UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________ .
COMMISSION FILE NUMBER 1-13796
GRAY COMMUNICATIONS SYSTEMS, INC.
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-0285030
- ------------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4370 PEACHTREE ROAD, NE, ATLANTA, GEORGIA 30319
-----------------------------------------------------------
(Address of principal executive offices)
(Zip code)
(404) 504-9828
-----------------------------------------------------------
(Registrant's telephone number, including area code)
126 N. WASHINGTON ST., ALBANY, GEORGIA 31701
-----------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report.)
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 periods 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
CLASS A COMMON STOCK, (NO PAR VALUE) CLASS B COMMON STOCK, (NO PAR VALUE)
- --------------------------------------- ------------------------------------
6,832,042 SHARES AS OF MAY 12, 1999 5,132,323 SHARES AS OF MAY 12, 1999
<PAGE>
INDEX
GRAY COMMUNICATIONS SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets (unaudited) - March 31,
1999 and December 31, 1998
Condensed consolidated statements of operations (unaudited) - Three
months ended March 31, 1999 and 1998;
Condensed consolidated statement of stockholders' equity
(unaudited) - Three months ended March 31, 1999
Condensed consolidated statements of cash flows (unaudited) - Three
months ended March 31, 1999 and 1998
Notes to condensed consolidated financial statements (unaudited)
- March 31, 1999
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, DECEMBER 31,
1999 1998
---------------- ---------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 2,312,580 $ 1,886,723
Trade accounts receivable, less allowance for doubtful
accounts of $1,187,000 and $1,212,000, respectively 21,040,174 22,859,119
Recoverable income taxes 1,752,033 1,725,535
Inventories 1,111,054 1,191,284
Current portion of program broadcast rights 2,223,423 3,226,359
Other current assets 1,063,613 741,007
----------- -----------
Total current assets 29,502,877 31,630,027
PROPERTY AND EQUIPMENT:
Land 2,456,021 2,196,021
Buildings and improvements 13,531,260 12,812,112
Equipment 69,045,300 65,226,835
----------- -----------
85,032,581 80,234,968
Allowance for depreciation (31,182,233) (28,463,460)
----------- -----------
53,850,348 51,771,508
OTHER ASSETS:
Deferred loan costs 7,950,304 8,235,432
Goodwill and other intangibles 387,595,791 376,014,972
Other 1,346,897 1,322,483
----------- -----------
396,892,992 385,572,887
----------- -----------
$480,246,217 $468,974,422
============ ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
<TABLE>
<CAPTION>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (CONTINUED)
MARCH 31, DECEMBER 31,
1999 1998
---------------- ---------------
<S> <C> <C>
CURRENT LIABILITIES:
Trade accounts payable (includes $80,000 and $880,000
payable to Bull Run Corporation, respectively) $ 1,370,778 $ 2,540,770
Employee compensation and benefits 4,545,098 5,195,777
Accrued expenses 1,840,505 1,903,226
Accrued interest 9,754,956 5,608,134
Current portion of program broadcast obligations 2,083,155 3,070,598
Deferred revenue 3,229,145 2,632,564
Current portion of long-term debt 380,000 430,000
----------- -----------
Total current liabilities 23,203,637 21,381,069
LONG-TERM DEBT 282,882,368 270,225,255
OTHER LONG-TERM LIABILITIES:
Program broadcast obligations, less current portion 572,930 735,594
Supplemental employee benefits 1,076,761 1,128,204
Deferred income taxes 43,565,642 44,147,642
Other acquisition related liabilities 4,406,937 4,653,788
----------- -----------
49,622,270 50,665,228
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Serial Preferred Stock, no par value; authorized
20,000,000 shares; issued and outstanding 1,350 shares,
respectively ($13,500,000 aggregate liquidation value) 13,500,000 13,500,000
Class A Common Stock, no par value; authorized 15,000,000
shares; issued 7,961,574 shares, respectively 10,683,709 10,683,709
Class B Common Stock, no par value; authorized 15,000,000
shares; issued 5,273,046 shares, respectively 66,822,986 66,792,385
Retained earnings 43,684,818 45,737,601
----------- -----------
134,691,513 136,713,695
Treasury Stock at cost, Class A Common, 1,129,532 shares,
respectively (8,578,682) (8,578,682)
Treasury Stock at cost, Class B Common, 144,590 and 135,080
shares, respectively (1,574,889) (1,432,143)
----------- -----------
124,537,942 126,702,870
----------- -----------
$480,246,217 $468,974,422
============ ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
<TABLE>
<CAPTION>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1999 1998
--------------- --------------
OPERATING REVENUES
<S> <C> <C>
Broadcasting (net of agency commissions) $21,168,040 $19,511,064
Publishing 8,022,053 6,537,335
Paging 2,201,977 1,933,466
------------- -------------
31,392,070 27,981,865
EXPENSES
Broadcasting 12,988,524 12,118,387
Publishing 6,354,622 5,457,505
Paging 1,513,645 1,255,605
Corporate and administrative 746,506 660,480
Depreciation and amortization 5,455,817 3,621,584
------------- -------------
27,059,114 23,113,561
------------- -------------
4,332,956 4,868,304
Miscellaneous income (expense) 421,748 (241,067)
------------- -------------
4,754,704 4,627,237
Interest expense 6,770,163 5,927,481
------------- -------------
LOSS BEFORE INCOME TAXES (2,015,459) (1,300,244)
Income tax expense (benefit) (455,000) 182,563
------------- -------------
NET LOSS (1,560,459) (1,482,807)
Preferred Dividends 252,501 358,998
------------- -------------
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $ (1,812,960) $ (1,841,805)
============ ============
AVERAGE OUTSTANDING COMMON SHARES:
Basic 11,954,590 11,880,642
Diluted 11,954,590 11,880,642
BASIC LOSS PER COMMON SHARE:
Net loss available to common
stockholders $ (0.15) $ (0.16)
====== ======
DILUTED LOSS PER COMMON SHARE:
Net loss available to common
stockholders $ (0.15) $ (0.16)
====== ======
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
<TABLE>
<CAPTION>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
Preferred Class A Class B
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, 1998 1,350 $ 13,500,000 7,961,574 $ 10,683,709 5,273,046 $ 66,792,385 $ 45,737,601
Net loss for the
three months ended
March 31, 1999 (1,560,459)
Common stock dividends ($.02
per share) (239,823)
Preferred stock dividends (252,501)
Issuance of treasury stock:
401 (k) plan 30,601
Purchase of Class B
Common Stock
----- ------------ --------- ------------ --------- ------------ ------------
Balance at March 31, 1999 1,350 $ 13,500,000 7,961,574 $ 10,683,709 5,273,046 $ 66,822,986 $ 43,684,818
===== ============ ========= ============ ========= ============ ============
<CAPTION>
Class A Class B
Treasury Stock Treasury Stock
-------------- --------------
Shares Amount Shares Amount Total
------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 (1,129,532) $(8,578,682) (135,080) $ (1,432,143) $ 126,702,870
Net loss for the
three months ended
March 31, 1999 (1,560,459)
Common stock dividends ($.02
per share) (239,823)
Preferred stock dividends (252,501)
Issuance of treasury stock:
401 (k) plan 10,490 114,258 144,859
Purchase of Class B
Common Stock (20,000) (257,004) (257,004)
---------- ----------- -------- ------------ -------------
Balance at March 31, 1999 (1,129,532) $(8,578,682) (144,590) $ (1,574,889) $ 124,537,942
========== =========== ======== ============ =============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
<TABLE>
<CAPTION>
GRAY COMMUNICATIONS SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1999 1998
-------------- ---------------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (1,560,459) $ (1,482,807)
Items which did not use (provide) cash:
Depreciation 2,832,799 1,827,823
Amortization of intangible assets 2,623,018 1,793,761
Amortization of deferred loan costs 285,128 271,174
Amortization of program broadcast rights 1,202,465 940,319
Payments for program broadcast rights (1,190,132) (995,668)
Supplemental employee benefits (51,443) (74,851)
Common Stock contributed to 401(k) Plan 144,859 83,840
Deferred income taxes (582,000) (102,119)
(Gain) loss on disposal of assets (378,097) 260,930
Changes in operating assets and liabilities:
Receivables, inventories and other current assets 2,029,673 272,743
Accounts payable and other current liabilities 2,513,733 4,850,232
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,869,544 7,645,377
INVESTING ACTIVITIES
Purchase of newspaper business (16,520,701) -0-
Purchase of FCC license -0- (829,600)
Purchases of property and equipment (2,436,979) (2,656,786)
Deferred acquisition costs (66,558) (93,972)
Payments on purchase liabilities (404,756) (210,640)
Other 395,023 (355,839)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (19,033,971) (4,146,837)
FINANCING ACTIVITIES
Dividends paid (759,825) (358,607)
Class A Common Stock transactions -0- 46,843
Class B Common Stock transactions (257,004) 166,550
Proceeds from sale of treasury shares -0- 917,938
Proceeds from borrowings of long-term debt 23,700,000 500,000
Payments on long-term debt (11,092,887) (6,087,555)
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 11,590,284 (4,814,831)
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 425,857 (1,316,291)
Cash and cash equivalents at beginning of period 1,886,723 2,367,300
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,312,580 $1,051,009
=========== ==========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Gray Communications Systems, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
NOTE B--BUSINESS ACQUISITIONS
On April 14, 1999, the Company announced that it had entered into
agreements to acquire the CBS affiliates KWTX-TV ("KWTX") located in Waco, Texas
and KBTX-TV ("KBTX"), a satellite station of KWTX located in Bryan, Texas, each
serving the 95th largest television market of Waco-Temple-Bryan, Texas (as
ranked by Nielsen Media Research). In addition, the Company has agreed to
acquire KXII-TV ("KXII"), which is the CBS affiliate serving Sherman, Texas and
Ada, Oklahoma, the 161st largest television market (as ranked by Nielsen Media
Research). These transactions are referred to herein as the "Texas Acquisition."
Aggregate consideration for the Texas Acquisition will be approximately $139
million before payment for certain net working capital amounts and other fees
and expenses. The Company will acquire KWTX and KBTX in merger transactions with
the KWTX and KBTX shareholders receiving a combination of cash and the Company's
Class B Common Stock for their shares. The Company will acquire KXII in an all
cash transaction. The Texas Acquisition is subject to a number of conditions,
including the approval by the shareholders of the Company. In addition, the
Texas Acquisition is subject to certain government approvals, including the
approval of the Federal Communications Commission.
NOTE C--LONG-TERM DEBT
The Company's bank loan agreement (the "Senior Credit Facility") provides
$200.0 million of committed credit and $100.0 million of uncommitted credit. The
Company can borrow the $100.0 million in uncommitted available credit only after
approval of the bank consortium. At March 31, 1999, the balance outstanding and
the balance available under the $200.0 million committed portion of the Senior
Credit Facility were $122.2 million and $77.8 million, respectively, and the
interest rate on the balance outstanding was 6.91%. At March 31, 1999, the bank
consortium had not committed nor had the Company borrowed any funds under the
uncommitted $100.0 million portion of the Senior Credit Facility.
NOTE D--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 March 31, 1999. The publishing
segment operates four 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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1999 1998
----------------- ----------------
(IN THOUSANDS)
Operating revenues:
<S> <C> <C>
Broadcasting $ 21,168 $ 19,511
Publishing 8,022 6,537
Paging 2,202 1,934
------------ -----------
$ 31,392 $ 27,982
========== =========
</TABLE>
8
<PAGE>
GRAY COMMUNICATIONS SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
NOTE D--INFORMATION ON BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1999 1998
----------------- ----------------
(IN THOUSANDS)
Operating income:
<S> <C> <C>
Broadcasting $ 3,120 $ 3,862
Publishing 1,032 785
Paging 181 221
---------- -----------
Total operating income 4,333 4,868
Miscellaneous income and (expense), net 422 (241)
Interest expense (6,770) (5,927)
---------- ----------
Loss before income taxes $ (2,015) $ (1,300)
========== ==========
Operating income is total operating revenue less operating expenses,
excluding miscellaneous income and expense (net) and interest. Corporate and
administrative expenses are allocated to operating income based on net segment
revenues.
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1999 1998
----------------- ----------------
(IN THOUSANDS)
Media Cash Flow:
Broadcasting $ 8,297 $ 7,428
Publishing 1,690 1,097
Paging 699 687
----------- -----------
$ 10,686 $ 9,212
========= ==========
Media Cash Flow reconciliation:
Operating income $ 4,333 $ 4,868
Add:
Amortization of program license rights 1,202 940
Depreciation and amortization 5,456 3,622
Corporate overhead 747 661
Non-cash compensation and contributions to the
Company's 401(k) plan, paid in common stock 138 117
Less:
Payments for program license liabilities (1,190) (996)
----------- -----------
Media Cash Flow $ 10,686 $ 9,212
=========== ==========
</TABLE>
"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 unaudited Condensed
Consolidated Financial Statements. Media Cash Flow 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.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
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 unaudited Condensed Consolidated Financial
Statements and notes thereto included elsewhere herein.
On March 1, 1999, the Company acquired substantially all of the assets of
THE GOSHEN NEWS (the "Goshen Acquisition") for aggregate cash consideration of
approximately $16.7 million. THE GOSHEN NEWS is a 17,000 circulation afternoon
newspaper serving Goshen, Indiana and surrounding areas. The Company financed
the acquisition through its bank loan agreement (the "Senior Credit Facility").
On July 31, 1998, the Company completed the purchase of all of the
outstanding capital stock of Busse Broadcasting Corporation ("Busse"). The
purchase price of approximately $120.5 million included associated transaction
costs of $2.9 million and Busse's cash and cash equivalents of $5.6 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. As a
result of these transactions, the Company added the following television
stations to its existing broadcasting 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 Federal Communication Commission's (the "FCC")
requirement for the Company to divest itself of WALB.
The Company derives its revenues from its television broadcasting,
publishing and paging operations. The operating revenues of the Company's
television stations are derived primarily 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 retail advertising, circulation
and classified revenue. Paging revenue is derived primarily from the sale and
leasing of pagers and paging services.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
INTRODUCTION (CONTINUED)
Set forth below, for the periods indicated, is certain information
concerning the relative contributions of the Company's television broadcasting,
publishing and paging operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------------------
1999 1998
---------------------------------- ---------------------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
---------------- -------------- ---------------- -------------
(DOLLARS IN THOUSANDS)
TELEVISION BROADCASTING
<S> <C> <C> <C> <C>
Revenues $21,168 67.4% $19,511 69.7%
Operating income (1) 3,637 71.3 4,336 78.2
PUBLISHING
Revenues $ 8,022 25.6% $ 6,537 23.4%
Operating income (1) 1,228 24.1 944 17.0
PAGING
Revenues $ 2,202 7.0% $ 1,934 6.9%
Operating income (1) 235 4.6 268 4.8
</TABLE>
(1) Represents income before miscellaneous income (expense), allocation of
corporate overhead, interest expense and income taxes.
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. 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 59.0% of the gross revenues of the Company's
television stations for the three months ended March 31, 1999 were generated
from local advertising, which is sold primarily by a station's sales staff
directly to local accounts, and the remainder represented primarily 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. 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 and
other political advocacy groups, 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.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
INTRODUCTION (CONTINUED)
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. Of the Company's
pagers currently in service, approximately 75% are owned and maintained by
subscribers with the remainder being leased. The terms of the lease contracts
are month-to-month, three months, nine 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 variability in its newsprint costs
in recent years.
MEDIA CASH FLOW
The following table sets forth certain operating data for the broadcasting,
publishing and paging operations for the three months ended March 31, 1999 and
1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1999 1998
----------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Operating income $ 4,333 $ 4,868
Add:
Amortization of program license rights 1,202 940
Depreciation and amortization 5,456 3,622
Corporate overhead 747 661
Non-cash compensation and contributions to the
Company's 401(k) plan, paid in common stock 138 117
Less:
Payments for program license liabilities (1,190) (996)
----------- ----------
Media Cash Flow (1) $ 10,686 $ 9,212
=========== ==========
</TABLE>
(1) Of Media Cash Flow for the three months ended March 31, 1999 and 1998,
$8.3 million and $7.4 million, respectively, was attributable to the
Company's broadcasting operations; $1.7 million and $1.1 million,
respectively, was attributable to the Company's publishing operations;
and $699,000 and $687,000, respectively, was attributable to the
Company's paging operations
"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 unaudited Condensed
Consolidated Financial Statements. Media Cash Flow 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.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
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 three months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1999 1998
----------------- ----------------
(IN THOUSANDS)
Cash flows provided by (used in)
<S> <C> <C>
Operating activities $ 7,870 $ 7,645
Investing activities (19,034) (4,147)
Financing activities 11,590 (4,815)
</TABLE>
BROADCASTING, PUBLISHING AND PAGING REVENUES
Set forth below are the principal types of broadcasting, publishing and
paging revenues earned by the Company's broadcasting, publishing and paging
operations for the periods indicated and the percentage contribution of each to
the Company's total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------
1999 1998
------------------------------ ------------------------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
------------- ------------- ------------------- --------------
(DOLLARS IN THOUSANDS)
BROADCASTING
NET REVENUES:
<S> <C> <C> <C> <C>
Local $12,524 39.9% $10,898 38.9%
National 5,503 17.5 5,570 19.9
Network compensation 1,396 4.4 1,215 4.3
Political 49 0.2 193 0.7
Production and other 1,696 5.4 1,635 5.9
------- ------- ------- -------
$21,168 67.4% $19,511 69.7%
======= ======= ======= =======
PUBLISHING
NET REVENUES:
Retail $ 3,682 11.7% $ 2,977 10.6%
Classified 2,554 8.1 2,085 7.5
Circulation 1,502 4.8 1,279 4.6
Other 284 1.0 196 0.7
------- ------- ------- -------
$ 8,022 25.6% $ 6,537 23.4%
======= ======= ======= =======
PAGING
NET REVENUES:
Paging lease, sales and service $ 2,202 7.0% $ 1,934 6.9%
======= ======= ======= =======
TOTAL $31,392 100.0% $27,982 100.0%
======= ======= ======= =======
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUES. Total revenues for the three months ended March 31, 1999
increased $3.4 million, or 12.2%, over the same period of the prior year, to
$31.4 million from $28.0 million. This increase was primarily attributable to
the (i) revenues resulting from the acquisition of KOLN, KGIN and WEAU (the
"Busse Stations") which were purchased on July 31, 1998, (ii) increased
publishing revenues and (iii) increased paging revenues, offset by a decrease in
revenues due to the disposition on July 31, 1998 of WALB.
Broadcasting revenues increased $1.7 million, or 8.5%, over the same period
of the prior year, to $21.2 million from $19.5 million. The acquisition of the
Busse Stations accounted for an increase of $4.5 million. This increase was
partially offset by a decrease in revenues of $2.4 million resulting from the
sale of WALB and by a decrease in political advertising revenue. On a pro forma
basis, assuming the acquisition of the Busse Stations had been effective on
January 1, 1998, broadcasting revenues for the Busse Stations for the three
months ended March 31, 1999 decreased $191,000, or 4.0%, when compared to the
same period of the prior year to $4.5 million from $4.7 million. Broadcasting
revenues, excluding the results of the Busse Stations and WALB, decreased
$456,000, or 2.7%, over the same period of the prior year, to $16.6 million
from $17.1 million. This decrease was due primarily to a decrease in national
advertising revenue and political advertising revenue of $520,000 and $188,000,
respectively, partially offset by an increase in local advertising revenue of
$231,000. This decrease in nonpolitical advertising revenue was due primarily to
an absence of Olympic advertising revenue during the first quarter of 1999.
Publishing revenues increased $1.5 million, or 22.7%, over the same period
of the prior year, to $8.0 million from $6.5 million. The increase in publishing
revenues was due primarily to increased revenues from the Company's existing
publishing operations and from the revenues provided by THE GOSHEN NEWS which
was acquired on March 1, 1999. Revenues from the Company's existing publishing
operations increased $953,000, or 14.6%, over the same period of the prior year,
to $7.5 million from $6.5 million. The primary components of the $953,000
increase in revenues from existing operations were increases in retail
advertising, classified advertising and circulation revenue of $464,000,
$353,000 and $121,000, respectively. THE GOSHEN NEWS provided revenues of
$533,000 from the date of its purchase through March 31, 1999.
Paging revenues increased $268,000, or 13.9%, over the same period of the
prior year, to $2.2 million from $1.9 million. The increase was attributable
primarily to an increase in the number of pagers in service. The Company had
approximately 87,000 pagers and 73,000 pagers in service at March 31, 1999 and
1998, respectively.
OPERATING EXPENSES. Operating expenses for the three months ended March 31,
1999 increased $3.9 million, or 17.1%, over the same period of the prior year,
to $27.1 million from $23.1 million, due primarily to increased broadcasting
expenses, publishing expenses, paging expenses, depreciation expense and
amortization expense.
Broadcasting expenses increased $870,000, or 7.2%, over the three months
ended March 31, 1999, to $13.0 million from $12.1 million. The acquisition of
the Busse Stations accounted for an increase of $2.3 million. This increase was
partially offset by a decrease in expenses of $1.1 million resulting from the
sale of WALB. On a pro forma basis, assuming the acquisition of the Busse
Stations had been effective on January 1, 1998, broadcasting expenses of $2.3
million for the Busse Stations for the three months ended March 31, 1999 were
consistent with those of the prior year. Broadcasting expenses, excluding the
results of the Busse Stations and WALB, decreased $340,000, or 3.1%, to $10.7
million from $11.1 million. This decrease was due primarily to decreases in
payroll and other expenses of $294,000 and $165,000, respectively, partially
offset by an increase in syndicated film costs of $119,000.
Publishing expenses for the three months ended March 31, 1999 increased
$897,000, or 16.4%, from the same period of the prior year, to $6.4 million from
$5.5 million. The increase in publishing expenses was due primarily to increased
expenses from the Company's existing publishing operations and from the expenses
of THE GOSHEN NEWS. Expenses from the Company's existing publishing operations
increased $551,000, or 10.1%, over the same period of the prior year, to $6.0
million from $5.5 million. The increase in expenses at the Company's existing
publishing operations was due primarily to payroll and transportation costs
associated with increased circulation at
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
(CONTINUED)
one of the Company's daily newspapers. THE GOSHEN NEWS recorded expenses of
$346,000 for the three months ended March 31, 1999.
Paging expenses increased $258,000 or 20.5%, over the same period of the
prior year, to $1.5 million from $1.3 million. The increase was attributable
primarily to an increase in the number of pagers in service.
Corporate and administrative expenses increased $87,000, or 13.2%, to
$747,000 for the three months ended March 31, 1999 from $660,000 for the three
months ended March 31, 1998. The increase was due primarily to increased payroll
expense and other operating expenses.
Depreciation of property and equipment and amortization of intangible
assets was $5.5 million for the three months ended March 31, 1999, as compared
to $3.6 million for the same period of the prior year, an increase of $1.8
million, or 50.7%. This increase was primarily the result of higher depreciation
and amortization costs related to the acquisition of the Busse Stations and THE
GOSHEN NEWS.
MISCELLANEOUS INCOME (EXPENSE). Miscellaneous income for the three months
ended March 31, 1999 was $422,000 and miscellaneous expense for the three months
ended March 31, 1998 was $241,000. The change in miscellaneous income (expense)
of $663,000 was due primarily to the gain of $450,000 recognized upon the sale
of one of the Company's weekly advertising publications in February 1999.
INTEREST EXPENSE. Interest expense increased $843,000, or 14.2%, to $6.8
million for the three months ended March 31, 1999 from $5.9 million for the
three months ended March 31, 1998. This increase was attributable primarily to
increased levels of debt resulting from the financing of the acquisitions of the
Busse Stations and THE GOSHEN NEWS.
INCOME TAX EXPENSE (BENEFIT). Income tax benefit for the three months ended
March 31, 1999 was $455,000 and income tax expense for the three months ended
March 31, 1998 was $183,000. The decrease in income tax expense of $638,000 was
due primarily to the utilization of benefits from available net operating loss
carrybacks in 1999 that were not available to the Company in 1998.
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS. Net loss available to common
stockholders of the Company was $1.8 million for the three months ended March
31, 1999 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Senior Credit Facility provides $200.0 million of committed credit and
$100.0 million of uncommitted credit. The Company can borrow the $100.0 million
in uncommitted available credit only after approval of the bank consortium. At
March 31, 1999, the balance outstanding and the balance available under the
$200.0 million portion of the Senior Credit Facility were $122.2 million and
$77.8 million, respectively, and the interest rate on the balance outstanding
was 6.91%. At March 31, 1999, the bank consortium had not committed nor had the
Company borrowed any funds under the uncommitted $100.0 million portion of the
Senior Credit Facility.
The Company's working capital was $6.3 million and $10.2 million at March
31, 1999 and December 31, 1998, respectively. The Company's cash provided from
operations was $7.9 million and $7.6 million for the three months ended March
31, 1999 and 1998, respectively.
The Company's cash used in investing activities was $19.0 million and $4.1
million for the three months ended March 31, 1999 and 1998, respectively. The
increased usage of $14.9 million from 1998 to 1999 was primarily due to the
Goshen Acquisition.
The Company's cash provided by financing activities was $11.6 million for
the three months ended March 31, 1999 and the cash used in financing activities
was $4.8 million for the first quarter of the prior year. The increase
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
in cash provided by financing activities resulted primarily from increased
borrowings on long term debt to fund the Goshen Acquisition.
During the three months ended March 31, 1999, the Company issued 10,490
shares of Class B Common Stock from treasury to fulfill obligations under its
employee benefit plan. The Company also purchased 20,000 shares of Class B
Common Stock for $257,004 during the three months ended March 31, 1999.
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. During the three months
ended March 31, 1999, the Company paid $1.2 million for such program
broadcast rights.
The Company and its subsidiaries file a consolidated federal income tax
return and such state or local tax returns as are required. As of March 31,
1999, the Company anticipates that it will generate taxable operating losses for
the foreseeable future.
On March 1, 1999, the Company acquired substantially all of the assets of
THE GOSHEN NEWS for aggregate cash consideration of approximately $16.7 million.
THE GOSHEN NEWS is a 17,000 circulation afternoon newspaper serving Goshen,
Indiana and surrounding areas. The Company financed the acquisition through its
Senior Credit Facility.
On April 14, 1999, the Company announced that it had entered into
agreements to acquire the CBS affiliates KWTX-TV ("KWTX") located in Waco, Texas
and KBTX-TV ("KBTX"), a satellite station of KWTX located in Bryan, Texas, each
serving the 95th largest television market of Waco-Temple-Bryan, Texas (as
ranked by Nielsen Media Research). In addition, the Company has agreed to
acquire KXII-TV ("KXII"), which is the CBS affiliate serving Sherman, Texas and
Ada, Oklahoma, the 161st largest television market (as ranked by Nielsen Media
Research). These transactions are referred to herein as the "Texas Acquisition."
Aggregate consideration for the Texas Acquisition will be approximately $139
million before payment for certain net working capital amounts and other fees
and expenses. The aggregate consideration for KWTX and KBTX will be $97.5
million before consideration for certain net working capital amounts. The amount
of consideration paid in shares of the Company's Class B Common Stock will not
be less than 40% of the aggregate consideration for KWTX and KBTX. The Company
will acquire substantially all of the assets of KXII for $41.5 million in cash
plus cash payments for certain accounts receivable. The Company currently plans
to finance the cash portion of the Texas Acquisition through borrowings under
its Senior Credit Facility or issuance of senior debt. The Company currently
plans to request its lenders to commit to the Company all or a portion of the
$100.0 million of uncommitted credit to facilitate the additional borrowings
under the Senior Credit Facility.
