FCC License if any such change in control would
require, under then existing law, the prior approval of the FCC or such other
governmental body.
(e) Notwithstanding anything herein to the contrary, prior
to the occurrence of an Event of Default and receipt of consent of the FCC and
any other applicable governmental body to the transfer of control of the Pledgor
or any of its Subsidiaries which holds an FCC License, this Agreement and the
transactions contemplated hereby do not and will not constitute, create, or have
the effect of constituting or creating, directly or indirectly, actual or
practical ownership of the Pledgor or any such Subsidiary by the Pledgee or any
of the Banks or control, affirmative or negative, direct or indirect, by the
Pledgee or any of the Banks over the management or any other aspect of the
operation of the Pledgor or any such Subsidiary, which ownership and control
remain exclusively and at all times in the Pledgor and such Subsidiary, as the
case may be.
18. RESTRICTIONS ON TRANSFERS OF STOCK NOT APPLICABLE. The
Pledgor hereby agrees that the pledge of the Pledged Collateral to the Pledgee
hereunder and the sale of the Pledged Collateral by the Pledgee in accordance
with the provisions of this Agreement shall be free from restrictions on the
transfer of capital stock or other equity interests of each Company, if any,
contained in the Certificate or Articles of Incorporation, By-Laws or other
organizational document of such Company or in any agreement among the
stockholders of such Company. The Pledgor hereby consents to the exercise by the
Pledgee of any of its rights and remedies hereunder upon the occurrence and
during the continuance of an Event of Default and agrees that the Pledgee shall
have the right to exercise such rights and remedies in accordance with the terms
hereof upon the occurrence and during the continuance of an Event of Default
notwithstanding any restrictions set forth in the Certificate or Articles of
Incorporation, By-Laws or other organizational document of any Company or in any
agreement among the stockholders of any Company.
19. MODIFICATION. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived either generally or
in a particular instance, and either retroactively or prospectively, only with
the written consent of the Pledgor and the Pledgee. No waiver or any single
breach of default under this Agreement shall be deemed a waiver of any other
breach or default.
20. SUCCESSORS AND ASSIGNS. Subject to the limitations upon the
sale, lease, transfer or other disposition of the Pledged Collateral by the
Pledgor set forth herein and in the Loan Agreement, all of the covenants,
conditions and agreements herein contained shall be binding upon the Pledgor and
its successors and assigns; provided, however, that the Pledgor may not assign
or transfer any of its rights or obligations hereunder without the prior written
consent of all the Banks and the Pledgee. This Agreement shall inure to the
benefit of the permitted successors and assigns of the Pledgee and the Banks,
and, in the event of any transfer or assignment of rights by the Pledgee or the
Banks, the rights and privileges herein conferred upon the transferring Pledgee
or Bank shall automatically extend to and be vested in such permitted transferee
or assignee, all subject to the terms and conditions hereof.
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21. GOVERNING LAW. THIS AGREEMENT AND THE DUTIES, RIGHTS, POWERS
AND REMEDIES OF THE PARTIES HERETO SHALL BE CONSTRUED IN ACCORDANCE WITH, AND
GOVERNED BY, THE LAWS OF THE STATE OF GEORGIA, WITHOUT REGARD TO ANY CONFLICTS
OF LAWS PROVISIONS THEREOF. THE PROVISIONS OF THIS SECTION HAVE BEEN FULLY
DISCUSSED BY THE PLEDGEE AND THE PLEDGOR AND SHALL BE SUBJECT TO NO EXCEPTIONS.
THE PLEDGOR HAS MADE THIS CHOICE OF GOVERNING LAW KNOWINGLY AND WILLINGLY AND
AFTER CONSULTING WITH ITS COUNSEL. NEITHER THE PLEDGEE NOR THE PLEDGOR HAS
AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS SECTION WILL
NOT BE FULLY ENFORCED IN ALL INSTANCES.
22. ENFORCEMENT. THE PLEDGOR (A) HEREBY IRREVOCABLY SUBMITS TO
THE JURISDICTION OF THE STATE COURTS OF THE STATE OF GEORGIA AND TO THE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT
OFGEORGIA, FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT
OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF BROUGHT BY THE
AGENT OR THE BANKS OR THEIR SUCCESSORS OR ASSIGNS AND (B) HEREBY WAIVES, AND
AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR OTHERWISE, IN ANY SUCH
SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE
JURISDICTION OF THE ABOVE-NAMED COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE
FROM ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN
AN INCOVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER OR THAT THIS AGREEMENT OR THE SUBJECT MATTER HEREOF MAY NOT BE ENFORCED
IN OR BY SUCH COURT, AND (C) HEREBY WAIVES AND AGREES NOT TO SEEK ANY REVIEW BY
ANY COURT OF ANY OTHER JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN
ENFORCEMENT OF THE JUDGMENT OF ANY SUCH GEORGIA STATE OR FEDERAL COURT. THE
PLEDGOR HEREBY CONSENTS TO SERVICE OF PROCESS BY REGISTERED MAIL AT THE ADDRESS
TO WHICH NOTICES ARE TO BE GIVEN. THE PLEDGOR AGREES THAT ITS SUBMISSION TO
JURISDICTION AND ITS CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE FOR THE
EXPRESS BENEFIT OF THE AGENT AND THE BANKS. FINAL JUDGMENT AGAINST THE PLEDGOR
IN ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, OR IN ANY OTHER MANNER PROVIDED BY
OR PURSUANT TO THE LAWS OF SUCH OTHER JURISDICTION; PROVIDED, HOWEVER, THAT THE
AGENT OF THE BANKS MAY AT THEIR OPTION BRING SUIT, OR INSTITUTE OTHER JUDICIAL
PROCEEDINGS, AGAINST THE PLEDGOR OR ANY OF ITS ASSETS IN ANY STATE OR FEDERAL
COURT OF THE UNITED STATES OR OF ANY COUNTRY OR PLACE WHERE THE PLEDGOR, OR SUCH
ASSETS, MAY BE FOUND.
-15-
<PAGE>
23. JURY TRIAL WAIVER. THE PLEDGOR AND THE PLEDGEE EACH WAIVES
IRREVOCABLY, TO THE EXTENT PERMITTED BY LAW, ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, BETWEEN THE PLEDGEE OR ANY BANK AND THE PLEDGOR ARISING OUT OF, IN
CONNECTION WITH, RELATING TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR THE NOTES OR OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE
TRANSACTIONS RELATED HERETO. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF
DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE PLEDGOR AND THE
PLEDGEE ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING
INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR
RELATED FUTURE DEALINGS. THE PLEDGOR AND THE PLEDGEE FURTHER WARRANT AND
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING (UNLESS EXPRESSLY MODIFIED IN
WRITING BY ALL PARTIES HERETO), AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
24. SEPARABILITY. If any one or more of the provisions contained
in this Agreement should be invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of all remaining provisions shall not
in any way be affected or impaired. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
25. ADMINISTRATIVE AGENT. The parties hereby acknowledge and
reaffirm that the Pledgee has been designated to act as administrative agent for
the Banks. All rights and remedies of the Pledgee hereunder may be exercised by
the Pledgee on behalf of, and as administrative agent for, the Banks. The Banks
may, pursuant to the terms of the Loan Agreement, appoint a successor
administrative agent, who shall, upon appointment, succeed to all the rights and
obligations of the Pledgee hereunder. The Pledgor acknowledges that the rights
of the Pledgee hereunder are for the benefit of each Bank, and that, upon the
termination of the appointment of an administrative agent under the Loan
Agreement and the failure of the Banks to appoint a successor administrative
agent thereunder, the rights of the Pledgee under the
-16-
<PAGE>
covenants, conditions and agreements hereof shall inure to the benefit of the
Banks. At any time or times, in order to comply with any legal requirement in
any jurisdiction, the Pledgee may in good faith appoint one or more other
Persons, either to act as co-agent or co-agents, jointly with the Pledgee, or to
act as separate agent or agents on behalf of the Pledgee and the holders of the
Pledge Obligations, with such power and authority as may be necessary for the
effectual operation of the provisions hereof and may be specified in the
instrument or appointment (which may, in the discretion of the Pledgee, include
provisions for the protection of such co-agent or separate agent similar to the
provisions herein).
26. SECTION HEADINGS. The section headings contained herein are
for reference only and shall not in any way affect the meaning and
interpretation of this Agreement.
27. PRONOUNS. Any pronoun used herein shall be construed in the
person, number and gender which is appropriate in the context.
28. COUNTERPARTS. This Agreement may be executed in any number of
counterparts or duplicate originals, each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument.
29. SUPPLEMENTS TO EXHIBIT A. Upon the execution and delivery
after the date hereof by the Borrower of an instrument substantially in the form
of Annex 1 attached hereto, Exhibit A shall be deemed to include the
corporations listed therein and this Agreement shall extend to the amounts
issued and outstanding capital stock set forth therein. The rights of the
Pledgee in respect of the capital stock described in Exhibit A as of the date
first written above shall remain in full force and effect, notwithstanding any
subsequent supplement to Exhibit A under this Section 29.
[Remainder of This Page Intentionally Left Blank]
-17-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Borrower Pledge
Agreement to be executed on the date first above written.
PLEDGOR:
GRAY COMMUNICATIONS SYSTEMS, INC.
c/Frederick J. Erickson
--------------------------------------------
Frederick J. Erickson
Chief Financial Officer
Address: 126 North Washington Street
Albany, Georgia 31701
Attention: William A. Fielder, III
PLEDGEE:
NATIONSBANK, N.A.
c/Melinda Bergbom
-------------------------------------------
Melinda Bergbom
Senior Vice President
Address: 600 Peachtree Street, N.E.
19th Floor
Atlanta, Georgia 30308
Attention: Financial Strategies Group
-18-
<PAGE>
ANNEX 1
SUPPLEMENT NO. __, dated as of _____________, to the Amended and
Restated Borrower Pledge Agreement, dated as of July 31, 1998 (the "Agreement"),
by and between Gray Communications Systems, Inc., as Pledgor, and NationsBank,
N.A., as Administrative Agent (all capitalized terms used herein but not
otherwise defined herein shall have the meaning assigned to such terms in the
Agreement as the same may be hereafter amended or supplemented from time to
time).
The Pledgor is executing this Supplement in accordance with the
requirements of the Loan Agreement and of the Agreement as additional
consideration for any Loans previously made.
Accordingly, the Pledgor agrees as follows:
(a) In accordance with Section 29 of the Agreement, the Pledgor
by signing below hereby represents and warrants that it owns issued and
outstanding capital stock of the corporations listed below in the amounts listed
below. Each reference to a "Company" or the "Companies" in the Agreement shall
be deemed to include the corporations listed below, and the Agreement is hereby
incorporated by this reference.
Corporation Stock
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
- ------------------------------------- ------------------------------
(b) This Supplement shall become effective upon the execution
hereof by the Pledgor and the delivery of this Supplement to the Administrative
Agent.
(c) Except as expressly supplemented hereby, the Agreement shall
remain in full force and effect.
(d) This Supplement shall be governed by, and shall be construed
and enforced in accordance with, the laws of the State of Georgia without regard
to the conflicts of law principles thereof.
IN WITNESS WHEREOF, the Pledgor has signed and delivered this Supplement
to the Agreement as of the day and year first above written.
-----------------------------
By: ------------------------
Name: ------------------
-19-
<PAGE>
Title: -----------------
-20-
<PAGE>
AGREEMENT OF THE COMPANIES
In order to induce the Pledgee and the Banks to enter into the
Loan Agreement, and knowing they are doing so in reliance hereupon, each Company
is executing this instrument.
Each Company hereby acknowledges the directions of the Pledgor
pursuant to Section 1.2 and Section 15 of the Borrower Pledge Agreement and
agrees to abide thereby.
Each Company represents and warrants to the Pledgee that (i) the
security interests and the pledge granted by the Pledgor to the Pledgee pursuant
to the Borrower Pledge Agreement have been duly registered on the books of such
Company and (ii) it has received no notice of, and has no knowledge of, any
other assignment of, or Lien upon, all or any part of the Pledged Collateral.
Defined terms used in this instrument shall have the respective
meanings ascribed to them in the Borrower Pledge Agreement.
IN WITNESS WHEREOF, the Companies have caused this instrument to
be executed as of the date of the Borrower Pledge Agreement.
COMPANIES:
THE ALBANY HERALD PUBLISHING
COMPANY, INC.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Chief Financial Officer
GRAY KENTUCKY TELEVISION, INC.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Chief Financial Officer
GRAY REAL ESTATE & DEVELOPMENT COMPANY
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Chief Financial Officer
-21-
<PAGE>
GRAY TELEVISION MANAGEMENT, INC.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Chief Financial Officer
GRAY TRANSPORTATION COMPANY, INC.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Chief Financial Officer
PORTA-PHONE PAGING LICENSEE CORP.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Treasurer
THE ROCKDALE CITIZEN PUBLISHING
COMPANY
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Chief Financial Officer
THE SOUTHWEST GEORGIA SHOPPER, INC.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Chief Financial Officer
WEAU LICENSEE CORP. (f/k/a WALB
Licensee Corp.)
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Treasurer
-22-
<PAGE>
WEAU-TV, INC. (f/k/a WALB-TV, Inc.)
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Chief Financial Officer
WCTV LICENSEE CORP.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Treasurer
WJHG LICENSEE CORP.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Treasurer
WKYT LICENSEE CORP.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Treasurer
WRDW LICENSEE CORP.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Treasurer
WRDW-TV, INC.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Chief Financial Officer
-23-
<PAGE>
WVLT LICENSEE CORP.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Treasurer
WVLT-TV, INC.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Chief Financial Officer
WYMT LICENSEE CORP.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Treasurer
KTVE-TV, INC.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Chief Financial Officer
GRAY MIDAMERICA HOLDINGS, INC.
(f/k/a Busse Broadcasting Corporation)
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Chief Financial Officer
KOLN/KGIN, INC.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Chief Financial Officer
-24-
<PAGE>
KOLN/KGIN LICENSE, INC.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Treasurer
WITN-TV, INC.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Chief Financial Officer
WITN LICENSEE CORP.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Treasurer
GRAY FLORIDA HOLDINGS, INC.
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Chief Financial Officer
LYNQX COMMUNICATIONS, INC.
(f/k/a Gulf Link Communications, Inc.)
c/Frederick J. Erickson
------------------------------------
Frederick J. Erickson
Chief Financial Officer
-25-
EXHIBIT 4.8
EXECUTION COPY
FIRST AMENDMENT TO AMENDED
AND RESTATED LOAN AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this
"Amendment") dated as of the 13th day of November, 1998 (the "Amendment Date"),
by and among GRAY COMMUNICATIONS SYSTEMS, INC., a Georgia corporation (the
"Borrower"), the BANKS (as defined in the Loan Agreement defined below),
NATIONSBANK, N.A., as syndication agent (the "Syndication Agent") and
administrative agent (the "Administrative Agent"), and KEY CORPORATE CAPITAL, as
documentation agent (the "Documentation Agent", and collectively with the
Syndication Agent and the Administrative Agent, the "Agents"),
W I T N E S S E T H:
WHEREAS, the Borrower, the Banks and the Agents are parties to that
certain Amended and Restated Loan Agreement dated as of July 31, 1998 (the "Loan
Agreement"); and
WHEREAS, the Borrower has requested, and the Banks have agreed, subject
to the terms hereof, to amend the Loan Agreement as more fully set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree that all capitalized terms used and not defined herein
shall have the meanings ascribed thereto in the Loan Agreement, and further
agree as follows:
1. Amendment to Article 1. Section 1.1 of the Loan Agreement, Defined
Terms, is hereby amended by deleting the definition of "Fixed Charge Coverage
Ratio" in its entirety and by substituting in lieu thereof the following:
"'Fixed Charge Coverage Ratio' means, as of the end of any
fiscal quarter, the ratio of (a) Operating Cash Flow for the four (4)
quarter period then ended to (b) the sum of (i) all Interest Expense
for such four (4) quarter period, plus, (ii) all required principal
payments of Revolving Loans made pursuant to scheduled Revolving
Commitment reductions pursuant to Section 2.1 during such four (4)
quarter period, plus (iii) all required principal payments due on the
Term Loans during such four (4) quarter period, plus (iv) all principal
payments required to be made by the Borrower and its Subsidiaries on
Total Debt (other than the Loans) during such four (4) quarter period,
plus (v) Capital Expenditures made by the Borrower and its Subsidiaries
during such four (4) quarter period, plus (vi) any federal, state or
local income taxes paid by the Borrower or any of its Subsidiaries
<PAGE>
during such four (4) quarter period, plus (vii) any purchases of common
stock of the Borrower by the Borrower or any of its Subsidiaries during
such four (4) quarter period."
2. Amendment to Article 8. Section 8.12 of the Loan Agreement,
Financial Covenants, is hereby amended by deleting subsection (d) thereof,
Operating Cash Flow to Interest Expense, in its entirety and by substituting in
lieu thereof the following:
"(d) Operating Cash Flow to Interest Expense. As of any
calculation date, the Borrower shall not permit the ratio of (i)
Operating Cash Flow for the four (4) fiscal quarter period then ended
or most recently ended, to (ii) the sum of (A) Interest Expense, plus
(B) dividends made by the Borrower and its Subsidiaries in respect of
the Borrower's or such Subsidiary's Capital Stock or other ownership
interest for the same such four (4) quarter period (excluding dividends
made in such Capital Stock or other ownership interest), to be less
than 1.50 to 1.00."
3. No Other Amendment or Waiver. Notwithstanding the agreement of the
Banks to the terms and provisions of this Amendment, the Borrower acknowledges
and expressly agrees that this Amendment is limited to the extent expressly set
forth herein and shall not constitute a modification of the Loan Agreement or
any other Loan Documents or a course of dealing at variance with the terms of
the Loan Agreement or any other Loan Documents (other than as expressly set
forth above) so as to require further notice by the Agents or the Banks, or any
of them, of its or their intent to require strict adherence to the terms of the
Loan Agreement and the other Loan Documents in the future. All of the terms,
conditions, provisions and covenants of the Loan Agreement and the other Loan
Documents shall remain unaltered and in full force and effect except as
expressly modified by this Amendment.
4. Representations and Warranties. The Borrower hereby represents and
warrants in favor of each Agent and each Bank as follows:
(a) The Borrower has the corporate power and authority (i) to enter
into this Amendment and (ii) to do all other acts and things as are required or
contemplated hereunder to be done, observed and performed by it;
(b) This Amendment has been duly authorized and validly executed and
delivered by one or more Authorized Signatories of the Borrower and constitutes
the legal, valid and binding obligation of the Borrower, enforceable against it
in accordance with its terms;
(c) The execution and delivery of this Amendment and the performance by
the Borrower under the Loan Agreement and the other Loan Documents to which it
is a party, as
-2-
<PAGE>
amended hereby, do not and will not require the consent or approval of any
regulatory authority or governmental authority or agency having jurisdiction
over the Borrower or any of its Subsidiaries which has not already been
obtained, nor is in contravention of or in conflict with the articles of
incorporation, by-laws or partnership agreements of the Borrower or any of its
Subsidiaries, or any provision of any statute, judgment, order, indenture,
instrument, agreement, or undertaking to which the Borrower or any of its
Subsidiaries is a party or by which any of their respective assets or properties
is or may become bound; and
(d) The representations and warranties contained in Section 5 of the
Loan Agreement and contained in the other Loan Documents remain true and correct
as of the date hereof, both before and after giving effect to this Amendment,
except to the extent previously fulfilled in accordance with the terms of the
Loan Agreement or such other Loan Document, as applicable, or to the extent
relating specifically to the Agreement Date. No Default now exists or will be
caused hereby.
5. Conditions Precedent. The effectiveness of this Amendment is subject
to the receipt by the Administrative Agent of counterparts hereof executed by
the Required Banks and the Borrower and of all documents, instruments, consents
or items which the Administrative Agents shall deem appropriate in connection
herewith.
6. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute one and the same instrument.
7. Loan Documents. Each reference in the Loan Agreement or any other
Loan Document to the term "Loan Agreement" shall hereafter mean and refer to the
Loan Agreement as amended hereby and as the same may hereafter be amended.
8. Governing Law. This Amendment shall be construed in accordance with
and governed by the internal laws of the State of Georgia, applicable to
agreements made and to be performed in Georgia.
9. Effective Date. Upon satisfaction of the conditions precedent
referred to in Section 5 hereof, this Amendment shall be effective as of the
Amendment Date.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused it to be executed under seal by their duly authorized officers, all as of
the day and year first above written.
GRAY COMMUNICATIONS SYSTEMS, INC.,
a Georgia corporation
By: c/James C. Ryan
----------------------------------------
Name: James C. Ryan
Title: Vice President - Chief Financial
Officer
[CORPORATE SEAL]
Attest: c/Jackson S. Cowart, IV
------------------------------------
Name: Jackson S. Cowart, IV
Title: Assistant Secretary
First Amendment to Amended
and Restated Loan Agreement
Signature Page 1
<PAGE>
NATIONSBANK, N.A., as Administrative Agent,
Syndication Agent and a Bank
By: c/Melinda M. Bergbom
----------------------------------------
Name: Melinda M. Bergbom
Title: Senior Vice President
First Amendment to Amended
and Restated Loan Agreement
Signature Page 2
<PAGE>
KEY CORPORATE CAPITAL INC., as Documentation
Agent and a Bank
By: c/Jason R. Weaver
----------------------------------------
Name: Jason R. Weaver
Title: Vice President
First Amendment to Amended
and Restated Loan Agreement
Signature Page 3
<PAGE>
CIBC INC., as a Bank
By: c/Tefta Ghilaga
----------------------------------------
Name: Tefta Ghilaga
Title: Executive Director
First Amendment to Amended
and Restated Loan Agreement
Signature Page 4
<PAGE>
THE BANK OF NEW YORK, as a Bank
By: c/Edward F. Ryan, Jr.