On January 28, 1999, Bull Run Corporation ("Bull Run"), a principal
shareholder 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 has granted an option to the Company to purchase the Tarzian
Shares. 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
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 Media Research.
The Company has an option agreement with Bull Run, whereby the Company has
the option to acquire the Tarzian Shares from Bull Run for an amount equal to
Bull Run's purchase price for the Tarzian Shares and related costs. The option
agreement currently expires on May 31, 1999. However, the Company may extend the
option period in increments of thirty days through December 31, 2001 and each
thirty day extension would require a payment of $66,700 to Bull Run. 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 Shares. Neither Bull Run's investment nor the
Company's potential investment is presently attributable under the ownership
rules of the FCC. If the Company exercises the option agreement, the Company
plans to fund the acquisition through its Senior Credit Facility.
Management believes that current cash balances, cash flows from operations
and the borrowings under its Senior Credit Facility will be adequate to provide
for the Company's capital expenditures, debt service, cash dividends and working
capital requirements for the forseeable 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.
IMPACT OF YEAR 2000
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 60% complete.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
IMPACT OF YEAR 2000 (CONTINUED)
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 33%
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 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 March 31, 1999, 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 quarterly report on Form 10-Q 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.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
10.1 - Agreement and Plan of Merger by and among Gray
Communications Systems, Inc., Gray Communications of Texas,
Inc. and KWTX Broadcasting Company dated as of April 13,
1999
10.2 - Agreement and Plan of Merger by and among Gray
Communications Systems, Inc., Gray Communications of Texas,
Inc. and Brazos Broadcasting Company dated as of April 13,
1999
10.3 - Asset Purchase Agreement by and among Gray Communications
Systems, Inc., Gray Communications of Texas-Sherman, Inc.,
KXII Licensee Corp., KXII Television, Ltd., K-Twelve, Ltd.,
KBI 1, Inc., KBI 2 Inc., KXII Properties, Inc. and the
Shareholders of KXII Properties, Inc. dated as of April 26,
1999
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
</TABLE>
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GRAY COMMUNICATIONS SYSTEMS, INC.
(Registrant)
Date: May 12, 1999 By: /s/ James C. Ryan
- ------------------ --------------------------
James C. Ryan,
Vice President - Finance &
Chief Financial Officer
20
Exhibit 10.1
AGREEMENT AND PLAN OF MERGER
by and among
Gray Communications Systems, Inc.,
Gray Communications of Texas, Inc.
and
KWTX Broadcasting Company
Dated as of April 13, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section 1 Definitions 1
<S> <C>
1.1 Affiliate..........................................................................1
1.2 Agreement..........................................................................2
1.3 Assignment Application.............................................................2
1.4 Brazos Broadcasting Company........................................................2
1.5 Brazos Shares......................................................................2
1.6 Closing............................................................................2
1.7 Closing Date.......................................................................2
1.8 Code...............................................................................2
1.9 Company............................................................................2
1.10 Company Common Stock...............................................................2
1.11 Earnest Money......................................................................2
1.12 Effective Time.....................................................................2
1.13 Encumbrances.......................................................................2
1.14 Environmental Claim................................................................3
1.15 Environmental Matter...............................................................3
1.16 Escrow Agent.......................................................................3
1.17 FCC................................................................................3
1.18 FCC Consent........................................................................3
1.19 FCC Licenses.......................................................................3
1.20 Final Order........................................................................3
1.21 Gray...............................................................................3
1.22 Gray Common Stock..................................................................3
1.23 Governmental Authority.............................................................3
1.24 HSR Act............................................................................3
1.25 Intangible Property................................................................3
1.26 KBTX Agreement.....................................................................4
1.27 Knowledge, Know, Known.............................................................4
1.28 Law................................................................................4
1.29 Leased Property....................................................................4
1.30 Lorena Property....................................................................4
1.31 Material Adverse Change or Material Adverse Effect.................................4
1.32 Merger.............................................................................4
1.33 Merger Consideration...............................................................4
1.34 NYSE...............................................................................4
1.35 Permits............................................................................4
1.36 Permitted Liens....................................................................4
1.37 Person.............................................................................5
1.38 Preliminary Balance Sheets.........................................................5
1.39 Program Rights.....................................................................5
1.40 Real Property......................................................................5
1.41 SEC................................................................................5
1.42 Schedule...........................................................................5
1.43 Shareholder Representative.........................................................5
1.44 Shareholders.......................................................................5
1.45 Shares.............................................................................5
1.46 Station............................................................................5
1.47 Tangible Personal Property.........................................................5
1.48 Tax or Taxes.......................................................................6
1.49 Tax Returns........................................................................6
1.50 Tradeout Agreement.................................................................6
-i-
<PAGE>
1.51 Working Capital Surplus............................................................6
Section 2 Merger 6
2.1 Merger.............................................................................6
2.2 Time and Place of Closing..........................................................7
2.3 Effective Time.....................................................................7
2.4 Articles of Incorporation..........................................................7
2.5 Bylaws.............................................................................7
2.6 Directors and Officers.............................................................7
2.7 Reorganization.....................................................................7
Section 3 Merger Consideration; Exchange Procedures 8
3.1 Merger Consideration...............................................................8
3.2 Cash Percentage Election...........................................................9
3.3 Rights As Shareholders; Share Transfers...........................................11
3.4 Fractional Shares.................................................................11
3.5 Exchange Procedures...............................................................11
3.6 Treasury Shares...................................................................12
3.7 Earnest Money.....................................................................12
3.8 Determination of Working Capital Surplus..........................................12
3.9 Accounting Principles.............................................................14
Section 4 Representations and Warranties of the Company and Shareholders 15
4.1 Organization, Corporate Power, and Qualifications of the Company..................15
4.2 Authorization and Validity........................................................15
4.3 Ownership of Shares...............................................................15
4.4 Capitalization of the Company.....................................................15
4.5 Ownership of Brazos Shares; Investments and Subsidiaries..........................16
4.6 Noncontravention..................................................................16
4.7 Consents, Approvals...............................................................16
4.8 Financial Statements..............................................................17
4.9 Title to and Condition of Real Property...........................................17
4.10 Title to and Condition of Tangible Personal Property..............................18
4.11 Litigation........................................................................19
4.12 Environmental Matters.............................................................19
4.13 Trade Names, Trade Marks, etc.....................................................21
4.14 Governmental Authorization and Compliance With Laws...............................21
4.15 FCC Licenses......................................................................21
4.16 Labor Relations...................................................................22
4.17 Insurance.........................................................................22
4.18 Accounts Receivable...............................................................23
4.19 Accounts Payable..................................................................23
4.20 Tax Returns, Audits, and Liabilities..............................................23
4.21 Bank Accounts.....................................................................23
4.22 Certain Contracts.................................................................24
4.23 Employees.........................................................................24
4.24 Employee Benefit Plans............................................................25
4.25 No Brokers........................................................................26
4.26 Computer Software and Database....................................................26
4.27 Interested Transactions...........................................................26
4.28 Full Disclosure...................................................................26
4.29 Reliance and Survival.............................................................26
Section 5 Representations and Warranties of Gray and Merger Corp. 27
-ii-
<PAGE>
5.1 Organization and Existence........................................................27
5.2 Authorization and Validity........................................................27
5.3 Noncontravention..................................................................27
5.4 Consents, Approvals...............................................................27
5.5 No Brokers........................................................................27
5.6 Capitalization....................................................................27
5.7 SEC Filings; Financial Statements.................................................28
5.8 Financial Ability.................................................................29
Section 6 FCC Approval. 29
6.1 Filing and Prosecution of Application.............................................29
6.2 Expenses..........................................................................29
6.3 Time for FCC Consent..............................................................29
6.4 Control of Station................................................................29
6.5 No Reversion of Licenses..........................................................30
6.6 Regulatory Matters................................................................30
Section 7 Special Covenants and Agreements 30
7.1 HSR Act...........................................................................30
7.2 Confidentiality...................................................................30
7.3 Cooperation.......................................................................31
7.4 Access to Books and Records.......................................................31
7.5 Certain Investments...............................................................31
7.6 Acquisition Proposals.............................................................31
7.7 Meetings of Shareholders..........................................................31
7.8 Meetings of Gray and Merger Corp..................................................31
7.9 Registration Statements...........................................................31
7.10 Publicity.........................................................................34
7.11 Registration and Listing of Gray Common Stock.....................................34
7.12 Supplying of Financial Statements.................................................34
7.13 Supplements to Schedules..........................................................34
7.14 Affiliates of the Company.........................................................34
Section 8 Conditions Precedent for the Company 35
8.1 Representations and Warranties....................................................35
8.2 Performance of this Agreement.....................................................35
8.3 Proceedings.......................................................................35
8.4 FCC Consent.......................................................................35
8.5 Litigation........................................................................35
8.6 Expiration of HSR Waiting Periods.................................................35
8.7 Effective Registration Statement..................................................35
8.8 Legal Opinion.....................................................................36
8.9 Tax Opinion.......................................................................37
8.10 NYSE Listing......................................................................38
8.11 Voting Agreement and Irrevocable Proxy............................................38
Section 9 Conditions Precedent for Gray and Merger Corp. 38
9.1 Representations and Warranties....................................................38
9.2 Performance of this Agreement.....................................................38
9.3 Proceedings.......................................................................38
9.4 FCC Consent.......................................................................38
9.5 Litigation........................................................................39
9.6 Opinions of Counsel for the Company...............................................39
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<PAGE>
9.7 Title Insurance Commitments.......................................................39
9.8 Environmental Audit...............................................................39
9.9 Expiration of HSR Waiting Periods.................................................40
9.10 Consummation of Related Transactions..............................................40
9.11 Effective Registration Statement..................................................40
9.12 Tax Opinion.......................................................................40
9.13 NYSE Listing......................................................................41
9.14 Gray Shareholder Approval.........................................................41
9.15 Affiliates of the Company.........................................................41
9.16 Voting Agreement and Irrevocable Proxy............................................41
9.17 Shareholder Approval..............................................................41
9.18 Due Diligence and Schedules.......................................................41
Section 10 Closing 41
10.1 Deliveries by the Company.........................................................41
10.2 Postponement of Closing Date......................................................42
Section 11 Indemnification 43
11.1 By the Shareholders...............................................................43
11.2 By Gray and Merger Corp...........................................................43
11.3 Procedure for Indemnification.....................................................44
11.4 Escrow Fund.......................................................................46
11.5 Limitation on Damages.............................................................46
Section 12 Conduct of Business Pending Closing 47
Section 13 Termination 48
Section 14 Miscellaneous Provisions 49
14.1 Expenses of Negotiation and Transfer..............................................49
14.2 Schedules.........................................................................49
14.3 Survival..........................................................................50
14.4 Entire Agreement; Amendment; Waivers..............................................50
14.5 Headings..........................................................................50
14.6 Further Assurances................................................................50
14.7 Situs and Construction............................................................50
14.8 Notices...........................................................................50
14.9 Binding Effect....................................................................51
14.10 Execution in Counterparts.........................................................51
14.11 Shareholder Representative........................................................51
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
INDEX OF SCHEDULES
<S> <C>
Schedule 4.3 - Stock Ownership
Schedule 4.5 - Ownership of Brazos Shares; Investments and Subsidiaries
Schedule 4.8 - Financial Statements
Schedule 4.9(1) - Description of Real Property
Schedule 4.9(3) - Ground Leases
Schedule 4.9(4) - Tenant Leases
Schedule 4.10(1) - Tangible Personal Property
Schedule 4.10(2) - Leased Tangible Personal Property
Schedule 4.11 - Litigation
Schedule 4.12 - Hazardous Substance Sites
Schedule 4.13 - Trade Names, Trade Marks, Etc.
Schedule 4.14 - Governmental Licenses, Certificates, Permits and Approvals
Schedule 4.15 - FCC Licenses
Schedule 4.16 - Employment and Related Agreements
Schedule 4.17 - Insurance
Schedule 4.20 - Tax Matters
Schedule 4.21 - Bank Accounts
Schedule 4.22 - Certain Contracts
Schedule 4.23 - Employees
Schedule 4.24 - Employee Benefit Plans
Schedule 4.28 - Interested Transactions
</TABLE>
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<PAGE>
Index of Exhibits
Exhibit A Form of Shareholder Representative Appointment Agreement
Exhibit B Form of Escrow Agreement (Indemnification)
Exhibit C Form of Escrow Agreement (Earnest Money)
Exhibit D Form of Preliminary Balance Sheets
Exhibit E Form of Final Balance Sheets
Exhibit F Form of Opinion of Deaver & Deaver
Exhibit G Form of Opinion of Dennis Kelly
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
executed as of April 13, 1999, by and among GRAY COMMUNICATIONS SYSTEMS, INC., a
Georgia corporation ("Gray"), GRAY COMMUNICATIONS OF TEXAS, INC., a Georgia
corporation and wholly-owned subsidiary of Gray ("Merger Corp.") and KWTX
BROADCASTING COMPANY, a Texas corporation (the "Company").
RECITALS
The Company is the licensee of television station KWTX-TV, Channel 10,
in Waco, Texas (the "Station") pursuant to authorizations issued by the Federal
Communications Commission ("FCC"). The Boards of Directors of Gray, Merger Corp.
and the Company are of the opinion that the transactions described in this
Agreement are in the best interests of the parties and their respective
shareholders. This Agreement provides for the acquisition of the Company by Gray
through the merger of the Company with and into Merger Corp. At the Effective
Time of such merger, the outstanding shares of capital stock of the Company will
be converted into the right to receive shares of the common stock of Gray and
cash. As a result (i) the Shareholders will become shareholders of Gray, and
(ii) Merger Corp. will conduct the business and operations of the Company as a
wholly-owned subsidiary of Gray. It is the intention of the parties to this
Agreement that the merger contemplated by this Agreement qualify as a
"reorganization" within the meaning of Section 368 of the Code for federal
income tax purposes. Certain terms used in this Agreement are defined in Section
1 hereof.
The acquisition of the Company by Gray through the merger of the Company
with and into Merger Corp. is one of two related transactions involving the
acquisition of two television stations owned by the Company and Brazos
Broadcasting Company. Gray anticipates completing the acquisition of both
television stations after the parties have received approval from the FCC.
NOW, THEREFORE, 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:
Section 1. Definitions.
The following terms, when used in capitalized form within this
Agreement, or within any Exhibit or Schedule to this Agreement in which the
terms are not otherwise defined, shall have the following meanings:
1.1 "Affiliate" of a Person shall mean: (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.
<PAGE>
1.2 "Agreement" shall mean this Agreement and Plan of Merger, and
all Exhibits, Schedules, certificates, and instruments attached hereto or
referred to herein.
1.3 "Assignment Application" shall have the meaning specified in
Section 6.1 below.
1.4 "Brazos Broadcasting Company" shall mean Brazos Broadcasting
Company, a Texas corporation, with its principal offices at 4141 East 29th
Street, Bryan, Texas 77802, which owns television station KBTX, Channel 3,
licensed to Bryan, Texas.
1.5 "Brazos Shares" shall mean 250 shares of the capital stock in
Brazos Broadcasting Company, owned by the Company, which constitute 50% of the
shares of capital stock issued and outstanding in Brazos Broadcasting Company.
1.6 "Closing" shall mean the consummation of the Merger pursuant
to this Agreement in accordance with the provisions of Section 10.
1.7 "Closing Date" shall mean the date on which the Closing
occurs, as determined pursuant to Section 2.2.
1.8 "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
1.9 "Company" shall mean KWTX Broadcasting Company, as identified
above, a Texas corporation with its principal offices at 6700 American Plaza,
Waco, Texas 76712.
1.10 "Company Common Stock" shall mean the common stock, no par
value, of the Company.
1.11 "Earnest Money" shall mean the cash deposit in the amount of
One Million Dollars ($1,000,000) paid by Gray to the Escrow Agent upon the
execution of this Agreement, in the amount and in accordance with provisions set
forth in Section 3.7 below, together with interest thereon, if any.
1.12 "Effective Time" shall mean the later of (i) the date and
time that the Articles of Merger reflecting the Merger are filed with the
Secretary of State of the State of Texas (or such later date and time as may be
specified in the Articles of Merger) and (ii) the date and time that the
Articles of Merger reflecting the Merger are filed with the Secretary of State
of the State of Georgia (or such later date and time as may be specified in the
Articles of Merger).
1.13 "Encumbrances" shall mean security interests, mortgages,
liens, pledges, options, rights of first refusal, and other restrictions on the
use or transferability of property and claims or charges on any interest in
property in favor of a person other than the owner of the property, whether or
not relating to the extension of credit or the borrowing of money and whether or
not existing by reason of statute, contract, or common law.
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<PAGE>
1.14 "Environmental Claim" shall have the meaning ascribed in
Section 4.12(6)(a).
1.15 "Environmental Matter" shall have the meaning ascribed in
Section 4.12(6)(a).
1.16 "Escrow Agent" shall mean American Bank, N.A., Waco, Texas.
1.17 "FCC" shall mean the Federal Communications Commission, as
defined in the recitals to this Agreement.
1.18 "FCC Consent" shall mean action by the FCC in the form of a
public notice or some other written document granting its consent to the
Assignment Application.
1.19 "FCC Licenses" shall mean all licenses and authorizations
issued by the FCC to the Company in connection with the business or operations
of the Station, including the right to use the call letters "KWTX-TV."
1.20 "Final Order" means action of the FCC approving the transfer
of control of the Company to Gray or Merger Corp., which action is no longer
subject to reconsideration or court review under the provisions of the
Communications Act of 1934, as amended, and with respect to which no timely
filed request for administrative or judicial review or stay is pending and as to
which the time for filing any such request, or for the FCC to set aside the
action on its own motion, has expired.
1.21 "Gray" shall mean Gray Communications Systems, Inc., as
identified above, a Georgia corporation, with its principal offices at 4370
Peachtree Road, Atlanta, Georgia 30319.
1.22 "Gray Common Stock" shall mean the Class B Common Stock, no
par value, of Gray, with identical rights to those shares issued under the
initial public offering of 3,500,000 shares as described in that one certain
prospectus dated September 24, 1996.
1.23 "Governmental Authority" shall mean any federal, state,
county, local or other governmental or public agency, instrumentality,
commission, authority, board or body.
1.24 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.
1.25 "Intangible Property" shall mean all copyrights, trademarks,
trade names, service marks, service names, the call letters "KWTX-TV," licenses,
patents, permits, jingles, proprietary information, technical information and
data, computer software, formats, customer lists, advertiser lists, machinery
and equipment warranties, and other similar intangible property rights and
interests (other than the FCC Licenses)(and any goodwill associated with any of
the foregoing) applied for, issued to, or owned by the Company or under which
the Company is licensed or franchised and which are used or useful in the
business and operations of the Station, together with any additions thereto
between the date of this Agreement and the Closing Date.
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<PAGE>
1.26 "KBTX Agreement" shall mean the Agreement and Plan of Merger
dated the same date as this Agreement for the merger of Brazos Broadcasting
Company with and into Merger Corp. or, in the event Gray and Merger Corp.
exercise the Cash Election Option (as defined in Section 3.1(3) herein), the
merger of Merger Corp. (or its permitted assignee) with and into Brazos
Broadcasting Company.
1.27 "Knowledge," "Know," "Known" and words of similar import,
with respect to the Company, shall mean collectively those facts actually known,
now or in the past, by the Company, Ray M. Deaver, Jim Baronet and M.N. Bostick.
1.28 "Law" shall mean any federal, state, or local code, law,
legal principal, order, ordinance, regulation, rule, or statute of any
Governmental Authority.
1.29 "Leased Property" shall mean any and all Real Property used
or occupied by the Company as lessee under any oral or written lease, together
with any additions thereto, and extensions or renewals thereof, between the date
of this Agreement and the Closing Date.
1.30 "Lorena Property" shall mean a tract of 120.19 acres located
near the town of Lorena, Texas which the Company presently owns but which the
Company will transfer to Milford N. Bostick prior to the Closing.
1.31 "Material Adverse Change" or "Material Adverse Effect" shall
mean a significant negative impact on the Company taken as a whole or the
business of the Station, excluding any negative impact attributable to (i)
factors affecting the television broadcasting industry generally, (ii) general
national, regional, or local economic conditions, or (iii) governmental or
legislative laws, rules, or regulations affecting the television broadcasting
industry generally.
1.32 "Merger" shall mean the merger of the Company with and into
Merger Corp. or, in the event Gray and Merger Corp. exercise the Cash Election
Option (as defined in Section 3.1(3) herein), the merger of Merger Corp. (or its
permitted assignee) with and into the Company.
1.33 "Merger Consideration" shall mean the aggregate
consideration to be paid to the Shareholders pursuant to the Merger, as more
fully defined in Section 3.1(l).
1.34 "NYSE" shall mean the New York Stock Exchange.
1.35 "Permits" shall mean all licenses, permits, and other
authorizations (other than the FCC Licenses), issued to the Company by the
Federal Aviation Administration or any other federal, state, or local
governmental authority in connection with the conduct of the business and
operations of the Station, together with any additions, extensions, or renewals
of same between the date of this Agreement and the Closing Date.
1.36 "Permitted Liens" shall mean (i) liens for Taxes and
assessments not yet due and payable, mechanics' and other statutory liens
arising in the ordinary course of business that secure obligations not
delinquent, (ii) restrictions or rights granted to Governmental Authorities
-4-
<PAGE>
under applicable Law, that are not otherwise objectionable to Gray, and (iii)
liens, restrictions and easements on the Real Property (as defined below) that,
in Gray's reasonable judgment, do not detract from the value or impair the use
of the property subject thereto; provided, however, in no event shall "Permitted
Liens" include Encumbrances relating to the extension of credit or the borrowing
of money.
1.37 "Person" shall mean a natural person or any legal,
commercial or governmental entity, such as, but not limited to, a business
association, corporation, general partnership, joint venture, limited
partnership, limited liability company, trust, or any person acting in a
representative capacity.
1.38 "Preliminary Balance Sheets" shall have the meaning set
forth in Section 3.8(1) below.
1.39 "Program Rights" shall mean all rights of the Company,
presently existing or obtained prior to the Closing, to broadcast television
programs, movies, and films, including all film and program rights under barter
agreements, as a part of the programming for the Station, for which the Company
is obligated to compensate the vendor of such Program Rights.
1.40 "Real Property" shall mean all of the Company's real
property and interests in real property, purchase options, easements, licenses,
rights to access, rights of way, all buildings and other improvements thereon,
and all other real property interests which are used in the business or
operations of the Station, together with any additions thereto between the date
of this Agreement and the Closing Date, but shall exclude the Lorena Property.
1.41 "SEC" shall mean the Securities and Exchange Commission.
1.42 "Schedule" shall mean those Schedules referred to in this
Agreement delivered concurrently with the execution of this Agreement and
attached hereto (or bound separately) or delivered pursuant to Section 9.18, all
of which Schedules are incorporated in and made a part hereof by reference.
1.43 "Shareholder Representative" shall mean the Person(s)
appointed as the Shareholder Representative pursuant to the Shareholder
Representative Appointment Agreement, substantially in the form of Exhibit A to
this Agreement, which initially shall be Ray Deaver.
1.44 "Shareholders" shall mean the shareholders of the Company.
1.45 "Shares" shall mean One Thousand Five Hundred Fifty (1,550)
shares of the capital stock in the Company, owned by the Shareholders, which
constitutes one hundred percent (100%) of the shares of capital stock issued and
outstanding in the Company.
1.46 "Station" shall mean KWTX-TV, Channel 10, a CBS affiliate
licensed to Waco, Texas, as identified above.
-5-
<PAGE>
1.47 "Tangible Personal Property" shall mean all of the Company's
fixed assets, furniture, fixtures, equipment, machinery, motor vehicles,
leasehold improvements, office equipment, computer hardware, spare parts,
inventory, and other such tangible personal property which is used or useful in
the conduct of the business or operations of the Station, together with any
additions, replacements, or improvements thereto between the date of this
Agreement and the Closing Date.
1.48 "Tax" or "Taxes" means taxes of any kind, levies or other
like assessments, customs, duties, imposts, charges or fees imposed or payable
to the United States, or any state, county, or local government, subdivision or
agency thereof, and in each instance, such term shall include any interest,
penalties, or additions to tax attributable to any such Tax.
1.49 "Tax Returns" means any returns, statements, filings,
reports, estimates, declarations, and forms relating to Taxes that the Company
is required to file, record, or deposit with any Governmental Authority,
including any attachment thereto or amendment thereof.
1.50 "Tradeout Agreement" shall mean any written or oral
contract, agreement, or commitment of the Company, pursuant to which the Company
has sold or traded commercial air time of the Station in consideration of any
property or services in lieu of or in addition to cash, excluding all film and
program barter agreements.
1.51 "Working Capital Surplus" shall mean the amount by which the
current assets and certain other assets of the Company or Brazos Broadcasting
Company, as the case may be, exceed its current liabilities, as reflected on the
books of the Company or Brazos Broadcasting Company, as the case may be, as of
the close of business on the day immediately preceding the Closing Date,
determined in accordance with the provisions of Section 3.8 and 3.9 below.
Section 2. Merger.
2.1 Merger. Subject to the terms and conditions of this Agreement
and subject to Gray's and Merger Corp.'s exercise of the Cash Election Option
pursuant to Section 3.1(3), at the Effective Time, the Company shall be merged
with and into Merger Corp. in accordance with the applicable provisions of the
Georgia Business Corporation Code (the "GBCC") and the Texas Business
Corporation Act (the "TBCA") (the "Merger"). The separate corporate existence of
the Company shall cease and Merger Corp. shall be the surviving corporation
resulting from the Merger and continue to be a wholly-owned subsidiary of Gray
and shall continue to be governed by the Laws of the State of Georgia (Merger
Corp., as the surviving corporation in the Merger, sometimes being referred
herein as the "Surviving Corporation"). The Merger shall be consummated pursuant
to the terms of this Agreement, which has been approved and adopted by the
respective Boards of Directors of the Company, Merger Corp. and Gray. In the
event that Gray and Merger Corp. exercise the Cash Election Option, (i) the
Merger shall automatically without any further action by the parties be deemed
to be the merger of Merger Corp. (or its permitted assignee) with and into the
Company in accordance with the applicable provisions of the GBCC and the TBCA
and (ii) accordingly, the separate existence of Merger Corp. shall cease and the
Company (rather than Merger Corp.) shall be the surviving corporation resulting
from the Merger and shall continue to be
-6-
<PAGE>
governed by the Laws of the State of Texas. In the event that Gray and Merger
Corp. exercise the Cash Election Option, the term "Surviving Corporation" shall
automatically without any further action by the parties be deemed to mean the
Company and not Merger Corp. as stated above.
2.2 Time and Place of Closing. The closing (the "Closing") will
take place at 9:00 A.M. on the date that the Effective Time occurs at the
offices of Deaver & Deaver, 200 West Highway 6, Suite 501, Waco, Texas 76712, or
at such other time and date as the Company and Gray may mutually agree or such
date to which the Closing may be postponed pursuant to Section 10.2 (such actual
date of Closing, the "Closing Date").
2.3 Effective Time. The parties shall cause the Effective Time to
occur on the tenth (10th) day after the last of the conditions set forth in
Sections 8 and 9 of this Agreement have been satisfied or waived in accordance
with the terms of this Agreement. Subject to the provisions of this Agreement,
the parties shall file Articles of Merger executed in accordance with the
relevant provisions of the TBCA and the GBCC and shall make all other filings or
recordings required under the TBCA and the GBCC. The Merger and other
transactions contemplated by this Agreement shall become effective on the date
and at the time the Articles of Merger reflecting the Merger become effective
with the Secretaries of State of the States of Texas and Georgia.