----------------------------------------
Name: Edward F. Ryan, Jr.
Title: Senior Vice President
First Amendment to Amended
and Restated Loan Agreement
Signature Page 5
<PAGE>
FIRST UNION NATIONAL BANK, as a Bank
By: c/Bruce W. Loftin
----------------------------------------
Name: Bruce W. Loftin
Title: Senior Vice President
First Amendment to Amended
and Restated Loan Agreement
Signature Page 6
<PAGE>
SUNTRUST BANK, CENTAL FLORIDA, N.A.,
as a Bank
By: c/Kimberly S. Evans
----------------------------------------
Name: Kimberly S. Evans
Title: Vice President
First Amendment to Amended
and Restated Loan Agreement
Signature Page 7
<PAGE>
THE BANK OF NOVA SCOTIA, as a Bank
By: c/Vincent J. Fitzgerald, Jr.
----------------------------------------
Name: Vincent J. Fitzgerald, Jr.
Title: Authorized Signatory
First Amendment to Amended
and Restated Loan Agreement
Signature Page 8
<PAGE>
TORONTO DOMINION (TEXAS), INC.,
as a Bank
By: c/Sheila M. Conley
---------------------------------------
Name: Sheila M. Conley
Title: Vice President
First Amendment to Amended
and Restated Loan Agreement
Signature Page 9
<PAGE>
WACHOVIA BANK, N.A., as a Bank
By: c/William J. Darby
---------------------------------------
Name: William J. Darby
Title: Vice President
First Amendment to Amended
and Restated Loan Agreement
Signature Page 10
<PAGE>
THE BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, as a Bank
By: c/Julie Silver
---------------------------------------
Name: Julie Silver
Title: Assistant Vice President
First Amendment to Amended
and Restated Loan Agreement
Signature Page 11
<PAGE>
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND",
NEW YORK BRANCH, as a Bank
By: c/Douglas W. Zylstra
---------------------------------------
Name: Douglas W. Zylstra
Title: Vice President
By: c/W. Jeffrey Vollack
---------------------------------------
Name: W. Jeffrey Vollack
Title: Senior Credit Officer/Senior
Vice President
First Amendment to Amended
and Restated Loan Agreement
Signature Page 12
EXHIBIT 4.9
EXECUTION COPY
SECOND AMENDMENT TO AMENDED
AND RESTATED LOAN AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this
"Amendment") dated as of the 3rd day of March, 1999 (the "Amendment Date"), by
and among GRAY COMMUNICATIONS SYSTEMS, INC., a Georgia corporation (the
"Borrower"), the BANKS (as defined in the Loan Agreement defined below),
NATIONSBANK, N.A., as administrative agent (the "Administrative Agent") on
behalf of the Banks.
W I T N E S S E T H:
WHEREAS, the Borrower, the Banks, the Administrative Agent, the
Syndication Agent (as defined in the Loan Agreement) and the Documentation Agent
(as defined in the Loan Agreement) are parties to that certain Amended and
Restated Loan Agreement dated as of July 31, 1999, as amended by that certain
First Amendment to Amended and Restated Loan Agreement, dated as of November 13,
1998 (as amended, modified, restated and supplemented from time to time, the
"Loan Agreement"); and
WHEREAS, the Borrower has requested and, subject to the terms and
conditions hereof, the Banks have agreed, to (a) amend certain provisions of the
Loan Agreement and (b) consent to the Borrower's purchase of an interest in
Sarkes Tarzian ("Sarkes") from one of its Affiliates, as more particularly set
forth in that certain Stock Option Agreement dated as of February 28, 1999
between the Borrower and Bull Run Corporation (the "Option Agreement"); and
NOW, THEREFORE, in consideration of the premises set forth above, the
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree that all capitalized terms used and not defined herein
shall have the meanings ascribed thereto in the Loan Agreement, and further
agree as follows:
A. Amendments, Consents and Waivers.
1. Amendment to Article 8. Section 8.12 of the Loan Agreement, Financial
Covenants, is hereby amended by deleting subsections (a) and (b) thereof,
Leverage Ratio and Adjusted Leverage Ratio, in their entirety and by
substituting in lieu thereof the following:
"(a) Leverage Ratio. As of any calculation date, the Borrower
shall not permit
<PAGE>
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:
Column A Column B
Period: Permitted Ratio:
January 1, 1999 through September 30, 1999 6.65:1.0
October 1, 1999, and thereafter 6.40:1.0"
"(b) Adjusted Leverage Ratio. As of any calculation date, the
Borrower shall not permit the Adjusted 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:
Column A Column B
Period: Permitted Ratio:
January 1, 1999, through September 30, 1999 6.60:1.0
October 1, 1999, through March 31, 2000 6.35:1.0
April 1, 2000, through December 31, 2000 5.75:1.0
January 1, 2001, through December 31, 2001 5.25:1.0
January 1, 2002, and thereafter 4.75:1.0"
2. Consent. The Borrower has informed the Banks that the Borrower
intends to purchase from Bull Run Corporation ("Bull Run") a 73% economic
interest and a 33.5% voting interest in Sarkes (the "Sarkes Investment") for a
purchase price of $10,000,000 plus transaction and related costs and options for
the purchase of certain of the Borrower's stock. Effective upon the execution
and delivery of this Consent by the Required Banks, the Banks hereby consent to
the Sarkes Investment; provided, however, that on or prior to the consummation
of the Sarkes Investment, the Borrower shall provide to the Administrative
Agent, in form and substance satisfactory the Administrative Agent, (i) evidence
reasonably satisfactory to the Administrative Agent that the Borrower has
pledged the Sarkes Investment as additional collateral securing the Obligations
under the Loan Agreement, (ii) certification to the Administrative Agent and the
Banks of the Borrower's compliance with Section 8.12 of the Loan Agreement and
the Borrower's ability to meet its repayment obligations under the Loan
Agreement through the Maturity Date after giving effect to the Sarkes
Investment,
-2-
<PAGE>
(iii) certification to the Administrative Agent and the Banks that an Event of
Default does not exist under the Loan Agreement and will not be caused by the
Sarkes Investment, and (iv) evidence reasonably satisfactory to the
Administrative Agent of consummation of the Sarkes Investment on substantially
the terms and conditions set forth in the Option Agreement.
B. Miscellaneous.
1. No Other Amendment or Waiver. Notwithstanding the agreement of the
Banks to the terms and provisions of this Amendment, the Borrower acknowledges
and expressly agrees that this Amendment is limited to the extent expressly set
forth herein and shall not constitute a modification of the Loan Agreement or
any other Loan Documents or a course of dealing at variance with the terms of
the Loan Agreement or any other Loan Documents (other than as expressly set
forth above) so as to require further notice by the Agents or the Banks, or any
of them, of its or their intent to require strict adherence to the terms of the
Loan Agreement and the other Loan Documents in the future. All of the terms,
conditions, provisions and covenants of the Loan Agreement and the other Loan
Documents shall remain unaltered and in full force and effect except as
expressly modified by this Amendment.
2. Representations and Warranties. The Borrower hereby represents and
warrants in favor of each Agent and each Bank as follows:
(a) The Borrower has the corporate power and authority (i) to enter into
this Amendment and (ii) to do all other acts and things as are required or
contemplated hereunder to be done, observed and performed by it;
(b) This Amendment has been duly authorized and validly executed and
delivered by one or more Authorized Signatories of the Borrower and constitutes
the legal, valid and binding obligation of the Borrower, enforceable against it
in accordance with its terms;
(c) The execution and delivery of this Amendment and the performance by
the Borrower under the Loan Agreement and the other Loan Documents to which it
is a party, as amended hereby, do not and will not require the consent or
approval of any regulatory authority or governmental authority or agency having
jurisdiction over the Borrower or any of its Subsidiaries which has not already
been obtained, nor is in contravention of or in conflict with the articles of
incorporation, by-laws or partnership agreements of the Borrower or any of its
Subsidiaries, or any provision of any statute, judgment, order, indenture,
instrument, agreement, or undertaking to which the Borrower or any of its
Subsidiaries is a party or by which any of their respective assets or properties
is or may become bound; and
(d) The representations and warranties contained in Section 5 of the
Loan Agreement and contained in the other Loan Documents remain true and correct
as of the date
-3-
<PAGE>
hereof, both before and after giving effect to this Amendment, except to the
extent previously fulfilled in accordance with the terms of the Loan Agreement
or such other Loan Document, as applicable, or to the extent relating
specifically to the Agreement Date. No Default now exists or will be caused
hereby.
3. Conditions Precedent. The effectiveness of this Amendment is subject
to the receipt by the Administrative Agent of counterparts hereof executed by
the Required Banks and the Borrower and of all documents, instruments, consents
or items which the Administrative Agents shall deem appropriate in connection
herewith.
4. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute one and the same instrument.
5. Loan Documents. Each reference in the Loan Agreement or any other
Loan Document to the term "Loan Agreement" shall hereafter mean and refer to the
Loan Agreement as amended hereby and as the same may hereafter be amended.
6. Governing Law. This Amendment shall be construed in accordance with
and governed by the internal laws of the State of Georgia, applicable to
agreements made and to be performed in Georgia.
7. Severability. Any provision of this Consent which is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof in that
jurisdiction or affecting the validity or enforceability of such provision in
any other jurisdiction.
8. Entire Agreement This Consent, together with the documents referred
to herein, constitute the entire agreement among the parties with respect to the
matters addressed herein, and may not be modified except in writing.
9. Effective Date. Upon satisfaction of the conditions precedent
referred to in Section 5 hereof, this Amendment shall be effective as of the
Amendment Date.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Consent or
caused it to be executed by their duly authorized officers, all as of the day
and year first above written.
BORROWER: GRAY COMMUNICATIONS SYSTEMS, INC., a
Georgia corporation
By: c/James C. Ryan
---------------------------------------------
Name: James C. Ryan
-------------------------------------------
Its: Vice President - Chief Financial Officer
--------------------------------------------
ADMINISTRATIVE AGENT, NATIONSBANK, N.A., as Administrative Agent and
AND BANKS: Bank
By: c/Scott E. Reed
---------------------------------------------
Name: Scott E. Reed
-------------------------------------------
Its: Senior Vice President
--------------------------------------------
KEY CORPORATE CAPITAL INC. (f/k/a KeyBank
National Association), as a Bank
By:
---------------------------------------------
Name:
-------------------------------------------
Its:
--------------------------------------------
CIBC INC., as a Bank
By: c/Tefta Ghilaga
---------------------------------------------
Name: Tefta Ghilaga
-------------------------------------------
Its: Executive Director
--------------------------------------------
Second Amendment to Amended
and Restated Loan Agreement
Signature Page 1
<PAGE>
THE BANK OF NEW YORK, as a Bank
By: c/Cynthia L. Rogers
---------------------------------------------
Name: Cynthia L. Rogers
-------------------------------------------
Its: Vice President
--------------------------------------------
FIRST UNION NATIONAL BANK
(f/k/a CoreStates Bank, N.A.), as a Bank
By: c/Bruce W. Loftin
---------------------------------------------
Name: Bruce W. Loftin
-------------------------------------------
Its: Senior Vice President
--------------------------------------------
SUNTRUST BANK, CENTAL FLORIDA, N.A.,
as an Assignee
By:
---------------------------------------------
Name:
-------------------------------------------
Its:
--------------------------------------------
By:
---------------------------------------------
THE BANK OF NOVA SCOTIA, as an Assignee
By: c/P.A. Weissenberger
---------------------------------------------
Name: P.A. Weissenberger
-------------------------------------------
Its: Authorized Signatory
--------------------------------------------
TORONTO DOMINION (TEXAS), INC.,
as an Assignee
By: c/Sheila M. Conley
---------------------------------------------
Name: Sheila M. Conley
-------------------------------------------
Its: Vice President
--------------------------------------------
Second Amendment to Amended
and Restated Loan Agreement
Signature Page 2
<PAGE>
WACHOVIA BANK, N.A., as an Assignee
By: c/oWilliam J. Darby
---------------------------------------------
Name: William J. Darby
-------------------------------------------
Its: Vice President
--------------------------------------------
THE BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, as an Assignee
By: c/Julie Silver
---------------------------------------------
Name: Julie Silver
-------------------------------------------
Its: Assistant Vice President
--------------------------------------------
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK NEDERLAND",NEW YORK
BRANCH, as an Assignee
By: c/Ellen M. Tackling
---------------------------------------------
Name: Ellen M. Tackling
-------------------------------------------
Its: Vice President
--------------------------------------------
By: c/Jeff Vollack
---------------------------------------------
Name: Jeff Vollack
-------------------------------------------
Its: Senior Vice President
--------------------------------------------
Second Amendment to Amended
and Restated Loan Agreement
Signature Page 3
EXHIBIT 4.10
EXECUTION COPY
CONSENT AGREEMENT
THIS CONSENT AGREEMENT (this "Consent") is entered into as of this 26th
day of February, 1999 (the "Consent Date") by and among GRAY COMMUNICATIONS
SYSTEMS, INC., a Georgia corporation (the "Borrower"), the BANKS (as defined in
the Loan Agreement defined below) and NATIONSBANK, N.A., as administrative agent
(the "Administrative Agent") on behalf of the Banks.
W I T N E S S E T H:
WHEREAS, the Borrower, the Banks, the Administrative Agent, the
Syndication Agent (as defined in the Loan Agreement) and the Documentation Agent
(as defined in the Loan Agreement) are parties to that certain Amended and
Restated Loan Agreement dated as of July 31, 1999, as amended by that certain
First Amendment to Amended and Restated Loan Agreement, dated as of November 13,
1998 (as amended, modified, restated and supplemented from time to time, the
"Loan Agreement"); and
WHEREAS, the Borrower has requested and, subject to the terms and
conditions hereof, the Banks have agreed, to consent to the Borrower's purchase
of the assets used in connection with the publishing of The Goshen News daily
newspaper business, The Goshen Extra and a commercial printing company
(collectively, the "Goshen Assets") from News Printing Company, Inc., an Indiana
corporation (the "Seller"), as more particularly set forth in that certain
letter agreement dated as of February 1, 1999 between the Borrower and the
Seller (the "Letter of Intent"); and
NOW, THEREFORE, in consideration of the premises set forth above, the
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree that all capitalized terms used and not defined
herein shall have the meanings ascribed thereto in the Loan Agreement, and
further hereby agree as follows:
A. Consent. The Borrower has informed the Banks that the Borrower intends to
purchase from the Seller the Goshen Assets (the "Goshen Asset Acquisition").
Effective upon the execution and delivery of this Consent by the Required Banks,
the Banks hereby consent to the Goshen Asset Acquisition; provided, however,
that on or prior to the consummation of the Goshen Asset Acquisition, the
Borrower shall provide to the Administrative Agent, in form and substance
satisfactory the Administrative Agent, (i) evidence reasonably satisfactory to
the Administrative Agent that the Borrower has pledged the Goshen Assets as
additional collateral securing the Obligations under the Loan Agreement, (ii)
certification to the Administrative Agent and the Banks of the Borrower's
compliance with Section 8.12 of the Loan Agreement and the Borrower's ability to
meet its
<PAGE>
repayment obligations under the Loan Agreement through the Maturity Date after
giving effect to the Goshen Asset Acquisition, (iii) certification to the
Administrative Agent and the Banks that an Event of Default does not exist under
the Loan Agreement and will not be caused by the Goshen Asset Acquisition, and
(iv) evidence reasonably satisfactory to the Administrative Agent of
consummation of the Goshen Asset Acquisition on substantially the terms and
conditions set forth in the Letter of Intent
B. Miscellaneous.
1. No Other Consent or Waiver. Notwithstanding the agreement of
the Banks to the terms and provisions of this Consent, the Borrower
acknowledges and expressly agrees that this Consent is limited to the
extent expressly set forth herein and shall not constitute a
modification of the Loan Agreement or any other Loan Documents or a
course of dealing at variance with the terms of the Loan Agreement or
any other Loan Documents (other than as expressly set forth above) so as
to require further notice by the Administrative Agent or the Banks, or
any of them, of its or their intent to require strict adherence to the
terms of the Loan Agreement and the other Loan Documents in the future.
All of the terms, conditions, provisions and covenants of the Loan
Agreement and the other Loan Documents shall remain unaltered and in
full force and effect except as expressly modified by this Consent.
2. Representations and Warranties. The Borrower hereby represents
and warrants in favor of the Administrative Agent and each Bank as
follows:
(a) The Borrower has the power and authority (i) to enter
into this Consent and (ii) to do all other acts and things as are
required or contemplated hereunder to be done, observed and
performed by it.
(b) This Consent has been duly authorized and validly
executed and delivered by one or more Authorized Signatories of
the Borrower and constitutes the legal, valid and binding
obligation of the Borrower, enforceable against it in accordance
with its terms;
(c) The execution and delivery of this Consent and the
performance by the Borrower under the Loan Agreement and the
other Loan Documents to which it is a party, as amended hereby,
do not and will not require the consent or approval of any
regulatory authority or governmental authority or agency having
jurisdiction over the Borrower or any of its Subsidiaries which
has not already been obtained, nor is in contravention of or in
conflict with the articles of incorporation, by-laws or
partnership agreements of each of the Borrower or any of its
Subsidiaries, or any provision of any statute, judgment, order,
indenture, instrument, agreement, or undertaking to which the
Borrower or any
-2-
<PAGE>
of its Subsidiaries is a party or by which any of their
respective assets or properties is or may become bound; and
(d) The representations and warranties contained in
Section 5 of the Loan Agreement and contained in the other Loan
Documents remain true and correct as of the date hereof, both
before and after giving effect to this Consent, except to the
extent previously fulfilled in accordance with the terms of the
Loan Agreement or such other Loan Document, as applicable, or to
the extent relating specifically to the Agreement Date. No Event
of Default now exists or will be caused hereby.
3. Counterparts. This Consent may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all
such separate counterparts shall together constitute one and the same
instrument.
4. Loan Documents. Each reference in the Loan Agreement or any
other Loan Document to the term "Loan Agreement" shall hereafter mean
and refer to the Loan Agreement as amended hereby and as the same may
hereafter be amended.
5. Governing Law. This Consent shall be construed in accordance
with and governed by the internal laws of the State of Georgia,
applicable to agreements made and to be performed in the State of
Georgia.
6. Severability. Any provision of this Consent which is
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining
provisions hereof in that jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.
7. Entire Agreement This Consent, together with the documents
referred to herein, constitute the entire agreement among the parties
with respect to the matters addressed herein, and may not be modified
except in writing.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Consent or
caused it to be executed by their duly authorized officers, all as of the day
and year first above written.
BORROWER: GRAY COMMUNICATIONS SYSTEMS, INC., a
Georgia corporation
By: c/James C. Ryan
-----------------------------------------
Name: James C. Ryan
---------------------------------------
Its: Vice President-Chief Financial Officer
-----------------------------------------
ADMINISTRATIVE AGENT, NATIONSBANK, N.A., as Administrative Agent and
AND BANKS: Bank
By: c/Scott E. Reed
----------------------------------------
Name: Scott E. Reed
--------------------------------------
Its: Senior Vice President
---------------------------------------
KEY CORPORATE CAPITAL INC. (f/k/a KeyBank
National Association), as a Bank
By:
----------------------------------------
Name:
----------------------------------------
Its:
---------------------------------------
CIBC INC., as a Bank
By: c/Tefta Ghilaga
----------------------------------------
Name: Tefta Ghilaga
--------------------------------------
Its: Executive Director
---------------------------------------
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSENT AGREEMENT
Signature Page 1
<PAGE>
THE BANK OF NEW YORK, as a Bank
By: c/Cynthia L. Rogers
-----------------------------------------
Name: Cynthia L. Rogers
---------------------------------------
Its: Vice President
----------------------------------------
FIRST UNION NATIONAL BANK
f/k/a CoreStates Bank, N.A.), as a Bank
By: c/Bruce W. Loftin
-----------------------------------------
Name: Bruce W. Loftin
---------------------------------------
Its: Senior Vice President
----------------------------------------
SUNTRUST BANK, CENTAL FLORIDA, N.A.,
as an Assignee
By:
-----------------------------------------
Name:
---------------------------------------
Its:
----------------------------------------
By:
-----------------------------------------
THE BANK OF NOVA SCOTIA, as an Assignee
By: c/P.A. Weissenberger
-----------------------------------------
Name: P.A. Weissenberger
---------------------------------------
Its: Authorized Signatory
----------------------------------------
TORONTO DOMINION (TEXAS), INC.,
as an Assignee
By: c/Sheila M. Conley
-----------------------------------------
Name: Sheila M. Conley
---------------------------------------
Its: Vice President
----------------------------------------
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSENT AGREEMENT
Signature Page 2
<PAGE>
WACHOVIA BANK, N.A., as an Assignee
By: c/William J. Darby
----------------------------------------
Name: William J. Darby
--------------------------------------
Its: Vice President
---------------------------------------
THE BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, as an Assignee
By: c/Julie Silver
----------------------------------------
Name: Julie Silver
--------------------------------------
Its: Assistant Vice President
---------------------------------------
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND",NEW YORK BRANCH, as an
Assignee
By: c/Ellen M. Tackling
----------------------------------------
Name: Ellen M. Tackling
--------------------------------------
Its: Vice President
---------------------------------------
By: c/oJeff Vollack
----------------------------------------
Name: Jeff Vollack
--------------------------------------
Its: Senior Vice President
---------------------------------------
GRAY COMMUNICATIONS SYSTEMS, INC.