2.4 Articles of Incorporation. Subject to Gray's and Merger
Corp.'s exercise of the Cash Election Option described in Section 3.1(3) below,
the Articles of Incorporation of Merger Corp. in effect immediately prior to the
Effective Time shall be the Articles of Incorporation of the Surviving
Corporation until otherwise amended or repealed. In the event that Gray and
Merger Corp. exercise the Cash Election Option, the Articles of Incorporation of
the Company in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation until otherwise amended
or repealed.
2.5 Bylaws. Subject to Gray's and Merger Corp.'s exercise of the
Cash Election Option described in Section 3.1(3) below, the Bylaws of Merger
Corp. in effect immediately prior to the Effective Time shall be the Bylaws of
the Surviving Corporation until otherwise amended or repealed. In the event that
Gray and Merger Corp. exercise the Cash Election Option, the Bylaws of the
Company in effect immediately prior to the Effective Time shall be the Bylaws of
the Surviving Corporation until otherwise amended or repealed.
2.6 Directors and Officers. Whether or not the Cash Election
Option is exercised by Gray and Merger Corp., the directors and officers of
Merger Corp. in office immediately prior to the Effective Time, together with
such additional persons as may thereafter be elected, will serve as the
directors and officers, respectively, of the Surviving Corporation from and
after the Effective Time in accordance with the Bylaws of the Surviving
Corporation and in accordance with the terms of their original election.
2.7 Reorganization. Subject to Gray's and Merger Corp.'s exercise
of the Cash Election Option described in Section 3.1(3) below, the parties
hereby adopt this Agreement as a plan of reorganization intended to qualify for
tax-deferred treatment under Section 368(a) of the Code. In the event that the
Cash Election Option is exercised by Gray and Merger Corp., the parties hereby
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<PAGE>
adopt this Agreement to be treated for federal income tax purposes as an
acquisition of the capital stock of the Company.
Section 3. Merger Consideration; Exchange Procedures.
3.1 Merger Consideration. Subject to the provisions of this
Agreement, at the Effective Time, automatically by virtue of the Merger and
without any action on the part of any party or Shareholder:
(1) Outstanding Company Common Stock. Subject to Gray's and
Merger Corp.'s exercise of the Cash Election Option described in Section 3.1(3)
below, each share (excluding shares held by the Company or any of its
subsidiaries or by Gray or any of its subsidiaries, in each case other than in a
fiduciary capacity ("Treasury Shares")) of the Company Common Stock, issued and
outstanding immediately prior to the Effective Time shall become and be
converted into the right to receive an amount in a combination of cash and Gray
Common Stock (as described in Sections 3.1(2) and 3.2 below) equal to (A) the
sum of (a) Seventy-Four Million Six Hundred Eighty Thousand Dollars
($74,680,000) plus (b) the Working Capital Surplus of the Company determined
based on the Preliminary Balance Sheets plus (c) fifty percent (50%) of the
Working Capital Surplus of Brazos Broadcasting Company determined based on the
Preliminary Balance Sheets (such sum of clauses (a) through (c) being referred
to as the "Merger Consideration") divided by (B) 1,550 (such result of dividing
(A) by (B) being referred to as the "Merger Consideration Per Share").
(2) Cash and Gray Common Stock Components of Merger
Consideration. Subject to Gray's and Merger Corp.'s exercise of the Cash
Election Option described in Section 3.1(3) below, the Merger Consideration will
be paid in a combination of cash and Gray Common Stock. Pursuant to Section 3.2,
each Shareholder will have the right to elect the percentage of the Merger
Consideration that he, she or it receives in the form of cash (the "Cash
Percentage") and the percentage to be received in the form of Gray Common Stock
(the "Stock Percentage"); provided, however, that in no event shall the Stock
Percentage be less than forty percent (40%). The Cash Percentage of the Merger
Consideration for each Shareholder electing to receive any of the Merger
Consideration in cash shall be reduced on a pro rata basis (calculated on the
basis of the aggregate amount of cash to be received by each Shareholder) by
Seven Hundred Fifty Thousand Dollars ($750,000) to be held in the Escrow Fund
pursuant to Section 11.4 below. The Escrow Fund shall be disbursed pursuant to
the terms of Section 11.4 below and the Escrow Agreement substantially in the
form of Exhibit B attached hereto.
(3) Cash Election Option. In the event that either the
average Market Value (as defined in Section 3.2(1)(ii)) during the Valuation
Period (as defined in Section 3.2(1)(iii)) or the Market Value at the Closing
Date is less than $12 per share, Gray and Merger Corp. shall have the option in
their sole and absolute discretion to pay the Merger Consideration in cash, in
which event the Merger Consideration shall be reduced from the amount specified
in Section 3.1(1) by $1,530,000. In addition, the parties agree that if the Cash
Election Option is exercised, they intend for the Merger to be treated as an
acquisition of the capital stock of the Company for federal income
-8-
<PAGE>
tax purposes. Gray and Merger Corp. may exercise the Cash Election Option at any
time prior to the Closing by providing oral and written notice to the Company of
such exercise as promptly as practicable after making the decision to exercise
such Cash Election Option. Each of the parties shall use their commercially
reasonable best efforts to effect the Cash Election Option, including without
limitation, revising this Agreement in any way reasonably necessary or desirable
to accomplish the Cash Election Option consistent with this paragraph and
cooperating in seeking any additional required approvals of the FCC or other
Governmental Authorities.
(4) Outstanding Merger Corp. Common Stock. Subject to the
Cash Election Option on the part of Gray described in Section 3.1(3) above, each
share of the common stock of Merger Corp. ("Merger Corp. Common Stock") issued
and outstanding immediately prior to the Effective Time shall be unchanged and
shall remain issued and outstanding as common stock of the Surviving
Corporation. In the event that Gray and Merger Corp. exercise the Cash Option
Election, each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time shall be unchanged and shall remain issued and
outstanding as common stock of the Surviving Corporation.
3.2 Cash Percentage Election.
(1) Holders of the Company Common Stock shall be provided
with an opportunity to elect to receive as much as sixty percent (60%) of the
Merger Consideration Per Share in cash with the remainder of the Merger
Consideration Per Share in the form of Gray Common Stock, in accordance with the
election procedures set forth below in this Section 3.2; provided, however, that
in the event the Market Value on the Closing Date is less than $14.00 per share,
each holder of Company Common Stock shall be deemed to have elected to receive
sixty percent (60%) of the Merger Consideration Per Share in cash and forty
percent (40%) of the Merger Consideration Per Share in the form of Gray Common
Stock. The number of shares of Gray Common Stock to be paid as part of the
Merger Consideration Per Share will be calculated by dividing the dollar amount
of the stock portion of the Merger Consideration Per Share by the Valuation
Period Market Value (as defined below). For purposes of this Section 3.2:
(i) "Valuation Period Market Value" shall mean the
average Market Value during the Valuation Period; provided, however, that in the
event the average Market Value during the Valuation Period is less than $14.00
per share, the Valuation Period Market Value shall be deemed to be $14.00 per
share and in the event the average Market Value during the Valuation Period is
greater than $15.00 per share, the Valuation Period Market Value shall be deemed
to be $15.00 per share;
(ii) "Market Value" shall mean the closing sales price
for Gray Common Stock as reported on the NYSE Composite Transactions reporting
system (as reported in The Wall Street Journal or, if not reported therein, in
another authoritative source); and
(iii) "Valuation Period" shall mean the twenty (20)
consecutive trading day period during which the shares of Gray Common Stock are
traded on the NYSE ending on the last trading day prior to the Closing Date.
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(2) An election form and other appropriate and customary
transmittal materials (which shall specify that delivery shall be effected, and
risk of loss and title to the certificates theretofore representing Company
Common Stock ("Old Certificates") shall pass, only upon proper delivery of such
Old Certificates to an exchange agent designated by Gray (the "Exchange Agent"))
in such form as Gray and the Company shall mutually agree ("Election Form")
shall be mailed at the time of the mailing of the Proxy Statement/Prospectus
provided for in Section 7.9 hereof or on such other date as the Company and Gray
shall mutually agree ("Mailing Date") to each holder of record of Company Common
Stock as of the record date for the Shareholder Meeting (as defined in Section
7.7) ("Election Form Record Date").
(3) Each Election Form shall permit a holder (or the
beneficial owner through appropriate and customary documentation and
instructions) of Company Common Stock to elect to receive as much as sixty
percent (60%) of the Merger Consideration Per Share in cash with the remainder
of the Merger Consideration Per Share in the form of Gray Common Stock;
provided, however, that in the event the Market Value on the Closing Date is
less than $14.00 per share, each holder of Company Common Stock shall be deemed
to have elected to receive sixty percent (60%) of the Merger Consideration Per
Share in cash and forty percent (40%) of the Merger Consideration Per Share in
the form of Gray Common Stock.
(4) Any shares of Company Common Stock with respect to which
the holder (or the beneficial owner, as the case may be) shall not have
submitted to the Exchange Agent an effective, properly completed Election Form
on or before 5:00 p.m. on the day of the Shareholder Meeting (the "Election
Deadline") shall be entitled to receive the Merger Consideration Per Share sixty
percent (60%) in cash and forty percent (40%) in Gray Common Stock (such shares
being "No Election Shares").
(5) Gray shall make available one or more Election Forms as
may be reasonably requested by all Persons who become holders (or beneficial
owners) of Company Common Stock between the Election Form Record Date and the
close of business on the business day prior to the Election Deadline, and the
Company shall provide to the Exchange Agent all information reasonably necessary
for it to perform as specified herein.
(6) Any such election shall have been properly made only if
the Exchange Agent shall have actually received a properly completed Election
Form by the Election Deadline. An Election Form shall be deemed properly
completed only if accompanied by one or more certificates (or customary
affidavits and indemnification regarding the loss or destruction of such
certificates or the guaranteed delivery of such certificates) representing all
shares of the Company Common Stock covered by such Election Form, together with
duly executed transmittal materials included in the Election Form. Any Election
Form may be revoked or changed by the Person submitting such Election Form at or
prior to the Election Deadline. In the event an Election Form is revoked prior
to the Election Deadline, the shares of Company Common Stock represented by such
Election Form shall become No Election Shares and Gray shall cause the
certificates representing Company Common Stock to be promptly returned without
charge to the Person submitting the Election Form upon written request to that
effect from the Person who submitted the
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Election Form. Such Person may submit a new Election Form with respect to such
shares at any time prior to the Election Deadline. If no new Election Form is
submitted with respect to such shares, they shall become No Election Shares.
Subject to the terms of this Agreement and of the Election Form, the Exchange
Agent shall have reasonable discretion to determine whether any election,
revocation or change has been properly or timely made and to disregard
immaterial defects in the Election Forms, and any good faith decisions of the
Exchange Agent regarding such matters shall be binding and conclusive. Neither
Gray nor the Exchange Agent shall be under any obligation to notify any person
of any defect in an Election Form.
(7) Subject to Gray's and Merger Corp.'s exercise of the Cash
Election Option described in Section 3.1(3) above, in the event that the Market
Value at Closing is less than the Valuation Period Market Value, Gray shall
increase the number of shares of Gray Common Stock to be issued to each
Shareholder by a sufficient number to ensure that the value of the Stock Portion
of the Merger Consideration received by each Shareholder at Closing will be no
less than 40% of the Merger Consideration received by that Shareholder at
Closing.
3.3 Rights As Shareholders; Share Transfers. At the Effective
Time, holders of Company Common Stock shall cease to be, and shall have no
rights as, Shareholders of the Company, other than to receive any dividend or
other distribution with respect to such Company Common Stock with a record date
occurring prior to the date hereof and the Merger Consideration provided under
this Section 3. After the Effective Time, there shall be no transfers on the
share transfer books of the Company or the Surviving Corporation of shares of
Company Common Stock.
3.4 Fractional Shares. Notwithstanding any other provision
hereof, no fractional shares of Gray Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, Gray shall pay to each holder of Company Common Stock who would
otherwise be entitled to a fractional share of Gray Common Stock (after taking
into account all Old Certificates delivered by such holder) an amount in cash
(without interest) determined by multiplying such fraction by the average of the
last sale prices of Gray Common Stock, as reported by the NYSE Composite
Transactions reporting system (as reported in The Wall Street Journal or, if not
reported therein, in another authoritative source), for the five (5) NYSE
trading days immediately preceding the Effective Date.
3.5 Exchange Procedures.
(1) At or prior to the Effective Time, Gray shall deposit, or
shall cause to be deposited, with the Exchange Agent, for the benefit of the
holders of Old Certificates, for exchange in accordance with this Section 3,
certificates representing the shares of Gray Common Stock ("New Certificates")
and an estimated amount of cash (such cash and New Certificates, together with
any dividends or distributions with respect thereto (without any interest
thereon), being hereinafter referred to as the "Exchange Fund") to be paid
pursuant to this Section 3 in exchange for outstanding shares of Company Common
Stock.
(2) As promptly as practicable after the Effective Date, Gray
shall send or cause to be sent to each former holder of record of shares (other
than Treasury Shares) of
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Company Common Stock immediately prior to the Effective Time transmittal
materials for use in exchanging such Shareholder's Old Certificates for the
consideration set forth in this Section 3. Gray shall cause the New Certificates
into which shares of a Shareholder's Company Common Stock are converted on the
Effective Date and any check in respect of the cash portion of the Merger
Consideration Per Share and any fractional share interests or dividends or
distributions which such Person shall be entitled to receive to be delivered to
such Shareholder upon delivery to the Exchange Agent of Old Certificates
representing such shares of Company Common Stock (or an affidavit and indemnity
in form reasonably satisfactory to Gray and the Exchange Agent, if any of such
certificates are lost, stolen or destroyed) owned by such Shareholder. No
interest will be paid on any such cash to be paid pursuant to this Section 3
upon such delivery.
(3) Notwithstanding the foregoing, neither the Exchange Agent
nor any party hereto shall be liable to any former holder of Company Common
Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(4) No dividends or other distributions with respect to Gray
Common Stock with a record date occurring after the Effective Time shall be paid
to the holder of any unsurrendered Old Certificate representing shares of
Company Common Stock converted in the Merger into the right to receive shares of
such Gray Common Stock until the holder thereof shall surrender such Old
Certificate in accordance with this Section 3. After the surrender of an Old
Certificate in accordance with this Section 3, the record holder thereof shall
be entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares of
Gray Common Stock represented by such Old Certificate.
(5) Any portion of the Exchange Fund that remains unclaimed
by the Shareholders of the Company for twelve months after the Effective Time
shall be paid to Gray. Any Shareholders of the Company who have not theretofore
complied with this Section 3 shall thereafter look only to Gray for payment of
the shares of Gray Common Stock, cash, cash in lieu of any fractional shares and
unpaid dividends and distributions on the Gray Common Stock deliverable in
respect of each share of Company Common Stock such Shareholder holds as
determined pursuant to this Agreement, in each case, without any interest
thereon.
3.6 Treasury Shares. Each of the shares of Company Common Stock
held as Treasury Shares immediately prior to the Effective Time shall be
canceled and retired at the Effective Time and no consideration shall be issued
in exchange therefor.
3.7 Earnest Money. The Earnest Money, in the form of cash, shall
be paid to the Escrow Agent for the account of the Company within three (3)
business days after the date hereof. The cash Earnest Money shall be held in
accordance with the provisions of the Escrow Agreement substantially in the form
of Exhibit C attached hereto and shall be paid to Merger Corp. at the Closing.
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3.8 Determination of Working Capital Surplus.
(1) At least seven (7) days prior to the Closing Date, the
Company shall prepare and deliver to Gray pro forma statements of estimated
assets and liabilities of the Company and of Brazos Broadcasting Company as of
the close of business at 11:59 p.m. midnight on the day preceding the Closing
Date (the "Preliminary Balance Sheets"), substantially in the form of Exhibit D
attached hereto, containing estimates of the Working Capital Surplus of each
corporation.
(2) Within ninety (90) days after the Closing, Gray shall
prepare final statements of assets and liabilities of the Company and of Brazos
Broadcasting Company as of the Closing Date (the "Final Balance Sheets"),
substantially in the form of Exhibit E attached hereto, and shall submit such
statements to the Shareholder Representative for review and approval. Gray shall
also provide all information reasonably necessary to determine the correct
amount of Working Capital Surplus of each corporation, including appropriate
supporting documents and such other information as may be reasonably requested
by the Shareholder Representative. The Final Balance Sheets shall be certified
by an officer on behalf of Gray to be true and complete. The Shareholder
Representative (and his authorized representatives) shall have the right to
visit the Station during normal business hours to verify and review such
documentation upon providing reasonable notice to Gray. If the Shareholder
Representative disputes the amounts of Working Capital Surplus determined by
Gray, he shall so notify Gray within thirty (30) days after receipt of the Final
Balance Sheets and provide Gray with his own Final Balance Sheets. If the
Shareholder Representative notifies Gray that he accepts the Final Balance
Sheets, or fails to deliver his own alternate Final Balance Sheets within the
thirty (30) day period specified in the preceding sentence, Gray's determination
of the amounts of Working Capital Surplus shall be conclusive and binding on the
parties upon the expiration of such period.
(3) Gray and the Shareholder Representative shall use good
faith efforts to resolve any dispute involving the determination of the amounts
of Working Capital Surplus and the Final Balance Sheets. If the parties are
unable to resolve any dispute within fifteen days following the delivery of the
Shareholder Representative's notice concerning disputed adjustments, Gray and
the Shareholder Representative shall jointly designate a qualified Big 5 firm of
independent certified public accountants (the "Neutral Auditors") to resolve
such dispute. If the parties are unable to agree on the designation of the
Neutral Auditors, then an accounting firm will be selected by lot from two names
submitted by the Shareholder Representative and two names submitted by Gray,
none of which shall be employed by the Shareholder Representative or Gray. The
Neutral Auditors' resolution of the dispute shall be made within sixty (60) days
of their selection, shall be based on presentations by the Shareholder
Representative and Gray and not by independent financial audit, and shall be
final and binding on the parties. The Neutral Auditors' resolution of the
dispute may be enforced by any court of competent jurisdiction. Fees of the
Neutral Auditors shall be split equally between the parties.
(4) If the amount of Working Capital Surplus of the Company
plus one-half of the Working Capital Surplus of Brazos Broadcasting Company
reflected on the Final Balance Sheets as finally determined in accordance with
the preceding provisions of this Section 3.8 are more
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than $10,000 less than such amounts reflected on the Preliminary Balance Sheets,
then the Escrow Agent shall refund the entire difference (without regard to the
$10,000 threshold) to the Surviving Corporation out of the Escrow Fund. The
payment required hereunder shall be made within seven (7) days after all of the
procedures specified in this Section 3.8 have run their course.
(5) If Neutral Auditors should be appointed by the parties to
the KBTX Agreement, then the Neutral Auditors so appointed shall serve as the
Neutral Auditors under this Agreement, and all proceedings before the Neutral
Auditors shall be consolidated to promote efficiency and reduce expenses of the
parties.
3.9 Accounting Principles. Completion of the Preliminary Balance
Sheets and Final Balance Sheets, and determination of the amounts of Working
Capital Surplus, shall be made by the application of the following accounting
principles:
(1) Current assets shall be reduced by an amount equal to two
(2%) percent of the value of accounts receivable included within the
computation. For purposes of this Section 3.9, accounts receivable shall include
accounts receivable due from trade, but shall exclude accounts receivable due
from network and affiliated stations (as the terms "trade," "network," and
"affiliated stations" have been customarily used by the Company and Brazos
Broadcasting Company for the purpose of preparing their financial statements).
(2) The account balances for deferred trade expense and cash
value life insurance shall be included in the computation.
(3) The book value of the Company's tube inventory,
Television Alliance Group stock, and Brazos Shares and one share of stock in
Ridgewood Country Club shall be excluded from the computation.
(4) Current liabilities shall contain an accrual for any
Taxes due on account of the sale, liquidation, or other disposition of any
investment securities in the period ending on the Closing Date.
(5) Otherwise, all revenues and all expenses arising from the
operation of the Company and Brazos Broadcasting Company, including business and
nongovernmental license fees, utility charges, real and personal property taxes
and assessments levied against the Company and Brazos Broadcasting Company,
property and equipment rentals, applicable copyright or other fees, sales and
service charges, taxes, programming fees and expenses, employee compensation,
including wages, commissions, bonus pay, payroll taxes, accrued vacation, sick
leave, holiday, and compensatory pay for all employees of the Company and Brazos
Broadcasting Company, prepaid and deferred items, and dividends, shall be
charged or credited in accordance with the methods historically used by the
Company and Brazos Broadcasting Company as disclosed in their annual audited
financial statements, and prorated as of the close of business at 12:00 a.m.
midnight on the day preceding the Closing Date. All special assessments and
similar charges or liens, or installments thereof, imposed against the Real
Property or the Station, or against the real
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property belonging to Brazos Broadcasting Company or station KBTX, and payable
on or prior to the Closing Date shall be reflected on the Preliminary Balance
Sheets and Final Balance Sheets, and amounts payable with respect to such
assessments and similar charges or liens or installments thereof, imposed
against the Real Property or the Station, or against the real property belonging
to Brazos Broadcasting Company or station KBTX, and payable after the Closing
Date, shall be excluded. Ad valorem real and personal property taxes assessed or
assessable for the year in which the Closing takes place shall be prorated based
upon the number of days elapsed from January 1 to the Closing Date, divided by
365 days.
(6) Any and all rebates due after the Closing Date to any
advertiser or other user of the Station's facilities, or of the facilities of
Brazos Broadcasting Company, based on business, advertising, or services
purchased or rendered prior to the Closing Date, shall be reflected on the
Preliminary Balance Sheets and Final Balance Sheets ratably in proportion to
revenues received or volume of business done during the applicable period.
Agency commissions shall be adjusted based upon revenue, volume of business
done, or services rendered in part before the Closing Date and in part after the
Closing Date and charged to the Preliminary Balance Sheets ratably in proportion
to the revenue, volume of business done, or services rendered, as the case may
be, during the applicable period. All payments relating to Program Rights will
be allocated ratably in accordance with the payment terms of the contract or
agreement for such properties, and prorated to the Closing Date.
(7) The Preliminary Balance Sheets and Final Balance Sheets
shall be adjusted to the extent any liabilities on the books of the Company and
Brazos Broadcasting Company under Tradeout Agreements exceed the value of assets
from Tradeout Agreements as of the date received, but no increase shall be made
in Working Capital Surplus if the value of assets from Tradeout Agreements
exceeds the liabilities from Tradeout Agreements, as of the Closing Date.
Section 4. Representations and Warranties of the Company and Shareholders.
The Company represents and warrants unto Gray and Merger Corp.,
and this Agreement is made and expressly conditioned upon, the following
representations and warranties:
4.1 Organization, Corporate Power, and Qualifications of the
Company. The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Texas and has the full corporate
power and authority to own all of its properties and assets and to carry on its
business as it is now being conducted. The Company is duly qualified as a
foreign corporation in each jurisdiction where the nature and extent of its
business requires such qualification.
4.2 Authorization and Validity. The Company has the full
corporate power, capacity and authority to execute and deliver this Agreement
and to perform its obligations hereunder. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including without limitation, the Merger, have been duly
and validly authorized by all necessary corporate action in respect thereof on
the part of the Company, subject to the approval of this Agreement by the
holders of two-thirds (2/3) of the Shares, which is
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the only shareholder vote required for approval of this Agreement and the
consummation of the Merger by the Company. This Agreement has been executed and
delivered by duly authorized officers of the Company and constitutes the legal,
valid, and binding obligation of the Company. This Agreement is enforceable with
respect to the Company in accordance with its terms.
4.3 Ownership of Shares. Each of the Shareholders owns
(beneficially and legally) the number of Shares specified on Schedule 4.3,
opposite his, her, or its name, free and clear of any Encumbrance of any kind.
4.4 Capitalization of the Company. The authorized capital stock
of the Company consists of One Thousand Five Hundred Fifty (1,550) shares of
common stock, without par value, of which One Thousand Five Hundred Fifty
(1,550) shares are issued and outstanding, and Five Hundred (500) shares of
preferred stock, with a par value of One Hundred Dollars ($100.00) per share, of
which no shares are issued and outstanding. The number of shares of common stock
issued to each of the Shareholders is accurately set forth on Schedule 4.3 to
this Agreement. All issued and outstanding Shares of capital stock in the
Company have been duly authorized and validly issued, are fully paid and
nonassessable, were issued without violation of any preemptive rights, are free
of any preemptive rights and were issued pursuant to a valid exemption from
registration under the Securities Act of 1933, as amended, (the "Securities
Act"), and all applicable state securities laws. There are no options, warrants,
or other rights, nor any agreements, commitments, or arrangements of any kind
relating to the subscription to or the issuance, voting, acquisition, sale,
repurchase, transfer, or disposition of (i) any capital stock of the Company or
securities convertible into or exchangeable for capital stock of the Company, or
(ii) any options, warrants, or subscription rights relating to any such capital
stock or securities of the Company. No Person has any contract or agreement or
any right or privilege capable of becoming a binding contract for the purchase
from any of the Shareholders of any of the Shares. The consummation of the
transactions contemplated in this Agreement will convey to Gray good title to
the Shares free and clear of all Encumbrances, security interests, charges, or
restrictions on transfer of any nature whatsoever.
4.5 Ownership of Brazos Shares; Investments and Subsidiaries. The
Company is the owner of the Brazos Shares as defined in Section 1.5 of the
Agreement. The Brazos Shares will be conveyed free and clear of any Encumbrance
of any kind. Other than the Brazos Shares and other than as disclosed on
Schedule 4.5, the Company 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.
4.6 Noncontravention. The execution and delivery by the Company
of this Agreement and the other agreements contemplated on its part hereby does
not, and the consummation by the Company of the transactions contemplated hereby
and thereby will not, (i) violate any provision of the Articles of Incorporation
or Bylaws of the Company, (ii) violate, or result (with the passage of time, the
giving of notice or both) in a violation of, or result in the acceleration of or
entitle any party to accelerate any obligation under, or result in the creation
or imposition of, any Encumbrance upon any of the property of the Company
pursuant to any provision of any mortgage, lien, lease, agreement, license, or
instrument to which the Company is a party or
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is subject, (iii) constitute an event permitting termination or acceleration of
any mortgage, lien, lease, agreement, license, or instrument to which the
Company is a party, or (iv) violate (A) any judgment, order, writ, injunction,
decree, regulation, or rule of any court or Governmental Authority applicable to
the Company or the Station or (B) any Law.
4.7 Consents, Approvals. Except for filings with and approvals of
the transactions contemplated hereby by the FCC and the expiration of applicable
waiting periods under the HSR Act, and except for consent from the CBS
Television Network, neither the Shareholders nor the Company is required to make
or obtain any consent, approval, notification, authorization or order of, or
declaration, filing, or registration with any third party, including, without
limitation, any Governmental Authority (i) in connection with the consummation
of the transactions contemplated hereby, (ii) to avoid the loss of any license
or the violation, breach, or termination of, or any default under, or the
creation of any lien on any of the assets of the Station pursuant to the terms
of any Law, order, or other requirement or any contract binding upon the Company
or to which assets of the Station may be subject, or (iii) to enable Merger
Corp. to continue the operation of the Station after the Closing substantially
as conducted prior to the Closing.