CONSENT AGREEMENT
Signature Page 3
EXHIBIT 10.16
================================================================================
ASSET PURCHASE AGREEMENT
BY AND AMONG
GRAY COMMUNICATIONS SYSTEMS, INC.,
GRAY COMMUNICATIONS OF INDIANA, INC.,
NEWS PRINTING COMPANY, INC.,
JANE GEMMER
AND
JOHN GEMMER
DATED AS OF FEBRUARY 28, 1999
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I SALE AND PURCHASE OF CERTAIN ASSETS
<S> <C> <C>
1.01 SALE AND PURCHASE OF CERTAIN ASSETS................................................1
1.02 PURCHASE PRICE; RESTRICTIVE COVENANTS..............................................2
1.03 PAYMENT OF THE PURCHASE PRICE......................................................2
1.04 PRORATIONS AND CERTAIN PAYMENTS....................................................2
1.05 PURCHASE PRICE ADJUSTMENT..........................................................3
1.06 CLOSING............................................................................3
1.07 DELIVERIES.........................................................................3
ARTICLE II ASSUMPTION OF LIABILITIES AND CONTRACTUAL OBLIGATIONS
2.01 GENERAL............................................................................4
2.02 CERTAIN OBLIGATIONS................................................................4
2.03 NO INTENTION TO BENEFIT THIRD PARTIES..............................................4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER,
MR. GEMMER AND SELLER
3.01 CAPACITY AND VALIDITY..............................................................5
3.02 ORGANIZATION.......................................................................5
3.03 NO CONFLICT........................................................................5
3.04 SUBSIDIARIES.......................................................................5
3.05 FINANCIAL STATEMENTS; ABSENCE OF UNDISCLOSED LIABILITIES...........................6
3.06 ABSENCE OF CHANGES.................................................................6
3.07 TAX MATTERS........................................................................6
3.08 TITLE TO ASSETS; ENCUMBRANCES; CONDITION...........................................6
3.09 REAL PROPERTY......................................................................7
3.10 PERSONAL PROPERTY..................................................................8
3.11 INTELLECTUAL PROPERTY..............................................................8
3.12 BARTER AND TRADE AGREEMENTS........................................................9
3.13 CIRCULATION........................................................................9
3.14 INVENTORIES........................................................................9
3.15 BONDS, LETTERS OF CREDIT AND GUARANTEES............................................9
3.16 COMPLIANCE WITH LAW................................................................9
3.17 BENEFIT PLANS.....................................................................10
3.18 CONTRACTS.........................................................................11
3.19 LABOR MATTERS.....................................................................13
3.20 BROKERS AND FINDERS...............................................................14
3.21 COMPLIANCE WITH THE IMMIGRATION REFORM AND CONTROL ACT............................14
3.22 ADVERTISERS AND CUSTOMERS.........................................................14
3.23 LITIGATION........................................................................14
3.24 PROSPECTIVE CHANGES...............................................................15
3.25 INTERESTED TRANSACTIONS...........................................................15
3.26 ENVIRONMENTAL.....................................................................15
3.27 YEAR 2000 COMPLIANCE..............................................................17
3.28 COMPUTER SOFTWARE AND DATABASE....................................................17
3.29 INSURANCE.........................................................................17
3.30 STATEMENTS TRUE AND CORRECT.......................................................18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER AND GRAY
4.01 ORGANIZATION......................................................................18
4.02 AUTHORITY AND VALIDITY............................................................18
4.03 NO CONFLICT.......................................................................18
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
4.04 BROKERS AND FINDERS...............................................................18
4.05 STATEMENTS TRUE AND CORRECT.......................................................18
ARTICLE V COVENANTS AND ADDITIONAL AGREEMENTS OF SELLER, THESHAREHOLDER, MR. GEMMER,
THE PURCHASER AND GRAY
5.01 OPERATION OF BUSINESS PENDING CLOSING.............................................19
5.02 RIGHT OF INSPECTION, ACCESS.......................................................19
5.03 CONFIDENTIALITY...................................................................20
5.04 SCHEDULES.........................................................................20
5.05 OTHER OFFERS AND EXCLUSIVE DEALING................................................21
5.06 CERTAIN TAX AND OTHER MATTERS.....................................................21
5.07 CONSENTS AND APPROVALS............................................................21
5.08 SUPPLYING FINANCIAL STATEMENTS....................................................21
5.09 CONSUMMATION OF TRANSACTIONS; CLOSING CONDITIONS..................................21
5.10 USE OF NAME.......................................................................21
5.11 EXPENSES..........................................................................22
5.12 FURTHER ASSURANCES................................................................22
5.13 EMPLOYEES.........................................................................22
5.14 DELIVERY OF BOOKS AND RECORDS.....................................................23
5.15 TITLE SEARCH; DISCHARGE OF LIENS; TITLE INSURANCE.................................23
5.16 QUALIFICATION AND CORPORATE EXISTENCE.............................................23
5.17 PURCHASER'S ASSISTANCE TO SELLER..................................................23
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF GRAY AND PURCHASER
6.01 REPRESENTATIONS TRUE AND COVENANTS PERFORMED AT CLOSING...........................24
6.02 NO INJUNCTION, ETC................................................................24
6.03 NO MATERIAL ADVERSE CHANGE........................................................24
6.04 APPROVAL OF LEGAL MATTERS.........................................................24
6.05 BILL OF SALE; ASSIGNMENTS; ETC....................................................24
6.06 OPINIONS OF COUNSEL...............................................................25
6.07 INCUMBENCY CERTIFICATE............................................................25
6.08 LICENSES..........................................................................25
6.09 WARRANTY DEED, TITLE INSURANCE AND SURVEY.........................................25
6.10 ENVIRONMENTAL REPORT..............................................................25
6.11 DUE DILIGENCE REVIEW..............................................................25
6.12 CERTIFIED COPIES OF RESOLUTIONS...................................................25
6.13 SALES AND USE TAXES...............................................................25
6.14 COVENANTS NOT TO COMPETE..........................................................25
6.15 NON-FOREIGN CERTIFICATE...........................................................26
6.16 LETTERS TESTAMENTARY..............................................................26
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER, MR. GEMMER AND THE SHAREHOLDER
7.01 REPRESENTATIONS TRUE AND COVENANTS PERFORMED AT CLOSING...........................26
7.02 NO INJUNCTION, ETC................................................................26
7.03 APPROVAL OF LEGAL MATTERS.........................................................26
7.04 ASSIGNMENT AND ASSUMPTION AGREEMENT...............................................26
7.05 INCUMBENCY CERTIFICATE............................................................26
7.06 CERTIFIED COPIES OF RESOLUTIONS...................................................27
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
8.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ACKNOWLEDGMENT OF GRAY'S AND
PURCHASER'S RELIANCE.....................................................................27
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
8.02 INDEMNIFICATION BY THE SHAREHOLDER, MR. GEMMER AND SELLER.........................28
8.03 INDEMNIFICATION BY PURCHASER AND GRAY.............................................30
8.04 LIMITATIONS ON INDEMNIFICATION....................................................30
8.05 INDEMNIFICATION PAYMENTS..........................................................31
ARTICLE IX TERMINATION
9.01 METHOD OF TERMINATION.............................................................31
9.02 NOTICE OF TERMINATION.............................................................32
9.03 EFFECT OF TERMINATION.............................................................32
9.04 RISK OF LOSS......................................................................32
ARTICLE X DEFINITIONS
ACCOUNTS PAYABLE.......................................................................32
ACCOUNTS RECEIVABLE....................................................................32
AFFILIATE..............................................................................33
AGREEMENT..............................................................................33
ASSET PURCHASE PRICE...................................................................33
ASSETS.................................................................................33
ASSUMED LIABILITIES....................................................................33
BALANCE SHEET..........................................................................34
BALANCE SHEET DATE.....................................................................34
BUSINESS...............................................................................34
CLOSING................................................................................34
CLOSING DATE...........................................................................34
CODE...................................................................................34
COMPUTER SOFTWARE......................................................................34
CONTRACT...............................................................................34
CURRENT COMMUNITY COMMITMENTS..........................................................34
DATABASES..............................................................................34
DEFAULT................................................................................35
EMPLOYEE BENEFIT PLAN..................................................................35
ENVIRONMENTAL LITIGATION...............................................................35
ENVIRONMENTAL LAWS.....................................................................35
ENVIRONMENTAL MATTER...................................................................35
ERISA..................................................................................35
ERISA AFFILIATE........................................................................35
FINANCIAL STATEMENTS...................................................................36
GAAP...................................................................................36
GEMMER REAL PROPERTY...................................................................36
GEMMER REAL PROPERTY PURCHASE PRICE....................................................36
GOSHEN REAL PROPERTY...................................................................36
GOVERNMENTAL AUTHORITY.................................................................36
HAZARDOUS SUBSTANCE....................................................................36
INTELLECTUAL PROPERTY..................................................................36
INVENTORY..............................................................................37
IRS....................................................................................37
KNOWLEDGE..............................................................................37
LAW....................................................................................37
LIABILITY..............................................................................37
LICENSE................................................................................37
LIEN...................................................................................37
LITIGATION.............................................................................37
LOSS...................................................................................37
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
MATERIAL OR MATERIALLY.................................................................38
MATERIAL ADVERSE CHANGE OR MATERIAL ADVERSE EFFECT.....................................38
ORDER..................................................................................38
OTHER AGREEMENTS.......................................................................38
PERMITTED LIENS........................................................................38
PERSON.................................................................................38
PERSONAL PROPERTY......................................................................38
PURCHASE PRICE.........................................................................38
RELATED PARTY OR RELATED PERSON........................................................38
RETAINED ASSETS........................................................................39
RETAINED LIABILITIES...................................................................39
SUBSIDIARY.............................................................................40
TAX....................................................................................40
TAX RETURNS............................................................................40
THIRD PARTY OR THIRD PARTIES...........................................................40
UNDISCLOSED LIABILITIES................................................................40
ARTICLE XI MISCELLANEOUS
11.01 NOTICES...........................................................................40
11.02 ENTIRE AGREEMENT, MODIFICATIONS, AMENDMENTS AND WAIVERS...........................40
11.03 SUCCESSORS AND ASSIGNS............................................................40
11.04 TABLE OF CONTENTS; CAPTIONS; REFERENCES...........................................41
11.05 PRONOUNS..........................................................................41
11.06 GOVERNING LAW.....................................................................41
11.07 SEVERABILITY......................................................................41
11.08 REMEDIES NOT EXCLUSIVE............................................................41
11.09 COUNTERPARTS AND INTERPRETATIONS..................................................41
11.10 ATTORNEYS' FEES...................................................................41
</TABLE>
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<PAGE>
INDEX OF SCHEDULES
------------------
Schedule 1.02(d) - Purchase Price Allocation
Schedule 3.01 - Shareholders' Ownership
Schedule 3.02 - Articles and Bylaws
Schedule 3.02(a) - Foreign Qualifications
Schedule 3.03 - Conflicts
Schedule 3.04 - Seller's Ownership Interest in Another Person
Schedule 3.05 - Financial Statements
Schedule 3.09 - Real Property
Schedule 3.10 - Personal Property
Schedule 3.11 - Intellectual Property
Schedule 3.12 - Barter and Trade Agreements
Schedule 3.14 - Inventory of Seller
Schedule 3.16 - Licenses
Schedule 3.17 - Benefit Plans
Schedule 3.18(a)(i) - Gemmer Real Property Contracts
Schedule 3.18(a)(ii) - Goshen Real Property Contracts
Schedule 3.18(a)(iii) - Personal Property Contracts
Schedule 3.18(a)(iv) - Purchase Orders - Non-Capital Assets
Schedule 3.18(a)(v) - Purchase Orders - Capital Assets
Schedule 3.1(a)(vi) - Sales Contracts
Schedule 3.18(a)(vii) - Employment, Other Affiliate Contracts
Schedule 3.18(a)(viii)- Powers of Attorney
Schedule 3.18(a)(ix) - Intellectual Property Contracts
Schedule 3.18(a)(x) - Other Contracts
Schedule 3.18(c) - No Default
Schedule 3.19 - Employees and Independent Contractors
Schedule 3.22 - Advertiser and Customer Lists
Schedule 3.23 - Litigation
Schedule 3.26 - Environmental
Schedule 3.27 - Year 2000 Compliance
Schedule 3.29 - Insurance
<PAGE>
INDEX OF EXHIBITS
-----------------
Exhibit 1.03(b) - Form of Escrow Agreement
Exhibit 5.13 - List of Employees
Exhibit 6.05 - Form of Bill of Sale
Exhibit 6.06 - Form of Opinion of Counsel to Seller and the
Shareholder
Exhibit 6.14 - Form of Non-Competition, Non-Solicitation and
Confidentiality Agreement
Exhibit 7.04 - Form of Assignment and Assumption Agreement
Exhibit X - Assumed Contracts
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (this "Agreement") dated as of the 28th
day of February, 1999, is made and entered into by and among Gray Communications
Systems, Inc., a Georgia corporation ("Gray"), Gray Communications of Indiana,
Inc., a Georgia corporation ("Purchaser"), News Printing Company, Inc., an
Indiana corporation ("Seller"), Jane Gemmer, an individual residing in Goshen,
Indiana ("Mrs. Gemmer" or the "Shareholder") and John Gemmer, an individual
residing in Goshen, Indiana ("Mr. Gemmer") (Mrs. Gemmer and Mr. Gemmer are
sometimes referred to collectively as the "Gemmers").
BACKGROUND
----------
The Shareholder owns all of the issued and outstanding common stock of
Seller, which is engaged in the business of (i) printing and publishing the
daily newspaper, The Goshen News, and the weekly shopper, The Goshen Extra, and
(ii) commercial printing under the name News Printing Company. This Agreement
sets forth the terms and conditions upon which Seller shall sell to Purchaser,
and upon which Purchaser shall purchase, certain of Seller's assets, and the
terms upon which Mrs. Gemmer shall sell to Purchaser, and Purchaser shall
purchase from Mrs. Gemmer, the Gemmer Real Property.
Mr. Gemmer is the President of Seller, and is married to Mrs. Gemmer,
the sole shareholder of Seller. Mr. Gemmer acknowledges and agrees that he will
derive a substantial personal benefit from the transactions contemplated by this
Agreement. Certain terms used in this Agreement are defined in Article X 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 AND PURCHASE OF CERTAIN ASSETS
-----------------------------------
1.01 SALE AND PURCHASE OF CERTAIN ASSETS. Subject to the terms and
conditions contained in this Agreement, at the Closing (i) Purchaser shall
purchase from Seller, and Seller shall sell, convey, transfer, assign, and
deliver to Purchaser, for the purchase price set forth in Section 1.02(a) below
(the "Asset Purchase Price"), all of the Assets (which do not include the
Retained Assets), free and clear of any and all Liens and (ii) Purchaser shall
purchase from Mrs. Gemmer, and Mrs. Gemmer shall sell, convey, transfer, assign
and deliver to Purchaser, for the purchase price set forth in Section 1.02(b)
below (the "Gemmer Real Property Purchase Price"), the Gemmer Real Property,
free and clear of any and all Liens (the Gemmer Real Property Purchase Price and
the Asset Purchase Price sometimes are referred to collectively as the "Purchase
Price").
<PAGE>
1.02 PURCHASE PRICE; RESTRICTIVE COVENANTS.
(a) The total Asset Purchase Price for the acquisition of the
Assets from Seller is $14,850,000 plus (i) ninety-five percent (95%) of the
amount of the Accounts Receivable as of the date prior to the Closing Date and
(ii) the assumption of the Assumed Liabilities.
(b) The total Gemmer Real Property Purchase Price for the
acquisition of the Gemmer Real Property from Mrs. Gemmer is $350,000.
(c) Purchaser, Gray, Mrs. Gemmer and Mr. Gemmer shall enter into
a Non-Competition, Non-Solicitation and Confidentiality Agreement pursuant to
which Purchaser shall pay jointly to Mrs. Gemmer and Mr. Gemmer $1,500,000 as
consideration for entering into such agreement.
(d) The Asset Purchase Price shall be allocated among the Assets
on a preliminary basis as set forth in Schedule 1.02(d), and after the Closing
Date, Purchaser shall prepare a final allocation of the Purchase Price based
upon the preliminary allocations contained in Schedule 1.02(d) and applicable
Law. Purchaser and Seller shall execute and file with the IRS in a timely manner
Form 8594 with respect to such final allocation. Neither Purchaser nor Seller
shall file a Tax Return or take any position with any Taxing authority that is
inconsistent with such final allocation.
1.03 PAYMENT OF THE PURCHASE PRICE.
(a) On the Closing Date, Purchaser shall pay the cash portion of
the Asset Purchase Price to Seller by delivering (i) to Seller the sum of (A)
Thirteen Million Eight Hundred Fifty Thousand Dollars ($13,850,000) plus (B)
ninety-five percent (95%) of the amount of the Accounts Receivable as of January
31, 1999, and (ii) to The Bank of New York, as escrow agent (the "Escrow
Agent"), the sum of One Million Dollars ($1,000,000), each by wire transfer of
immediately available funds or in such other form and manner as may be mutually
satisfactory. On the Closing Date, Purchaser shall pay the Gemmer Real Property
Purchase Price by delivering to the Escrow Agent the sum of Three Hundred Fifty
Thousand Dollars ($350,000) by wire transfer of immediately available funds or
in such other form and manner as may be mutually satisfactory. On the Closing
Date, Purchaser shall pay $1,500,000 for the Non-Competition, Non-Solicitation
and Confidentiality Agreement to the Gemmers by delivering to the Gemmers the
sum of One Million Five Hundred Thousand Dollars ($1,500,000) by wire transfer
of immediately available funds or in such other form and manner as may be
mutually satisfactory.
(b) The $1,000,000 of the Asset Purchase Price and the $350,000
total Gemmer Real Property Purchase Price delivered to the Escrow Agent shall be
held by the Escrow Agent and released pursuant to the terms of an escrow
agreement substantially in the form of Exhibit 1.03(b) (the "Escrow Agreement").
(c) Each of the Asset Purchase Price and the Gemmer Real Property
Purchase Price shall be paid net of any necessary adjustment pursuant to Section
1.04, Section 5.11 and any other provision of this Agreement requiring payment
to or for the benefit of any of the parties hereto at Closing.
1.04 PRORATIONS AND CERTAIN PAYMENTS. The following prorations relating
to the Assets and to the Gemmer Real Property will be made as of the close of
business on February 28, 1999, with Seller
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(or in the case of the Gemmer Real Property, Mrs. Gemmer), liable to the extent
such items relate to any time period prior to the close of business on February
28, 1999 and Purchaser liable to the extent such items relate to periods on or
after the close of business on February 28, 1999:
(i) personal property, real estate, occupancy and other similar
Taxes;
(ii) the amount of sewer rents and charges for water, telephone,
electricity and other utilities and fuel;
(iii) the amount of prepaid circulation revenue; and
(iv) all other items that shall be paid by Purchaser or otherwise
affect the Business, the Assets or the Gemmer Real Property and
that relate, in whole or in part, to periods prior to the close
of business on February 28, 1999 (other than the Assumed
Liabilities).
The net amount of all such prorations will be settled and paid on the Closing
Date as a net against the Asset Purchase Price and the Gemmer Real Property
Purchase Price, as appropriate, pursuant to Section 1.03(c). In the event that
the amount of any of the items to be prorated pursuant to this Section 1.04 is
not Known by Seller (or in the case of the Gemmer Real Property, Mrs. Gemmer),
and Purchaser at the Closing, the proration shall be made based upon the amount
of the most recent cost of such item to Seller (or in the case of the Gemmer
Real Property, Mrs. Gemmer). After Closing, Purchaser and Seller (or in the case
of the Gemmer Real Property, Mrs. Gemmer), each shall provide to the other,
within five (5) business days after receipt, each Third Party invoice relating
to any item so estimated. Within ten (10) business days thereafter, Purchaser
and Seller (or in the case of the Gemmer Real Property, Mrs. Gemmer), each shall
make any payments to the other that are necessary to compensate for any
difference between the proration made at the Closing and the correct proration
based on the Third Party invoice.