4.8 Financial Statements. Schedule 4.8 contains true and complete
copies of (i) the audited financial statements of the Company for calendar years
1994-1998, prepared by its independent auditors, Pattillo, Brown and Hill,
Certified Public Accountants, Waco, Texas (the "Tax Basis Statements") and (ii)
(A) the audited balance sheet of the Company as of December 31, 1998 and the
audited statements of income and cash flows for the year then ended and (B) the
unaudited balance sheet of the Company as of December 31, 1997 and 1996 and the
unaudited statements of income and cash flows of the Company for the years ended
December 31, 1996 and 1997, prepared by its independent auditors, Patillo, Brown
and Hill, Certified Public Accountants, Waco Texas (collectively, the "GAAP
Basis Statements"). The Tax Basis Statements have been prepared, and when
prepared, the Preliminary Balance Sheets and Final Balance Sheets will have been
prepared, in accordance with the accounting principles described in the
independent auditors' reports and footnotes accompanying said Tax Basis
Statements and fairly present the financial condition of the Company as of the
respective dates thereof, and the results of operations, cash flows and retained
earnings, and changes in financial position, respectively, of the Company, for
the respective periods thereof. In addition, the Preliminary Balance Sheets and
Final Balance Sheets, when prepared, will be based on the Company's historical
accounting practices, consistently applied. The GAAP Basis Statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied and fairly present the financial condition of the Company
as of the respective dates thereof, and the results of operations, cash flows
and retained earnings, and changes in financial position, respectively, of the
Company, for the respective periods thereof. Since December 31, 1998, (i) the
Company has carried on its business only in the ordinary course of business
consistent with past practice, (ii) there has been no Material Adverse Change,
and (iii) the Company has not made any change in any method of accounting or any
accounting practice.
4.9 Title to and Condition of Real Property.
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(1) Schedule 4.9(1) contains a complete and accurate
description of all the Real Property and the Company's interest therein.
(2) The Company has good, marketable and insurable fee simple
title to all of the Real Property free and clear of all Encumbrances, except for
Permitted Liens, and no portion of the Real Property is included in a Tax parcel
that includes property other than Real Property.
(3) Schedule 4.9(3) contains a complete and accurate
description of all the Leased Property and of the applicable lease creating the
Company's interest in the Leased Property (the "Ground Leases") and the terms of
the Company's interest therein. The Company has good, marketable and insurable
leasehold title to all of the Leased Property described on Schedule 4.9(3) free
and clear of all Encumbrances, except for Permitted Liens. The Company has
delivered to Gray true and complete copies of all of the Ground Leases.
(4) Schedule 4.9(4) contains a complete and accurate
description of all leases of the Real Property and Leased Property pursuant to
which the Company is the landlord or sublandlord, (the "Tenant Leases") and the
Company has delivered true and complete copies of the Tenant Leases to Gray.
There are no leases or other agreements relating to occupancy of the Real
Property or Leased Property, except for the Tenant Leases and no Person other
than the tenants under the Tenant Leases has any right to occupancy of any
portion of the Real Property or Leased Property. The Company is the lessor or
landlord or the successor lessor or landlord under the Tenant Leases free and
clear of all Encumbrances except for the Permitted Liens and is entitled to
receive the rents, issues and profits from the Tenant Leases.
(5) Except as disclosed on Schedule 4.9(l), all towers, guy
anchors, buildings, and other improvements owned by the Company are located
entirely on the Real Property listed on Schedule 4.9(1).
(6) All Real Property (i) is available for immediate use in
the conduct of the business and operations of the Station and (ii) complies in
all material respects with all applicable building, fire, health, handicapped
persons, sanitation, use and occupancy or zoning Laws and the regulations of any
Governmental Authority having jurisdiction thereof. There is no pending or, to
the Company's Knowledge, threatened condemnation or eminent domain proceedings
that would affect the Real Property, or any part thereof and the Company has
full legal and practical access to the Real Property and all utilities are
available to the Real Property from a publicly dedicated right of way or through
a valid private easement. The Company has furnished to Gray copies of any and
all notices or reports received from any insurance company, engineer, or
Governmental Authority with respect to any violations (or potential violations)
of any applicable law affecting the Real Property or otherwise requiring or
recommending work be performed on or at any of the Real Property (or
improvements thereon), and all of the violations and requirements set forth in
any such notices and reports have been cured or fulfilled to the satisfaction of
those entities.
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(7) The Real Property listed on Schedule 4.9(1) and the
Tenant Leases listed on Schedule 4.9(4) comprise all real property interests
necessary to conduct the business and operations of the Company as now
conducted.
4.10 Title to and Condition of Tangible Personal Property.
(1) Schedule 4.10(1) lists all material items of Tangible
Personal Property owned by the Company, which together with the leased Tangible
Personal Property comprises all material items of Tangible Personal Property
necessary to conduct the business and operations of the Station as now
conducted. Except as specified on Schedule 4.10(1) the Company owns and has good
title to each item of Tangible Personal Property, and none of the Tangible
Personal Property owned by the Company is subject to any Encumbrance, other than
Permitted Liens. Each item of Tangible Personal Property is available for
immediate use in the business and operations of the Station. Each item of
Tangible 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 item of Tangible Personal Property is adequate for its
present and intended uses and operation. All items of transmitting equipment
included in the Tangible Personal Property permit the Station to operate in all
material respects in compliance with the terms of the FCC Licenses, the rules
and regulations of the FCC, and with all other applicable Laws.
(2) Schedule 4.10(2) contains a complete and accurate
description of all the leased Tangible Personal Property and of the applicable
lease creating the Company's interest in the leased Tangible Personal Property,
which includes the leases for motor vehicles (collectively, the "Personal
Property Leases") and the terms of the Company's interest therein. The Company
has good leasehold title to the leased Tangible Personal Property subject to the
terms of the applicable Personal Property Lease and free of any Encumbrances,
other than Permitted Liens. The Company has delivered to Gray true and complete
copies of all of the Personal Property Leases. The owned Tangible Personal
Property listed on Schedule 4.10(1) and the leased Tangible Personal Property
listed on Schedule 4.10(2) comprise all personal property interests necessary to
conduct the business and operations of the Company as now conducted.
4.11 Litigation. There are no actions, suits, claims,
investigations, or proceedings (legal, administrative, or arbitrative) pending,
or to the Company's Knowledge threatened, against the Company, and to the
Company's Knowledge no basis for any of the foregoing exists, whether at law or
in equity and whether civil or criminal in nature, before or by any Federal,
State, municipal, or other court, arbitrator, governmental department,
commission, agency, or instrumentality, domestic or foreign, nor are there are
any judgments, decrees, or orders of any such court, arbitrator, governmental
department, commission, agency, or instrumentality outstanding against the
Company. Except as disclosed on Schedule 4.11, no litigation (as described in
the preceding sentence) has been pending during the three (3) years prior to the
date hereof that, individually or in the aggregate, resulted in losses, damages,
costs or expenses (whether or not covered by insurance) in excess of $10,000 or
granted any injunctive relief against the Company.
4.12 Environmental Matters.
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(1) To the Company's Knowledge, none of the Real
Property, assets or premises of the Company or the assets or premises formerly
owned, leased, operated or managed, directly or indirectly, by the Company or
any of its predecessors or any of its current or former subsidiaries (which are
identified on Schedule 4.5), contains, nor is there present at any such Real
Property, assets or premises of the Company or the assets or premises formerly
owned, leased, operated or managed, directly or indirectly, by the Company or
any of its predecessors or any of its current or former subsidiaries (which are
identified on Schedule 4.5), any (i) "hazardous substances" (as defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
42 U.S.C. 9601 et seq., as amended), (ii) asbestos, (iii) radon gas, (iv)
underground storage tanks, (v) items or equipment containing polychlorinated
biphenyls in excess of 50 parts per million, (vi) stored, spilled, or leaked
petroleum products, or (vii) accumulation of rubbish, debris, or other solid
waste; nor is any of the Real Property, assets or premises of the Company or the
assets or premises formerly owned, leased, operated or managed, directly or
indirectly, by the Company or any of its predecessors or any of its current or
former subsidiaries (which are identified on Schedule 4.5), the subject of
governmental regulation or liability because of the past release, threat of
release, discharge, storage, treatment, generation, or disposal of such
substances.
(2) To the Company's Knowledge, the Company is in
compliance with all laws, rules, and regulations of all federal, state, and
local governments (and all agencies thereof) concerning the environment, except
for any noncompliance which could not reasonably be expected to have a Material
Adverse Effect, and neither the Company nor any of its predecessors or any of
its current or former subsidiaries has received any written notice of a charge,
complaint, action, suit, proceeding, hearing, investigation, claim, demand, or
notice having been filed or commenced against the Company or any of its
predecessors or any of its current or former subsidiaries in connection with its
operation of the Station alleging any failure to comply with any such law, rule,
or regulation.
(3) To the Company's Knowledge, neither the Company nor
any of its predecessors or any of its current or former subsidiaries has any
liability that could reasonably be expected to have a Material Adverse Effect
under any law, rule, or regulation of any federal, state, or local government
(or agency thereof) concerning the (i) release or threatened release of
hazardous substances, (ii) pollution, or (iii) protection of the environment.
(4) To the Company's Knowledge, all waste containing any
hazardous substances generated, used, handled, stored, treated or disposed of
(directly or indirectly) by the Company or any of its predecessors or any of its
current or its former subsidiaries has been released or disposed of in
compliance with all applicable reporting requirements under any Law, and neither
the Company nor the Shareholders have Knowledge of any Environmental Claim (as
herein defined) with respect to any such release or disposal.
(5) To the Company's Knowledge, without limiting the
generality of any of the foregoing, (i) all on-site and off-site locations where
the Company or any of its predecessors or any of its current or former
subsidiaries has stored, disposed or arranged for the disposal of hazardous
substances are identified in Schedule 4.12, and (ii) no polychlorinated
biphenyls (PCB's)
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are used or stored on or in any Real Property owned, leased, operated or managed
by the Company or any of its predecessors or any of its current or former
subsidiaries.
(6) For purposes of this Agreement:
(a) "Environmental Claim" shall mean any Litigation
in any court or before or by any Governmental Authority or private arbitrator,
mediator or tribunal against the Company (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.
(b) "Environmental Matter" shall mean any matter or
circumstances existing prior to Closing 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 Real Property.
4.13 Trade Names, Trade Marks, etc. The Company has and owns,
or has the right to use, all trademarks, service marks, trade names, business
names, copyrights, designs, trade secrets, and know-how used in the operation of
the Station, including, but not limited to, the items listed on Schedule 4.13 as
a part of the Intangible Property. There are no claims or proceedings pending,
or to the Company's Knowledge threatened, against the Company asserting that its
use of any Intangible Property infringes the rights of any other Person and the
Company has no Knowledge of any use by the Company that may, with notice or
passage of time, give rise to such a claim. The Company has not licensed or
otherwise assigned any Intangible Property to any third party and, to the
Company's Knowledge, there are no existing infringing uses of the Intangible
Property by any third parties. All royalties, limitations, restrictions, or
other obligations of the Company with respect to the ownership or use of the
Intangible Property are set forth on Schedule 4.13.
4.14 Governmental Authorization and Compliance With Laws. All
governmental licenses, certificates, permits, and approvals required for the
conduct of the Company's business as now conducted are listed on Schedule 4.14.
The Company has obtained all such licenses, permits, and approvals and all are
in full force and effect. The business of the Station has been operated in
compliance with all applicable Laws, orders, regulations, policies, and
guidelines of all Governmental Authorities (including, without limitation, those
relating to FCC matters and environmental laws and regulations), except for
violations of such Laws, orders, regulations, policies, and guidelines which do
not affect and cannot reasonably be expected to have a Material Adverse Effect
on the Station or the business, financial condition, assets, liabilities,
results of operations or cash flows of the Company. The Company has received no
notice of, and no investigation or review is pending before, or to the Company's
Knowledge threatened by, any
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Governmental Authority (i) with respect to any alleged violation by the Company
of any Law, order, regulation, policy, or guideline of any Governmental
Authority related to the operation of the Station, or (ii) with respect to any
alleged failure to have all permits, certificates, licenses, approvals, and
other authorizations required in connection with the operation of the Station.
4.15 FCC Licenses. The Company is now and on the Closing Date
will be the holder of the FCC Licenses as listed in Schedule 4.15, with regular
unconditional renewals thereof having been granted for the full license term.
The FCC Licenses constitute all of the licenses and authorizations required for
and/or used in the operation of the Station as now operated, and the FCC
Licenses are now and on the Closing Date will be in full force and effect and
unimpaired by any act or omission of the Company, or its officers, directors,
employees, or agents. There is not now pending, or to the Company's Knowledge,
threatened, any action by or before the FCC to revoke, cancel, rescind, modify,
or refuse to renew in the ordinary course any of the FCC Licenses, or any
investigation, Order to Show Cause, Notice of Violation, Notice of Apparent
Liability, or a forfeiture or material complaint against the Station or the
Company. The Company does not Know of any reason why the FCC would not renew the
FCC Licenses in the ordinary course. In the event of any such action, or the
filing or issuance of any such order, notice, or complaint or Knowledge of the
threat thereof, the Company shall notify Gray of same in writing within five (5)
days, and shall take all reasonable measures to contest in good faith or seek
removal or rescission of such action, order, notice, or complaint, and shall pay
any sanctions imposed. All material reports, forms, and statements required to
be filed by the Company with the FCC with respect to the Station have been filed
and are complete and accurate in all material respects. The Station is now and
on the Closing Date will be operating in accordance with the FCC Licenses, and
in compliance with the Communications Act of 1934, as amended, and the Rules and
Regulations of the FCC. The operation of the Station, including, but not limited
to, the Company's use and operation of its existing tower sites, conforms to the
standards adopted by the FCC in Guidelines Evaluating the Environmental Effects
of Radio Frequency Radiation, Report and Order, IT Docket 93-62 (August 1, 1996)
(FCC 96-326), as modified on reconsideration, Second Memorandum Opinion and
Order, FCC 97-303 (released August 23, 1997).
4.16 Labor Relations.
----------------
(1) The Company has paid or made provision for
payment of all salaries and wages of employees accrued through the date of this
Agreement. The Company is in compliance with all federal and state Laws
respecting employment and employment practices, terms and conditions of
employment, safety of the workplace, wages and hours, and nondiscrimination in
employment, and is not Knowingly engaged in any unfair or illegal employment
practice;
(2) There is no charge, complaint, other claim,
compliance review, audit or investigation pending before, being conducted by or,
to the Company's Knowledge, threatened by any court, agency, arbitral panel or
other tribunal alleging, or that could result in an allegation of, unlawful
discrimination, unauthorized employment, harassment, any unfair labor practice
or violation of any Law or legal principle by the Company relating to any aspect
of employment or the workplace, nor to the Company's Knowledge is there a basis
for any such claims;
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(3) There is no labor strike, dispute, slowdown, or
stoppage actually pending or, to the Company's Knowledge, threatened against or
involving the Company;
(4) There are no collective bargaining agreements
binding on the Company;
(5) To Company's Knowledge, no employee
representative or labor organization is seeking to represent the Company's
employees or has requested an election or a collective bargaining agreement, nor
is the Company currently negotiating or contemplating negotiating such an
agreement; and
(6) Except as listed specifically on Schedule 4.16,
the Company has no written contract of employment, change of control agreement
or other agreement with any employee of the Station, and the Company has no
unwritten contract of employment, change of control agreement or other agreement
that is not terminable at will without any payment or other obligation on the
part of Company or any successor, including Merger Corp.
4.17 Insurance. Schedule 4.17 is a true and complete list,
showing company and type and amount of coverage, of all insurance policies
providing coverage for the Company or the operation of the Station, its
employees, or third parties. The Company has provided correct and complete
copies of each such policy to Gray on or before the date hereof. The Company is
neither in default with respect to any provision of any of its insurance
policies nor has it failed to give any notice or present any claim thereunder in
due or timely fashion or as required by any of such insurance policies which
would result in failure to recover in full under such policies. The Company has
complied with the insurance requirements of (i) all leases related to the
Station to which it is a party; (ii) all other contracts and agreements to which
the Company is a party; and (iii) all Laws.
4.18 Accounts Receivable. All accounts receivable of the
Company reflected on its financial statements, as prepared and maintained
through the Closing Date, arose from bona fide transactions in the ordinary
course of business, and constitute valid and binding obligations of the account
debtors for the full face amount thereof, without discount, offset, or other
claim or allowance. The reserve for doubtful accounts contained in the financial
statements is adequate to protect the Company from losses by reason of
noncollection of such accounts.
4.19 Accounts Payable. All accounts payable of the Company
reflected on its financial statements, as prepared and maintained through the
Closing Date, arose from bona fide transactions in the ordinary course of
business, and constitute valid debts or obligations of the Company for the full
face amount thereof.
4.20 Tax Returns, Audits, and Liabilities.
(1) The Company has: (i) timely filed all Tax Returns
in accordance with all applicable laws (including any applicable extensions);
(ii) paid all Taxes shown to have become due pursuant to such Tax Returns; (iii)
properly accrued for all Taxes due or payable in respect of the current period
in the Financial Statements; and (iv) paid all Taxes for which a notice of, or
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assessment or demand for, payment has been received or which are otherwise due
and payable, other than Taxes being contested in good faith, as identified on
Schedule 4.20 for which an adequate reserve has been established. All such Tax
Returns are true and correct in all material respects and reflected the true
facts regarding the income, business, assets, operations, activities, and status
of the Company and any other information required to be shown therein.
(2) Except as disclosed on Schedule 4.20, in the past
five (5) years, none of the Company's Tax Returns has been audited by any
Governmental Authority. There is no action, suit, proceeding, investigation,
audit, claim, or assessment pending or proposed with respect to Taxes or with
respect to any Tax Return for the Company; (ii) there are no liens for Taxes
upon the assets of the Company, other than liens for taxes not yet past due;
(iii) there are no waivers or extensions of any applicable statute of
limitations for the assessment or collection of Taxes with respect to any Tax
Return that remains in effect; and (iv) there are no Tax rulings, request for
rulings, or closing agreements relating to the Company that could affect its
liability for Taxes for any period after the Closing Date.
4.21 Bank Accounts. All of the Company's bank accounts, and
the names of all authorized signatories on all such accounts are set forth on
Schedule 4.21 to this Agreement.
4.22 Certain Contracts.
(1) Except as listed on Schedule 4.22:
(a) the Company does not have any employment
agreements or any incentive compensation, profit-sharing, stock option, stock
appreciation rights, stock purchase, savings, deferred compensation, retirement,
pension, or other plans or benefit arrangements or practices with or for the
benefit of any officer, employee, or any other person, or any consulting
agreement or other arrangement with any officer, employee, former officer, or
former employee;
(b) no officer, director or Shareholder of the
Company has any other agreement with the Company or any interest in any real,
personal, or intellectual property used in or pertaining to the operation of the
Station; and
(c) except for contracts for the sale of
advertising time entered into in the normal course of business, the Company is
not a party to or bound by any contract, commitment, purchase order, or sales
order, oral or written, related to the operation of the Station. All leases,
agreements, licenses, or instruments to which the Company is a party are in full
force and effect and are binding obligations of the parties thereto, and no
event or condition has occurred or exists, or is alleged by any of the other
parties thereto to have occurred or existed, which constitutes, or with lapse of
time or the giving of notice or both, might constitute a material default or a
basis for acceleration of any obligation, force majeure, or other claim of
excusable delay or nonperformance thereunder or in respect thereof, whether on
the part of the Company or any other party. In connection with the Merger or
otherwise, there are no consents, approvals, notifications, or other actions
required to be taken pursuant to the terms of any contract or commitment to
which the Company is a party, except as described on Schedule 4.22.
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<PAGE>
(2) Schedule 4.22 contains a list and correct and
complete copies of the following contracts and agreements:
(a) all powers of attorney given by the Company;
(b) all programming and network affiliation
agreements of the Company or that relate to the Station;
(c) all Tradeout Agreements; and
(d) any contract or agreement that (i) provides
for monthly payments in excess of $1,000 or yearly payments in excess of
$12,000; (ii) requires performance by the Company of any obligation for a period
of time extending beyond six (6) months from the Effective Time or is not
terminable by the Company without penalty upon sixty (60) days or less notice;
(iii) evidences, creates or guarantees indebtedness of the Company; or (iv)
guarantees or endorses the liabilities or obligations of any other Person.
4.23 Employees. Schedule 4.23 is a true and complete list of
all personnel employed by the Company as of the date of this Agreement,
including the names and current addresses of all such persons, their job
classifications, rates of pay, length of service, and a brief description of the
employment benefits provided to them, including group insurance, vacation,
severance, health and accident benefits, and retirement pay, if any.
4.24 Employee Benefit Plans.
(1) Schedule 4.24 contains an accurate and complete
list of each employee benefit plan established, maintained, or contributed to by
the Company. Each such plan is maintained and administered in material
compliance with the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the Code and any other applicable Laws, its governing documents and
any oral or written communications from the Company to any participant in or
beneficiary of such plan. Neither the Company nor any such employee benefit plan
is liable for any material fine, excise tax, or loss of income tax deduction
with respect to the operation of any such employee benefit plan. No reportable
event, as defined in Section 4043 of ERISA, that could have a Material Adverse
Effect on the Company, has occurred with respect to any employee benefit plan of
the Company. The consummation of the transactions contemplated by this Agreement
will not result in any withdrawal liability on the part of the Company under a
multi-employer plan. No plan or benefit arrangement established or maintained by
the Company or to which the Company is obligated to contribute has any
"accumulated funding deficiency" as defined by ERISA. The Company has not
incurred any liability to the Pension Benefit Guaranty Corporation with respect
to any such plan. There are no material claims (other than routine claims for
benefits), lawsuits or governmental proceedings pending or, to the Company's
Knowledge, threatened with respect to any employee benefit plan of the Company.
No claims or liabilities in respect of any of the Company's employee benefit
plans shall be imposed upon Gray or Merger Corp. as a result of the transactions
described herein.
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<PAGE>
(2) The Company has filed all returns and reports
required to be filed with respect to its employee benefit plans, and has paid or
made provision for the payment of all fees, interest, penalties, assessments, or
deficiencies that may have become due pursuant to those returns or reports or
pursuant to any assessment or adjustment that has been made relating to those
returns or reports. All other fees, interest, penalties, and assessments that
are payable by or for the Company have been timely reported, fully paid, and
discharged. There are no unpaid fees, penalties, interest, or assessments due
from the Company relating to any employee benefit plan that are or could become
an Encumbrance on any assets of the Station or are otherwise material. The
Company has furnished to Gray true and complete copies of all documents setting
forth the terms and funding of each employee benefit plan.
(3) The Company is not liable for any welfare
benefits (as defined in ERISA Section 3(1)) to its employees or other
individuals associated with the Company after retirement or other separation
from service other than to the extent required by Code Section 4980B and Part VI
of Title I of ERISA (COBRA).
(4) For purposes of this Section 4.24, "Company"
means the Company and any entity which, together with the Company, would be
treated as a single employer under Section 414(n) of the Code.
4.25 No Brokers. Neither the Company nor any of its
Shareholders has employed any brokers or finders, or incurred any liability for
any brokerage fees, commissions, finders' fees, or financial advisory fees in
connection with the transactions contemplated hereby, and the Shareholders agree
to hold Gray and Merger Corp. harmless from any claim relating to such fees or
compensation made by the Company or the Shareholders or anyone employed by the
Company or the Shareholders.
4.26 Computer Software and Database. All computer software
licensed, leased or otherwise used in connection with the Station is standard,
pre-packaged and licensed and none of such computer software is proprietary,
internally developed or owned by the Company. The Company has, and upon
consummation of the transactions contemplated by this Agreement, Merger Corp.
will have, all computer software and databases that are necessary to operate the
Station as presently conducted by the Company and all documentation and
necessary licenses relating to all such computer software and databases.
4.27 Interested Transactions. Except as set forth in Schedule
4.27, the Company is not a party to any contract or other transaction with any
Affiliate of the Company, any Related Party of any Affiliate of the Company
(other than as a Shareholder or employee of the Company), 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. Each of such contracts and other transactions described in the
preceding sentence was negotiated on an arm's length basis, contains pricing
terms that reflected fair market value at the time entered into and otherwise
contains terms and conditions comparable to those customarily contained in
similar transactions between unrelated parties. Except as described in Schedule
4.27, none of the Persons described in the first sentence of this Section 4.27
owns, or during the last three (3) years has owned,
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directly or indirectly, beneficially or legally (individually or in the
aggregate), five percent (5%) or more of the equity or voting interests of any
Person that competes with the Company or the Station.
4.28 Full Disclosure. No statement contained herein or in any
document, certificate, or other writing furnished or to be furnished by the
Company to Gray pursuant to the provisions of this Agreement contains or shall
contain any untrue statement of a material fact or shall omit to state any
material fact necessary, in the light of the circumstances under which it was
made, to make the statements therein not misleading. The due diligence materials
delivered by the Company to Gray and Merger Corp. are correct and complete in
all material respects and do not omit any material facts necessary to make the
facts disclosed by such materials not misleading.
4.29 Reliance and Survival. The foregoing representations and
warranties have been made by the Company with the knowledge and expectation that
Gray and Merger Corp. are placing complete reliance thereon, and all such
representations and warranties shall survive the Closing.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF GRAY AND MERGER CORP.
Each of Gray and Merger Corp. represents and warrants to the
Company as follows:
5.1 Organization and Existence. Each of Gray and Merger Corp.
is a corporation duly organized and validly existing under the laws of the State
of Georgia and has the power and authority to own all of its properties and
assets and to carry on its business as it is now being conducted.
5.2 Authorization and Validity. Each of Gray and Merger Corp.
has the full power and authority to execute and deliver this Agreement and the
other agreements and instruments contemplated on its part hereby and to
consummate the transactions contemplated on its part hereby and thereby; each of
Gray's and Merger Corp.'s execution and delivery of this Agreement and
consummation of the transactions contemplated hereby and thereby have been duly
authorized by its Board of Directors; and this Agreement has been duly executed
and delivered and constitutes the valid and binding agreement of each of Gray
and Merger Corp. enforceable in accordance with its terms.
5.3 Noncontravention. Neither the execution nor delivery of
this Agreement by either Gray or Merger Corp. nor the consummation by either
Gray or Merger Corp. of the transactions contemplated hereby and thereby will
violate any provision of the Articles of Incorporation or Bylaws of either Gray
or Merger Corp., or of any other material instrument, agreement, order, or
decree binding on either Gray or Merger Corp. the effect of which violation
would be the prevention, delay, avoidance, or voidableness of this Agreement or
the transactions contemplated hereby.
5.4 Consents, Approvals. Except for filings with and approvals
of the transactions contemplated hereby by the FCC and expiration of applicable
waiting periods under the HSR Act, neither Gray nor Merger Corp. is required to
make or obtain any consent, approval,
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notification, authorization or order of, or declaration, filing, or registration
with any Governmental Authority or any other third party in connection with
consummation by either Gray or Merger Corp. of the transactions contemplated
hereby.
5.5 No Brokers. Other than an approximately 1% fee paid by
Gray to Bull Run Corporation (which does not affect the Merger Consideration
hereunder), neither Gray nor Merger Corp. has employed any brokers or finders or
incurred any liability for any brokerage fees, commissions, finders' fees, or
financial advisory fees in connection with the transactions contemplated hereby
and each of Gray and Merger Corp. agrees to hold the Company harmless from any
claim relating to such fees or compensation made by either Gray or Merger Corp.
or anyone employed by either of them.
5.6 Capitalization.
(1) The authorized capital stock of Gray consists of
15,000,000 shares of Gray Common Stock, 15,000,000 shares of Class A Common
Stock, no par value ("Class A Common Stock"), and 20,000,000 shares of Preferred
Stock, no par value ("Preferred Stock"), of which as of March 11, 1999 there
were issued and outstanding 5,125,465 shares of Gray Common Stock, 6,832,042
shares of Class A Common Stock and 1,000 shares of Series A Preferred Stock and
350 shares of Series B Preferred Stock. As of December 31, 1998, 135,080 issued
shares of Gray Common Stock, 1,129,532 issued shares of Class A Common Stock and
no shares of Preferred Stock were held as treasury shares. All issued shares of
Gray Common Stock, Class A Common Stock and Preferred Stock are duly authorized
and validly issued and are fully paid and nonassessable and no holder thereof is
entitled to preemptive rights. All shares of Gray Common Stock to be issued
pursuant to the Merger, when issued in accordance with this Agreement, will be
duly authorized and validly issued, fully paid and nonassessable and will not
violate the preemptive rights of any person.
(2) All outstanding shares of capital stock of the
consolidated subsidiaries of Gray (the "Gray Subsidiaries") (A) are owned by
Gray or a wholly owned subsidiary of Gray, free and clear of all liens, charges,
encumbrances, adverse claims and options of any nature except for pledge of the
capital stock of the Gray Subsidiaries to secure certain debt of Gray, (B) were
duly authorized and validly issued and are fully paid and nonassessable, and (C)
have not been issued in violation of any preemptive rights. There are not now,
and at the Effective Time there will not be, any outstanding options, warrants,
scrip, rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of any class of capital stock of the Gray Subsidiaries, or contracts,
understandings or arrangements to which Gray or a Gray Subsidiary is a party, or
by which any of them is or may be bound, to issue additional shares of capital
stock or options, warrants, scrip or rights to subscribe for, or securities or
rights convertible into or exchangeable for, any additional shares of capital
stock of any Gray Subsidiary.
(3) As of the date hereof, the authorized capital
stock of Merger Corp. consists of 1,000 shares of common stock, no par value per
share, all of which were duly authorized and validly issued and are fully paid
and nonassessable and are owned by Gray.
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5.7 SEC Filings; Financial Statements. Gray and each of the
Gray Subsidiaries have timely filed all reports, registration statements and
other filings, together with any amendments required to be made with respect
thereto, that they have been required to file with the SEC under the Securities
Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act").
All reports, registration statements and other filings (including all notes,
exhibits and schedules thereto and documents incorporated by reference therein)
filed by Gray with the SEC since January 1, 1998, through the date of this
Agreement, together with any amendments thereto, are sometimes collectively
referred to as the "Gray SEC Filings." As of the respective dates of their
filing with the SEC, the Gray SEC Filings complied in all material respects with
the Securities Act, the Exchange Act and the rules and regulations of the SEC
thereunder, and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
Each of the consolidated financial statements (including any related
notes or schedules) included in the Gray SEC Filings was prepared in accordance
with generally accepted accounting principles applied on a consistent basis
(except as may be noted therein or in the notes or schedules thereto) and
complied with all applicable rules and regulations of the SEC. Such consolidated
financial statements fairly present the consolidated financial position of Gray
and the Gray Subsidiaries as of the dates thereof and the results of operations,
cash flows and changes in stockholders' equity for the periods then ended
(subject, in the case of the unaudited interim financial statements, to normal
year end audit adjustments on a basis consistent with past periods).
5.8 Financial Ability. Gray has the financial ability to close
the transactions contemplated under this Agreement, and will close those
transactions according to the terms of, and subject to the conditions contained
in, this Agreement.
SECTION 6. FCC APPROVAL.
6.1 Filing and Prosecution of Application. Within ten (10)
days after the execution of this Agreement, Gray and the Company shall each file
applications with the FCC requesting the transfer and assignment of the FCC
Licenses of the Station from the Company to Merger Corp. or its assignee (the
"Assignment Application"). Gray and the Company shall take all steps reasonably
necessary to the expeditious prosecution of the Assignment Application to a
favorable conclusion, using their commercially reasonable best efforts
throughout. The parties acknowledge that the Assignment Application to be filed
by Gray will need to include a request for satellite designation of KBTX-TV so
as to authorize continued common control of KBTX-TV and KWTX-TV, and Gray agrees
to prepare and file said request contemporaneously with its Assignment
Application.
6.2 Expenses. Each party shall bear its own expenses in
connection with the preparation of the applicable sections of the Assignment
Application and in connection with the prosecution of such application. The
Company and Gray will divide and pay equally any filing fee or grant fee imposed
by the FCC.
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6.3 Time for FCC Consent. If the FCC rejects the Assignment
Application for incompleteness, it shall be completed by the party (or parties)
whose portion of the Assignment Application was incomplete and then shall be
promptly resubmitted. If the Assignment Application is rejected by the FCC for a
reason which precludes resubmission, this Agreement shall terminate without
notice or other action by the parties. If the FCC accepts the Assignment
Application, whether as initially filed or as resubmitted, then, if the FCC has
not given its written consent to the transfer of the FCC Licenses by December
31, 1999, the time for FCC consent shall be automatically extended until May 31,
2000, so long as no party is otherwise in default hereunder. In the event that
the FCC consent has not been granted on or before May 31, 2000, either party may
terminate this Agreement pursuant to Section 13.4. If the Closing has not
occurred prior to August 15, 1999, the Company shall apply to the FCC prior to
such date for all necessary authorizations to construct and operate digital
television facilities on or before May 1, 2002.
6.4 Control of Station. Until the Closing, Gray shall not,
directly or indirectly, control, supervise, or direct the operation of the
Station, but such operation shall be the sole responsibility of the Company.
Pending the Closing, Gray shall not represent that it is acting as agent or
representative of the Company in connection with the operation of the Station or
any personnel actions affecting the Station's employees.
6.5 No Reversion of Licenses. Neither the Shareholders, nor
any person affiliated with the Shareholders, has retained any right of reversion
of the FCC Licenses. Further, no person affiliated with the Shareholders has the
right to a reassignment of the FCC Licenses in the future, and the Shareholders
or their affiliates have not reserved the right to use the facilities of the
Station for any period whatsoever. There is no contract, arrangement, or
understanding, express or implied, pursuant to which, as consideration or
partial consideration for the transactions contemplated hereby, such rights as
stated above are retained.
6.6 Regulatory Matters. Gray and the Shareholders will
cooperate and use their best efforts to prepare all documentation, to make all
filings, and to obtain all permits, consents, approvals, and authorizations of
all third parties and governmental bodies necessary to consummate the
transactions contemplated by this Agreement. Each party shall be primarily
responsible for accomplishing all such matters applicable to it (or them) but
shall take all such further action in that regard as the other party shall
reasonably request.
SECTION 7. SPECIAL COVENANTS AND AGREEMENTS.
7.1 HSR Act. Within thirty (30) days after the execution of
this Agreement, each of the Company and Gray shall make the filings required by
the HSR Act. The Company and Gray (i) will cooperate with each other in
connection with such HSR Act filings by furnishing each other with any
information or documents that may be reasonably required in connection with such
filing; (ii) will promptly file, after any request by the Federal Trade
Commission ("FTC") or Department of Justice ("DOJ") and after appropriate
negotiation with the FTC or DOJ of the scope of such request, any information or
documents requested by the FTC or DOJ; and (iii) will furnish each other with
any correspondence from or to, and notify each other of any other communications
with, the FTC or DOJ that relates to the transactions contemplated hereunder,
and to the extent practicable,
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to permit each other to participate in any conferences with the FTC or DOJ. The
consummation of the transactions described in this Agreement is expressly
conditioned upon the waiting period relating to any such filings having duly
expired or been terminated by the appropriate Governmental Authorities without
the enforcement of any action by any such agencies to restrain or postpone the
transactions contemplated hereby. The Company and Gray shall share equally in
the payment of filing fees required for the HSR Act filings. In addition, Gray
shall make its legal counsel available to the Company to assist in the
preparation of the Company's filings required by the HSR Act and Gray shall pay
the first $10,000 of the fees of its legal counsel incurred in connection with
the Company's HSR filings.
7.2 Confidentiality. Except as necessary for the consummation
of the transactions contemplated by this Agreement, except as and to the extent
required by law or securities filings, and except as permitted by Section 7.10,
each party will keep confidential any information obtained from the other party
in connection with the transactions contemplated by this Agreement. If this
Agreement is terminated, each party will return to the other party all
information obtained by such party from the other party in connection with the
transactions contemplated by this Agreement.
7.3 Cooperation. Gray and the Company shall cooperate fully
with each other and their respective counsel and accountants in connection with
any actions required to be taken as part of their respective obligations under
this Agreement, and Gray and the Company shall execute such other documents as
may be necessary and desirable to implement and consummate this Agreement, and
shall otherwise use their commercially reasonable efforts to consummate the
transaction contemplated hereby and to fulfill their obligations under this
Agreement, including without limitation accomplishing the events listed in
Section 13.6 by the dates identified in such Section.
7.4 Access to Books and Records. Gray shall provide the
Shareholder Representatives reasonable access and the right to copy for a period
of three years from the Closing Date any books and records relating to the
Company.
7.5 Certain Investments. Prior to the Closing, the Company
will liquidate any and all investment securities and cash equivalents which it
owns so that the current assets of the Company at the time of the Closing will
consist only of cash, accounts receivable and prepaid expenses. Prior to the
Closing, Employee accounts will be liquidated or written off at the election of
the Company.
7.6 Acquisition Proposals. None of the Shareholders, the
Company or any of its officers and directors shall, and the Company and each of
the Shareholders will use its best efforts to cause its respective employees,
agents, and representatives (including, without limitation, any investment
banker, attorney or accountant retained by the Company or the Shareholders) not
to, initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any proposal with respect to a merger, consolidation, share exchange
or similar transaction involving the Company, or any purchase of all or any
significant portion of the assets of the Company, or any equity interest in the
Company, other than the transactions contemplated hereby (an "Acquisition
Proposal"), or
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engage in any negotiations concerning, or provide any confidential information
or data to, or have any discussions with, any person relating to an Acquisition
Proposal.
7.7 Meetings of Shareholders. The Company will take all action
necessary in accordance with applicable law and its Articles of Incorporation
and By-Laws to convene a meeting of the Shareholders (the "Shareholder Meeting")
as promptly as practicable to consider and vote upon the approval of the Merger.
7.8 Meetings of Gray and Merger Corp. Shareholders. Gray and
Merger Corp. will each take all actions necessary in accordance with applicable
law and its Articles of Incorporation and By-Laws to convene a meeting of its
shareholders as promptly as practicable to consider and vote upon the approval
of the Merger, and to convene subsequent meetings of its shareholders as
necessary to consider and vote upon such other matters as may be required by
this Agreement.
7.9 Registration Statements.
(1) Gray will, at its sole cost and expense, as
promptly as practicable, prepare and file with the SEC a registration statement
on Form S-4 or other appropriate form (the "Registration Statement"), containing
a proxy statement/prospectus, in connection with the registration under the
Securities Act of the Gray Common Stock issuable upon conversion of the Shares
and the other transactions contemplated hereby. The Company will, as promptly as
practicable, prepare a proxy statement that will be the same proxy
statement/prospectus contained in the Registration Statement and form of proxy,
in connection with the vote of the Company's Shareholders with respect to the
Merger (such proxy statement/prospectus, together with any amendments thereof or
supplements thereto, in each case in the form or forms mailed to the Company's
Shareholders, is herein called the "Proxy Statement/Prospectus"). Gray and the
Company will use their commercially reasonable best efforts to have or cause the
Registration Statement declared effective as promptly as practicable, and also
will take any other action required to be taken under federal or state
securities laws, and the Company will use its commercially reasonable best
efforts to cause the Proxy Statement/Prospectus to be mailed to the Shareholders
at the earliest practicable date including without limitation, by providing to
Gray all financial statements, financial information and business information
required or desirable for the Registration Statement and the Proxy
Statement/Prospectus.
(2) Gray will, at its sole cost and expense, as
promptly as practicable after the Closing Date, prepare and file with the SEC a
registration statement on Form S-3 or other appropriate form (the "Resale
Registration Statement"), containing a prospectus, in connection with the
registration under the Securities Act of the resale by the Shareholders of the
Gray Common Stock issued in the Merger that are not otherwise eligible for
public resale without limitation without an effective resale registration
statement. Gray and the Company will use their commercially reasonable best
efforts to have or cause the Resale Registration Statement declared effective as
promptly as practicable, and also will take any other action required to be
taken under federal or state securities laws, and the Company and the
Shareholders will provide to Gray all financial statements,
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financial information and business information required or desirable for the
Resale Registration Statement. In the event that the Company and the
Shareholders whose Gray Common Stock is to be resold under the Resale
Registration Statement do not comply with the terms of this Section 7.9(2),
including without limitation, by providing information regarding such selling
Shareholders, the Company, Brazos Broadcasting Company and the means of
distribution of all Gray Common Stock to be resold pursuant thereto, then Gray
automatically shall be excused from its obligations pursuant to this Section
7.9(2). Notwithstanding any other provision of this Section 7.9 to the contrary,
Gray shall not pay for, or otherwise be responsible for, any brokerage or
similar expenses associated with the resale of any of the Gray Common Stock.
Promptly upon request from Gray no more frequently than once each 12 month
period, the Shareholder Representative shall provide Gray with the identity of
such Shareholder who has resold any of the Gray Common Stock issued in the
Merger and the number of shares of Gray Common Stock sold by each such
Shareholder. Gray shall use its commercially reasonable best efforts to keep the
Resale Registration Statement effective until the earlier of (i) the date on
which all of the Gray Common Stock initially covered by the Resale Registration
Statement has been sold by the Shareholders or (ii) the date on which all of the
Gray Common Stock initially covered by the Resale Registration Statement is
eligible for public resale without limitation without an effective resale
registration statement. During such time as the effectiveness of the Resale
Registration Statement is required to be maintained pursuant to the preceding
sentence, Gray timely shall make all filings with the SEC and the NYSE necessary
to maintain the effectiveness of the Resale Registration Statement.
(3) Gray shall cause (i) the Registration Statement
and the Resale Registration Statement to comply as to form in all material
respects with the requirements of the Securities Act and the Exchange Act and
the respective rules and regulations adopted thereunder, and (ii) the
Registration Statement and the Resale Registration Statement (except with
respect to information concerning the Company and the Brazos Broadcasting
Company furnished in writing by or on behalf of the Company specifically for use
therein, for which information the Shareholders shall be responsible) and the
Proxy Statement (but only with respect to information concerning Gray and the
Gray Subsidiaries furnished in writing by or on behalf of Gray specifically for
use therein, for which information Gray shall be responsible) to not contain any
untrue statement of any material fact or omit to state any material fact
required to be stated therein or necessary to make the statements made therein
not misleading. Gray will advise the Company in writing if prior to the
Effective Time it shall obtain knowledge of any fact that would, in its opinion,
make it necessary to amend or supplement the Registration Statement or the
Resale Registration Statement in order to make the statements therein not
misleading or to comply with applicable law.
(4) Prior to Closing, the Company will indemnify
Gray, its directors, officers, employees and agents, and each Person who
controls Gray within the meaning of Section 15 of the Securities Act against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained (or incorporated by reference) in the
Registration Statement, the Proxy Statement/Prospectus or the Resale
Registration Statement or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse Gray and such directors, officers,
employees and agents
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and control Persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made (or incorporated by reference) in the Registration Statement,
the Proxy Statement/Prospectus or the Resale Registration Statement in reliance
upon and in conformity with information furnished to Gray by the Company or any
of the Shareholders for use therein.
(5) After Closing, each of the Shareholders will
indemnify the Company and Gray, each of their respective directors, officers,
employees and agents, and each Person who controls the Company or Gray within
the meaning of Section 15 of the Securities Act against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained (or incorporated by reference) in the Registration Statement, the
Proxy Statement/Prospectus or the Resale Registration Statement or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Company and Gray and such directors, officers, employees and
agents and control Persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made (or incorporated by reference) in the Registration Statement,
the Proxy Statement/Prospectus or the Resale Registration Statement in reliance
upon and in conformity with information furnished to Gray by the Company or any
of the Shareholders for use therein.
7.10 Publicity. The parties hereto agree that they will
consult with each other concerning any proposed press release or public
announcement pertaining to the Merger and shall use their best efforts to agree
upon the text of any such press release or the making of such public
announcement.
7.11 Registration and Listing of Gray Common Stock. Gray will
use its commercially reasonable best efforts to file the Registration Statement
with respect to the Gray Common Stock to be issued pursuant to this Agreement
under the applicable provisions of the Securities Act, and Gray will use its
commercially reasonable best efforts to cause the Gray Common Stock to be issued
pursuant to this Agreement to be listed for trading on the NYSE.
7.12 Supplying of Financial Statements. The Company shall
deliver to Gray within twenty (20) days following the end of each month true and
complete copies of all unaudited monthly financial statements of the Company for
each calendar month ending subsequent to December 31, 1998 and prior to the
Closing Date in the format historically utilized internally by the Company and,
to the extent applicable, within ninety (90) days following the end of each year
true and completed copies of annual audited financial statements of the Company
for each year subsequent to 1998.
7.13 Supplements to Schedules. The Company shall from time to
time after the date hereof, supplement or amend the Schedules referred to in
Section 4 with respect to any matter
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arising after the date hereof which, if existing or occurring at the date
hereof, would have been required to be set forth or described in such Schedules.
Gray may unilaterally extend the Closing Date if necessary to allow Gray ten
(10) business days to review such supplements to the Schedules prior to the
Closing Date. If, in Gray's reasonable determination, any such supplements to
the Schedules reveal any Material Adverse Change, or any condition or event that
reasonably threatens to result in a Material Adverse Change, Gray shall give
written notice to the Company of its determination. The Company shall then have
a period of ten (10) business days to reasonably satisfy Gray that there has
been no Material Adverse Change, or to remedy such Material Adverse Change, or
such condition or event, to Gray's reasonable satisfaction. If, following such
ten (10) business day cure period, in Gray's reasonable determination, such
Material Adverse Change, or such condition or event that reasonably threatens to
result in a Material Adverse Change, still exists, Gray may terminate this
Agreement pursuant to Section 13.5.
7.14 Affiliates of the Company. Prior to the Closing Date, the
Company shall deliver to Gray a letter identifying all Persons who are
reasonably and in good faith believed to be, at the time of the Shareholder
Meeting, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act. The Company shall use its best efforts to cause each Person who
is so identified as an affiliate to deliver to Gray, on or prior to the Closing
Date, a written agreement, in form reasonably satisfactory to Gray, that such
Person will not offer to sell or otherwise dispose of any of the shares of Gray
Common Stock issued in connection with the Merger in violation of the Securities
Act.
SECTION 8. CONDITIONS PRECEDENT FOR THE COMPANY.
The Company's obligation to effect the Merger shall be
subject, to the extent not waived, to the satisfaction of each of the following
conditions at or prior to the Closing.
8.1 Representations and Warranties. The representations and
warranties of Gray and Merger Corp. contained in this Agreement shall be true,
complete, and correct in all material respects as of the date when made and,
except for changes expressly contemplated by this Agreement, on and as of the
Closing Date as though such representations and warranties had been made on and
as of the Closing Date, and Gray and Merger Corp. shall have delivered to the
Shareholder Representatives a certificate, signed by the Chairman or the
President of Gray and Merger Corp. and dated the Closing Date, to such effect.
8.2 Performance of this Agreement. Each of Gray and Merger
Corp. shall have performed and complied in all material respects with all
covenants, conditions, and agreements required by this Agreement to be performed
or complied with by it prior to or on the Closing Date and Gray and Merger Corp.
shall have delivered to the Company and its counsel all of the documents
specified or required to be delivered in accordance with the provisions hereof.
8.3 Proceedings. All corporate and other proceedings to be
taken by Gray and Merger Corp. in connection with the transactions contemplated
hereby shall have been completed and all such proceedings and all documents
incident thereto shall be reasonably satisfactory in
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substance and form to the Company, and the Company shall have received all such
counterpart originals or certified or other copies of such documents as the
Company may reasonably request.
8.4 FCC Consent. The FCC Consent shall have been granted
without the imposition of any condition thereon adverse to the Company or the
Shareholders and (unless waived by the Company) shall have become a Final Order.
All other consents and authorizations by third parties and all governmental
consents, approvals, licenses, and permits, the granting of which are necessary
for the consummation of the transactions contemplated hereby or for preventing
the termination of any material right, privilege, license, or agreement of the
Company or Merger Corp. related to the Station, or any material loss or
disadvantage to the Company or Merger Corp., upon the consummation of the
transactions contemplated hereby, shall have been obtained or made.
8.5 Litigation. No order of any court or administrative agency
shall be in effect which restrains or prohibits the transactions contemplated
hereby, there shall not be pending any action, inquiry, investigation, or
proceeding by or before any court or governmental agency or other regulatory or
administrative agency or commission challenging any of the transactions
contemplated by this Agreement.
8.6 Expiration of HSR Waiting Periods. All applicable waiting
periods, including any extensions thereof, relating to the HSR Act, shall have
expired or otherwise terminated.
8.7 Effective Registration Statement. The Registration
Statement shall have become effective and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC
or any other Governmental Authority.
8.8 Legal Opinion. The Company shall have received a favorable
opinion from Alston & Bird LLP, Heyman & Sizemore or Proskauer Rose LLP (or a
combination thereof), counsel for Gray and Merger Corp., dated as of the Closing
Date, in form and substance satisfactory to the Company, to the effect that:
(1) each of Gray and Merger Corp. is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Georgia and has the corporate power and authority to own and operate
its properties and to carry on its business as being conducted and to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated by this Agreement;
(2) all necessary corporate, stockholder and other
action has been taken on the part of each of Gray and Merger Corp. to authorize
and approve this Agreement and the transactions contemplated hereby; and this
Agreement has been duly executed and delivered by each of Gray and Merger Corp.;
(3) Gray has full legal power and authority to issue
and deliver the shares of Gray Common Stock to the Shareholders in the manner
contemplated by this Agreement; such
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shares are duly authorized and, upon consummation of the Merger, will be validly
issued, fully paid and nonassessable and free of any lien, encumbrance, equity
or claim created or suffered to exist by Gray or Merger Corp.;
(4) the execution, delivery and performance of this
Agreement by Gray and Merger Corp. and the consummation by Gray and Merger Corp.
of the transactions contemplated by this Agreement (i) will not result in a
breach or violation by Gray or Merger Corp. of, or constitute a default by Gray
or Merger Corp. under, any statute, rule, regulation, judgment, decree, order,
governmental permit or license, agreement, indenture or instrument included as
an exhibit to the Gray SEC Filings to which Gray or any of its subsidiaries,
including Merger Corp., is a party or by which Gray or any of its subsidiaries
is bound or the Certificate or Articles of Incorporation or Bylaws of Gray or
any of its subsidiaries and (ii) do not require any consents, approvals,
authorizations, registrations or filings by Gray or Merger Sub that have not
been obtained or completed;
(5) the shares of Gray Common Stock which will be
delivered to the Shareholders pursuant to this Agreement are authorized for
listing on the New York Stock Exchange upon official notice of issuance; and the
stockholders of Gray have no preemptive rights with respect to such shares;
(6) the Registration Statement with respect to the
shares of Gray Common Stock which will be delivered to the Shareholders pursuant
to this Agreement has become effective; to the best of such counsel's knowledge
no stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been initiated or
threatened by the SEC;
(7) except only for matters set forth in the
Agreement or Schedules thereto or in the Gray SEC Filings, to the best of such
counsel's knowledge there is no legal action or governmental proceeding or
investigation pending or threatened against or affecting Gray or any of its
subsidiaries or their respective businesses, properties, assets or goodwill
which if determined adversely to Gray or any of its subsidiaries would
individually or in the aggregate have a material adverse effect on the
consolidated financial condition or results of operations of Gray or would
materially adversely affect or prevent the Merger;
(8) as of the effective time specified in the
Certificate of Merger each issued and outstanding share of Company Common Stock
will be converted into the consideration provided in Section 3.1 of the
Agreement.
In addition, such opinion shall state that such counsel has participated
in the preparation of the Registration Statement and in conferences with
officers and other representatives of the Company, representatives of the
independent public accountants for the Company, and representatives of the
Shareholders, at which the contents of the Registration Statement and related
matters were discussed and, although such counsel has made certain inquiries and
investigations in connection with the preparation of the Registration Statement,
such counsel did not independently verify the accuracy or completeness of the
statements made in the Registration Statement and the
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limitations inherent in the role of outside counsel are such that such counsel
cannot and does not assume responsibility for or pass on the accuracy and
completeness of such statements, except insofar as such statements relate to
such counsel and to the extent set forth in certain specified paragraphs of the
Registration Statement. Subject to the foregoing, such counsel shall state to
the Shareholders that such counsel's work in connection with this matter did not
disclose any information that caused such counsel to believe that the
Registration Statement as of its date or as of the Effective Time, included or
includes an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances in which they were made, not misleading (other than financial
statement and other information of a statistical or financial nature which are
or should be contained therein and other than FCC and other regulating matters,
as to which such counsel need express no view).
8.9 Tax Opinion. Unless Gray and Merger Corp. exercise the
Cash Election Option described in Section 3.1(3) above, the Company shall have
received an opinion from King & Spalding or such other tax counsel as is
reasonably acceptable to the Company, dated as of the Effective Time,
substantially to the effect that, on the basis of the facts, representations and
assumptions set forth in such opinions that are consistent with the state of
facts existing at the Effective Time, the Merger will be treated for Federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code and that accordingly:
(i) No gain or loss should be recognized by Gray,
the Company or Merger Corp. as a result of the Merger; and
(ii) No gain or loss should be recognized by the
Shareholders to the extent that they exchange their Company Common Stock for
Gray Common Stock pursuant to the Merger (except with respect to cash received
in lieu of a fractional share interest in Gray Common Stock).
In rendering such opinion, such counsel may require and rely
upon representations and covenants including those contained in certificates of
officers of Gray, the Company and Merger Corp. and others.
8.10 NYSE Listing. The shares of Gray Common Stock issuable
pursuant to this Agreement shall have been approved for listing on the New York
Stock Exchange.
8.11 Voting Agreement and Irrevocable Proxy. Simultaneously
with the execution of this Agreement, each of Hilton H. Howell, Jr., Robert S.
Prather, Jr., J. Mack Robinson, Harriet J. Robinson and Bull Run Corporation
shall enter into a Voting Agreement and Irrevocable Proxy in form and substance
reasonably acceptable to the Company.
SECTION 9. CONDITIONS PRECEDENT FOR GRAY AND MERGER CORP.
Gray's and Merger Corp.'s obligations to effect the Merger
shall be subject, to the extent not waived, to the satisfaction of each of the
following conditions at or prior to the Closing.
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9.1 Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true, complete,
and correct in all material respects as of the date when made and, except for
changes expressly contemplated by this Agreement, on and as of the Closing Date,
as though such representations and warranties had been made on and as of the
Closing Date, and the Company shall have delivered to Gray and Merger Corp. a
certificate, signed by the Chairman or the President of the Company and dated
the Closing Date, to such effect.
9.2 Performance of this Agreement. The Company and the
Shareholders shall have performed and complied in all material respects with all
covenants, conditions, and agreements required by this Agreement to be performed
or complied with by it prior to or on the Closing Date and the Company and the
Shareholders shall have delivered to Gray and Merger Corp. and their counsel all
of the instruments of transfer, certificates, Exhibits, Schedules, and other
documents specified or required to be delivered in accordance with the
provisions hereof.