1.05 PURCHASE PRICE ADJUSTMENT. Within thirty (30) days after the
Closing Date, Purchaser shall prepare and deliver to Seller a statement of the
amount of the Accounts Receivable as of February 28, 1999 (the "Closing
Receivables"). The Asset Purchase Price shall be increased by 95% of any amount
by which the Closing Receivables exceed the Accounts Receivable as of January
31, 1999 (the "January Receivables"). The Asset Purchase Price shall be
decreased by 95% of any amount by which the January Receivables exceed the
Closing Receivables. Any increase in the Asset Purchase Price shall be paid by
Purchaser to Seller and any decrease in the Asset Purchase Price shall be paid
by Seller to Purchaser. The payment required by this Section 1.05 shall be made
by wire transfer of immediately available funds within ten (10) days after
delivery of the statement of the Closing Receivables.
1.06 CLOSING. The Closing shall take place at the offices of McGladrey &
Pullen, LLP, 202 N. Main, Goshen, Indiana 46526, on the Closing Date. Title to
the Assets shall pass from Seller (and in the case of the Gemmer Real Property,
from Mrs. Gemmer), to Purchaser upon the Closing to be effective as of the close
of business on February 28, 1999.
1.07 DELIVERIES. 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 simultaneously.
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<PAGE>
ARTICLE II
ASSUMPTION OF LIABILITIES AND CONTRACTUAL OBLIGATIONS
-----------------------------------------------------
2.01 GENERAL. Except as otherwise expressly provided in Section 2.02,
Purchaser is not assuming any Liability or any contractual or other obligation
of Seller or, with respect to the Gemmer Real Property, Mrs. Gemmer, (including
without limitation any of the Retained Liabilities); and the Assets and the
Gemmer Real Property are being sold to Purchaser free and clear of all Liens and
Liabilities. Seller will pay all Taxes imposed on it and all Taxes payable by
reason of the sale by Seller to Purchaser of the Assets pursuant to the terms of
this Agreement. Mrs. Gemmer will pay all Taxes imposed on her and all Taxes
payable by reason of the sale by Mrs. Gemmer to Purchaser of the Gemmer Real
Property pursuant to the terms of this Agreement.
2.02 CERTAIN OBLIGATIONS.
(a) Purchaser hereby assumes the Assumed Liabilities.
(b) Nothing contained in this Agreement shall require Purchaser
to pay, perform or discharge any of the Assumed Liabilities so long as Purchaser
shall in good faith contest or cause to be contested the amount or validity
thereof or shall in good faith assert any defense or offset thereto, and Seller,
Mr. Gemmer and the Shareholder shall provide reasonable assistance to Purchaser
in so contesting and defending such claims.
(c) Nothing contained in this Article II or in any instrument of
assumption executed by Purchaser in connection with this Agreement shall be
deemed to release or relieve Seller or the Shareholder from their respective
representations, warranties, covenants and agreements contained in this
Agreement or any of the other agreements executed in connection with this
Agreement, including, without limitation, the obligations of Seller, the
Shareholder and Mr. Gemmer to indemnify Purchaser in accordance with the
provisions of Article VIII. Further, Seller (and, in the case of Retained
Liabilities with respect to the Gemmer Real Property, Mrs. Gemmer) shall pay,
satisfy and perform all of the Retained Liabilities, and no disclosures made or
exceptions noted with respect to the representations, warranties, covenants and
agreements of Seller, the Shareholder or Mr. Gemmer contained in this Agreement
or any of the Other Agreements shall affect Seller's (and, in the case of
Retained Liabilities with respect to the Gemmer Real Property, Mrs. Gemmer's),
obligation to pay, satisfy and perform all of the Retained Liabilities.
2.03. NO INTENTION TO BENEFIT THIRD PARTIES. This Agreement is not
intended to, and shall not, benefit any person or entity other than Seller, Mr.
Gemmer, the Shareholder and Purchaser or create any Third Party beneficiary
right in any person.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER, MR. GEMMER AND SELLER
The Shareholder, Mr. Gemmer and Seller, jointly and severally, hereby
represent and warrant to Purchaser as follows:
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<PAGE>
3.01 CAPACITY AND VALIDITY. The Shareholder is the owner of all right,
title and interest (legal and beneficial) in and to that number of shares of
common stock of Seller listed opposite the name of such Shareholder in Schedule
3.01. Each of the Shareholder and Mr. Gemmer has the full power and capacity
necessary to enter into and perform her or his obligations under this Agreement
and the Other Agreements to which she or he is a party and to consummate the
transactions contemplated hereby and thereby. Seller has the 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 such Other Agreements have been approved by
all necessary action of the Board of Directors and the shareholders of Seller.
This Agreement and the Other Agreements to which the Shareholder, Mr. Gemmer or
Seller is a party have been duly executed and delivered by the Shareholder, Mr.
Gemmer and by duly authorized officers of Seller, and each such agreement
constitutes, or when executed, will constitute, a legal, valid and binding
obligation of the Shareholder, Mr. Gemmer and Seller, enforceable against the
Shareholder, Mr. Gemmer and Seller in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other Laws affecting creditors' rights generally.
3.02 ORGANIZATION. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Indiana and has
full corporate power and authority to own, lease and operate its assets and to
carry on its Business. Complete and correct copies of the Articles of
Incorporation, and all amendments thereto, (certified by the Secretary of State
of the State of Indiana) and By-Laws of Seller, and all amendments thereto
(certified by the Secretary of Seller) are attached hereto as part of Schedule
3.02. Seller is duly qualified or licensed to transact business as a foreign
corporation in good standing in the jurisdictions listed in Schedule 3.02(a),
and the character of the Assets and the Gemmer Real Property or the nature of
the Business do not require such qualification or licensing in any other
jurisdiction, in which the failure to be duly qualified or licensed could have a
Material Adverse Effect on Seller. Copies of all records of the proceedings of
incorporators, shareholders and Board of Directors of Seller, including those
which are set forth in Seller's minute books ("Minute Books"), and the stock
record books of Seller ("Stock Record Books") have been made available to
Purchaser for review, are correct and complete and accurately reflect all
proceedings of Seller's incorporators, shareholders and Board of Directors and
all committees thereof and the stock ownership in Seller.
3.03 NO CONFLICT. Except as disclosed in Schedule 3.03, neither the
execution, delivery and performance of this Agreement or the Other Agreements to
which she, he or it is a party by the Shareholder, Mr. Gemmer or Seller nor the
consummation by the Shareholder, Mr. Gemmer or Seller 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 the By-Laws, as amended, of Seller,
(ii) result in a Default under or require the consent or approval of any party
to any Contract of Seller, Mr. Gemmer or the Shareholder, (iii) result in the
violation of any Law or Order, or (iv) result in the creation or imposition of
any Lien upon any of the Assets or any portion of the Gemmer Real Property.
3.04 SUBSIDIARIES. Seller has not in the past had, and does not
currently have, any Subsidiaries. Except as set forth on Schedule 3.04, Seller
has not in the past owned, and does not currently own, directly or indirectly,
any capital stock or other equity, ownership, proprietary or voting interest in
any Person.
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<PAGE>
3.05 FINANCIAL STATEMENTS; ABSENCE OF UNDISCLOSED LIABILITIES.
(a) The Financial Statements, correct and complete copies of
which are included in Schedule 3.05, (i) are in accordance with the books and
records of Seller which are correct and complete and which have been maintained
in accordance with good business practices; (ii) present fairly the financial
position of Seller as of the dates indicated and the results of its operations
and its cash flows for the periods then ended; (iii) have been prepared in
accordance with GAAP; and (iv) reflect reserves in conformity with GAAP that are
adequate for all known Liabilities and reasonably anticipated Losses.
(b) Seller has no Undisclosed Liabilities or any basis for or, to
the Knowledge of Seller, Mr. Gemmer or the Shareholder, any threat of an
assertion against Seller, the Business, the Gemmer Real Property or Seller's
assets of any Undisclosed Liability, except for Liabilities incurred since the
Balance Sheet Date in the ordinary course of business, none of which are
Material, individually or in the aggregate.
3.06 ABSENCE OF CHANGES. 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 which is reasonably anticipated to result in a Material Adverse
Change with respect to Seller, the Business, the Gemmer Real Property or the
Assets, and (iii) Seller has not made any change in any method of accounting or
accounting practice.
3.07 TAX MATTERS. Seller (and with respect to the Gemmer Real Property,
Mrs. Gemmer) has timely filed with the appropriate Governmental Authorities all
required Tax Returns in all jurisdictions in which Tax Returns are required to
be filed, and such Tax Returns are correct and complete. Seller (and with
respect to the Gemmer Real Property, Mrs. Gemmer), is not 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. No basis exists for any additional
assessment of any Taxes.
3.08 TITLE TO ASSETS; ENCUMBRANCES; CONDITION.
(a) Seller has good, valid and marketable title to all of the
Assets free and clear of any and all Liens.
(b) Each of the improvements on the Gemmer Real Property and on
the Goshen Real Property and each item of 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 improvement on the
Gemmer Real Property and on the Goshen Real Property and each item of Personal
Property is adequate for its present and intended uses and operation and Seller
has no intention to use or operate any such improvement or any item of Personal
Property other than as presently used or operated. The Assets (including
Seller's interest in all leased assets) together with the Gemmer Real Property
(i) include all assets required to operate the Business; (ii) constitute all of
the assets held for use or used in connection with the Business; and (iii) are
adequate to conduct the Business as currently conducted.
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<PAGE>
3.09 REAL PROPERTY.
(a) Schedule 3.09 contains a correct and complete description
(including, without limitation, a legal description) of the Goshen Real Property
and the Gemmer Real Property (for purposes of this Agreement, the Goshen Real
Property and the Gemmer Real Property are sometimes collectively referred to as
the "Real Property"). Any and all rights and easements for public vehicular
ingress thereto and egress therefrom (including curb cut rights from all
adjacent public streets) necessary for the Business as presently conducted by
Seller are available to the Real Property. To the Knowledge of Seller, Mr.
Gemmer or the Shareholder, no facts or circumstances exist which do, or
potentially may, adversely affect any of the ordinary rights of access to and
from the Real Property, from and to the existing public highways and roads, and
there is no pending or threatened denial, revocation, modification or
restriction of such access.
(b) All public and private utilities required for the operation
of the Real Property and the Business either enter the Real Property through
adjoining public streets or, if they enter through adjoining private land, do so
in accordance with valid recorded public easements or private easements which
will inure to the benefit of Purchaser and all of such public and private
utilities are installed and operating and all installation and connection
charges have been paid in full.
(c) To the Knowledge of Seller, Mr. Gemmer or the Shareholder,
no zoning or similar land use restrictions are presently in effect or proposed
by any Governmental Authority that would impair the operation of the Business as
presently conducted by Seller or that would impair the use, occupancy and
enjoyment of any of the Real Property. All of the Real Property is in compliance
with all applicable zoning or similar land use restrictions of all Governmental
Authorities having jurisdiction thereof and with all recorded restrictions,
covenants and conditions affecting any of the Real Property and Seller or Mrs.
Gemmer has performed all affirmative covenants relating to the Real Property and
required to be performed by Seller or Mrs. Gemmer. Neither Seller nor Mrs.
Gemmer has received any notice from any Governmental Authority or Third Party
with regard to encroachments on or off the Real Property, violations of building
codes, zoning, subdivision or similar Laws or other material defects in the
good, valid, marketable and insurable fee simple title of said Real Property.
None of the Real Property or the current uses thereof constitutes a
nonconforming use or a "grandfathered" use under any applicable zoning or
building codes.
(d) As of the Closing Date, there will be no Contracts affecting
the Real Property or any part thereof, and there will be no Persons in
possession of, or with rights to possess, the Real Property or any part thereof
other than Seller. There are no leases or other occupancy agreements, written or
oral, in effect affecting the Real Property or any part thereof.
(e) To the Knowledge of Seller, Mr. Gemmer or the Shareholder,
no claim or right of adverse possession by any Third Party has been claimed or
threatened with respect to the Real Property and none of such property is
subject to any Order for its sale, condemnation, expropriation or taking (by
eminent domain or otherwise) by any Governmental Authority nor has any such
sale, condemnation, expropriation or taking been proposed or threatened.
(f) Mrs. Gemmer has good, valid, marketable and insurable fee
simple title to all of the Gemmer Real Property free and clear of any and all
Liens. Seller has good, valid, marketable and insurable fee simple title to all
of the Goshen Real Property free and clear of any and all Liens.
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<PAGE>
(g) All improvements are located entirely on the Gemmer Real
Property and the Goshen Real Property, and there are no matters that would be
disclosed by current surveys of the Gemmer Real Property and the Goshen Real
Property that could have an adverse effect on the Business as currently
conducted.
3.10 PERSONAL PROPERTY. Schedule 3.10 contains a correct and complete
list of each item of Personal Property, other than Inventory (excluding office
furniture, equipment, supplies and miscellaneous items of personal property with
an aggregate book value of less than $10,000). Schedule 3.18(a)(iii) contains a
correct and complete description of all leased Personal Property. Each Contract
of Seller relating to such leased Personal Property is fully and accurately
identified and described on such Schedule 3.18(a)(iii) (including, without
limitation, duration, significant terms, and details of purchase options, if
any).
3.11 INTELLECTUAL PROPERTY. Schedule 3.11 contains a correct and
complete list of all of the Intellectual Property of Seller used in connection
with the Business, including all license agreements relating thereto, and
indicates which of such Intellectual Property is owned and which is licensed by
Seller as licensee.
(a) Neither Seller nor any of its predecessors or Affiliates (or
any goods or services sold by any of them) has violated, infringed upon or
unlawfully or wrongfully used or disclosed the Intellectual Property of any
Third Party and none of the Intellectual Property of Seller or any related
rights or any customer lists, subscriber lists, advertiser lists or mailing
lists, as used in the Business or in the other businesses now or heretofore
conducted by Seller, infringes upon or otherwise violates the rights of any
Third Party, and no Person has asserted a claim of such infringement or misuse.
Seller 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 Intellectual Property. Seller has, and upon consummation of the transactions
contemplated by this Agreement, Purchaser will have, all right, title and
interest in or to, or the license to use in the Business, the Intellectual
Property identified on Schedule 3.11. The consummation of the transactions
contemplated by this Agreement will not alter or impair any Intellectual
Property rights of Seller. Seller is not obligated to make, nor has Seller
incurred any Liability to make, any payments for royalties, fees or otherwise to
any Person in connection with any of Seller's Intellectual Property used in the
Business. All patents, trademarks, trade names, service marks, assumed names,
and copyrights and all registrations thereof included in or related to the
Intellectual Property of Seller are valid, subsisting and in full force and
effect. Neither Seller, Mr. Gemmer nor the Shareholder has any Knowledge of any
infringement of the Intellectual Property of Seller, and there are no pending
infringement actions against another for infringement of the Intellectual
Property of Seller or theft of Seller's trade secrets.
(b) No present or former officer, director, partner, employee or
independent contractor of Seller owns or has any proprietary, financial or other
interest, direct or indirect, in any of the Intellectual Property of Seller,
including without limitation any trade secrets, know-how, inventions, designs,
formulae and processes relating to equipment or machinery used in connection
with the Business. No officer, director, partner or employee of Seller has
entered into any Contract, other than with Seller, that requires such officer,
director, partner, employee or independent contractor to assign any interest to
inventions or other Intellectual Property or keep confidential any trade
secrets, proprietary data, customer lists or other business information or that
restricts or prohibits such officer, director, partner, employee or independent
contractor from engaging in competitive activities with or the solicitation of
customers from any competitor of Seller.
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3.12 BARTER AND TRADE AGREEMENTS. Schedule 3.12 is a list or brief
description of any "barter," "trade" or other Contracts which relate to the
Business of Seller and that require performance by Seller of any obligation for
a period extending beyond the Closing Date. Schedule 3.12 includes an estimate
of the positive or negative trade balances associated with each such "barter,"
"trade" and other Contract.
3.13 CIRCULATION. Average net paid daily circulation of The Goshen News
for the twelve (12) month period prior to the Closing Date has been not less
than 17,000, as calculated on a basis consistent with that used by the Audit
Bureau of Circulation.
3.14 INVENTORIES. Schedule 3.14 contains a complete and correct list of
all Inventory of Seller and the cost of each item of Inventory as of January 31,
1999 with respect to newsprint and as of December 31, 1998 with respect to
supplies. All items of Inventory of Seller consist of items of a quality,
quantity and condition usable and salable in the ordinary course of the Business
without discount or reduction and conform to generally accepted standards in the
industry of which Seller is a part. The value of each item of Inventory
reflected on the Balance Sheet, was, in each instance, valued at a reasonable
amount in accordance with GAAP and based on the ordinary course of the Business
consistent with the historical valuation policy of Seller and is not subject to
any write-down or write-off in excess of the Inventory reserves stated in the
Balance Sheet. Purchase Contracts for raw materials, supplies, parts and
services are not at prices in excess of the prevailing market prices at the time
of the purchase. There are no pending or threatened claims by Seller seeking
return of, credit for, or reimbursement for any property, by reason of alleged
defects, or otherwise.
3.15 BONDS, LETTERS OF CREDIT AND GUARANTEES. Neither Seller, Mr.
Gemmer, the Shareholder nor any other Related Person has issued any bonds
(whether denominated bid, litigation, performance, fidelity, DD&D, or otherwise)
in excess of $1,000 individually or $5,000 in the aggregate, letters of credit,
and guarantees for the benefit of Seller or relating to Seller, the Gemmer Real
Property or the Business, and no such bond, letter of credit or guaranty is in
force or outstanding.
3.16 COMPLIANCE WITH LAW.
(a) Each of Seller and, with respect to the Gemmer Real Property,
Mrs. Gemmer has complied with and is in compliance with all Laws, Licenses and
Orders applicable to, required of or binding on Seller, Mrs. Gemmer (with
respect to the Gemmer Real Property), the Assets, the Gemmer Real Property or
the Business, and there is no basis for any claim of current or past
non-compliance with any such Law, License or Order. The transfer of the Assets
and the Gemmer Real Property to Purchaser pursuant to this Agreement will not
violate any Laws or Orders applicable to or binding on Seller, the Assets, the
Gemmer Real Property, the Shareholder or the Business. No notices from any
Governmental Authority with respect to any failure or alleged failure of Seller,
Mrs. Gemmer (with respect to the Gemmer Real Property), the Assets, the Gemmer
Real Property or the Business to comply with any Law, License or Order have been
received by Seller, Mr. Gemmer or the Shareholder, nor to the Knowledge of
Seller, Mr. Gemmer or the Shareholder are any such notices proposed or
threatened. Seller together with Mrs. Gemmer, her spouse and her minor children
and any other businesses of which any of the foregoing own 50% or more, have, in
the aggregate, neither sales nor total assets of $10,000,000 or more.
(b) Seller holds all Licenses necessary for or used in the
operations of the Business, and each such License is in full force and effect.
Schedule 3.16 contains a true and complete list of all
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such Licenses (showing, in each case, the expiration date). No application,
action or proceeding is pending for the renewal or modification of any of such
Licenses, and no application, action or proceeding is pending or, to the
Knowledge of Seller, Mr. Gemmer or the Shareholder, threatened that may result
in the denial of the application for renewal, the revocation, modification,
nonrenewal or suspension of any of such 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 or Seller under any such License. All returns, reports
and statements required to be filed by Seller with any Governmental Authority
relating to the Business have been filed and complied with and are complete and
correct as filed.
(c) There are no capital expenditures that Seller, Mr. Gemmer or
Mrs. Gemmer anticipates will be required to be made in connection with Seller's
Assets, the Gemmer Real Property or the Business as now conducted in order to
comply with any Law applicable to Seller, any of its Assets, the Gemmer Real
Property or the Business as now conducted.
3.17 BENEFIT PLANS.
(a) Neither Seller nor any member of a group of trades or
businesses under common control ("ERISA Affiliate") (as defined in Sections
4001(a)(14) or 4001(b)(1) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) with Seller have at any time sponsored, contributed
to, or been obligated under Title I or IV of ERISA to contribute to a "defined
benefit plan" as defined in ERISA Section 3(35) other than The News Printing
Company, Inc. Retirement Plan (the "Pension Plan"), or to any "multiemployer
plan" as defined in ERISA Section 3(37). Neither Seller nor any ERISA Affiliate
of Seller has at any time sponsored, contributed to, or been obligated to
contribute to any Employee Benefit Plan which is or has been intended to be
qualified under Section 401(a) of the Internal Revenue Code other than the
Pension Plan.
(b) Schedule 3.17 lists every Employee Benefit Plan that affects
or is available to employees performing duties in connection with the Business.
(c) Seller has delivered to Purchaser (i) copies of the Pension
Plan including any amendments, and the trust thereto; (ii) all determination
letters, rulings, opinion letters, information letters or advisory opinions
issued by the IRS, the Department of Labor or the Pension Benefit Guaranty
Corporation after December 31, 1988; (iii) annual reports or returns, audited or
unaudited financial statements, actuarial valuations and reports, and summary
annual reports prepared for the Pension Plan with respect to the most recent
three plan years; (iv) the most recent summary plan description and any material
modifications thereto; and (v) such other information and documents as Purchaser
has requested.
(d) The Pension Plan has been maintained in compliance with the
applicable terms of ERISA, the Code and any other applicable Law. The Pension
Plan has been administered in accordance with its written terms except to the
extent inconsistent with applicable Law. No oral or written representation or
communication with respect to any aspect of the Pension Plan has been made to
employees of the Seller prior to the Closing which is not in accordance with the
written or otherwise preexisting terms and provisions of such Pension Plan.