9.3 Proceedings. All corporate and other proceedings to be
taken by the Company, its Board of Directors and the Shareholders in connection
with the transactions contemplated hereby shall have been completed and all such
proceedings and all documents incident thereto shall be reasonably satisfactory
in substance and form to Gray and Merger Corp., and Gray and Merger Corp. shall
have received all such counterpart originals or certified or other copies of
such documents as Gray may reasonably request.
9.4 FCC Consent. The FCC Consent shall have been granted
without the imposition of any condition thereon adverse to Gray or Merger Corp.
and (unless waived by Gray) shall have become a Final Order. All other consents
and authorizations by third parties and all governmental consents, approvals,
licenses, and permits, the granting of which are necessary for the consummation
of the transactions contemplated hereby or for preventing the termination of any
material right, privilege, license, or agreement of the Company or Merger Corp.
related to the Station, or any material loss or disadvantage to Gray or Merger
Corp., upon the consummation of the transactions contemplated hereby, shall have
been obtained or made. Gray hereby agrees that a determination by the Mass Media
Bureau of the FCC that KBTX-TV is a satellite of KWTX-TV does not constitute an
adverse condition. The Company hereby agrees that a determination by the Mass
Media Bureau of the FCC that KBTX-TV is not a satellite of KWTX-TV does
constitute an adverse condition.
9.5 Litigation. No order of any court or administrative agency
shall be in effect which restrains or prohibits the transactions contemplated
hereby or which would limit or affect Gray's ownership or control of the
Company, the Station or Merger Corp., and there shall not be pending any action,
inquiry, investigation, or proceeding by or before any court or governmental
agency or other regulatory or administrative agency or commission challenging
any of the transactions contemplated by this Agreement.
9.6 Opinions of Counsel for the Company. Gray and Merger Corp.
shall have received opinions from Deaver & Deaver, counsel to the Company, and
from Dennis Kelly, special FCC counsel to the Company, dated as of the Closing
Date, in substantially the forms attached hereto as Exhibits F and G,
respectively.
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9.7 Title Insurance Policies. Gray or Merger Corp., at Gray's
sole cost and expense, shall have received standard form policies of owner's or
lessee's title insurance, issued by a title insurance company doing business in
the state in which such property is located, acceptable to Gray, insuring the
Company's title as owner or as lessee, as the case may be, with current survey
coverage, based on a current ALTA Survey, in form and substance reasonably
satisfactory to Gray, in all of the Real Property in amounts specified by Gray,
containing only those exceptions, conditions, and reservations acceptable to
Gray and its counsel in their reasonable discretion (collectively, the
"Permitted Exceptions"), together with legible copies of the documents creating
the Permitted Exceptions.
9.8 Environmental Audit.
(1) Gray, at Gray's sole cost and expense, shall have
received the written results of an environmental audit, prepared at the
direction of Gray, confirming that:
(i) The Real Property does not contain any
hazardous wastes, hazardous substances, toxic substances, hazardous air
pollutants, or toxic pollutants, as those terms are defined in state and federal
environmental laws and regulations promulgated pursuant to such laws, in amounts
which are in violation of such laws or regulations;
(ii) No part of the Real Property is currently or
potentially subject to any federal, state, or local compliance or enforcement
action, clean-up action, or other action because of the presence of stored,
leaked, spilled, or disposed petroleum products, waste materials or debris,
"PCB's" or "PCB items," underground storage tanks, "asbestos," or any dangerous,
hazardous, or toxic substance as defined in or regulated by any federal or state
or local laws, regulations, or orders;
(iii) No part of the Real Property has been
filled with debris, garbage, stumps, or other similar waste materials; and
(iv) No condition currently exists on the Real
Property, whether owned or leased, which is or may be characterized by any
federal, state, or local government or agency as an actual or potential threat
or danger to public health or the environment.
(2) If the environmental audit obtained by Gray
recommends remedial measures to clean up contamination identified in the
environmental audit, the Company may complete the remedial measures at its sole
cost and expense so long as such cost and expense is less than the Working
Capital Surplus of the Company, in which case, the time for the Closing
hereunder shall be extended up to 120 days as reasonably necessary to allow for
such remediation. If the Company refuses to complete such remedial measures,
Gray may, at Gray's option,
(i) complete the remedial measures at Gray's sole
cost and expense, in which case, the time for Closing hereunder shall be
extended as reasonably necessary to allow for such remediation and the cash
portion of the Merger Consideration shall be reduced by such cost and expense,
or
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(ii) cancel and terminate this Agreement without
further liability to Gray or the Company.
9.9 Expiration of HSR Waiting Periods. All applicable waiting
periods, including any extensions thereof, relating to the HSR Act, shall have
expired or otherwise terminated.
9.10 Consummation of Related Transactions. All conditions and
approvals necessary for the consummation of related transactions under the KBTX
Agreement shall have occurred or been performed or fulfilled, so that the
transactions described under this Agreement can be closed simultaneously with or
immediately prior to the closing under the KBTX Agreement.
9.11 Effective Registration Statement. The Registration
Statement shall have become effective and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC
or any other Governmental Authority.
9.12 Tax Opinion. Unless Gray and Merger Corp. exercise the
Cash Election Option described in Section 3.1(3) above, Gray and Merger Corp.
shall have received an opinion from King & Spalding or such other tax counsel as
is reasonably acceptable to Gray and Merger Corp., dated as of the Effective
Time, substantially to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinions that are consistent
with the state of facts existing at the Effective Time, the Merger will be
treated for Federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code and that accordingly:
(i) No gain or loss should be recognized by Gray,
the Company or Merger Corp. as a result of the Merger; and
(ii) No gain or loss should be recognized by the
Shareholders who exchange their Company Common Stock for Gray Common Stock
pursuant to the Merger (except with respect to cash received in lieu of a
fractional share interest in Gray Common Stock).
In rendering such opinion, such counsel may require and rely
upon representations and covenants including those contained in certificates of
officers of Gray, the Company and Merger Corp. and others.
9.13 NYSE Listing. The shares of Gray Common Stock issuable
pursuant to this Agreement shall have been approved for listing on the New York
Stock Exchange.
9.14 Gray Shareholder Approval. The shareholders of Gray shall
have approved the issuance of the Gray Common Stock as required by this
Agreement.
9.15 Affiliates of the Company. On or prior to the Closing
Date, Gray shall have received the agreements and instruments referred to in
Section 7.13.
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9.16 Voting Agreement and Irrevocable Proxy. Simultaneously
with the execution of this Agreement, each Shareholder of the Company who is an
officer or director of the Company or who holds at least 5% of the outstanding
Company Common Stock shall enter into a Voting Agreement and Irrevocable Proxy
in form and substance reasonably acceptable to Gray and Merger Corp.
9.17 Shareholder Approval. This Agreement and the merger
contemplated hereby shall have been approved by an affirmative vote of all of
the Shareholders.
9.18 Due Diligence and Schedules. Gray and Merger Corp. shall
be reasonably satisfied with their due diligence review of the Company and the
Station, including the information disclosed on the Schedules. This condition
shall be deemed to have been satisfied if notice to the contrary has not been
given to the Company no later than ten (10) business days after receipt by Gray
and Merger Corp. of all of the due diligence information reasonably requested by
the them and receipt by Gray and Merger Corp. of all of the Schedules.
SECTION 10. CLOSING.
10.1 Deliveries by the Company. At the Closing, Gray will
release and pay or cause the payment of the Merger Consideration upon receipt of
the following instruments and documents executed by the Company, where
appropriate, in form and content satisfactory to Gray and its counsel:
(1) All original minute book(s) and stock transfer
book(s) of the Company;
(2) The corporate seal of the Company;
(3) A true and complete copy of the Articles of
Incorporation of the Company and all amendments thereto certified by its state
of incorporation;
(4) A Certificate of Account Status for the Company
from the Texas Comptroller of Public Accounts, dated no more than thirty (30)
days prior to the Closing Date;
(5) A true and complete copy of the Bylaws and all
amendments thereto of the Company certified by its secretary;
(6) A certificate of the secretary of the Company
stating that the Articles of Incorporation have not been amended since the date
of the certificate described in Subsection 10.1(3) above and that nothing has
occurred since the date of issuance of the Certificate of Account Status
specified in Subsection 10.1(4) above that would adversely affect the Company's
corporate existence or good standing;
(7) The Closing Certificate referred to in Section
9.1 of this Agreement;
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(8) An Owner's and Contractor's Affidavit and such
other form documents, instruments or information as may be requested by the
title insurance company which is providing owner's or lessee's title insurance
coverage for the Real Property;
(9) The opinions of the Company's counsel and the
Company' special FCC counsel; and
(10) Such other documents as Gray or its Counsel may
reasonably request for the complete fulfillment of the Company's and the
Shareholders' obligation hereunder.
10.2 Postponement of Closing Date.
(1) If either the average Market Value (as defined in
Section 3.2(1)(ii)) during the Valuation Period (as defined in Section
3.2(1)(iii)) or the Market Value at the Closing Date is less than $10 per share
and additional shares of Gray Common Stock are required to be issued pursuant to
Section 3.2(7), Gray may unilaterally extend the Closing Date for as much time
as reasonably may be required to allow Gray to obtain approval of Gray's
shareholders for the issuance of additional shares of Gray Common Stock
sufficient to allow the Closing to occur and to effect the registration of such
Gray Common Stock under the Securities Act and the listing of such Gray Common
Stock for trading on the NYSE.
(2) In the event that Gray and Merger Corp. elect in
their sole and absolute discretion to pay the Merger Consideration pursuant to
the Cash Election Option (as defined in Section 3.1(3)), Gray in its sole and
absolute discretion may unilaterally extend the Closing Date for thirty (30)
days from the time of the exercise of the Cash Election Option.
SECTION 11. INDEMNIFICATION.
11.1 By the Shareholders. After the Closing Date, to the limit
of the Escrow Fund described in Section 11.4, below, the Shareholders shall
indemnify and hold harmless each of Gray and Merger Corp. and their respective
officers, directors, employees, agents, representatives, successors, and
permitted assigns against:
(1) any damages, losses, obligations, liabilities,
claims, actions, or causes of action sustained or suffered by Gray or Merger
Corp. and arising from a breach of any representation or warranty of the Company
or the Shareholders contained in this Agreement;
(2) any damages, losses, obligations, liabilities,
claims, actions, or causes of action sustained or suffered by Gray or Merger
Corp. and arising from a breach of any agreement of the Company or the
Shareholders contained in this Agreement;
(3) any damages, losses, obligations, liabilities,
claims, actions, or causes of action sustained or suffered by Gray or Merger
Corp. and arising from any debt, obligation, or liability of the Company not
specifically and expressly reflected on the Company's December 31,
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1998 Balance Sheet, or if incurred in the ordinary course of business
thereafter, on the Final Balance Sheets, including any Taxes relating to the
period ending on the Closing Date;
(4) any damages, losses, obligations, liabilities,
claims, actions or causes or action sustained or suffered by Gray or Merger
Corp. and arising from a breach of any representation, warranty or agreement of
the Company or the Shareholders relating to the sale of the Brazos Shares or
arising under corresponding provisions of this Section 11 contained in the KBTX
Agreement;
(5) any damages, losses, obligations, liabilities,
claims, actions, or causes of action sustained or suffered by Gray or Merger
Corp. and arising from any Environmental Claim or any Environmental Matter;
(6) all ordinary and necessary costs, expenses, or
settlement payments (including, without limitation, reasonable attorneys',
accountants', and other professional fees) incurred by Gray in connection with
any action, claim, suit, proceeding, demand, assessment, or judgment incident to
any of the matters indemnified against under this Section 11.
The Company and the Shareholders acknowledge and agree that the provisions of
this Section 11 are intended to complement corresponding provisions of the KBTX
Agreement so that Gray and Merger Corp. shall be entitled to indemnification for
and recovery of any damages, losses, obligations, liabilities, claims, actions
or causes of action sustained or suffered by Gray or Merger Corp. on account of
acquisition of Brazos Broadcasting Company, payable one-half from the
Shareholders and one-half from the persons named as the Shareholders in the KBTX
Agreement, on a several and pro-rata basis.
11.2 By Gray and Merger Corp. After the Closing Date, to the
limit of the amount of the Escrow Fund, from time to time, described in Section
11.4 below, each of Gray and Merger Corp. shall indemnify and hold harmless the
Shareholders and their respective successors and permitted assigns against:
(1) any damages, losses, obligations, liabilities,
claims, actions, or causes of action sustained or suffered by the Shareholders
and arising from a breach of any representation or warranty of Gray or Merger
Corp. contained in this Agreement;
(2) any damages, losses, obligations, liabilities,
claims, actions, or causes of action sustained or suffered by the Shareholders
and arising from a breach of any agreement of Gray or Merger Corp. contained in
this Agreement;
(3) any damages, losses, obligations, liabilities,
claims, actions, or causes of action sustained or suffered by the Shareholders
and arising from (a) any debt, obligation, or liability of the Company properly
reflected on the Final Balance Sheets; or, (b) the conduct of the business of
the Company after the Closing Date;
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(4) any taxes incurred by the Company, Gray or Merger
Corp., resulting from the merger contemplated hereby; and
(5) all ordinary and necessary costs, expenses, or
settlement payments (including, without limitation, reasonable attorneys',
accountants', and other professional fees) incurred by the Shareholders or the
Shareholder Representative in connection with any action, suit, proceeding,
demand, assessment, or judgment incident to any of the matters indemnified
against under this Section 11.
11.3 Procedure for Indemnification. The procedure for
indemnification shall be as follows:
(1) The party claiming indemnification (the
"Claimant") shall promptly give notice to the party from which indemnification
is claimed (the "Indemnifying Party") of any claim, whether between the parties
or brought by a third party, specifying in reasonable detail the factual basis
for the claim. If the claim relates to an action, suit, or proceeding filed by a
third party against Claimant, such notice shall be given by Claimant within ten
(10) days after written notice of such action, suit, or proceeding was given to
Claimant, provided that any failure to give notice of such action, suit, or
proceeding within such ten (10) day period shall not relieve the Indemnifying
Party of its obligations hereunder except to the extent such failure shall have
prejudiced such party in the defense or resolution of any such claim. The notice
of a claim may be amended on one or more occasions with respect to the amount of
the claim at any time prior to final resolution of the obligation to indemnify
relating to the claim.
(2) With respect to claims solely between the
parties, following receipt of notice from the Claimant of the claim, the
Indemnifying Party shall have thirty (30) days to make such investigation of the
claim as the Indemnifying Party deems necessary or desirable. For the purposes
of such investigation, the Claimant agrees to make available to the Indemnifying
Party and/or its authorized representatives the information relied upon by the
Claimant to substantiate the claim. If the Claimant and the Indemnifying Party
agree at or prior to the expiration of the thirty-day (30) period (or any
mutually agreed upon extension thereof) to the validity and amount of such
claim, the Indemnifying Party shall immediately pay to the Claimant the amount
of the claim. If the Claimant and the Indemnifying Party do not agree within the
thirty-day (30) period (or any mutually agreed upon extension thereof), the
Claimant may seek an appropriate remedy at law or equity.
(3) With respect to any claim by a third party as to
which the Claimant is entitled to indemnification under this Agreement, the
Indemnifying Party shall have the right, at its own expense, to participate in
or assume control of the defense of such claim, and the Claimant shall cooperate
fully with the Indemnifying Party, subject to reimbursement for actual
out-of-pocket expenses incurred by the Claimant as the result of a request by
the Indemnifying Party. The Indemnifying Party may elect to compromise or
contest, at its own expense and with counsel reasonably acceptable to the
Claimant, any third party claim. If the Indemnifying Party elects to compromise
or contest such third party claim, it shall within thirty (30) days after
receipt of the notice of the claim (or sooner, if the nature of the third party
claim so requires) notify the Claimant of its intent to do so by sending a
notice to the Indemnified Party (the "Contest Notice"), and the
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Claimant shall cooperate, at the expense of the Indemnifying Party, in the
compromise or contest of such third party claim. If the Indemnifying Party
elects not to compromise or contest the third party claim, fails to notify the
Claimant of its election as herein provided or contests its obligation to
indemnify under this Agreement, the Claimant (upon further notice to the
Indemnifying Party) shall have the right to pay, compromise or contest such
third party claim on behalf of and for the account and risk of the Indemnifying
Party. Anything in this Section 11.3 to the contrary notwithstanding, (i) the
Claimant shall have the right, at its own cost and for its own account, to
compromise or contest any third party claim, and (ii) the Indemnifying Party
shall not, without the Claimant's written consent, settle or compromise any
third party claim or consent to entry of any judgment which does not include an
unconditional term releasing the Claimant from all liability in respect of such
third party claim. In any event, the Claimant and the Indemnifying Party may
participate, at their own expense, in the contest of such third party claim. In
addition, with respect to any claim related to Taxes, Gray and Merger Corp.
shall have the right to participate in and attend any meeting or proceeding (at
Gray's and Merger Corp.'s own cost and expense) with respect thereto, shall be
provided with copies of any written communication or information regarding any
oral communication with respect thereto as soon as possible after the receipt
thereof (including, but not limited to, information with respect to any proposed
meeting or proceeding) and shall have the right to approve any settlement
thereof if the terms of such settlement could increase, directly or indirectly,
any liability for Taxes of Gray or Merger Corp. in any period following the
Closing. If the Indemnifying Party elects to assume control of the defense of a
third-party claim, the Claimant shall have the right to participate in the
defense of such claim at its own expense. If the Indemnifying Party does not
elect to assume control or otherwise participate in the defense of any third
party claim, it shall be bound by the results obtained by the Claimant with
respect to such claim.
(4) If a claim, whether between the parties or by a
third party, requires immediate action, the parties will make every effort to
reach a decision with respect thereto as expeditiously as possible.
(5) The indemnification rights provided in Sections
11.1 and 11.2 shall extend to the shareholders, directors, officers, members,
employees, and representatives of any Claimant.
11.4 Escrow Fund. At the Closing, the sum of Seven Hundred
Fifty Thousand Dollars ($750,000.00) out of the Merger Consideration (the
"Escrow Fund") shall be deposited with the Escrow Agent. The Escrow Fund shall
be held in accordance with the terms hereof and the terms of the Escrow
Agreement substantially in the form of Exhibit B attached hereto. The Escrow
Fund shall be used as a source of funds to satisfy indemnification claims by
Gray and Merger Corp. under this Section 11. Upon final determination of a claim
in favor of Gray and Merger Corp. by a court of competent jurisdiction or by
mutual agreement of Gray, Merger Corp. and the Shareholder Representative, Gray
and Merger Corp. shall be entitled to the amount of such claim from the Escrow
Fund. On the first anniversary of the Closing Date, the Escrow Fund shall be
reduced to Three Hundred Seventy-Five Thousand Dollars ($375,000.00), unless
there are outstanding claims presented by Gray or Merger Corp. against the
Escrow Fund, in which case, the Escrow Fund shall
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be reduced to the sum which is Three Hundred Seventy-Five Thousand Dollars
($375,000.00) more than the pending claims of Gray and Merger Corp. All claims
by Gray and Merger Corp. against the Escrow Fund must be made by Gray or Merger
Corp. before the date which is four (4) years after the Closing Date (the
"Indemnity Termination Date"). On the Indemnity Termination Date, the Escrow
Agent shall disburse to the Shareholder Representative the Indemnity Fund
together with all interest earned thereon less the amount of any claims made by
Gray or Merger Corp. against the Escrow Fund prior to such date (the "Claim
Amount"). The Claim Amount shall be retained by the Escrow Agent in escrow until
the underlying claim or claims related thereto have been finally determined by a
court of competent jurisdiction or by mutual agreement of Gray and the
Shareholder Representative. Gray and the Shareholder Representative hereby agree
to jointly direct the Escrow Agent to disburse any portion of the Escrow Fund to
any party which is entitled thereto pursuant to the terms hereof.
11.5 Limitation on Damages. Notwithstanding any provision of
this Agreement to the contrary, the Shareholders' liability to Gray and Merger
Corp. for any breach of any representation, warranty or other applicable
provision of this Agreement shall be several and divided pro-rata among the
Shareholders, in accordance with their percentage ownership of the Shares, and,
after Closing, shall be limited to the Escrow Fund described in Section 11.4. In
no event, after the Closing hereof, shall the total amount of monetary damages
that Gray and Merger Corp. may collect from Shareholders as damages for one or
more breaches by the Shareholders or the Company under this Agreement exceed
said Escrow Fund. Notwithstanding any other provision of this Agreement to the
contrary, after the Closing, Merger Corp., as successor to the Company, shall
not be liable to the Shareholders for any inaccuracy in any representation or
warranty or any breach of any covenant or agreement made or to be performed by
the Company pursuant to this Agreement and the Shareholders shall have no right
of contribution from or any other claim or action against Merger Corp., as
successor to the Company.
SECTION 12. CONDUCT OF BUSINESS PENDING CLOSING.
The Company covenants, represents, and warrants in favor of
Gray and Merger Corp. that, pending the Closing, unless otherwise agreed to in
writing by Gray:
12.1 The Company will not sell, transfer, or otherwise dispose
of, or enter into any transaction, contract, or commitment for the sale or
disposition of all or any portion of the assets of the Station, except in the
ordinary course of business, none of which transactions shall materially affect
Merger Corp. or the Station from and after the Closing Date.
12.2 The Company will carry and continue in full force through
the Closing such fire and extended coverage, and theft, liability, and other
insurance in substantially the same form and amount as are currently in force.
12.3 The Company will use its best efforts to preserve the
business organization and all equipment and records thereof in good order, to
keep available for Merger Corp. all of the present employees of the Company, and
to preserve for Merger Corp. the goodwill of suppliers, customers, advertisers,
and others having business relationships with the Company.
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12.4 The Company will maintain, repair and replace the Leased
Property, Real Property and the Tangible Personal Property in accordance with
its customary practices, in substantially the same condition and state of repair
as all such property is in on the date of this Agreement, ordinary wear and tear
excepted.
12.5 The Company shall permit Gray and its representatives,
independent accountants, and attorneys, reasonable access during normal business
hours to its properties, books, records, and other information with respect to
the Company as Gray may request, and to make copies of such books, records, and
other documents that Gray considers necessary or appropriate for the purposes of
familiarizing itself with the Company.
12.6 Between the date of this Agreement and the Closing Date,
the Company will deliver to Gray information necessary to update the Schedules
hereto and the lists, documents, and other information furnished by the Company
as contemplated by this Agreement, and updated copies of new or changed
documents relating to or included as a part of such Schedules, in order that all
such Schedules, lists, documents, and other information and items shall be
complete and accurate in all respects as of the Closing Date.
12.7 Except for written employment agreements in existence on
the date hereof and listed in Schedule 4.22, none of the Company, any of the
Shareholders or any of their respective representatives has made or will make
oral, written or other representations to any employee of the Company or to any
other Person regarding the benefits, compensation or other terms or conditions
of employment that will be provided to such individuals after the Closing Date.
Whether or not a particular individual will or will not be retained in
employment after the Closing Date constitutes a term or condition of employment.
section 13. termination.
This Agreement may be terminated at any time prior to the
Closing Date in the following manner:
13.1 by mutual written consent of Gray, Merger Corp. and the
Company;
13.2 if any representation, warranty, covenant or agreement of
the Company, or if any representation, warranty, covenant or agreement of Gray
or Merger Corp., contained herein (that materially affects the financial
condition or business of Gray or the Company) shall have been incorrect or
breached and shall not have been cured or otherwise resolved to the reasonable
satisfaction of the other party on or before the Closing Date; provided,
however, that prior to such termination the party in default shall be given
written notice by the other party, and shall have ten (10) days in which to cure
such default;
13.3 by Gray and Merger Corp., if any condition to the
consummation of the transactions contemplated hereby which must be fulfilled to
its satisfaction has (in their good faith judgment) not been fulfilled, or has
become impossible to fulfill;
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13.4 without any action by Gray and Merger Corp. or the
Company, if the Closing Date has not occurred by December 31, 1999, unless the
Assignment Application jointly filed by the Company or the Shareholders and Gray
and Merger Corp. is still pending before the FCC on that date, in which case
this Agreement shall not be terminated until May 31, 2000 pursuant to this
Section 13.4, but after which, either the Company or Gray and Merger Corp. may
terminate the Agreement;
13.5 by Gray and Merger Corp. pursuant to Section 7.13; or
13.6 by the Company if Gray fails to accomplish the following
events by the dates indicated:
(a) filing the Registration Statement by the later of
(i) thirty (30) days after Gray receives from the Company, Brazos Broadcasting
Company, KXII Broadcasters, Inc., KXII Broadcasters, Ltd., KXII Television, Ltd.
and K-Twelve, Ltd. all of the financial statements, financial information and
business information required or desirable for inclusion in the Registration
Statement or (ii) sixty (60) days after the date of this Agreement;
(b) obtaining Gray shareholder approval of the
issuance of the Gray Common Stock in the Merger within forty (40) days after the
Registration Statement has been declared effective by the SEC; and
(c) file the Resale Registration Statement by the
later of (i) twenty (20) days after the approval of the Merger by the
Shareholders or (ii) twenty (20) days after the Closing Date.
If the termination of this Agreement occurs without breach or
default of the Company or Gray and Merger Corp., then this Agreement shall
become wholly void and shall have no further force and effect, and neither Gray
or Merger Corp., on the one hand, nor the Company, on the other, shall have any
liability or obligation with respect to each other. Upon such termination, the
Escrow Agent shall refund the Earnest Money to Gray within three (3) days after
the date upon which the termination becomes effective. If the termination occurs
as a result of a breach or default by the Company, then Gray and Merger Corp.
shall be entitled to seek specific performance of the Company's obligation to
effect the Merger in accordance with the provisions hereof, or obtain the return
of the Earnest Money. If the termination occurs as a result of a breach or
default by Gray or Merger Corp., the Company may request the Earnest Money from
the Escrow Agent and retain the Earnest Money as liquidated damages to
compensate the Company and the Shareholders for the damages resulting from such
breach or default. The parties agree that actual damages pursuant to a breach of
this Agreement prior to Closing would be impossible to measure. Receipt of the
Earnest Money shall be the sole and exclusive remedy that the Company shall have
in the event of such breach or default and shall constitute a waiver of any and
all other legal or equitable rights or remedies that the Company may otherwise
have as a result of Gray's or Merger Corp.'s breach or default, and that in
consideration for the receipt of the Earnest Money as liquidated damages, the
Company may not obtain any further legal or equitable relief, including specific
performance, to which it may otherwise have been entitled and neither Gray nor
Merger Corp. shall have any further
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liability to the Company or the Shareholders as a result of such breach or
default or the non-occurrence of Closing. If the Closing does not occur due to
the nonfulfillment of any of the conditions in Section 9 or for any other reason
except Gray's or Merger Corp.'s material breach or default in the performance of
any of its obligations under this Agreement, the Company shall not be entitled
to the proceeds of the Earnest Money and, promptly after the termination of this
Agreement, the proceeds of the Earnest Money shall be returned to Gray.
SECTION 14. MISCELLANEOUS PROVISIONS.
14.1 Expenses of Negotiation and Transfer.
(1) The Company and Gray shall share equally in the
payment of FCC filing fees, and the HSR filing fees, and the Shareholders and
Gray shall share equally in the payment of the fees of the Neutral Auditors.
(2) Except as provided above, each party to this
Agreement shall pay its own expenses and other costs incidental to or resulting
from this Agreement, whether or not the transactions contemplated hereby are
consummated.