There are no unresolved claims or disputes under the terms of, or in connection
with, the Pension Plan other than claims for benefits which are payable in the
ordinary course of business, and no action, proceeding, prosecution, inquiry,
hearing or investigation has been commenced with respect to the Pension Plan.
The Pension Plan has received a determination
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letter from the IRS with respect to currently applicable tax laws, and the
Seller is not aware of any circumstances which could result in revocation of any
such favorable determination letter.
(e) Based on the actuarial report dated January 1, 1998, the
Pension Plan did not have, and to the Knowledge of Seller, the Shareholder or
John Gemmer, the Pension Plan does not have, any "unfunded current liability,"
as that term is defined in Section 302(d)(8)(A) of ERISA, and the fair market
value of the assets of such plan exceeds the plan's "benefit liabilities," as
that term is defined in Section 4001(a)(16) of ERISA, when determined under
actuarial factors that would apply if the plan terminated in accordance with all
applicable legal requirements. Since the date of the most recent actuarial
valuation, there has been (i) no material change in the financial position of
the Pension Plan, (ii) no change in the actuarial assumptions with respect to
the Pension Plan, and (iii) no increase in benefits under the Pension Plan as a
result of plan amendments or changes in applicable Law. The Pension Plan does
not have an "accumulated funding deficiency" within the meaning of Section 412
of the Code or Section 302 of ERISA. The Seller has not provided, nor is it
required to provide, security to the Pension Plan pursuant to Section 401(a)(29)
of the Code.
(f) Within the six-year period preceding the Closing, no
Liability under Subtitle C or D of Title IV of ERISA has been or is expected to
be incurred by the Seller with respect to the Pension Plan. No notice of a
"reportable event," within the meaning of Section 4043 of ERISA for which the
30-day requirement has not been waived, has been required to be filed for the
Pension Plan.
(g) There are no restrictions on the rights of the Seller to
amend or terminate the Pension Plan without incurring any Liability thereunder.
(h) All contributions or premium payments due or accrued with
respect to the Pension Plan through the Closing have been paid by the Seller to
or on behalf of each such plan.
(i) All Employee Benefit Plans have been maintained in compliance
with all applicable Laws in accordance with the terms of the governing Employee
Benefit Plan documents. All Employee Benefit Plans have been administered in
compliance with requirements necessary to secure the intended tax consequences
of such Plans.
3.18 CONTRACTS.
(a) Description.
(i) Gemmer Real Property. Schedule 3.18(a)(i) is a list
and brief description of all Contracts affecting or relating to the
Gemmer Real Property, including, without limitation, Contracts
evidencing Liens.
(ii) Goshen Real Property. Schedule 3.18(a)(ii) is a list
and brief description of all Contracts affecting or relating to the
Goshen Real Property, including without limitation, Contracts evidencing
Liens.
(iii) Personal Property. Schedule 3.18(a)(iii) is a list
and brief description of all Contracts affecting or relating to the
Personal Property, including, without limitation, Contracts evidencing
Liens.
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(iv) Purchase Orders -- Non-Capital Assets. Schedule
3.18(a)(iv) is a list of all outstanding Contracts of Seller for the
acquisition of goods, assets or services (other than purchase orders or
other commitments for the acquisition of capital assets and other than
purchase orders and other commitments that do not exceed $10,000 each),
all of which were executed in the ordinary course of business consistent
with past practice by Seller.
(v) Purchase Orders -- Capital Assets. Schedule 3.18(a)(v)
is a list of all outstanding Contracts of Seller for the acquisition of
capital assets that were executed in the ordinary course of business
consistent with past practice of Seller (other than purchase orders and
other commitments that do not exceed $10,000 each).
(vi) Sales. Schedule 3.18(a)(vi) is a brief description of
all Contracts that relate to the sale of products (other than
newspapers) or printing services by Seller. Except as set forth on
Schedule 3.18(a)(vi), all Contracts of Seller for advertising are for
one year or less and are consistent with the current rate schedule of
Seller or the rate schedule of Seller in effect at the time the Contract
was entered into, which in no event is more than one year prior to the
Closing Date.
(vii) Employment, Other Affiliate Contracts. Schedule
3.18(a)(vii) contains a list and brief description of all Contracts of
Seller with any trade union, employee, officer, agent, consultant, sales
representative, distributor, dealer or Affiliate of Seller. Schedule
3.18(a)(vii) contains a correct and complete copy of the form contract
used by Seller to engage each of its independent contractors and no
independent contractor has been engaged by Seller other than on terms
set forth on such form contract.
(viii) Powers of Attorney. Schedule 3.18(a)(viii) is a
list and brief description of all powers of attorney continuing in
effect, whether limited or general, given to any Person by Seller.
(ix) Intellectual Property Contracts. Schedule 3.18(a)(ix)
is a list of all Contracts of Seller that relate to the Business
relating to the Intellectual Property, including, without limitation,
Contracts evidencing Liens.
(x) Other Contracts. Schedule 3.18(a)(x) is a list and
brief description of any other Contracts of Seller that relate to the
Business and that: (A) provide for monthly payments in excess of $1000,
(B) provide for payments, or under which payments actually made were, by
or to Seller in any calendar year or fiscal year, in excess of $10,000,
(C) require performance by Seller of any obligation for a period of time
extending beyond six (6) months from the Closing Date or that is not
terminable by Seller without penalty or Liability upon sixty (60) days
or less notice, (D) evidence, create, guarantee or service indebtedness
of either Seller, (E) establish or provide for any joint venture,
partnership or similar arrangement involving Seller or the Shareholder,
or (F) guarantee or endorse the Liabilities of any other Person.
The lists or descriptions in all Schedules referred to above are correct
and complete as of the date unless otherwise noted thereon.
(b) Copies. Correct and complete descriptions of all Contracts
referred to in Section 3.18(a) have been delivered to Purchaser on or before the
Closing Date.
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(c) No Default. None of Seller, Mr. Gemmer, Mrs. Gemmer or any
other party is in Default under any of the Contracts referred to in Section
3.18(a), and there is no basis for any claim of Default under any of the
foregoing. Each of the Contracts referred to in this Section 3.18 (i) is in full
force and effect, (ii) constitutes a valid, legal and binding agreement of the
parties thereto, enforceable in accordance with its terms except for bankruptcy,
insolvency, reorganization, moratorium or other Laws affecting creditors' rights
generally and as otherwise set forth in Schedule 3.18(c), and (iii) was executed
in the ordinary course of business consistent with past practice by Seller and,
with respect to the Gemmer Real Property, Mrs. Gemmer. Neither Seller nor, with
respect to the Gemmer Real Property, Mrs. Gemmer 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 Seller, the Business, the Gemmer
Real Property or the Assets. The continuation, validity and effectiveness of
each of the Contracts referred to in this Section 3.18 will not be affected in
any way by the consummation of the transactions contemplated by this Agreement.
None of Seller, Mr. Gemmer or the Shareholder has any Knowledge of any party to
any Contract with Seller or, with respect to the Gemmer Real Property, Mrs.
Gemmer, that intends to cease to perform under such Contract or to withhold any
payment thereunder.
3.19 LABOR MATTERS. Schedule 3.19 contains a correct and complete list
of all employees of Seller. Schedule 3.19 contains a complete and accurate
schedule of the direct compensation (including wages, salaries and actual or
anticipated bonuses) plus a description of other annual benefits, paid or
provided in the fiscal year ended December 31, 1998 and in the current fiscal
year, to all of the officers, directors and employees of Seller. To the
Knowledge of Seller, Mr. Gemmer or the Shareholder, each independent contractor
meets the standards under all Laws (including without limitation IRS Regulations
and federal and state labor regulations) as independent contractors and no such
Person is an employee of Seller under any applicable Law; provided, however, for
purposes of the indemnification under Section 8.02(a), the foregoing sentence
shall be deemed to not be qualified to the Knowledge of Seller, Mr. Gemmer or
the Shareholder. Schedule 3.19 contains complete and accurate copies of each
Form 1099 for the year ended December 31, 1998 for each independent contractor
engaged by Seller in such year. The current compensation of each such
independent contractor currently engaged by Seller is not materially different
from that set forth on the Forms 1099 included in Schedule 3.19. With respect to
independent contractors initially engaged by Seller after December 31, 1998, the
compensation is not different in any material respect from the average
compensation indicated on the Forms 1099 included in Schedule 3.19. No other
compensation or benefit was paid or provided to the independent contractors of
Seller in the year ended December 31, 1998 or is being paid or provided in 1999.
The employment of each employee and the Contract for each independent contractor
of Seller is terminable at will by Seller without any penalty or severance
obligation incurred by Seller. Except as set forth on Schedule 3.19, Seller will
not owe any amounts to any of its employees or independent contractors as of the
Closing Date, including, without limitation, any amounts incurred for wages,
bonuses, vacation pay, sick leave or any severance obligations. Except as and to
the extent set forth in Schedule 3.19, (i) Seller is not 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 Seller, and to the Knowledge of Seller, the Shareholder or Mr.
Gemmer, no attempt to organize any of the employees of the Business has been
made, proposed or threatened, (ii) Seller has never had any Equal Employment
Opportunity Commission or state fair employment practice agency charges or other
claims of employment discrimination, harassment or wrongful discharge made
against it or any of its employees, (iii) no state or federal Wage and Hour
Department investigations have ever been made of Seller and no claims or charges
relating to wage and hour issues have been filed or, to the Knowledge of Seller,
Mr. Gemmer or the Shareholder, threatened, (iv) no labor strike, dispute,
slowdown, stoppage or lockout is pending or
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threatened against or affecting Seller, the 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 Seller is pending or threatened before the
National Labor Relations Board or any similar Governmental Authority, (vi) no
Office of Federal Contract Compliance Programs compliance review or
investigation or other United States Department of Labor or state department of
labor compliance review or investigation has been made of Seller, and Seller has
received no notice of any such compliance review or investigation, (vii) Seller
is not bound by any consent decree, Order or settlement agreement relating to
work place conditions, policies or practices, employment decisions or relations
with employees, independent contractors or applicants for employment, (viii) no
Occupational Safety and Health Administration investigations have been made of
Seller with respect to the Business in the past five (5) years, and (ix) Seller
has received no notice that any of the officers, employees, consultants, agents,
independent contractors, or other Persons performing services for the Business,
will terminate or contemplates terminating his or her employment or independent
contractor relationship currently or at any time within sixty (60) days after
the Closing Date or will otherwise not be available to Purchaser, or not agree
to employment by, or an independent contractor relationship with, Purchaser, on
substantially the same terms and conditions as his or her current employment by,
or independent contractor relationship with, Seller. Since the enactment of the
Worker Adjustment and Retraining Notification Act (the "WARN Act"), Seller has
not effectuated (i) 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 Seller or (ii) a "mass layoff" (as defined in the
WARN Act) affecting any site of employment or facility of Seller; and Seller has
not been affected by any transaction or engaged in layoffs or employment
terminations sufficient in number to trigger application of any similar state or
local Law. Except as set forth in Schedule 3.19, none of Seller's employees has
suffered an "employment loss" (as defined in the WARN Act) since six (6) months
prior to the Closing Date.
3.20 BROKERS AND FINDERS. Except for Norman R. McMullin, whose
compensation is being paid by, and is the total responsibility of, Seller, no
finder or any agent, broker or other Person acting pursuant to authority of
Seller or the Shareholder is entitled to any commission or finder's fee in
connection with the transactions contemplated by this Agreement.
3.21 COMPLIANCE WITH THE IMMIGRATION REFORM AND CONTROL ACT. Seller is
in full compliance with and has not violated the terms and provisions of the
Immigration Reform and Control Act of 1986, and all related regulations
promulgated thereunder (the "Immigration Laws"). Seller has never been the
subject of any inspection or investigation relating to its compliance with or
violation of the Immigration Laws, nor has it been warned, fined or otherwise
penalized by reason of any failure to comply with the Immigration Laws, nor is
any such proceeding pending or threatened.
3.22 ADVERTISERS AND CUSTOMERS. A correct and complete copy of the names
of those Persons who are advertisers and commercial printing customers of the
Business is included in Schedule 3.22 (the "Advertiser and Customer Lists").
Seller maintains and is transferring to Purchaser as part of the Assets, a
correct and complete list of each paid subscriber to Seller's publications along
with current address, phone number and subscription information (the "Subscriber
List"). The Advertiser and Customer Lists and the Subscriber Lists have been
properly maintained and kept current, and have not been sold, leased, licensed
or otherwise disclosed either in whole or in part, to any Person not a party to
this Agreement (other than those employees of Seller whose duties require access
thereto).
3.23 LITIGATION. Except as disclosed on Schedule 3.23, within the past
fifteen (15) years there has not been and there currently is no Litigation
pending, or to the Knowledge of Seller, Mr. Gemmer or
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the Shareholder, threatened against Seller or otherwise with respect to the
Business, Assets, or Gemmer Real Property, and there is no basis for any such
Litigation or any facts or the occurrence of any event that reasonably might
give rise to any Litigation. Except as disclosed on Schedule 3.23, Seller is not
subject to ongoing obligations under any consent decree, Order or settlement of
any kind.
3.24 PROSPECTIVE CHANGES. None of Seller, Mr. Gemmer or the Shareholder
has Knowledge of any changes reasonably expected to occur within one (1) year
from the date of this Agreement to Seller, the Business, the Gemmer Real
Property, the Assets, Seller's Liabilities, relations with employees, relations
with customers, advertisers or subscribers, competitive situation or relations
with suppliers, or governmental actions or Laws affecting the Business, which,
if they occur, would have a Material Adverse Effect with respect to Seller.
3.25 INTERESTED TRANSACTIONS. Except for the lease of the Gemmer Real
Property to Seller, Seller is not a party to any Contract or other transaction
with any Affiliate of Seller, any Related Party of any Affiliate of Seller
(other than as a shareholder or employee of Seller), or any Person in which any
of the foregoing (individually or in the aggregate) beneficially or legally
owns, directly or indirectly, five percent (5%) or more of the equity or voting
interests. None of the Persons described in the preceding sentence 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 Business.
3.26 ENVIRONMENTAL. To the Knowledge of Seller, Mr. Gemmer or the
Shareholder, except as set forth in Schedule 3.26:
(a) There is no Environmental Litigation (or any Litigation
against any Person whose Liability for Environmental Matters, or any violation
of Environmental Laws, Seller has or may have retained or assumed contractually
or by operation of Law) pending or threatened with respect to (i) the ownership,
use, condition or operation of the Business, the Assets, the Gemmer Real
Property or any other asset of Seller or any asset formerly held for use or sale
by Seller or any of its predecessors or former Subsidiaries or formerly held for
use or sale by any of the current or former shareholders of Seller with respect
to the Business; or (ii) any violation or alleged violation of any Environmental
Law or any Order related to Environmental Matters. 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 Assets, the Gemmer Real Property or any other
asset of Seller or any asset formerly held for use or sale by Seller or any of
its predecessors or former Subsidiaries or formerly held for use of sale by any
of the current or former shareholders of Seller with respect to the Business.
There are no past or present actions, activities, circumstances, conditions,
events or incidents, including, without limitation, any Environmental Matter,
that could form the basis of (i) any Environmental Litigation against Seller or,
with respect to the Gemmer Real Property, Mrs. Gemmer or (ii) any Litigation
against any Person whose Liability (or any portion thereof) for Environmental
Matters or violation of Environmental Laws Seller has or may have retained or
assumed contractually or by operation of Law. Neither Seller nor any of its
predecessors or former Subsidiaries nor anyone Known to Seller, Mr. Gemmer or
Mrs. Gemmer has used any assets or premises of Seller or any of its predecessors
or former Subsidiaries or any part thereof or any of the Gemmer Real Property
for the handling, treatment, storage or disposal of any Hazardous Substances.
The disclosure of facts set forth in Schedule 3.26 shall not relieve Seller, Mr.
Gemmer or the Shareholder of any of its, his or her obligations under this
Agreement, specifically including, without limitation, the obligation to
indemnify Purchaser as set forth in Article VIII hereof.
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(b) No release, discharge, spillage or disposal of any Hazardous
Substances has occurred or is occurring at any assets of Seller or any of its
predecessors or former Subsidiaries or any part thereof, or any of the Gemmer
Real Property while or before such assets or premises were owned leased,
operated, or managed, directly or indirectly, by Seller or in the case of the
Gemmer Real Property, while or before such assets were owned by Mrs. Gemmer.
(c) No soil or water in, under or adjacent to any assets or
premises of Seller or assets formerly held for use or sale by Seller or any of
its predecessors or former Subsidiaries or any part of the Gemmer Real Property
has been contaminated by any Hazardous Substance while or before such assets or
premises were owned, leased, operated or managed, directly or indirectly, by
Seller or any of its predecessors or former Subsidiaries or in the case of the
Gemmer Real Property, while or before such assets were owned by Mrs.
Gemmer.
(d) All waste containing any Hazardous Substances generated,
used, handled, stored, treated or disposed of (directly or indirectly) by Seller
or any of its predecessors or its former Subsidiaries has been released or
disposed of in compliance with all applicable reporting requirements under any
Environmental Laws, and none of Seller, Mr. Gemmer or the Shareholder has
Knowledge of any Environmental Litigation with respect to any such release or
disposal.
(e) All underground tanks and other underground storage
facilities presently or previously located at either the Goshen Real Property,
the Gemmer Real Property, or any other real property owned, leased, operated or
managed by Seller or any of its predecessors or former Subsidiaries or any such
tanks or facilities located at any of the Goshen Real Property, the Gemmer Real
Property or any other real property while any of these properties was owned,
leased, operated, or managed by Seller (or with respect to the Gemmer Real
Property, while it was owned by Mrs. Gemmer) or any of its predecessors or
former Subsidiaries are listed together with the capacity and contents (former
and current) of each such tank or facility in Schedule 3.26. None of such
underground tanks or facilities is leaking or has ever leaked.
(f) Except for ink and oil that are removed in a timely manner
and in the ordinary course of business of Seller, all waste, hazardous or
otherwise, has been removed from the Gemmer Real Property and the Goshen Real
Property and any other real property of Seller and its respective predecessors
or former Subsidiaries.
(g) Seller and its predecessors or former Subsidiaries and, with
respect to the Gemmer Real Property, Mrs. Gemmer have complied with all
applicable reporting requirements under all Environmental Laws concerning the
disposal or release of Hazardous Substances, and neither Seller nor any of its
predecessors or former Subsidiaries nor Mrs. Gemmer has made any such reports
concerning the Goshen Real Property, the Gemmer Real Property or any other real
property of Seller or concerning the operations or activities of Seller or any
of its predecessors or former Subsidiaries.
(h) No building or other Improvement on either the Goshen Real
Property or the Gemmer Real Property, or any other real property owned, leased,
operated or managed by Seller, or the Gemmer Real Property, contains any
asbestos-containing materials.
(i) Without limiting the generality of any of the foregoing, (i)
all on-site and off-site locations where Seller or any of its predecessors or
any of its former Subsidiaries has stored, disposed or
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arranged for the disposal of Hazardous Substances are identified in Schedule
3.26, and (ii) no polychlorinated biphenyls (PCB's) are used or stored on or in
the Goshen Real Property, or any other real property owned, leased, operated or
managed by Seller or any of its predecessors or any of its former Subsidiaries,
or the Gemmer Real Property.
3.27 YEAR 2000 COMPLIANCE. Except as set forth on Schedule 3.27,
Seller's business systems, including without limitation its computer hardware
and software are "Year 2000 Compliant." The expression "Year 2000 Compliant"
means that the system in question (the "System"): (i) will correctly and
unambiguously process date information at all times, including as the years 1999
and 2000 are approached and reached; (ii) will not suffer any amends, aborts,
improper operation or other interruptions in operation as a result of the
approach or reaching of any particular date or the improper processing of any
date. "Processing" of date information includes, but is not limited to,
accepting input of dates without ambiguity, outputting all dates in an
unambiguous form, and performing calculations, comparisons or operations or
taking action or making decisions using dates, portions of dates, or time
periods. The concept of Year 2000 Compliance includes all issues relating to the
handling of dates or time periods, including the processing of the leap year
that will occur in the year 2000. In the case of products with which the parties
provide that the System shall perform as a large system, then the expression
"Year 2000 Compliant" means that the larger system shall be Year 2000 Compliant.
3.28 COMPUTER SOFTWARE AND DATABASE. All Computer Software licensed,
leased or otherwise used in connection with the Business is standard,
pre-packaged and subject to a "Shrink Wrap" license and none of such Computer
Software is proprietary, internally developed or owned by Seller. Seller has,
and upon consummation of the transactions contemplated by this Agreement,
Purchaser will have, all Computer Software and Databases that are necessary to
conduct the Business as presently conducted by Seller and all documentation and,
to the Knowledge of Seller, Mr. Gemmer or the Shareholder, necessary licenses
relating to all such computer Software (other than type fonts) and Databases;
provided, however, for purposes of the indemnification under Section 8.02(a),
the foregoing sentence shall be deemed to not be qualified to the Knowledge of
Seller, Mr. Gemmer or the Shareholder.