14.2 Schedules. Any disclosure with respect to a Section or
Schedule of this Agreement shall be deemed to be disclosure for each of the
other Sections or Schedules of this Agreement with respect to which the
substance of the disclosure is clear and unambiguous on the face of the
disclosure.
14.3 Survival. All of the covenants, agreements,
representations, and warranties made in this Agreement or made pursuant hereto
shall survive the Closing and the consummation of the transactions contemplated
by this Agreement.
14.4 Entire Agreement; Amendment; Waivers. This Agreement and
the documents referred to herein and to be delivered pursuant hereto constitute
the entire agreement of the parties pertaining to the subject matter hereof, and
supersede all prior and contemporaneous agreements understandings, negotiations,
and discussions of the parties, whether oral or written, and there are no
warranties, representations, or other agreements between the parties in
connection with the subject matter hereof, except as specifically set forth
herein. No amendment, supplement, modification, waiver, or termination of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision or breach of this Agreement,
whether or not similar, unless otherwise expressly provided.
14.5 Headings. The descriptive headings of the Sections and
Subsections of this Agreement and the Table of Contents are for convenience only
and do not constitute a part of this Agreement.
14.6 Further Assurances. Each party agrees to execute and
deliver such further certificates, agreements, and other documents and it shall
take such other actions as the other party
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may reasonably request to consummate or implement the transactions contemplated
hereby or to evidence such events or matters.
14.7 Situs and Construction. This Agreement and any other
agreements to be made and entered into pursuant hereto shall be construed in
accordance with and governed by the laws of the State of Texas.
14.8 Notices. All notices under this Agreement shall be made
in writing and shall be delivered by U. S. Mail, overnight courier, facsimile,
or other means calculated to give prompt, actual notice to the recipient party,
in the following manner:
If to the Company: Milford N. Bostick, Chairman
KWTX Broadcasting Company
200 West Highway 6
Suite 210
Waco, TX 76712
Phone: 254-772-9155
Fax: 254-772-7350
with a copy to: Kyle Deaver and John Lee Deaver
Deaver & Deaver
200 West Highway 6
Suite 501
Waco, TX 76712
Phone: 254-741-0400
Fax: 254-751-8369
If to the Gray: Robert S. Prather, Jr.
Gray Communications Systems, Inc.
4370 Peachtree Road
Atlanta, Georgia 30319
Phone: 404-266-8333
Fax: 404-261-9067
with a copy to: Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: Stephen A. Opler
Phone: 404-881-7000
Fax: 404-881-4777
14.9 Binding Effect. All of the covenants, conditions,
agreements, and undertakings set forth in this Agreement shall extend to and be
binding upon the Company, the Shareholders, Gray and Merger Corp. and their
respective successors and assigns. No party to this
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Agreement may assign any of its rights or obligations hereunder, except that
Merger Corp. may assign its rights and obligations to any other entity of which
Gray owns a majority of the equity interests.
14.10 Execution in Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
and all of which shall be deemed but one instrument.
14.11 Shareholder Representative.
(1) By approving this Merger Agreement and accepting
the Merger Consideration, each of the Shareholders hereby irrevocably makes,
constitutes, and appoints Ray M. Deaver as the representative, agent and true
and lawful attorney in fact of and for each of the Shareholders in connection
with this Agreement (the "Shareholder Representative"). Each of the Shareholders
hereby authorizes and empowers the Shareholder Representative to make or give
any approval, waiver, request, consent, instruction or other communication on
behalf of each of the Shareholders as each such Shareholder could do for
himself, itself or herself, including with respect to the amendment of any
provision of this Agreement. Each of the Shareholders further authorizes and
empowers the Shareholder Representative to (i) receive all demands, notices or
other communications directed to such Shareholder under this Agreement and to
take any action (or to determine to refrain from taking any action) with respect
thereto as he may deem appropriate as effectively as such Shareholder could act
for himself, itself or herself (including, without limitation, the settlement or
compromise of any dispute or controversy) and (ii) execute and deliver all
instruments and documents of every kind incident to the foregoing with the same
effect as if such Shareholder had executed and delivered such instruments and
documents personally. Accordingly, any demands, notices or other communications
directed to the Shareholders hereunder shall be deemed effective if given to the
Shareholder Representative. Upon the death, resignation or incapacity of the
Shareholder Representative, or at any other time, a successor may be appointed
by the vote of the holders of a majority of the Shares outstanding immediately
prior to the Effective Time, and such successor shall agree in writing to accept
such appointment in accordance with the terms hereof. Notice of the selection of
a successor Shareholder Representative appointed in the manner permitted in this
Section 14.11 shall be provided to Gray and Merger Corp. promptly.
(2) Without limiting the generality of the foregoing
paragraph (1), if Gray, Merger Corp. or any of the other Persons specified in
Section 11.1 asserts a claim for indemnification based upon the provisions of
Section 11, the notice requirements of Sections 11.3 and 14.8 shall be satisfied
by delivery of any required notice to the Shareholder Representative as
representative of and on behalf of each of the Shareholders, and the Shareholder
Representative shall exercise all rights of the Shareholders, as indemnifying
parties under Section 11, and shall cause all obligations of the Shareholders,
as indemnifying parties under Section 11, to be performed. Each of the
Shareholders agrees to be bound by all actions and failures to act of the
Shareholder Representative in accordance with this Section 14.11.
Notwithstanding the foregoing, it shall be the obligation of each Shareholder,
and not of the Shareholder Representative, to indemnify Gray, Merger Corp. and
the other Persons specified in Section 11.1 based upon the provisions of Section
-52-
<PAGE>
11. By approving this Merger Agreement and by accepting the Merger
Consideration, each Shareholder hereby agrees to indemnify and to save and hold
harmless the Shareholder Representative from any liability incurred by the
Shareholder Representative based upon or arising out of any act, whether of
omission or commission, of the Shareholder Representative pursuant to the
authority herein granted, other than acts, whether of omission or commission, of
the Shareholder Representative that constitute gross negligence or willful
misconduct in the exercise by the Shareholder Representative of the authority
herein granted.
-53-
<PAGE>
[SIGNATURES ON FOLLOWING PAGE]
-54-
<PAGE>
IN WITNESS WHEREOF, the Company, Gray and Merger Corp. have
executed this Agreement and Plan of Merger by their duly authorized officers on
and as of the date set forth above.
GRAY:
ATTEST: Gray Communications Systems, Inc.
/s/ Ross Sams, Jr. By: /s/ Robert S. Prather, Jr.
------------------ --------------------------
Title: Secretary Title: Executive Vice President
--------- ------------------------
MERGER CORP.:
ATTEST: Gray Communications of Texas, Inc.
/s/ Ross Sams, Jr. By: /s/ Robert S. Prather, Jr.
------------------ --------------------------
Title: Secretary Title: President
--------- ---------
THE COMPANY:
ATTEST: KWTX Broadcasting Company
/s/ Ross Sams, Jr. By: /s/ Ray M. Deaver
------------------ -----------------
Title: Secretary Title: President
--------- ---------
-55-
Exhibit 10.2
AGREEMENT AND PLAN OF MERGER
by and among
Gray Communications Systems, Inc.,
Gray Communications of Texas, Inc.
and
Brazos Broadcasting Company
Dated as of April 13, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section 1 Definitions 1
<S> <C>
1.1 Affiliate..........................................................................1
1.2 Agreement..........................................................................2
1.3 Assignment Application.............................................................2
1.4 Closing............................................................................2
1.5 Closing Date.......................................................................2
1.6 Code...............................................................................2
1.7 Company............................................................................2
1.8 Company Common Stock...............................................................2
1.9 Earnest Money......................................................................2
1.10 Effective Time.....................................................................2
1.11 Encumbrances.......................................................................2
1.12 Environmental Claim................................................................2
1.13 Environmental Matter...............................................................2
1.14 Escrow Agent.......................................................................2
1.15 FCC................................................................................3
1.16 FCC Consent........................................................................3
1.17 FCC Licenses.......................................................................3
1.18 Final Order........................................................................3
1.19 Governmental Authority.............................................................3
1.20 Gray...............................................................................3
1.21 Gray Common Stock..................................................................3
1.22 HSR Act............................................................................3
1.23 Intangible Property................................................................3
1.24 Knowledge, Know, Known.............................................................3
1.25 KWTX Agreement.....................................................................3
1.26 KWTX Broadcasting Company..........................................................4
1.27 Law................................................................................4
1.28 Leased Property....................................................................4
1.29 Material Adverse Change or Material Adverse Effect.................................4
1.30 Merger.............................................................................4
1.31 Merger Consideration...............................................................4
1.32 NYSE...............................................................................4
1.33 Permits............................................................................4
1.34 Permitted Liens....................................................................4
1.35 Person.............................................................................4
1.36 Preliminary Balance Sheets.........................................................5
1.37 Program Rights.....................................................................5
1.38 Real Property......................................................................5
1.39 Schedule...........................................................................5
1.40 SEC................................................................................5
1.41 Shareholder Representative.........................................................5
1.42 Shareholders.......................................................................5
1.43 Shares.............................................................................5
1.44 Station............................................................................5
1.45 Tangible Personal Property.........................................................5
1.46 Tax or Taxes.......................................................................5
1.47 Tax Returns........................................................................6
1.48 Tradeout Agreement.................................................................6
1.49 Working Capital Surplus............................................................6
i
<PAGE>
<S> <C>
Section 2 Merger 6
2.1 Merger.............................................................................6
2.2 Time and Place of Closing..........................................................6
2.3 Effective Time.....................................................................7
2.4 Articles of Incorporation..........................................................7
2.5 Bylaws.............................................................................7
2.6 Directors and Officers.............................................................7
2.7 Reorganization.....................................................................7
Section 3 Merger Consideration; Exchange Procedures 7
3.1 Merger Consideration...............................................................7
3.2 Cash Percentage Election...........................................................9
3.3 Rights As Shareholders; Share Transfers...........................................11
3.4 Fractional Shares.................................................................11
3.5 Exchange Procedures...............................................................11
3.6 Treasury Shares...................................................................12
3.7 Earnest Money.....................................................................12
3.8 Determination of Working Capital Surplus..........................................12
3.9 Accounting Principles.............................................................13
Section 4 Representations and Warranties of the Company and Shareholders 15
4.1 Organization, Corporate Power, and Qualifications of the Company..................15
4.2 Authorization and Validity........................................................15
4.3 Ownership of Shares...............................................................15
4.4 Capitalization of the Company.....................................................15
4.5 Investments and Subsidiaries......................................................16
4.6 Noncontravention..................................................................16
4.7 Consents, Approvals...............................................................16
4.8 Financial Statements..............................................................16
4.9 Title to and Condition of Real Property...........................................17
4.10 Title to and Condition of Tangible Personal Property..............................18
4.11 Litigation........................................................................18
4.12 Environmental Matters.............................................................19
4.13 Trade Names, Trade Marks, etc.....................................................20
4.14 Governmental Authorization and Compliance With Laws...............................20
4.15 FCC Licenses......................................................................21
4.16 Labor Relations...................................................................21
4.17 Insurance.........................................................................22
4.18 Accounts Receivable...............................................................22
4.19 Accounts Payable..................................................................22
4.20 Tax Returns, Audits, and Liabilities..............................................23
4.21 Bank Accounts.....................................................................23
4.22 Certain Contracts.................................................................23
4.23 Employees.........................................................................24
4.24 Employee Benefit Plans............................................................24
4.25 No Brokers........................................................................25
4.26 Computer Software and Database....................................................25
4.27 Interested Transactions...........................................................25
4.28 Full Disclosure...................................................................26
4.29 Reliance and Survival.............................................................26
Section 5 Representations and Warranties of Gray and Merger Corp. 26
5.1 Organization and Existence........................................................26
ii
<PAGE>
<S> <C>
5.2 Authorization and Validity........................................................26
5.3 Noncontravention..................................................................26
5.4 Consents, Approvals...............................................................27
5.5 No Brokers........................................................................27
5.6 Capitalization....................................................................27
5.7 SEC Filings; Financial Statements.................................................28
5.8 Financial Ability.................................................................28
Section 6 FCC Approval. 28
6.1 Filing and Prosecution of Application.............................................28
6.2 Expenses..........................................................................29
6.3 Time for FCC Consent..............................................................29
6.4 Control of Station................................................................29
6.5 No Reversion of Licenses..........................................................29
6.6 Regulatory Matters................................................................29
Section 7 Special Covenants and Agreements 29
7.1 HSR Act...........................................................................29
7.2 Confidentiality...................................................................30
7.3 Cooperation.......................................................................30
7.4 Access to Books and Records.......................................................30
7.5 Certain Investments...............................................................30
7.6 Acquisition Proposals.............................................................30
7.7 Meetings of Shareholders..........................................................31
7.8 Meetings of Gray and Merger Corp..................................................31
7.9 Registration Statements...........................................................31
7.10 Publicity.........................................................................33
7.11 Registration and Listing of Gray Common Stock.....................................33
7.12 Supplying of Financial Statements.................................................33
7.13 Supplements to Schedules..........................................................33
7.14 Affiliates of the Company.........................................................34
Section 8 Conditions Precedent for the Company 34
8.1 Representations and Warranties....................................................34
8.2 Performance of this Agreement.....................................................34
8.3 Proceedings.......................................................................34
8.4 FCC Consent.......................................................................35
8.5 Litigation........................................................................35
8.6 Expiration of HSR Waiting Periods.................................................35
8.7 Effective Registration Statement..................................................35
8.8 Legal Opinion.....................................................................35
8.9 Tax Opinion.......................................................................37
8.10 NYSE Listing......................................................................37
8.11 Voting Agreement and Irrevocable Proxy............................................37
Section 9 Conditions Precedent for Gray and Merger Corp. 37
9.1 Representations and Warranties....................................................37
9.2 Performance of this Agreement.....................................................38
9.3 Proceedings.......................................................................38
9.4 FCC Consent.......................................................................38
9.5 Litigation........................................................................38
9.6 Opinions of Counsel for the Company...............................................38
9.7 Title Insurance Commitments.......................................................38
iii
<PAGE>
<S> <C>
9.8 Environmental Audit...............................................................39
9.9 Expiration of HSR Waiting Periods.................................................39
9.10 Consummation of Related Transactions..............................................40
9.11 Effective Registration Statement..................................................40
9.12 Tax Opinion.......................................................................40
9.13 NYSE Listing......................................................................40
9.14 Gray Shareholder Approval.........................................................40
9.15 Affiliates of the Company.........................................................40
9.16 Voting Agreement and Irrevocable Proxy............................................40
9.17 Shareholder Approval..............................................................40
9.18 Due Diligence and Schedules.......................................................41
Section 10 Closing 41
10.1 Deliveries by the Company.........................................................41
10.2 Postponement of Closing Date......................................................42
Section 11 Indemnification 42
11.1 By the Shareholders...............................................................42
11.2 By Gray and Merger Corp...........................................................43
11.3 Procedure for Indemnification.....................................................43
11.4 Escrow Fund.......................................................................45
11.5 Limitation on Damages.............................................................45
Section 12 Conduct of Business Pending Closing 46
Section 13 Termination 47
Section 14 Miscellaneous Provisions 48
14.1 Expenses of Negotiation and Transfer..............................................48
14.2 Schedules.........................................................................48
14.3 Survival..........................................................................49
14.4 Entire Agreement; Amendment; Waivers..............................................49
14.5 Headings..........................................................................49
14.6 Further Assurances................................................................49
14.7 Situs and Construction............................................................49
14.8 Notices...........................................................................49
14.9 Binding Effect....................................................................50
14.10 Execution in Counterparts.........................................................50
14.11 Shareholder Representative........................................................50
</TABLE>
iv
<PAGE>
INDEX OF SCHEDULES
Schedule 4.3 - Stock Ownership
Schedule 4.5 - Investments and Subsidiaries
Schedule 4.8 - Financial Statements
Schedule 4.9(1) - Description of Real Property
Schedule 4.9(3) - Ground Leases
Schedule 4.9(4) - Tenant Leases
Schedule 4.10(1) - Tangible Personal Property
Schedule 4.10(2) - Leased Tangible Personal Property
Schedule 4.11 - Litigation
Schedule 4.12 - Hazardous Substance Sites
Schedule 4.13 - Trade Names, Trade Marks, Etc.
Schedule 4.14 - Governmental Licenses, Certificates, Permits and
Approvals
Schedule 4.15 - FCC Licenses
Schedule 4.16 - Employment and Related Agreements
Schedule 4.17 - Insurance
Schedule 4.20 - Tax Matters
Schedule 4.21 - Bank Accounts
Schedule 4.22 - Certain Contracts
Schedule 4.23 - Employees
Schedule 4.24 - Employee Benefit Plans
Schedule 4.27 - Interested Transactions
v
<PAGE>
Index of Exhibits
Exhibit A Form of Shareholder Representative Appointment Agreement
Exhibit B Form of Escrow Agreement (Indemnification)
Exhibit C Form of Escrow Agreement (Earnest Money)
Exhibit D Form of Preliminary Balance Sheets
Exhibit E Form of Final Balance Sheets
Exhibit F Form of Opinion of Deaver & Deaver
Exhibit G Form of Opinion of Dennis Kelly
vi
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
executed as of April 13, 1999, by and among GRAY COMMUNICATIONS SYSTEMS, INC., a
Georgia corporation ("Gray"), GRAY COMMUNICATIONS OF TEXAS, INC., a Georgia
corporation and wholly-owned subsidiary of Gray ("Merger Corp.") and BRAZOS
BROADCASTING COMPANY, a Texas corporation (the "Company").
RECITALS
The Company is the licensee of television station KBTX-TV, Channel 3, in
Bryan, Texas (the "Station") pursuant to authorizations issued by the Federal
Communications Commission ("FCC"). The Boards of Directors of Gray, Merger Corp.
and the Company are of the opinion that the transactions described in this
Agreement are in the best interests of the parties and their respective
shareholders. This Agreement provides for the acquisition of the Company by Gray
through the merger of the Company with and into Merger Corp. At the Effective
Time of such merger, the outstanding shares of capital stock of the Company will
be converted into the right to receive shares of the common stock of Gray and
cash. As a result (i) the Shareholders will become shareholders of Gray, and
(ii) Merger Corp. will conduct the business and operations of the Company as a
wholly-owned subsidiary of Gray. It is the intention of the parties to this
Agreement that the merger contemplated by this Agreement qualify as a
"reorganization" within the meaning of Section 368 of the Code for federal
income tax purposes. Certain terms used in this Agreement are defined in Section
1 hereof.
The acquisition of the Company by Gray through the merger of the Company
with and into Merger Corp. is one of two related transactions involving the
acquisition of two television stations owned by KWTX Broadcasting Company and
the Company. Gray anticipates completing the acquisition of both television
stations after the parties have received approval from the FCC.
NOW, THEREFORE, 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:
Section 1. Definitions.
The following terms, when used in capitalized form within this
Agreement, or within any Exhibit or Schedule to this Agreement in which the
terms are not otherwise defined, shall have the following meanings:
1.1 "Affiliate" of a Person shall mean: (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.
<PAGE>
1.2 "Agreement" shall mean this Agreement and Plan of Merger, and
all Exhibits, Schedules, certificates, and instruments attached hereto or
referred to herein.
1.3 "Assignment Application" shall have the meaning specified in
Section 6.1 below.
1.4 "Closing" shall mean the consummation of the Merger pursuant
to this Agreement in accordance with the provisions of Section 10.
1.5 "Closing Date" shall mean the date on which the Closing
occurs, as determined pursuant to Section 2.2.
1.6 "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
1.7 "Company" shall mean Brazos Broadcasting Company, as
identified above, a Texas corporation with its principal offices at 4141 East
29th Street, Bryan, Texas 77802.
1.8 "Company Common Stock" shall mean the common stock, $100 par
value, of the Company.
1.9 "Earnest Money" shall mean the cash deposit in the amount of
One Million Dollars ($1,000,000) paid by Gray to the Escrow Agent upon the
execution of this Agreement, in the amount and in accordance with provisions set
forth in Section 3.7 below, together with interest thereon, if any.
1.10 "Effective Time" shall mean the later of (i) the date and
time that the Articles of Merger reflecting the Merger are filed with the
Secretary of State of the State of Texas (or such later date and time as may be
specified in the Articles of Merger) and (ii) the date and time that the
Articles of Merger reflecting the Merger are filed with the Secretary of State
of the State of Georgia (or such later date and time as may be specified in the
Articles of Merger).
1.11 "Encumbrances" shall mean security interests, mortgages,
liens, pledges, options, rights of first refusal, and other restrictions on the
use or transferability of property and claims or charges on any interest in
property in favor of a person other than the owner of the property, whether or
not relating to the extension of credit or the borrowing of money and whether or
not existing by reason of statute, contract, or common law.
1.12 "Environmental Claim" shall have the meaning ascribed in
Section 4.12(6)(a).
1.13 "Environmental Matter" shall have the meaning ascribed in
Section 4.12(6)(b).
1.14 "Escrow Agent" shall mean American Bank, N.A., Waco, Texas.
2
<PAGE>
1.15 "FCC" shall mean the Federal Communications Commission, as
defined in the recitals to this Agreement.
1.16 "FCC Consent" shall mean action by the FCC in the form of a
public notice or some other written document granting its consent to the
Assignment Application.
1.17 "FCC Licenses" shall mean all licenses and authorizations
issued by the FCC to the Company in connection with the business or operations
of the Station, including the right to use the call letters "KBTX-TV."
1.18 "Final Order" means action of the FCC approving the transfer
of control of the Company to Gray or Merger Corp., which action is no longer
subject to reconsideration or court review under the provisions of the
Communications Act of 1934, as amended, and with respect to which no timely
filed request for administrative or judicial review or stay is pending and as to
which the time for filing any such request, or for the FCC to set aside the
action on its own motion, has expired.
1.19 "Governmental Authority" shall mean any federal, state,
county, local or other governmental or public agency, instrumentality,
commission, authority, board or body.
1.20 "Gray" shall mean Gray Communications Systems, Inc., as
identified above, a Georgia corporation, with its principal offices at 4370
Peachtree Road, Atlanta, Georgia 30319.
1.21 "Gray Common Stock" shall mean the Class B Common Stock, no
par value, of Gray, with identical rights to those shares issued under the
initial public offering of 3,500,000 shares as described in that one certain
prospectus dated September 24, 1996.
1.22 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.
1.23 "Intangible Property" shall mean all copyrights, trademarks,
trade names, service marks, service names, the call letters "KBTX-TV," licenses,
patents, permits, jingles, proprietary information, technical information and
data, computer software, formats, customer lists, advertiser lists, machinery
and equipment warranties, and other similar intangible property rights and
interests (other than the FCC Licenses)(and any goodwill associated with any of
the foregoing) applied for, issued to, or owned by the Company or under which
the Company is licensed or franchised and which are used or useful in the
business and operations of the Station, together with any additions thereto
between the date of this Agreement and the Closing Date.
1.24 "Knowledge," "Know," "Known" and words of similar import,
with respect to the Company, shall mean collectively those facts actually known,
now or in the past, by the Company, Ray M. Deaver, Jim Baronet and M.N. Bostick.
1.25 "KWTX Agreement" shall mean the Agreement and Plan of Merger
dated the same date as this Agreement for the merger of KWTX Broadcasting
Company with and into Merger
3
<PAGE>
Corp. or, in the event Gray and Merger Corp. exercise the Cash Election Option
(as defined in Section 3.1(3) herein), the merger of Merger Corp. (or its
permitted assignee) with and into Brazos Broadcasting Company.
1.26 "KWTX Broadcasting Company" shall mean KWTX Broadcasting
Company, a Texas corporation, with its principal offices at 6700 American Plaza,
Waco, Texas 76712, which owns television station KWTX, Channel 10, licensed to
Waco, Texas.
1.27 "Law" shall mean any federal, state, or local code, law,
legal principal, order, ordinance, regulation, rule, or statute of any
Governmental Authority.
1.28 "Leased Property" shall mean any and all Real Property used
or occupied by the Company as lessee under any oral or written lease, together
with any additions thereto, and extensions or renewals thereof, between the date
of this Agreement and the Closing Date.
1.29 "Material Adverse Change" or "Material Adverse Effect" shall
mean a significant negative impact on the Company taken as a whole or the
business of the Station, excluding any negative impact attributable to (i)
factors affecting the television broadcasting industry generally, (ii) general
national, regional, or local economic conditions, or (iii) governmental or
legislative laws, rules, or regulations affecting the television broadcasting
industry generally.
1.30 "Merger" shall mean the merger of the Company with and into
Merger Corp. or, in the event Gray and Merger Corp. exercise the Cash Election
Option (as defined in Section 3.1(3) herein), the merger of Merger Corp. (or its
permitted assignee) with and into the Company.
1.31 "Merger Consideration" shall mean the aggregate
consideration to be paid to the Shareholders pursuant to the Merger, as more
fully defined in Section 3.1(l).
1.32 "NYSE" shall mean the New York Stock Exchange.
1.33 "Permits" shall mean all licenses, permits, and other
authorizations (other than the FCC Licenses), issued to the Company by the
Federal Aviation Administration or any other federal, state, or local
governmental authority in connection with the conduct of the business and
operations of the Station, together with any additions, extensions, or renewals
of same between the date of this Agreement and the Closing Date.
1.34 "Permitted Liens" shall mean (i) liens for Taxes and
assessments not yet due and payable, mechanics' and other statutory liens
arising in the ordinary course of business that secure obligations not
delinquent, (ii) restrictions or rights granted to Governmental Authorities
under applicable Law, that are not otherwise objectionable to Gray, and (iii)
liens, restrictions and easements on the Real Property (as defined below) that,
in Gray's reasonable judgment, do not detract from the value or impair the use
of the property subject thereto; provided, however, in no event shall "Permitted
Liens" include Encumbrances relating to the extension of credit or the borrowing
of money.
4
<PAGE>
1.35 "Person" shall mean a natural person or any legal,
commercial or governmental entity, such as, but not limited to, a business
association, corporation, general partnership, joint venture, limited
partnership, limited liability company, trust, or any person acting in a
representative capacity.
1.36 "Preliminary Balance Sheets" shall have the meaning set
forth in Section 3.8(1) below.
1.37 "Program Rights" shall mean all rights of the Company,
presently existing or obtained prior to the Closing, to broadcast television
programs, movies, and films, including all film and program rights under barter
agreements, as a part of the programming for the Station, for which the Company
is obligated to compensate the vendor of such Program Rights.
1.38 "Real Property" shall mean all of the Company's real
property and interests in real property, purchase options, easements, licenses,
rights to access, rights of way, all buildings and other improvements thereon,
and all other real property interests which are used in the business or
operations of the Station, together with any additions thereto between the date
of this Agreement and the Closing Date.
1.39 "Schedule" shall mean those Schedules referred to in this
Agreement delivered concurrently with the execution of this Agreement and
attached hereto (or bound separately) or delivered pursuant to Section 9.18, all
of which Schedules are incorporated in and made a part hereof by reference.
1.40 "SEC" shall mean the Securities and Exchange Commission.
1.41 "Shareholder Representative" shall mean the Person(s)
appointed as the Shareholder Representative pursuant to the Shareholder
Representative Appointment Agreement, substantially in the form of Exhibit A to
this Agreement, which initially shall be Ray Deaver.
1.42 "Shareholders" shall mean the shareholders of the Company.
1.43 "Shares" shall mean Five Hundred (500) shares of the capital
stock in the Company, owned by the Shareholders, which constitutes one hundred
percent (100%) of the shares of capital stock issued and outstanding in the
Company.