3.29 INSURANCE. All of the Assets and the operations of Seller 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 Seller, and the Gemmer
Real Property is insured by Mrs. Gemmer, 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 Seller
(or to Mrs. Gemmer with respect to the Gemmer Real Property) or the Business, or
(iii) required by any Contract of Seller or any Contract of Mrs. Gemmer relating
to the Gemmer Real Property. Schedule 3.29 contains a complete and accurate
summary of all insurance policies held or owned by Seller (or by Mrs. Gemmer
relating to the Gemmer Real Property) and now in force 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. All such policies are in full force and effect and
enforceable in accordance with their terms. Neither Seller nor Mrs. Gemmer, as
the case may be, is now in Default regarding the provisions of any such policy,
including, without limitation, failure to make timely payment of all premiums
due thereon, and neither has failed to give any notice or present any claim
thereunder in due and timely fashion. Neither Seller nor Mrs. Gemmer has been
refused, or denied renewal of, any insurance coverage in connection with the
ownership or use of the Assets or the Gemmer Real Property or the operation of
the Business. In
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addition to the deductibles set forth on Schedule 3.29, such Schedule discloses
all risks that are self-insured by Seller or Mrs. Gemmer that in the ordinary
course of business could be insured.
3.30 STATEMENTS TRUE AND CORRECT. No representation or warranty made by
Seller, Mr. Gemmer or the Shareholder, nor any statement, certificate or
instrument furnished or to be furnished to Purchaser pursuant to this Agreement
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 fact
necessary to make the statements contained therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND GRAY
Each of Purchaser and Gray hereby represents and warrants to Seller and
the Shareholder that:
4.01 ORGANIZATION. Gray 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. 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.
4.02 CAPACITY AND VALIDITY. Each of Purchaser and Gray has the 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 the directors and shareholders of
each of Purchaser and Gray. This Agreement and the Other Agreements to which
Purchaser or Gray is a party have been executed and delivered by duly authorized
officers of Purchaser and of Gray, as the case may be, and each constitutes the
legal, valid and binding obligation of Purchaser and of Gray, enforceable
against Purchaser and against Gray in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other Laws affecting creditors' rights generally.
4.03 NO CONFLICT. Neither the execution, delivery and performance of
this Agreement and the Other Agreements to which it is a party by Purchaser or
by Gray 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 either Purchaser or Gray, (ii) result in a
Default under, any Contract or License to which Purchaser or Gray is a party or
by which Purchaser or Gray is bound, (iii) result in the violation of any Law or
Order, or (iv) result in the creation or imposition of any Lien.
4.04 BROKERS AND FINDERS. No finder or any agent, broker or other Person
acting pursuant to authority of Purchaser or Gray is entitled to any commission
or finder's fee in connection with the transactions contemplated by this
Agreement.
4.05 STATEMENTS TRUE AND CORRECT. No representation or warranty made by
Purchaser or by Gray, nor any statement, certificate or instrument furnished or
to be furnished to Seller or the Shareholder pursuant to this Agreement or any
other document, agreement or instrument referred to
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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 V
COVENANTS AND ADDITIONAL AGREEMENTS OF SELLER, THE SHAREHOLDER,
MR. GEMMER, THE PURCHASER AND GRAY
5.01 OPERATION OF BUSINESS PENDING CLOSING.
Prior to the Closing Date, except with the prior written consent of
Purchaser or Gray and except as necessary to effect the transactions
contemplated in this Agreement, Seller shall, and the Shareholder and Mr. Gemmer
shall cause Seller to:
(a) conduct its 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;
(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 operation of the Business, the Assets or the Gemmer Real
Property and of any Litigation (or communications indicating that the same may
be contemplated), affecting the Business, the Assets or the Gemmer Real Property
and keep Purchaser fully informed of such events and permit its representatives
prompt access to all materials prepared in connection therewith;
(d) except in the ordinary course of business consistent with past
practice, not make any capital expenditure;
(e) not take any action, or omit to take any action, that would cause
the representations and warranties contained in Article III hereof to be
incorrect or incomplete;
(f) promptly notify Purchaser in writing of any Material Adverse Change
with respect to Seller, or any condition or event that threatens to result in a
Material Adverse Change with respect to Seller, of which it is aware; and
(g) not make any agreement or commitment that will result in or cause to
occur a Default of any of the items contained in paragraphs (a) through (f)
above.
5.02 RIGHT OF INSPECTION; ACCESS. In order to allow Purchaser to conduct
its due diligence investigation, including, without limitation, environmental
due diligence, Seller and, with respect to the Gemmer Real Property, Mrs.
Gemmer, shall give to Purchaser and its designees, during normal working hours,
full and free access to all of the Assets, the Gemmer Real Property, Contracts,
reports and other records of the Business and shall furnish to Purchaser and its
designees all additional financial, legal and other information with respect to
Seller, the Gemmer Real Property, the Business and the Assets that Purchaser may
reasonably request. Seller 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,
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directors, employees, attorneys, accountants and other agents of Seller. Seller
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. Purchaser shall give Seller reasonable
prior notice of its intention to conduct any inspections and Seller may have a
representative present.
5.03 CONFIDENTIALITY. For a period of three years from and after the
date hereof, each of Purchaser, Gray, Seller, Mr. Gemmer and the Shareholder
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, (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 a securities exchange, or
in connection with a filing by Gray under federal or state securities laws or is
reasonably believed to be so required; (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, the equity and the financing relating to
the transactions contemplated by this Agreement. Notwithstanding the foregoing,
(i) Purchaser shall not, in the course of any investigation it shall deem
necessary and desirable in connection with the transactions contemplated by this
Agreement, be prohibited from discussing Seller, the Business, the Assets and
the Gemmer Real Property with others having business dealings with Seller; (ii)
the foregoing provisions of this Section 5.03 shall not apply to Gray or
Purchaser or any of their respective representatives or Affiliates after
consummation of the transactions contemplated hereby at the Closing, and (iii)
Gray shall be permitted to disclose this Agreement, except for the Purchase
Price and the consideration paid for the Non-Competition, Non-Solicitation and
Confidentiality Agreement, in its press release.
5.04 SCHEDULES.
(a) At any time and from time to time between the date hereof and the
Closing Date, Seller, Mr. Gemmer and the Shareholder shall have the right and
the continuing obligation to supplement any of the Schedules contained in
Article III hereof with respect to any matter arising after the date hereof
that, if existing or occurring at such date, would have been required to be set
forth or described in such Schedules; provided, however, that Purchaser may
unilaterally extend the Closing Date if necessary to allow Purchaser ten (10)
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 reveal any Material Adverse Change with respect to Seller, or any
condition or event that threatens to result in a Material Adverse Change with
respect to Seller, Purchaser may terminate this Agreement pursuant to Section
9.01.
(b) Within ten (10) days after the Closing Date, Seller may deliver to
Purchaser complete and correct copies of Contracts that Seller would like
Purchaser to assume. Purchaser will determine in its sole and absolute
discretion which, if any, of the Contracts proposed by Seller pursuant to the
foregoing sentence it will assume. To the extent that Purchaser agrees to assume
any of such Contracts, it may unilaterally amend Exhibit X to reflect such
additional Contracts that are included in the Assumed Liabilities.
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5.05 OTHER OFFERS AND EXCLUSIVE DEALING. Unless and until this Agreement
is terminated prior to Closing pursuant to Article IX, neither Seller, Mr.
Gemmer nor the Shareholder, acting in any capacity, will either directly or
indirectly, through any officer, director, employee, agent or otherwise of
Seller, Mr. Gemmer or of the Shareholder, (A) solicit, initiate, encourage or
entertain submission of proposals or offers from any Person relating to (i) any
purchase of the Assets, the Gemmer Real Property or any portion thereof, (ii)
any merger, sale of substantial assets, or sale of stock of Seller or (iii) any
similar transaction involving Seller or the shareholders, (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 consummate any of the
transactions described in clauses (A)(i) through (iii) above involving Seller,
Mr. Gemmer or the shareholders, or (C) approve or undertake any such
transaction. Seller shall promptly communicate to Purchaser the terms of any
such proposal or offer upon Knowledge or receipt of such proposal or offer or
upon Knowledge that such a proposal or offer is likely to be made.
5.06 CERTAIN TAX AND OTHER MATTERS.
(a) Seller shall file timely all Tax Returns required to be filed by it
with respect to periods ending on or before the Closing Date and with respect to
the Gemmer Real Property, Mrs. Gemmer shall file timely all Tax Returns required
to be filed by her for periods ending on or before the Closing Date.
(b) Purchaser, on the one hand, and Seller, Mr. Gemmer and the
Shareholder, 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 report or filings by any Governmental
Authority, or any judicial or administrative proceedings relating to 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.
5.07 CONSENTS AND APPROVALS. Seller shall obtain all waivers, consents
and approvals of, and provide all notices to, all Persons whose waiver, consent
or approval is required by any Contract, Order, Law or License relating to
Seller or to Mrs. Gemmer with respect to the Gemmer Real Property in order to
consummate the transactions contemplated by this Agreement. All written waivers,
consents and approvals obtained by, and all notices provided by, Seller shall be
delivered to Purchaser at or before the Closing in form and content reasonably
satisfactory to Purchaser.
5.08 SUPPLYING FINANCIAL STATEMENTS. Seller shall deliver to Purchaser
true and complete copies of unaudited balance sheets of Seller as of the end of
each calendar month ending subsequent to the date hereof and prior to the
Closing Date and the related statements of income and cash flows for each month
then ended. All such unaudited interim financial statements shall be in the same
format as the Financial Statements.
5.09 CONSUMMATION OF TRANSACTIONS; 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 Articles VI and VII of this Agreement.
5.10 USE OF NAME. Within ten (10) days after the Closing Date, Seller
(i) shall change its name to a name wholly dissimilar to "The Goshen News," "The
Goshen Extra," "News Printing
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Company" or any variations or derivations thereof; (ii) shall provide evidence
of such name change as Purchaser may reasonably request; and (iii) shall not
thereafter use, or permit any of its Affiliates to use, the names "The Goshen
News," "The Goshen Extra," "News Printing Company" or any similar names or any
variations or derivations thereof in any circumstances. In connection with
enabling Purchaser, at or after the Closing Date, to use the names "The Goshen
News," "The Goshen Extra," "News Printing Company" and any variations or
derivations thereof, Seller shall execute and deliver to Purchaser all consents
related to such use of name, and related trademarks, as may be reasonably
requested by Purchaser from time to time. All rights to the names "The Goshen
News," "The Goshen Extra," and "News Printing Company" and any variations or
derivations thereof, and all rights to all names, and related trademarks used in
connection with the Business are being conveyed to Purchaser as part of the
Assets.
5.11 EXPENSES.
(a) Except as provided below, regardless of whether the
transactions contemplated by this Agreement are consummated, Seller shall be
responsible for all expenses and fees incurred by it and by the Shareholder in
connection with the transactions contemplated hereby. In no event shall any of
the Assets be utilized for or reduced by the payment of any such fees or
expenses. Seller and the Shareholder hereby, jointly and severally, represent
and warrant that no such fees or expenses have been paid by Seller from the
Assets prior to the date of this Agreement.
(b) Simultaneously with the execution and delivery of this
Agreement, Seller shall pay out of the Asset Purchase Price all Taxes, if any,
relating to the transfer of the Assets to Purchaser, and Mrs. Gemmer shall pay
out of the Gemmer Real Property Purchase Price all Taxes, if any, relating to
the transfer of the Gemmer Real Property to Purchaser. Seller and Mrs. Gemmer
shall each file all necessary documentation and Tax Returns required to be filed
by it or by her with respect to such Taxes.
(c) On or before the Closing Date, Seller (and with respect to
the Gemmer Real Property, Mrs. Gemmer) shall pay any fees and expenses in
connection with the prepayment, release, satisfaction or removal of any Liens
affecting the Assets or the Gemmer Real Property.
5.12 FURTHER ASSURANCES. At any time and from time to time after the
Closing Date, Seller, Mr. Gemmer and the Shareholder 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
Assets and the Gemmer Real Property 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 of
the Assets and the Gemmer Real Property to Purchaser free and clear of all
Liens, to confirm the title of the Assets and the Gemmer Real Property to
Purchaser, to assist Purchaser in exercising rights relating thereto, or to
otherwise effectuate or consummate any of the transactions contemplated hereby.
5.13 EMPLOYEES. Concurrent with the Closing, the employment by Seller of
its employees shall terminate. Seller, Mr. Gemmer and Purchaser understand and
agree that Purchaser shall offer employment to all current employees of Seller,
except John Gemmer, and Jane Gemmer, specifically including those employees set
forth on Exhibit 5.13, at their current pay rates, such employment to be at will
and subject to Purchaser's employment policies and practices and without
restriction on Purchaser's ability to end the employment relationship with any
of such individuals. Purchaser shall hire employees for no particular term, and
Purchaser may discharge such hired employees for any reason or no reason
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without further Liability to employees or to Seller. The former employees of
Seller hired by Purchaser shall be eligible for Purchaser's then current benefit
plans and shall receive credit for their prior service with Seller for purposes
of participation in Purchaser's insurance, 401(k) and vacation benefits.
Notwithstanding the foregoing sentence, such employees will be eligible to
participate in Purchaser's Retirement Plan only after one year of employment
with Purchaser.
5.14 DELIVERY OF BOOKS AND RECORDS. Seller and, with respect to the
Gemmer Real Property, Mrs. Gemmer, shall deliver to Purchaser at the Closing all
original documents, books and records pertaining to the Business (except minute
books and stock records) and to the Assets and the Gemmer Real Property that are
legally significant or useful to the Business and shall deliver copies of all
other documents, books and records pertaining to the Business and to the Assets
and the Gemmer Real Property. Seller may retain copies of any of the foregoing
for its own use and Purchaser shall provide Seller with reasonable access to, or
provide Seller with copies of, such documents, books and records. Without
limiting the generality of the foregoing, Seller shall deliver to Purchaser at
the Closing all documents and records relating to the Intellectual Property,
including without limitation, the original Certificates of Registration for all
Letters Patent, trademarks and service marks listed on Schedule 3.11 and all
such documents relating thereto along with any other documents necessary to
transfer title thereto and to record such transfer before the respective patent
and trademark offices or similar Governmental Authorities.
5.15 TITLE SEARCH; DISCHARGE OF LIENS; TITLE INSURANCE. As soon as
practicable after the date hereof, Seller, Mr. Gemmer and the Shareholder shall
(i) each use commercially reasonable efforts to ascertain all Liens, if any, to
which any of the Assets or the Gemmer Real Property is subject, (ii) notify
Purchaser in writing of the nature and extent thereof, and (iii) discharge all
such Liens (other than Permitted Liens). Without limiting the generality of the
foregoing, Seller and the Shareholder shall provide to Purchaser Uniform
Commercial Code searches (conducted as soon as possible after the date hereof
and updated through a date not more than ten (10) days prior to the Closing
Date) of filings made pursuant to Article 9 thereof in all jurisdictions where
Seller has any Assets.
5.16 QUALIFICATION AND CORPORATE EXISTENCE.
(a) Seller shall deliver to Purchaser (i) certificates of the
Secretary of State of the State of Indiana stating that Seller is a corporation
in existence under the Laws of such state and has paid all applicable Taxes due
to such state and (ii) certificates of the appropriate officials of the states
and foreign jurisdictions listed on Schedule 3.02(a), each dated not more than
ten (10) days prior to the Closing Date, stating that Seller is duly qualified
and in good standing to transact business as a foreign corporation as stated in
Section 3.02 of this Agreement in each such state or foreign jurisdiction and
has paid all applicable Taxes due to each such state or foreign jurisdiction.
(b) Gray and Purchaser shall deliver to Seller certificates of
the Secretary of State of the State of Georgia dated not more than ten (10) days
prior to the Closing Date, stating that Gray or Purchaser, as the case may be,
is a corporation in existence under the laws of such state. Purchaser shall
deliver to Seller a certificate of the Secretary of State of the State of
Indiana dated not more than ten (10) days prior to the Closing Date, stating
that Purchaser is a corporation qualified or licensed to do business as a
foreign corporation under the laws of such state.
5.17 PURCHASER'S ASSISTANCE TO SELLER. After the Closing Date, Purchaser
agrees to allow Seller use of its computer software and hardware so that Seller
may prepare a financial statement for the
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time period up to and including the date prior to the Closing Date at no expense
to Seller. Purchaser agrees to provide laborers and transportation to move
certain corporate records to Seller's new office. Purchaser agrees to continue
Accounts Payable processing and payroll processing on its computers using
Purchaser's employees, facilities and equipment for up to sixty (60) days after
the Closing. Further, Purchaser will allow Seller reasonable access to corporate
records of News Printing Company, Inc. necessary to prepare filings of industry
or governmental reports. For a period of thirty-seven (37) months after the
Closing Date, Purchaser will notify Seller prior to any records disposal.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF GRAY AND PURCHASER
The obligations of Gray and Purchaser to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Closing Date, of each of the following conditions, any of which may
be waived, in whole or in part, by Gray and Purchaser for purposes of
consummating such transactions:
6.01 REPRESENTATIONS TRUE AND COVENANTS PERFORMED AT CLOSING. The
representations and warranties made by Seller, the Shareholder or Mr. Gemmer in
this Agreement and the Other Agreements shall be complete and correct on the
Closing Date with the same force and effect as if this Agreement had been
executed on and as of the Closing Date. Seller, the Shareholder and Mr. Gemmer
each shall have duly performed all of the agreements and covenants and satisfied
all of the conditions to be performed or complied with by either of them on or
prior to the Closing Date. Seller, the Shareholder and Mr. Gemmer each shall
execute and deliver to Purchaser a certificate dated as of the Closing Date
certifying the fulfillment of the conditions of this Section 6.01.
6.02 NO INJUNCTION, ETC. No Litigation, Law or Order shall have been
instituted, enacted, entered, 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 or Order, in the reasonable
judgment of Purchaser, would make it inadvisable to consummate such
transactions.
6.03 NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
Material Adverse Change with respect to Seller, the Business or the Gemmer Real
Property, or any condition or event which threatens a Material Adverse Change
with respect to Seller, the Business or the Gemmer Real Property, from the
Balance Sheet Date. Seller and the Shareholder each shall have delivered to
Purchaser a certificate dated as of the Closing Date executed by Seller and the
Shareholder, respectively, certifying the foregoing statement.
6.04 APPROVAL OF LEGAL MATTERS. All actions, proceedings, instruments
and documents reasonably deemed necessary or appropriate by Gray and Purchaser
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.
6.05 BILL OF SALE; ASSIGNMENTS; ETC. Purchaser shall have received from
Seller an executed bill of sale substantially in the form attached hereto as
Exhibit 6.05, an executed Assignment and Assumption Agreement substantially in
the form attached hereto as Exhibit 7.04, and such other assignments and other
conveyance documents reasonably necessary or desirable to transfer the Assets to
Purchaser.
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6.06 OPINIONS OF COUNSEL. Purchaser shall have received an opinion,
dated the Closing Date, of Browne Spitzer Herriman Stephenson Holderead &
Musser, counsel to Seller and the Shareholder, substantially in the form
attached hereto as Exhibit 6.06.
6.07 INCUMBENCY CERTIFICATE. Seller shall have delivered to Purchaser an
incumbency certificate or certificates dated the Closing Date certifying the
incumbency of all officers of Seller who have executed this Agreement or any of
the Other Agreements. These certificates shall contain specimens of the
signatures of each of such officers and shall be executed by an officer of
Seller other than an officer whose incumbency or authority is certified.
6.08 LICENSES. Purchaser shall have received all Licenses necessary to
operate the Business and to own and operate the Assets and the Gemmer Real
Property as currently operated by Seller.
6.09 WARRANTY DEED, TITLE INSURANCE AND SURVEY. Purchaser shall have
received general warranty deeds in form and substance reasonably satisfactory to
Purchaser in respect of the Goshen Real Property and the Gemmer Real Property
(which general warranty deeds shall include a transfer or assignment of any
warranties of title, whether general, statutory or limited, which Seller or Mrs.
Gemmer has received from any of its or her grantors).
6.10 ENVIRONMENTAL REPORT. Purchaser shall have received such
independent verifications as Purchaser reasonably deems necessary that no
condition exists with respect to the Assets previously or currently owned,
leased, operated, or controlled by Seller, any of its predecessors or any of its
former Subsidiaries or with respect to any of the Gemmer Real Property that has
resulted in, or would reasonably be expected to result in, any violation of an
Environmental Law, any Environmental Litigation, or in any Liability relating to
an Environmental Matter. Such independent verifications shall include an
estimate of the total cost of remedying any such condition reported therein.
6.11 DUE DILIGENCE REVIEW. Purchaser and its lenders each shall have
been reasonably satisfied with its review of the Schedules provided by Seller
and the Shareholder pursuant to this Agreement and each also shall have been
reasonably satisfied with its review of the Business, Assets, Contracts, books
and records of Seller and the Gemmer Real Property.
6.12 CERTIFIED COPIES OF RESOLUTIONS. Seller shall have delivered to
Purchaser copies, certified by the duly qualified and acting Secretary or
Assistant Secretary of Seller, of resolutions adopted by the Board of Directors
and the shareholders approving this Agreement, the Other Agreements and the
consummation of the transactions contemplated hereby and thereby, which
resolutions shall be in form and substance reasonably satisfactory to Purchaser
and Gray.
6.13 SALES AND USE TAXES. Purchaser shall have received from Seller a
certificate or certificates from the Indiana Department of Revenue and from any
other state and foreign Tax authority listed on Schedule 3.02(a) stating that no
sales or use Taxes are due relating to the Business, Assets or the Gemmer Real
Property prior to Closing.
6.14 COVENANTS NOT TO COMPETE. Seller, John Gemmer and Mrs. Gemmer shall
have entered into an agreement with Purchaser containing covenants not to
compete and covenants prohibiting disclosure of confidential information and
trade secrets and covenants prohibiting the solicitation of customers and
employees, substantially in the form attached hereto as Exhibit 6.14.
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6.15 NON-FOREIGN CERTIFICATE. Seller and Mrs. Gemmer shall each deliver
to Purchaser a certificate in form and substance satisfactory to Purchaser
stating that neither Seller nor Mrs. Gemmer is a "foreign person" as defined in
Section 1445 of the Code and the regulations thereunder.
6.16 LETTERS TESTAMENTARY. Purchaser shall have received a certified
copy of Letters Testamentary related to the Estate dated not more than 30 days
prior to the Closing Date.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER, MR. GEMMER AND THE SHAREHOLDER
The obligations of Seller, Mr. Gemmer and the Shareholder to consummate
the transactions contemplated by this Agreement shall be subject to the
satisfaction, on or before the Closing Date, of each of the following
conditions, any of which may be waived, in whole or in part, by Seller and the
Shareholder for purposes of consummating such transactions:
7.01 REPRESENTATIONS TRUE AND COVENANTS PERFORMED AT CLOSING. The
representations and warranties made by Gray and Purchaser in this Agreement and
the Other Agreements shall be correct and complete on the Closing Date with the
same force and effect as if this Agreement had been executed on and as of the
Closing Date. Gray and Purchaser shall have duly performed all of the agreements
and covenants and satisfied all of the conditions to be performed or complied
with by it on or prior to the Closing Date. Gray and Purchaser shall execute and
deliver to Seller and the Shareholder a certificate dated as of the Closing Date
certifying the fulfillment of the conditions of this Section 7.01.
7.02 NO INJUNCTION, ETC. No Litigation, Law or Order shall have been
instituted, enacted, entered, 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 or Order, in the reasonable
judgment of Seller or the Shareholder, would make it inadvisable to consummate
such transactions.
7.03 APPROVAL OF LEGAL MATTERS. All actions, proceedings, instruments
and documents reasonably deemed necessary or appropriate by Seller, the
Shareholder or their respective attorneys to effectuate this Agreement and to
consummate of the transactions contemplated hereby shall have been approved by
such attorneys in the exercise of their reasonable discretion.
7.04 ASSIGNMENT AND ASSUMPTION AGREEMENT. Seller shall have received
from Purchaser an executed Assignment and Assumption Agreement, substantially in
the form attached hereto as Exhibit 7.04.
7.05 INCUMBENCY CERTIFICATE. Each of Gray and Purchaser shall have
delivered to Seller and the Shareholder an incumbency certificate or
certificates dated the Closing Date certifying the incumbency of all officers of
Gray and Purchaser who have executed this Agreement or any of the Other
Agreements. These certificates shall contain specimens of the signatures of each
of such officers and shall be executed by an officer of each of Gray and
Purchaser other than an officer whose incumbency or authority is certified.
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7.06 CERTIFIED COPIES OF RESOLUTIONS. Gray and Purchaser shall have
delivered to Seller and the Shareholder copies, certified by the duly qualified
and acting Secretary or Assistant Secretary of each of Gray and Purchaser, of
resolutions adopted by the Board of Directors of Purchaser approving this
Agreement, the Other Agreements and the consummation of the transactions
contemplated by this Agreement.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
8.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ACKNOWLEDGMENT OF
GRAY'S AND PURCHASER'S RELIANCE. All of Seller's, Mr. Gemmer's, the
Shareholder's, Gray's and Purchaser's representations, warranties, covenants,
and agreements set forth in this Agreement shall survive the closing of the
transactions contemplated by this Agreement, shall not merge in the performance
of any obligation by any party hereto and (1) shall terminate and expire (i)
with respect to any "General Claim" (as herein defined), on the later of (x)
eighteen (18) months after the date of this Agreement or (y) eighteen (18)
months after the date on which such covenant or agreement is to be performed
hereunder; (ii) with respect to any "Tax Claim" (as herein defined), on the
later of (x) the date upon which the Liability to which any such Tax Claim may
relate is barred by all applicable statutes of limitation, taking into account
any extensions or waivers thereof, and (y) the date upon which any claim for
refund or credit related to such Tax Claim is barred by all applicable statutes
of limitation; (iii) with respect to any "Employee Benefit Plan Claim" (as
herein defined), on the date upon which the Liability to which any such Employee
Benefit Plan Claim may relate is barred by all applicable statute of
limitations; (iv) with respect to any "Third Party Liability Claim" (as herein
defined), on the date upon which the Liability to which any such Third Party
Liability Claim may relate is barred by all applicable statutes of limitations;
and (v) with respect to any "Environmental Claim" (as defined herein), on the
sixth (6th) anniversary of the date of this Agreement. As used in this
Agreement, the following terms have the following meanings:
(a) "General Claim" means any claim based upon, arising out of or
otherwise in respect of any inaccuracy in any representation or
warranty or any breach of any covenant or agreement made or to be
performed by Seller, Mr. Gemmer, the Shareholder, Gray or
Purchaser pursuant to this Agreement or the Other Agreements,
provided that a "General Claim" shall not include any Tax Claim,
Employee Benefit Plan Claim, Third Party Liability Claim or
Environmental Claim;
(b) "Tax Claim" means any claim based upon, arising out of or
otherwise in respect of any inaccuracy in any representation or
warranty or any breach of any covenant or agreement made or to be
performed by Seller, Mr. Gemmer or the Shareholder pursuant to
this Agreement or the Other Agreements, related to any Taxes,
including, without limitation, those representations, warranties,
covenants and agreements made by Seller and the Shareholder in
Section 3.07 and any claim made under Section 8.02(e);
(c) "Environmental Claim" means any claim based upon, arising out
of or otherwise in respect of any inaccuracy in any
representation or warranty or any breach of any covenant or
agreement made or to be performed by Seller, Mr. Gemmer or the
Shareholder pursuant to this Agreement or the Other Agreements
related to any Environmental Matter or Environmental Litigation,
including without limitation, those
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representations, warranties, covenants and agreements made by
Seller, Mr. Gemmer and the Shareholder in Section 3.26, or any
claim arising out of or otherwise in respect of the condition or
occurrences described in Section 8.02(d).
(d) "Employee Benefit Plan Claim" means any claim based upon,
arising out of or otherwise in respect of any inaccuracy in any
representation or warranty or any breach of any covenant or
agreement made or to be performed by Seller, Mr. Gemmer or the
Shareholder pursuant to this Agreement or the Other Agreements
related to any Employee Benefit Plan, including without
limitation, those representations, warranties, covenants and
agreements made by Seller and the Shareholder in Sections 3.07
and 3.17 and any claim made under Section 8.02(c), 8.02(e) or
8.02(f) in connection with an Employee Benefit Plan.
(e) "Third Party Liability Claim" means any claim made under
Section 8.02(c), Section 8.02(f) or 8.02(g) that relates to any
claim or other Litigation by a Third Party.
Seller, Mr. Gemmer, the Shareholder, Gray and Purchaser acknowledge and agree
that Gray and Purchaser have performed a limited investigation of the Business
and the Assets and the Gemmer Real Property; however, no investigation by Gray
or Purchaser will diminish or obviate any of the representations, warranties,
covenants, indemnities or agreements made or to be performed by Seller, Mr.
Gemmer or the Shareholder pursuant to this Agreement or the Other Agreements or
Purchaser's right to fully rely upon such representations, warranties,
covenants, indemnities and agreements. Seller, Mr. Gemmer, the Shareholder and
Purchaser acknowledge and agree that Purchaser has assisted Seller, Mr. Gemmer
and the Shareholder in the preparation of certain of the Schedules referred to
in Article III; provided, however, that Seller, Mr. Gemmer, the Shareholder and
Purchaser acknowledge and agree that Purchaser prepared such Schedules from
information provided by Seller and in no event shall Purchaser have any
Liability with respect to such Schedules nor shall any of Seller's, Mr. Gemmer's
or the Shareholder's representations, warranties, indemnities, or other
agreements be obviated or diminished by Purchaser's preparation of any of such
Schedules.
8.02 INDEMNIFICATION BY THE SHAREHOLDER, MR. GEMMER AND SELLER. Subject
to the limitations contained in Section 8.04, the Shareholder, Mr. Gemmer and
Seller, jointly and severally, agree to indemnify, defend, and hold harmless
Purchaser and Gray (and each of their respective directors, officers,
shareholders, employees, affiliates and assigns) from and against any and all
Losses asserted against, imposed upon or incurred by any of the foregoing by
reason of, resulting from, arising out of, based upon or otherwise in respect of
the following notwithstanding any actual or alleged negligence of any of the
Persons indemnified hereunder:
(a) any inaccuracy in any representation or warranty made by
Seller, Mr. Gemmer or the Shareholder pursuant to this Agreement or the Other
Agreements;
(b) any breach of any covenant or agreement made or to be
performed by Seller, Mr. Gemmer or the Shareholder pursuant to this Agreement or
the Other Agreements;
(c) any Undisclosed Liability;
(d) any of the following conditions or occurrences relating to
the environment: (i) any cleanup, corrective removal or remedial actions, or
property damage arising out of any condition
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relating to the Business, the Assets or the Gemmer Real Property and existing
prior to March 1, 1999; (ii) Third Party claims for personal injury where the
exposure, incident or condition out of which the claim arises occurred in whole
or in part on or prior to March 1, 1999 and relates to the Business, the Assets
or the Gemmer Real Property; (iii) with respect to the Business, any
transportation or disposition commenced, arranged or initiated on or before
March 1, 1999 by or on behalf of Seller any of its predecessors or any of its
former Subsidiaries of any substance owned or controlled by Seller, any of its
predecessors or any of its former Subsidiaries or any substance from any
premises owned or operated by Seller, any of its predecessors or any of its
former Subsidiaries or from the Gemmer Real Property for any purpose, including,
but not limited to, treatment, storage, disposal or recycling; (iv) with respect
to the Business or the Gemmer Real Property, fines or penalties on account of
the ownership, use, condition or operation of the Business or any of the Assets
or the Gemmer Real Property by Seller, any of Seller's predecessors or any of
its former Subsidiaries at any time prior to March 1, 1999; (v) any Liability to
modify, restore, change or improve any of the Assets, any of the Gemmer Real
Property or any assets of any of Seller's predecessors or any of its former
Subsidiaries in order to effectuate compliance with any applicable Law or Order
in effect as of March 1, 1999; or (vi) the removal of any and all asbestos or
asbestos-containing materials that existed on or before March 1, 1999 in any
premises owned, leased, operated or managed on or before March 1, 1999 by
Seller, any of its respective predecessors or any of its former Subsidiaries or
that existed on or before March 1, 1999 in any of the Gemmer Real Property;
provided, however, Purchaser and Gray shall be solely responsible for, and none
of Seller, Mr. Gemmer or the Shareholder will be required to indemnify, defend
or hold harmless Purchaser or Gray for any Losses in connection with the removal
of any and all asbestos or asbestos-containing materials resulting from, arising
out of, based upon or otherwise in respect of any remodeling or other voluntary
structural or physical change by Purchaser or Gray after the Closing Date in any
premises that were owned, leased, operated or managed on or before the Closing
Date by Seller;
(e) any Liability for any Taxes of Seller (or, with respect to
the Gemmer Real Property, Mrs. Gemmer) that either accrued on or before March 1,
1999 or arose out of or relate to Seller or the operations of the Business or
the Gemmer Real Property on or before March 1, 1999; and
(f) any Retained Liability; and
(g) any claim by any Person relating in any respect to (A) the
ownership (legal or beneficial) of the capital stock of Seller, (B) this
Agreement, the transactions contemplated hereby or corporate actions of Seller
related thereto, or (C) the Estate of Dow M. Gorham.
Seller, Mr. Gemmer and the Shareholder, acting collectively, shall have the
right at their own cost and expense to undertake to defend against any claim or
cause of action under the hold harmless and indemnity provisions of this Section
8.02. Purchaser and Gray agree to provide written notice of any Third Party
claims that may arise under this Section 8.02 promptly after Purchaser's or
Gray's receipt of notice of any such claim from any Third Party. However, if the
notice of such claim received by Purchaser and Gray consists of legal service of
process, Purchaser or Gray shall provide telephone notice within 48 hours,
followed by written notice within ten (10) days, after Purchaser's or Gray's
receipt of notice of such claim. Failure to provide such written notice within
the time specified shall not constitute a waiver of the provisions of this
Section by Purchaser or by Gray, except to the extent that such failure shall
have prejudiced Seller's, Mr. Gemmer's or the Shareholder's rights and abilities
to defend a lawsuit that is the basis of such a claim. Any obligations or
liabilities owed by Seller, Mr. Gemmer or the Shareholder to Purchaser or to
Gray by reason of this Agreement, may be satisfied by Purchaser or Gray
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offsetting against such amounts any and all sums due from Purchaser or Gray to
Seller, Mr. Gemmer or the Shareholder for any reason whatsoever.
8.03. INDEMNIFICATION BY PURCHASER AND GRAY. Subject to the limitations
contained in Section 8.04, Purchaser and Gray agree to indemnify, defend and
hold harmless Seller (and its respective directors, officers, employees,
affiliates and assigns), Mr. Gemmer and the Shareholder from and against all
Losses asserted against, imposed upon or incurred by any of the foregoing by
reason of, resulting from, arising out of, based upon or otherwise in respect of
the following notwithstanding any actual or alleged negligence of any of the
Persons indemnified hereunder:
(a) any inaccuracy in any representation or warranty made by
Purchaser or Gray pursuant to this Agreement or the Other Agreements;
(b) any breach of any covenant or agreement made or to be
performed by Purchaser or Gray pursuant to this Agreement or the Other
Agreements;
(c) any Assumed Liability; and
(d) the removal of any and all asbestos or asbestos-containing
materials resulting from, arising out of, based upon or otherwise in respect of
any remodeling or other voluntary structural or physical change by Purchaser or
Gray after the Closing Date in any premises that were owned, leased, operated or
managed on or before the Closing Date by Seller.
Purchaser and Gray each shall have the right at its own cost and expense to
undertake to defend against any claim or cause of action under the hold harmless
and indemnity provisions of this Section 8.03. Seller, Mr. Gemmer and the
Shareholder agree to provide written notice to Purchaser and to Gray of any
Third Party claims that may arise under this Section 8.03 promptly after
Seller's, Mr. Gemmer's or the Shareholder's receipt of notice of any such claim
from any Third Party. However, if the notice of such claim received by Seller,
Mr. Gemmer and the Shareholder consists of legal service of process, Seller, Mr.
Gemmer or the Shareholder receiving such notice shall provide telephone notice
within 48 hours, followed by written notice within ten (10) days, after
Seller's, Mr. Gemmer's or the Shareholder's receipt of notice of such claim.
Failure to provide such written notice within the time specified shall not
constitute a waiver of the provisions of this Section by Seller, Mr. Gemmer and
the Shareholder, except to the extent that such failure shall have prejudiced
Purchaser's or Gray's rights and abilities to defend a lawsuit that is the basis
of such a claim.
8.04 LIMITATIONS ON INDEMNIFICATION.
(a) Except as provided in Section 8.04(b), none of Seller, Mr.
Gemmer, the Shareholder, Gray or Purchaser shall be required to indemnify any of
the Persons specified in Section 8.02 or 8.03, as the case may be, until the
amount of such Loss, when aggregated with all other Losses indemnified under
such Section 8.02 or 8.03, respectively, shall exceed $50,000 (the "Minimum
Aggregate Liability Amount"), at which time Losses may be asserted for the
Minimum Aggregate Liability Amount and all amounts in excess thereof; provided,
however, that the foregoing Minimum Aggregate Liability Amount shall not apply
to any Loss that results from or arises out of (i) a breach of a covenant or
agreement, (ii) fraud, intentional misrepresentation or an intentional breach of
warranty on the part of any of Seller, Mr. Gemmer, the Shareholder, Gray or
Purchaser in this Agreement or the
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Other Agreements, (iii) any Employee Benefit Plan Claim, (iv) any Tax Claims or
(v) any Third Party Liability Claims that arise out of Section 8.02(g).
(b) No Person otherwise entitled to indemnification under this
Agreement shall be indemnified pursuant to this Agreement to the extent that
such Person's Losses are increased or extended by the willful misconduct,
violation of Law or bad faith of such Person.
(c) The Shareholder and Mr. Gemmer, in the aggregate, shall not
be liable for indemnification under Section 8.02 in an amount greater than Nine
Million Six Hundred Fifty-Two Thousand Six Hundred Dollars ($9,652,600).
Notwithstanding the foregoing sentence, the Shareholder and Mr. Gemmer, in the
aggregate, shall not be liable in an amount greater than $1,250,000 for
indemnification with respect to an Environmental Claim for diminution in the
value of the Gemmer Real Property or the Goshen Real Property that is the sole
and direct result of a Phase II environmental review of the Gemmer Real Property
or the Goshen Real Property that was not required by a Governmental Authority.
8.05 INDEMNIFICATION PAYMENTS. Subject to the terms hereof, a party
obligated to make indemnification payments pursuant to this Agreement shall pay
to the indemnified party the full amount of any and all Losses (other than
Losses resulting from a Third Party claim) within thirty (30) days of receipt of
the notice thereof and the full amount of any Loss resulting from a Third Party
claim within thirty (30) days of the date such Litigation is terminated or the
date a final judgment or award is rendered and no appeal is taken, and
thereafter the amount of such Loss shall bear interest at a rate equal to the
lesser of one and one-half percent (1-1/2%) per month or the maximum amount
permitted by Law. Purchaser and Gray shall be entitled to offset from any
payments due to Seller, Mr. Gemmer or the Shareholder for any reason whatsoever,
any amount due and owing to Purchaser or to Gray by way of indemnification
pursuant to Section 8.02, and Purchaser and Gray shall not be liable for any
amounts so offset.
ARTICLE IX
TERMINATION
9.01 METHOD OF TERMINATION. This Agreement and the transactions
contemplated by it may be terminated at any time prior to the Closing Date:
(a) By the mutual consent of Seller and Purchaser at any time;
(b) By Seller or the Shareholder at any time after March 3, 1999
if any of the conditions set forth in Article VII hereof have not been fulfilled
or waived, unless such fulfillment has been frustrated or made impossible by any
act or failure to act by Seller or Shareholder;
(c) By Purchaser or Gray at any time after March 3, 1999, if any
of the conditions set forth in Article VI hereof have not been fulfilled or
waived, unless such fulfillment has been frustrated or made impossible by any
act or failure to act of Purchaser;
(d) By Purchaser at any time, if Purchaser determines in good
faith that any Material Adverse Change, or any condition or event which
threatens to cause a Material Adverse Change, with respect to Seller or the
Business shall have occurred or been discovered since the Balance Sheet Date;
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(e) By Purchaser pursuant to Section 9.04; or
(f) By Purchaser pursuant to Section 5.04.
9.02 NOTICE OF TERMINATION. Notice of termination of this Agreement, as
provided for in this Article IX, shall be given by the parties so terminating to
the other parties hereto in accordance with Section 11.01 of this Agreement.
9.03 EFFECT OF TERMINATION. In the event of a termination of this
Agreement pursuant to Section 9.01 hereof, 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; provided, however, if non-occurrence of
Closing is the direct or indirect result of the Default of any party of its
obligations hereunder, including, without limitation, any Material inaccuracy in
any representation or warranty made by such party, such defaulting parties shall
be fully liable to the other parties hereto for any such Default. 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.
9.04 RISK OF LOSS. Seller assumes all risk of condemnation, destruction
or Loss due to fire or other casualty from the date of this Agreement until the
Closing. If the condemnation, destruction or Loss is such that the Business is
interrupted or curtailed or the Assets or the Gemmer Real Property are
Materially affected, then Purchaser shall have the right to terminate this
Agreement. If the condemnation, destruction or Loss is such that the Business is
neither interrupted nor curtailed nor the Assets or the Gemmer Real Property
Materially affected, or if the Business is interrupted or curtailed or the
Assets or the Gemmer Real Property are Materially affected and Purchaser
nevertheless foregoes the right to terminate this Agreement, the Purchase Price
shall be adjusted at the Closing to reflect such condemnation, destruction or
Loss, to the extent that insurance or condemnation proceeds paid or to be paid
to Purchaser are not sufficient to cover such destruction or Loss. If Purchaser
and Seller are unable to agree upon the amount of such adjustment, the dispute
shall be resolved jointly by the independent accounting firms then employed by
Purchaser and Seller, and if said accounting firms do not agree, an arbitrator
shall be selected by such accounting firms.
ARTICLE X
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 PAYABLE" means all accounts payable as of the date prior to
the Closing Date, and other monies due from Seller for purchases of goods and
the performance of services prior to the Closing Date and any other debt or
Liability relating to the operation of the Business prior to the Closing Date.
"ACCOUNTS RECEIVABLE" means all accounts receivable, notes receivable
(including without limitation all notes receivable from Pam and Dan Sheets), and
other monies due to Seller for (i)
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published advertising (both billed and unbilled) through the day prior to the
Closing Date, (ii) newspaper sales (both direct and circulation) and (iii)
commercial printing through the day prior to the Closing Date.
"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 10% or
greater equity or voting interest of such Person; (iii) any entity for which a
Person described in (ii) above acts in any such capacity.
"AGREEMENT" means this Asset Purchase Agreement, including the Exhibits
and Schedules hereto each of which is incorporated herein by reference.
"ASSET PURCHASE PRICE" means the total consideration to be paid to
Seller by Purchaser for the purchase of the Assets pursuant to this Agreement
and which shall be paid in accordance with Section 1.02(a) of this Agreement.
"ASSETS" means all of the assets, properties and rights of Seller of
every kind, nature, character and description, whether real, personal or mixed,
whether tangible or intangible, whether accrued, contingent or otherwise (other
than the Retained Assets) relating to or utilized in the Business, directly or
indirectly, in whole or in part, in existence on the Closing Date whether or not
carried on the books and records of Seller, and whether or not owned in the name
of Seller or any Affiliate of Seller and wherever located, including but not
limited to the following:
(i) the Personal Property;
(ii) Accounts Receivable;
(iii) the Inventory;
(iv) the Intellectual Property of Seller;
(v) the Contracts of Seller;
(vi) the Licenses of Seller;
(vii) the Computer Software;
(viii) the Databases;
(ix) the Goshen Real Property;
(x) the Goodwill of the Business, including, but not
limited to, goodwill associated with the trademarks, service marks, and
tradenames and assumed names;
(xi) all rights, choses in action and claims, Known or
unknown matured or unmatured, accrued or contingent, against Third Parties;
(xii) all intangible personal property and assets other
than the foregoing including, without limitation, franchises, guarantees,
warranties, indemnities, certificates of authority and waivers;
(xiii) the customer lists, advertiser lists, subscriber
lists, mailing lists, customer files, supplier files, advertiser files,
subscriber files, sales agent files, credit files, and credit data relating to
the Assets or the Business, all other files, records, drawings, catalogues,
stationery, advertising materials and other documents (or copies thereof)
related to the Assets or the Business and the use of any telephone numbers that
are used in the operation of the Business; and
(xiv) any other assets used in the Business and owned by
Seller.
"ASSUMED LIABILITIES" means (i) all obligations first arising after the
Closing Date under or pursuant to Contracts of Seller related to the Business,
listed on Exhibit X (as amended pursuant to Section 5.04(b)); and assigned to
Purchaser pursuant to this Agreement; provided, however, the Assumed
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Liabilities shall not include any Liabilities resulting from or arising out of
any Default by Seller prior to the Closing Date under or with respect to any of
such Contracts; (ii) Current Community Commitments (as defined herein); (iii)
the obligation of Purchaser to provide coverage under the health plan that
Purchaser makes available to its employees to Tom Merritt until the earlier of
his sixty-fifth (65th) birthday or eighteen (18) months after the Closing Date;
and (iv) the obligation of Purchaser to provide coverage at Purchaser's cost
under the health plan that Purchaser makes available to its employees to Philip
Guilfoos, provided that such coverage shall be available (A) only for the period
for which Philip Guilfoos was eligible to elect COBRA coverage under Seller's
health plan; (B) provided Philip Guilfoos makes or has made a proper election to
elect COBRA coverage under Seller's health plan within the time periods
specified under COBRA; and (C) provided that any amounts paid to or for the
benefit of Philip Guilfoos by Seller or its insurer for health related matters
shall be credited against the maximum lifetime benefits available to Philip
Guilfoos under Purchaser's health plan.
"BALANCE SHEET" means collectively, the unaudited balance sheet of
Seller as of November 30, 1998 and included in the Financial Statements.
"BALANCE SHEET DATE" means November 30, 1998.
"BUSINESS" means Seller's business of publishing the daily newspaper The
Goshen News, and the weekly shopper, The Goshen Extra, and commercial printing
under the name News Printing Company.
"CLOSING" means the consummation of the asset acquisitions and the other
transactions contemplated by this Agreement.
"CLOSING DATE" means March 3, 1999 or such other date as the parties may
agree, but with economic effect as of the close of business on February 28,
1999.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"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.
"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.
"CURRENT COMMUNITY COMMITMENTS" means those certain charitable
commitments of Seller to The Boy's and Girl's Club of up to $20,000 payable
ratably over four years, The Goshen Chamber of Commerce of up to $6,700 payable
ratably over two years and Sponsorship of the Ride-A-Bike Event for the benefit
of the Association of Disabled of Elkhart County with a cost of up to $6,000.
"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.
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"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, any
medical, vision, dental or other health plan, any life insurance plan, or any
other fringe benefit plan, currently or previously adopted, maintained by,
sponsored in whole or in part by, or contributed to by Seller or any ERISA
Affiliate thereof or under which Seller or any ERISA Affiliate thereof has any
Liability for the benefit of employees, retirees, dependents, spouses,
directors, or other beneficiaries, including but not limited to any such plan
that could result in a Material Liability to Seller, under Title IV of ERISA or
otherwise.
"ENVIRONMENTAL LITIGATION" means any Litigation in any court or before
or by any Governmental Authority or private arbitrator, mediator or tribunal
against Seller, the Business, the Gemmer Real Property or the Assets (including,
without limitation, notice or other communication written or oral 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 under, any Environmental Law.
"ENVIRONMENTAL LAWS" means all Laws relating to pollution or protection
of human health or 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 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 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
treatment, storage, recycling or other handling of any Hazardous Substance or
(iii) the placement of structures or materials into waters of the United States,
or (iv) the presence of any Hazardous Substance, including, but not limited to,
asbestos, in any building, structure or workplace or on any of the Goshen Real
Property or the Gemmer Real Property.
"ERISA" means Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any member of the "controlled group" as defined
in ERISA section 4001(a)(14) which includes, or at any time during the preceding
5 years included, the Seller.
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"FINANCIAL STATEMENTS" means the unaudited balance sheets of Seller as
of December 31, 1993, December 31, 1994, December 31, 1995, December 31, 1996,
December 31, 1997 and November 30, 1998 and the related statements of income and
cash flows for the periods then ended as compiled by McGladrey & Pullen, LLP
thereon.
"GAAP" means generally accepted accounting principles consistently
applied.
"GEMMER REAL PROPERTY" means collectively all the real property or
interests therein owned, leased, occupied, used or controlled by Mrs. Gemmer and
used in connection with the Business as of the date of this Agreement or
acquired prior to the Closing Date, together with (i) all rights, easements,
tenements, hereditaments, appurtenances, privileges, immunities, mineral rights
and other benefits belonging or appertaining thereto that run with said real
property and (ii) all right, title and interest, if any, of Mrs. Gemmer in and
to (A) any land lying in the bed of any street, road or 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 Gemmer Real Property includes, without
limitation, all buildings, structures, fixtures and other improvements located
on the land described in the preceding sentence.
"GEMMER REAL PROPERTY PURCHASE PRICE" means the total consideration to
be paid to Mrs. Gemmer by Purchaser for the purchase of the Gemmer Real Property
pursuant to this Agreement and which shall be paid in accordance with Section
1.02(b) of this Agreement.
"GOSHEN REAL PROPERTY" means collectively all the real property or
interests therein owned or controlled by Seller and used in connection with the
Business as of the date of this Agreement or acquired prior to the Closing Date,
together with (i) all rights, easements, tenements, hereditaments,
appurtenances, privileges, immunities, mineral rights and other benefits
belonging or appertaining thereto that run with said real property and (ii) all
right, title and interest, if any, of Seller in and to (A) any land lying in the
bed of any street, road or 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 Goshen Real Property includes, without limitation, all buildings,
structures, fixtures and other improvements located on the land described in the
preceding sentence.
"GOVERNMENTAL AUTHORITY" means any federal, state, county, local,
foreign or other governmental or public agency, instrumentality, commission,
authority, board or body.
"HAZARDOUS SUBSTANCE" means (i) any hazardous substance, hazardous
material, hazardous waste, regulated substance or toxic substance (as those
terms are defined by any applicable Environmental Laws) and (ii) any chemicals,
pollutants, contaminants, petroleum, petroleum products, or oil.
"INTELLECTUAL PROPERTY" means Seller's (i) U.S. and foreign patents and
pending patent applications together with any and all continuations,
continuations in part, divisions, reissues, extensions and renewals thereof,
(ii) trade secrets, know-how, inventions, designs, 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,
including but not limited to, the names "The Goshen News," "The Goshen Extra,"
"News
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<PAGE>
Printing Company" and any other names under which Seller has conducted its
business or sold products or advertising at any time, (iv) copyrights and any
registrations and applications therefor, (v) technology rights and licenses, and
(vi) all other intellectual property owned by, registered in the name of, or
used in the Business or in which Seller or its Business has any interest.
"INVENTORY" means all inventories of raw materials, supplies, purchased
parts to be incorporated in finished products, operating parts and supplies,
work-in-process, finished products, advertising materials, and other
inventories.
"IRS" means the Internal Revenue Service of the United States of
America.
"KNOWLEDGE" or "KNOWN" with respect to Seller or the Shareholder, means,
collectively, those facts the Shareholder, John Gemmer, and Jim Young, after due
inquiry knows or reasonably should have known.
"LAW" means any code, law, legal principal, order, ordinance,
regulation, rule, or statute of any Governmental Authority.
"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 to which any Person is a party or
that is or may be binding on any Person or its securities, property or business.
"LIEN" means any mortgage, lien, security interest, pledge,
hypothecation, encumbrance, restriction, reservation, encroachment,
infringement, easement, conditional sale agreement, title retention 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, governmental or regulatory investigation, governmental or regulatory
charge, litigation, notice (written or oral) by any Person alleging potential
Liability or requesting information relating to or affecting Seller in
connection with the Business, the Assets (including, without limitation,
Contracts relating to Seller), the Gemmer Real Property 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
-37-
<PAGE>
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 (A) any
Material adverse change in or effect on (i) the business, operations, assets,
Liabilities, condition (financial or otherwise), results of operations, value or
prospects of such Person, (ii) the ability of such Person to consummate the
transactions contemplated by this Agreement or any of the Other Agreements to
which it is 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 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 or (B) any
adverse change in or effect on the assets, liabilities, results of operations of
such Person that results in a Loss in excess of $50,000.
"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.
"OTHER AGREEMENTS" means the agreements, documents, assignments and
instruments to be executed and delivered by Seller, Mr. Gemmer or the
Shareholder pursuant to this Agreement.
"PERMITTED LIENS" means (i) Liens for current real property Taxes not
yet due and payable, (ii) Liens that do not affect the value or use of any
parcel of the Goshen Real Property or any parcel of the Gemmer Real Property,
and (iii), Liens, if any, relating to Purchaser's financing to which the Assets
are contemplated to be subject at Closing.
"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, limited liability partnership, trust, or any person acting in a
representative capacity.
"PERSONAL PROPERTY" means collectively all of the personal property or
interests therein owned, leased, used or controlled by Seller, including,
without limitation, machinery, tools, equipment (including office equipment and
supplies), furniture, furnishings, fixtures, vehicles, leasehold improvements,
all other tangible personal property other than Inventory (which is specifically
excluded from the definition of Personal Property).
"PURCHASE PRICE" means the total consideration to be paid to Seller and
to Mrs. Gemmer by Purchaser for the purchase of the Assets and the Gemmer Real
Property pursuant to this Agreement and which shall be paid in accordance with
Section 1.03 of this Agreement.
"RELATED PARTY" or "RELATED PERSON" means, with regard to any natural
Person, his or her 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.
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<PAGE>
"RETAINED ASSETS" means all cash on hand and in banks, cash investments,
prepaid expenses (including the deposit made to PAGE under Seller's Contract
with PAGE for newsprint and including cash in postage meter machine and postage
accounts for business reply and second class postage), prepaid insurance
premiums, cash value of life insurance policy on John Gemmer (all of the
foregoing as of the close of business on February 28, 1999), 1999 GMC Yukon, the
Computer Concepts personal computer with Pentium processor and Okidata printer
4W located at the home of John and Jane Gemmer, and four (4) season tickets to
Notre Dame home football games.
"RETAINED LIABILITIES" means any Liability of Seller (or with respect to
the Gemmer Real Property, Mrs. Gemmer) which is not an Assumed Liability,
including, without limitation, the following:
(i) all Accounts Payable;
(ii) any Liabilities for any Taxes of Seller or the
Shareholder;
(iii) any Liabilities relating to current or former
assets of Seller or the Shareholder not being
acquired by Purchaser pursuant to this Agreement;
(iv) any Contract of Seller not validly assigned to
Purchaser;
(v) any Liability incurred by Seller as a result of any
Default by Seller under any provision of this
Agreement or the Other Agreements;
(vi) any Liability of Seller for severance payments or
other severance obligations relating to any Person
employed by Seller on or before the Closing Date;
(vii) any Liability of Seller to pay bonuses or other
compensation to Affiliates of Seller on account of
the transactions contemplated by this Agreement;
(viii) any Undisclosed Liability;
(ix) any Liability of Seller, of any nature whatsoever,
to any current or former shareholder or Affiliate
of Seller;
(x) any Liability (including without limitation, any
Liability relating to any Litigation) relating to,
based upon, or arising out of (A) the conduct of
the Business or the ownership of the Assets prior
to the Closing Date or (B) any act, omission,
transaction, circumstance, sale of goods or
services, state of facts or other condition that
occurred or existed prior to the Closing Date,
whether or not then Known, due or payable and
whether or not disclosed in this Agreement or the
Other Agreements;
(xi) any Liability that Purchaser may incur in
connection with any Litigation brought against
Purchaser under the Worker Adjustment and
Retraining Notification Act or any similar Law that
relates to actions taken by Seller with regard to
any employees or any site of employment;
(xii) any Liability of Seller under or relating to any
Employee Benefit Plan;
(xiii) any Liability to or Lien of any Third Party
pursuant to the bulk sales or fraudulent conveyance
or other Laws of any jurisdiction that may be
asserted against any of the Assets (whether
asserted against Seller, the Shareholder, the
Assets or Purchaser) or the Gemmer Real Property;
and
(xiv) any claim by any broker, finder or other Person
employed or allegedly employed by Seller or the
Shareholder in connection with the transactions
contemplated by this Agreement.
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<PAGE>
"SUBSIDIARY" means any Person of which at least a majority of the
securities or interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such Person, is at the time directly or indirectly
owned or controlled by another Person, or by any one or more Subsidiaries of
such other Person, or by such other Person and one or more of its Subsidiaries
or Affiliates.
"TAX" or "TAXES" means any federal, state, county, local, foreign and
other taxes, assessments, charges, fees, and impositions for which Purchaser
could have successor liability, including, without limitation, obligations to
withhold such amounts and including interest and penalties thereon or with
respect thereto, whether disputed or not.
"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 Gray,
Purchaser, Seller, Mr. Gemmer or the Shareholder or an Affiliate of Gray,
Purchaser, Seller, Mr. Gemmer or the Shareholder.
"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 XI
MISCELLANEOUS
11.01 NOTICES. All notices and other communications hereunder 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. The address for such notices shall be to
the address as set forth below each party's signature to this Agreement. Any
party hereto may change its address specified for notices herein by designating
a new address by notice in accordance with this Section 11.01.
11.02 ENTIRE AGREEMENT, MODIFICATIONS, AMENDMENTS AND WAIVERS. This
Agreement, the Schedules, the Exhibits and the Other Agreements constitute the
entire agreement with respect to the subject matter hereof and thereof and
supersede all prior and contemporaneous agreements and understandings of the
parties with respect thereto, including without limitation, that certain letter
of intent from Gray dated February 1, 1999. No change, alternation, modification
or addition to this Agreement shall be effective unless in writing and properly
executed by the parties hereto.
11.03 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 hereof cannot be
assigned by any party without the prior written consent of the other parties
hereto; provided, however, that Gray and Purchaser may assign this Agreement to
their lenders as collateral security.
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<PAGE>
11.04 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 meaning of this Agreement.
Except as specifically provided herein, all references in this Agreement to
"Section" or "Article" shall be deemed to be references to a Section or Article
of this Agreement.
11.05 PRONOUNS. All pronouns used herein shall be deemed to refer to the
masculine, feminine or neuter gender as the context requires.
11.06 GOVERNING LAW. This Agreement shall be controlled, construed and
enforced in accordance with the substantive Laws of the State of Indiana,
without respect to the Laws related to choice or conflicts of Laws.
11.07 SEVERABILITY. Should any term or provision of this Agreement be
held 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.
11.08 REMEDIES NOT EXCLUSIVE. 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.
11.09 COUNTERPARTS AND INTERPRETATIONS. 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.
11.10 ATTORNEYS' FEES. In the event of any dispute between the parties
hereto in connection with the enforcement or interpretation of any terms of this
Agreement, the prevailing party in such dispute shall be entitled to recover
his, her or its reasonable attorneys' fees and costs.
[SIGNATURES ON FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, Gray, Purchaser, Seller, Mrs. Gemmer and Mr.
Gemmer have duly executed this Agreement under seal as of the date first above
written.
GRAY:
Gray Communications Systems, Inc.
Attest: By: /s/ Thomas J. Stultz
------------------------------------
Title: Vice President
____________________ Address: 4370 Peachtree Road, NE
Its: ________________ Atlanta, Georgia 30319-3099
Attention: Mr. James C. Ryan
Facsimile: 404-261-9607
[CORPORATE SEAL]
PURCHASER:
Gray Communications of Indiana, Inc.
Attest: By: /s/ Thomas J. Stultz
------------------------------------
Title: President
____________________ Address: 4370 Peachtree Road, NE
Its: ________________ Atlanta, Georgia 30319-3099
Attention: Mr. James C. Ryan
Facsimile: 404-261-9607
[CORPORATE SEAL]
In the case of notice to Gray or Purchaser,
with a copy to:
Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: Stephen A. Opler, Esq.
Facsimile: 404-881-4777
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<PAGE>
SELLER:
NEWS PRINTING COMPANY, INC.
Attest: By:/s/ John W. Gemmer
------------------------------------
Title: President
/s/ Jane H. Gemmer Address: 1905 Russet Avenue
- ------------------------ Goshen, Indiana 46528
Its: Secretary
------------------
Facsimile: (219)
-------------------
[CORPORATE SEAL]
JOHN GEMMER:
/s/ John Gemmer (SEAL)
--------------------------------------
John Gemmer
Address: 1905 Russet Avenue
Goshen, Indiana 46528
Facsimile: (219)
------------------------
THE SHAREHOLDER:
/s/ Jane H. Gemmer (SEAL)
--------------------------------------
Jane Gemmer
Address: 1905 Russet Avenue
Goshen, Indiana 46528
Facsimile: (219)
------------------------
In the case of notice to Seller or either of
the Gemmers, with a copy to:
Herbert A. Spitzer, Jr., Esq.
Browne Spitzer Herriman Stephenson Holderead
& Musser
122 East Fourth Street
P. O. Box 927
Marion, Indiana 46952
Facsimile: 765-662-0574
-43-
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
Gray Communications of Indiana, Inc. Georgia
WEAU-TV, Inc. Georgia
KOLN/KGIN, Inc. Delaware
WVLT-TV, Inc. Georgia
WRDW-TV, Inc. Georgia
WITN-TV, Inc Georgia
Gray Kentucky Television, Inc. Georgia
WEAU Licensee Corp. Delaware
KOLN/KGIN License, Inc. 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
Gray MidAmerica Holdings, Inc. Delaware
KTVE Inc. Arkansas
Porta-Phone Licensee Corp. Delaware
Gray Transportation Company, Inc. Georgia
Gray Real Estate and Development Co. Georgia
Gray Florida Holdings, Inc. Georgia
Lynqx Communications, Inc. Louisiana
</TABLE>
229
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 26, 1999,
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, 1998.
Ernst & Young LLP
Atlanta, Georgia
March 17, 1999
230
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1998 AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF GRAY COMMUNICATION
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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,886,723
<SECURITIES> 0
<RECEIVABLES> 24,071,119
<ALLOWANCES> 1,212,000
<INVENTORY> 1,191,284
<CURRENT-ASSETS> 31,630,027
<PP&E> 80,234,968
<DEPRECIATION> 28,463,460
<TOTAL-ASSETS> 468,974,422
<CURRENT-LIABILITIES> 21,381,069
<BONDS> 270,225,255
0
13,500,000
<COMMON> 67,465,269
<OTHER-SE> 45,737,601
<TOTAL-LIABILITY-AND-EQUITY> 468,974,422
<SALES> 128,889,522
<TOTAL-REVENUES> 128,889,522
<CGS> 0
<TOTAL-COSTS> 103,962,305
<OTHER-EXPENSES> 241,522
<LOSS-PROVISION> 831,000
<INTEREST-EXPENSE> 25,454,476
<INCOME-PRETAX> 69,803,347
<INCOME-TAX> 28,143,981
<INCOME-CONTINUING> 41,659,366
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,659,366
<EPS-PRIMARY> 3.38
<EPS-DILUTED> 3.25
<FN>
Includes pre-tax gain recognized on the exchange of WALB, one of the Company's
NBC affiliated television stations, of approximately $70.6 million.
</FN>
</TABLE>