1.44 "Station" shall mean KBTX-TV, Channel 3, a CBS affiliate
licensed to Bryan, Texas, as identified above.
1.45 "Tangible Personal Property" shall mean all of the Company's
fixed assets, furniture, fixtures, equipment, machinery, motor vehicles,
leasehold improvements, office equipment, computer hardware, spare parts,
inventory, and other such tangible personal property which is used or useful in
the conduct of the business or operations of the Station, together with any
additions, replacements, or improvements thereto between the date of this
Agreement and the Closing Date.
5
<PAGE>
1.46 "Tax" or "Taxes" means taxes of any kind, levies or other
like assessments, customs, duties, imposts, charges or fees imposed or payable
to the United States, or any state, county, or local government, subdivision or
agency thereof, and in each instance, such term shall include any interest,
penalties, or additions to tax attributable to any such Tax.
1.47 "Tax Returns" means any returns, statements, filings,
reports, estimates, declarations, and forms relating to Taxes that the Company
is required to file, record, or deposit with any Governmental Authority,
including any attachment thereto or amendment thereof.
1.48 "Tradeout Agreement" shall mean any written or oral
contract, agreement, or commitment of the Company, pursuant to which the Company
has sold or traded commercial air time of the Station in consideration of any
property or services in lieu of or in addition to cash, excluding all film and
program barter agreements.
1.49 "Working Capital Surplus" shall mean the amount by which the
current assets and certain other assets of the Company exceed its current
liabilities, as reflected on the books of the Company as of the close of
business on the day immediately preceding the Closing Date, determined in
accordance with the provisions of Section 3.8 and 3.9 below.
Section 2. Merger.
2.1 Merger. Subject to the terms and conditions of this
Agreement and subject to Gray's and Merger Corp.'s exercise of the Cash Election
Option pursuant to Section 3.1(3), at the Effective Time, the Company shall be
merged with and into Merger Corp. in accordance with the applicable provisions
of the Georgia Business Corporation Code (the "GBCC") and the Texas Business
Corporation Act (the "TBCA") (the "Merger"). The separate corporate existence of
the Company shall cease and Merger Corp. shall be the surviving corporation
resulting from the Merger and continue to be a wholly-owned subsidiary of Gray
and shall continue to be governed by the Laws of the State of Georgia (Merger
Corp., as the surviving corporation in the Merger, sometimes being referred
herein as the "Surviving Corporation"). The Merger shall be consummated pursuant
to the terms of this Agreement, which has been approved and adopted by the
respective Boards of Directors of the Company, Merger Corp. and Gray. In the
event that Gray and Merger Corp. exercise the Cash Election Option, (i) the
Merger shall automatically without any further action by the parties be deemed
to be the merger of Merger Corp. (or its permitted assignee) with and into the
Company in accordance with the applicable provisions of the GBCC and the TBCA
and (ii) accordingly, the separate existence of Merger Corp. shall cease and the
Company (rather than Merger Corp.) shall be the surviving corporation resulting
from the Merger and shall continue to be governed by the Laws of the State of
Texas. In the event that Gray and Merger Corp. exercise the Cash Election
Option, the term "Surviving Corporation" shall automatically without any further
action by the parties be deemed to mean the Company and not Merger Corp. as
stated above.
2.2 Time and Place of Closing. The closing (the "Closing")
will take place at 9:00 A.M. on the date that the Effective Time occurs at the
offices of Deaver & Deaver, 200 West Highway 6, Suite 501, Waco, Texas 76712, or
at such other time and date as the Company and Gray
6
<PAGE>
may mutually agree or such date to which the Closing may be postponed pursuant
to Section 10.2 (such actual date of Closing, the "Closing Date").
2.3 Effective Time. The parties shall cause the Effective Time
to occur on the tenth (10th) day after the last of the conditions set forth in
Sections 8 and 9 of this Agreement have been satisfied or waived in accordance
with the terms of this Agreement. Subject to the provisions of this Agreement,
the parties shall file Articles of Merger executed in accordance with the
relevant provisions of the TBCA and the GBCC and shall make all other filings or
recordings required under the TBCA and the GBCC. The Merger and other
transactions contemplated by this Agreement shall become effective on the date
and at the time the Articles of Merger reflecting the Merger become effective
with the Secretaries of State of the States of Texas and Georgia.
2.4 Articles of Incorporation. Subject to Gray's and Merger
Corp.'s exercise of the Cash Election Option described in Section 3.1(3) below,
the Articles of Incorporation of Merger Corp. in effect immediately prior to the
Effective Time shall be the Articles of Incorporation of the Surviving
Corporation until otherwise amended or repealed. In the event that Gray and
Merger Corp. exercise the Cash Election Option, the Articles of Incorporation of
the Company in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation until otherwise amended
or repealed.
2.5 Bylaws. Subject to Gray's and Merger Corp.'s exercise of
the Cash Election Option described in Section 3.1(3) below, the Bylaws of Merger
Corp. in effect immediately prior to the Effective Time shall be the Bylaws of
the Surviving Corporation until otherwise amended or repealed. In the event that
Gray and Merger Corp. exercise the Cash Election Option, the Bylaws of the
Company in effect immediately prior to the Effective Time shall be the Bylaws of
the Surviving Corporation until otherwise amended or repealed.
2.6 Directors and Officers. Whether or not the Cash Election
Option is exercised by Gray and Merger Corp., the directors and officers of
Merger Corp. in office immediately prior to the Effective Time, together with
such additional persons as may thereafter be elected, will serve as the
directors and officers, respectively, of the Surviving Corporation from and
after the Effective Time in accordance with the Bylaws of the Surviving
Corporation and in accordance with the terms of their original election.
2.7 Reorganization. Subject to Gray's and Merger Corp.'s
exercise of the Cash Election Option described in Section 3.1(3) below, the
parties hereby adopt this Agreement as a plan of reorganization intended to
qualify for tax-deferred treatment under Section 368(a) of the Code. In the
event that the Cash Election Option is exercised by Gray and Merger Corp., the
parties hereby adopt this Agreement to be treated for federal income tax
purposes as an acquisition of the capital stock of the Company.
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Section 3. Merger Consideration; Exchange Procedures.
3.1 Merger Consideration. Subject to the provisions of this
Agreement, at the Effective Time, automatically by virtue of the Merger and
without any action on the part of any party or Shareholder:
(1) Outstanding Company Common Stock. Subject to Gray's and
Merger Corp.'s exercise of the Cash Election Option described in Section 3.1(3)
below, each share (excluding shares held by the Company or any of its
subsidiaries or by Gray or any of its subsidiaries, in each case other than in a
fiduciary capacity ("Treasury Shares") and specifically excluding the Two
Hundred Fifty (250) shares held by KWTX Broadcasting Company, which shares shall
be cancelled at the Effective Time) of the Company Common Stock, issued and
outstanding immediately prior to the Effective Time shall become and be
converted into the right to receive an amount in a combination of cash and Gray
Common Stock (as described in Sections 3.1(2) and 3.2 below) equal to (A) the
sum of (a) Twenty-Two Million Eight Hundred Twenty Thousand Dollars
($22,820,000) plus (b) fifty percent (50%) of the Working Capital Surplus of the
Company determined based on the Preliminary Balance Sheets (such sum of clauses
(a) and (b) being referred to as the "Merger Consideration") divided by (B) 250
(such result of dividing (A) by (B) being referred to as the "Merger
Consideration Per Share").
(2) Cash and Gray Common Stock Components of Merger
Consideration. Subject to Gray's and Merger Corp.'s exercise of the Cash
Election Option described in Section 3.1(3) below, the Merger Consideration will
be paid in a combination of cash and Gray Common Stock. Pursuant to Section 3.2,
each Shareholder will have the right to elect the percentage of the Merger
Consideration that he, she or it receives in the form of cash (the "Cash
Percentage") and the percentage to be received in the form of Gray Common Stock
(the "Stock Percentage"); provided, however, that in no event shall the Stock
Percentage be less than forty percent (40%). The Cash Percentage of the Merger
Consideration for each Shareholder electing to receive any of the Merger
Consideration in cash shall be reduced on a pro rata basis (calculated on the
basis of the aggregate amount of cash to be received by each Shareholder) by Two
Hundred Fifty Thousand Dollars ($250,000) to be held in the Escrow Fund pursuant
to Section 11.4 below. The Escrow Fund shall be disbursed pursuant to the terms
of Section 11.4 below and the Escrow Agreement substantially in the form of
Exhibit B attached hereto.
(3) Cash Election Option. In the event that either the average
Market Value (as defined in Section 3.2(1)(ii)) during the Valuation Period (as
defined in Section 3.2(1)(iii)) or the Market Value at the Closing Date is less
than $12 per share, Gray and Merger Corp. shall have the option in their sole
and absolute discretion to pay the Merger Consideration in cash, in which event
the Merger Consideration shall be reduced from the amount specified in Section
3.1(1) by $470,000. In addition, the parties agree that if the Cash Election
Option is exercised, they intend for the Merger to be treated as an acquisition
of the capital stock of the Company for federal income tax purposes. Gray and
Merger Corp. may exercise the Cash Election Option at any time prior to the
Closing by providing oral and written notice to the Company of such exercise as
promptly as practicable after making the decision to exercise such Cash Election
Option. Each of the parties
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shall use their commercially reasonable best efforts to effect the Cash Election
Option, including without limitation, revising this Agreement in any way
reasonably necessary or desirable to accomplish the Cash Election Option
consistent with this paragraph and cooperating in seeking any additional
required approvals of the FCC or other Governmental Authorities.
(4) Outstanding Merger Corp. Common Stock. Subject to Gray's and
Merger Corp's exercise of the Cash Election Option described in Section 3.1(3)
above, each share of the common stock of Merger Corp. ("Merger Corp. Common
Stock") issued and outstanding immediately prior to the Effective Time shall be
unchanged and shall remain issued and outstanding as common stock of the
Surviving Corporation. In the event that Gray and Merger Corp. exercise the Cash
Option Election, each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be unchanged and shall remain
issued and outstanding as common stock of the Surviving Corporation.
3.2 Cash Percentage Election.
(1) Holders of the Company Common Stock shall be provided with an
opportunity to elect to receive as much as sixty percent (60%) of the Merger
Consideration Per Share in cash with the remainder of the Merger Consideration
Per Share in the form of Gray Common Stock, in accordance with the election
procedures set forth below in this Section 3.2; provided, however, that in the
event the Market Value on the Closing Date is less than $14.00 per share, each
holder of Company Common Stock shall be deemed to have elected to receive sixty
percent (60%) of the Merger Consideration Per Share in cash and forty percent
(40%) of the Merger Consideration Per Share in the form of Gray Common Stock.
The number of shares of Gray Common Stock to be paid as part of the Merger
Consideration Per Share will be calculated by dividing the dollar amount of the
stock portion of the Merger Consideration Per Share by the Valuation Period
Market Value (as defined below). For purposes of this Section 3.2:
(i) "Valuation Period Market Value" shall mean the average Market
Value during the Valuation Period; provided, however, that in the event the
average Market Value during the Valuation Period is less than $14.00 per share,
the Valuation Period Market Value shall be deemed to be $14.00 per share and in
the event the average Market Value during the Valuation Period is greater than
$15.00 per share, the Valuation Period Market Value shall be deemed to be $15.00
per share;
(ii) "Market Value" shall mean the closing sales price for Gray
Common Stock as reported on the NYSE Composite Transactions reporting system (as
reported in The Wall Street Journal or, if not reported therein, in another
authoritative source); and
(iii) "Valuation Period" shall mean the twenty (20) consecutive
trading day period during which the shares of Gray Common Stock are traded on
the NYSE ending on the last trading day prior to the Closing Date.
(2) An election form and other appropriate and customary
transmittal materials (which shall specify that delivery shall be effected, and
risk of loss and title to the
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certificates theretofore representing Company Common Stock ("Old Certificates")
shall pass, only upon proper delivery of such Old Certificates to an exchange
agent designated by Gray (the "Exchange Agent")) in such form as Gray and the
Company shall mutually agree ("Election Form") shall be mailed at the time of
the mailing of the Proxy Statement/Prospectus provided for in Section 7.9 hereof
or on such other date as the Company and Gray shall mutually agree ("Mailing
Date") to each holder of record of Company Common Stock as of the record date
for the Shareholder Meeting (as defined in Section 7.7) ("Election Form Record
Date").
(3) Each Election Form shall permit a holder (or the beneficial
owner through appropriate and customary documentation and instructions) of
Company Common Stock to elect to receive as much as sixty percent (60%) of the
Merger Consideration Per Share in cash with the remainder of the Merger
Consideration Per Share in the form of Gray Common Stock; provided, however,
that in the event the Market Value on the Closing Date is less than $14.00 per
share, each holder of Company Common Stock shall be deemed to have elected to
receive sixty percent (60%) of the Merger Consideration Per Share in cash and
forty percent (40%) of the Merger Consideration Per Share in the form of Gray
Common Stock.
(4) Any shares of Company Common Stock with respect to which the
holder (or the beneficial owner, as the case may be) shall not have submitted to
the Exchange Agent an effective, properly completed Election Form on or before
5:00 p.m. on the day of the Shareholder Meeting (the "Election Deadline") shall
be entitled to receive the Merger Consideration Per Share sixty percent (60%) in
cash and forty percent (40%) in Gray Common Stock (such shares being "No
Election Shares").
(5) Gray shall make available one or more Election Forms as may
be reasonably requested by all Persons who become holders (or beneficial owners)
of Company Common Stock between the Election Form Record Date and the close of
business on the business day prior to the Election Deadline, and the Company
shall provide to the Exchange Agent all information reasonably necessary for it
to perform as specified herein.
(6) Any such election shall have been properly made only if the
Exchange Agent shall have actually received a properly completed Election Form
by the Election Deadline. An Election Form shall be deemed properly completed
only if accompanied by one or more certificates (or customary affidavits and
indemnification regarding the loss or destruction of such certificates or the
guaranteed delivery of such certificates) representing all shares of the Company
Common Stock covered by such Election Form, together with duly executed
transmittal materials included in the Election Form. Any Election Form may be
revoked or changed by the Person submitting such Election Form at or prior to
the Election Deadline. In the event an Election Form is revoked prior to the
Election Deadline, the shares of Company Common Stock represented by such
Election Form shall become No Election Shares and Gray shall cause the
certificates representing Company Common Stock to be promptly returned without
charge to the Person submitting the Election Form upon written request to that
effect from the Person who submitted the Election Form. Such Person may submit a
new Election Form with respect to such shares at any time prior to the Election
Deadline. If no new Election Form is submitted with respect to such
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shares, they shall become No Election Shares. Subject to the terms of this
Agreement and of the Election Form, the Exchange Agent shall have reasonable
discretion to determine whether any election, revocation or change has been
properly or timely made and to disregard immaterial defects in the Election
Forms, and any good faith decisions of the Exchange Agent regarding such matters
shall be binding and conclusive. Neither Gray nor the Exchange Agent shall be
under any obligation to notify any person of any defect in an Election Form.
(7) Subject to Gray's and Merger Corp.'s exercise of the Cash
Election Option described in Section 3.1(3) above, in the event that the Market
Value at Closing is less than the Valuation Period Market Value, Gray shall
increase the number of shares of Gray Common Stock to be issued to each
Shareholder by a sufficient number to ensure that the value of the Stock Portion
of the Merger Consideration received by each Shareholder at Closing will be no
less than 40% of the Merger Consideration received by that Shareholder at
Closing.
3.3 Rights As Shareholders; Share Transfers. At the Effective
Time, holders of Company Common Stock shall cease to be, and shall have no
rights as, Shareholders of the Company, other than to receive any dividend or
other distribution with respect to such Company Common Stock with a record date
occurring prior to the date hereof and the Merger Consideration provided under
this Section 3. After the Effective Time, there shall be no transfers on the
share transfer books of the Company or the Surviving Corporation of shares of
Company Common Stock.
3.4 Fractional Shares. Notwithstanding any other provision
hereof, no fractional shares of Gray Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, Gray shall pay to each holder of Company Common Stock who would
otherwise be entitled to a fractional share of Gray Common Stock (after taking
into account all Old Certificates delivered by such holder) an amount in cash
(without interest) determined by multiplying such fraction by the average of the
last sale prices of Gray Common Stock, as reported by the NYSE Composite
Transactions reporting system (as reported in The Wall Street Journal or, if not
reported therein, in another authoritative source), for the five (5) NYSE
trading days immediately preceding the Effective Date.
3.5 Exchange Procedures.
(1) At or prior to the Effective Time, Gray shall deposit, or
shall cause to be deposited, with the Exchange Agent, for the benefit of the
holders of Old Certificates, for exchange in accordance with this Section 3,
certificates representing the shares of Gray Common Stock ("New Certificates")
and an estimated amount of cash (such cash and New Certificates, together with
any dividends or distributions with respect thereto (without any interest
thereon), being hereinafter referred to as the "Exchange Fund") to be paid
pursuant to this Section 3 in exchange for outstanding shares of Company Common
Stock.
(2) As promptly as practicable after the Effective Date, Gray
shall send or cause to be sent to each former holder of record of shares (other
than Treasury Shares) of Company Common Stock immediately prior to the Effective
Time transmittal materials for use in exchanging such Shareholder's Old
Certificates for the consideration set forth in this Section 3. Gray
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shall cause the New Certificates into which shares of a Shareholder's Company
Common Stock are converted on the Effective Date and any check in respect of the
cash portion of the Merger Consideration Per Share and any fractional share
interests or dividends or distributions which such Person shall be entitled to
receive to be delivered to such Shareholder upon delivery to the Exchange Agent
of Old Certificates representing such shares of Company Common Stock (or an
affidavit and indemnity in form reasonably satisfactory to Gray and the Exchange
Agent, if any of such certificates are lost, stolen or destroyed) owned by such
Shareholder. No interest will be paid on any such cash to be paid pursuant to
this Section 3 upon such delivery.
(3) Notwithstanding the foregoing, neither the Exchange Agent nor
any party hereto shall be liable to any former holder of Company Common Stock
for any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(4) No dividends or other distributions with respect to Gray
Common Stock with a record date occurring after the Effective Time shall be paid
to the holder of any unsurrendered Old Certificate representing shares of
Company Common Stock converted in the Merger into the right to receive shares of
such Gray Common Stock until the holder thereof shall surrender such Old
Certificate in accordance with this Section 3. After the surrender of an Old
Certificate in accordance with this Section 3, the record holder thereof shall
be entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares of
Gray Common Stock represented by such Old Certificate.
(5) Any portion of the Exchange Fund that remains unclaimed by
the Shareholders of the Company for twelve months after the Effective Time shall
be paid to Gray. Any Shareholders of the Company who have not theretofore
complied with this Section 3 shall thereafter look only to Gray for payment of
the shares of Gray Common Stock, cash, cash in lieu of any fractional shares and
unpaid dividends and distributions on the Gray Common Stock deliverable in
respect of each share of Company Common Stock such Shareholder holds as
determined pursuant to this Agreement, in each case, without any interest
thereon.
3.6 Treasury Shares. Each of the shares of Company Common
Stock held as Treasury Shares immediately prior to the Effective Time shall be
canceled and retired at the Effective Time and no consideration shall be issued
in exchange therefor.
3.7 Earnest Money. The Earnest Money, in the form of cash,
shall be paid to the Escrow Agent for the account of the Company within three
(3) business days after the date hereof. The cash Earnest Money shall be held in
accordance with the provisions of the Escrow Agreement substantially in the form
of Exhibit C attached hereto and shall be paid to Merger Corp. at the Closing.
3.8 Determination of Working Capital Surplus.
(1) At least seven (7) days prior to the Closing Date, the
Company shall prepare and deliver to Gray pro forma statements of estimated
assets and liabilities of the Company
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as of the close of business at 11:59 p.m. on the day preceding the Closing Date
(the "Preliminary Balance Sheets"), substantially in the form of Exhibit D
attached hereto, containing estimates of the Working Capital Surplus of each
corporation.
(2) Within ninety (90) days after the Closing, Gray shall prepare
final statements of assets and liabilities of the Company as of the Closing Date
(the "Final Balance Sheets"), substantially in the form of Exhibit E attached
hereto, and shall submit such statements to the Shareholder Representative for
review and approval. Gray shall also provide all information reasonably
necessary to determine the correct amount of Working Capital Surplus of each
corporation, including appropriate supporting documents and such other
information as may be reasonably requested by the Shareholder Representative.
The Final Balance Sheets shall be certified by an officer on behalf of Gray to
be true and complete. The Shareholder Representative (and his authorized
representatives) shall have the right to visit the Station during normal
business hours to verify and review such documentation upon providing reasonable
notice to Gray. If the Shareholder Representative disputes the amounts of
Working Capital Surplus determined by Gray, he shall so notify Gray within
thirty (30) days after receipt of the Final Balance Sheets and provide Gray with
his own Final Balance Sheets. If the Shareholder Representative notifies Gray
that he accepts the Final Balance Sheets, or fails to deliver his own alternate
Final Balance Sheets within the thirty (30) day period specified in the
preceding sentence, Gray's determination of the amounts of Working Capital
Surplus shall be conclusive and binding on the parties upon the expiration of
such period.
(3) Gray and the Shareholder Representative shall use good faith
efforts to resolve any dispute involving the determination of the amounts of
Working Capital Surplus and the Final Balance Sheets. If the parties are unable
to resolve any dispute within fifteen days following the delivery of the
Shareholder Representative's notice concerning disputed adjustments, Gray and
the Shareholder Representative shall jointly designate a qualified Big 5 firm of
independent certified public accountants (the "Neutral Auditors") to resolve
such dispute. If the parties are unable to agree on the designation of the
Neutral Auditors, then an accounting firm will be selected by lot from two names
submitted by the Shareholder Representative and two names submitted by Gray,
none of which shall be employed by the Shareholder Representative or Gray. The
Neutral Auditors' resolution of the dispute shall be made within sixty (60) days
of their selection, shall be based on presentations by the Shareholder
Representative and Gray and not by independent financial audit, and shall be
final and binding on the parties. The Neutral Auditors' resolution of the
dispute may be enforced by any court of competent jurisdiction. Fees of the
Neutral Auditors shall be split equally between the parties.
(4) If the amount of Working Capital Surplus of the Company
reflected on the Final Balance Sheet as finally determined in accordance with
the preceding provisions of this Section 3.8 is more than $10,000 less than such
amount reflected on the Preliminary Balance Sheet, then the Escrow Agent shall
refund fifty percent (50%) of the difference (without regard to the $10,000
threshold) to the Surviving Corporation out of the Escrow Fund. The payment
required hereunder shall be made within seven (7) days after all of the
procedures specified in this Section 3.8 have run their course.
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(5) If Neutral Auditors should be appointed by the parties to the
KWTX Agreement, then the Neutral Auditors so appointed shall serve as the
Neutral Auditors under this Agreement, and all proceedings before the Neutral
Auditors shall be consolidated to promote efficiency and reduce expenses of the
parties.
3.9 Accounting Principles. Completion of the Preliminary Balance
Sheets and Final Balance Sheets, and determination of the amounts of Working
Capital Surplus, shall be made by the application of the following accounting
principles:
(1) Current assets shall be reduced by an amount equal to two
(2%) percent of the value of accounts receivable included within the
computation. For purposes of this Section 3.9, accounts receivable shall include
accounts receivable due from trade, but shall exclude accounts receivable due
from network and affiliated stations (as the terms "trade," "network," and
"affiliated stations" have been customarily used by the Company for the purpose
of preparing their financial statements).
(2) The account balances for deferred trade expense and cash
value life insurance shall be included in the computation.
(3) Current liabilities shall contain an accrual for any Taxes
due on account of the sale, liquidation, or other disposition of any investment
securities in the period ending on the Closing Date.
(4) Otherwise, all revenues and all expenses arising from the
operation of the Company, including business and nongovernmental license fees,
utility charges, real and personal property taxes and assessments levied against
the Company, property and equipment rentals, applicable copyright or other fees,
sales and service charges, taxes, programming fees and expenses, employee
compensation, including wages, commissions, bonus pay, payroll taxes, accrued
vacation, sick leave, holiday, and compensatory pay for all employees of the
Company, prepaid and deferred items, and dividends, shall be charged or credited
in accordance with the methods historically used by the Company as disclosed in
its annual audited financial statements, and prorated as of the close of
business at 12:00 a.m. midnight on the day preceding the Closing Date. All
special assessments and similar charges or liens, or installments thereof,
imposed against the Real Property or the Station, and payable on or prior to the
Closing Date shall be reflected on the Preliminary Balance Sheets and Final
Balance Sheets, and amounts payable with respect to such assessments and similar
charges or liens or installments thereof, imposed against the Real Property or
the Station, and payable after the Closing Date, shall be excluded. Ad valorem
real and personal property taxes assessed or assessable for the year in which
the Closing takes place shall be prorated based upon the number of days elapsed
from January 1 to the Closing Date, divided by 365 days.
(5) Any and all rebates due after the Closing Date to any
advertiser or other user of the Station's facilities, based on business,
advertising, or services purchased or rendered prior to the Closing Date, shall
be reflected on the Preliminary Balance Sheets and Final Balance Sheets ratably
in proportion to revenues received or volume of business done during the
applicable
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period. Agency commissions shall be adjusted based upon revenue, volume of
business done, or services rendered in part before the Closing Date and in part
after the Closing Date and charged to the Preliminary Balance Sheets and Final
Balance Sheets ratably in proportion to the revenue, volume of business done, or
services rendered, as the case may be, during the applicable period. All
payments relating to Program Rights will be allocated ratably in accordance with
the payment terms of the contract or agreement for such properties, and prorated
to the Closing Date.
(6) The Preliminary Balance Sheets and Final Balance Sheets shall
be adjusted to the extent any liabilities on the books of the Company under
Tradeout Agreements exceed the value of assets from Tradeout Agreements as of
the date received, but no increase shall be made in Working Capital Surplus if
the value of assets from Tradeout Agreements exceeds the liabilities from
Tradeout Agreements, as of the Closing Date.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SHAREHOLDERS.
The Company represents and warrants unto Gray and Merger Corp.,
and this Agreement is made and expressly conditioned upon, the following
representations and warranties:
4.1 Organization, Corporate Power, and Qualifications of the
Company. The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Texas and has the full corporate
power and authority to own all of its properties and assets and to carry on its
business as it is now being conducted. The Company is duly qualified as a
foreign corporation in each jurisdiction where the nature and extent of its
business requires such qualification.
4.2 Authorization and Validity. The Company has the full
corporate power, capacity and authority to execute and deliver this Agreement
and to perform its obligations hereunder. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein, including without limitation, the Merger, have been duly
and validly authorized by all necessary corporate action in respect thereof on
the part of the Company, subject to the approval of this Agreement by the
holders of two-thirds (2/3) of the Shares, which is the only shareholder vote
required for approval of this Agreement and the consummation of the Merger by
the Company. This Agreement has been executed and delivered by duly authorized
officers of the Company and constitutes the legal, valid, and binding obligation
of the Company. This Agreement is enforceable with respect to the Company in
accordance with its terms.
4.3 Ownership of Shares. Each of the Shareholders owns
(beneficially and legally) the number of Shares specified on Schedule 4.3,
opposite his, her, or its name, free and clear of any Encumbrance of any kind.
4.4 Capitalization of the Company. The authorized capital stock
of the Company consists of Five Hundred (500) shares of common stock, $100 par
value, of which Five Hundred (500) shares are issued and outstanding. The number
of shares of common stock issued to each of the Shareholders is accurately set
forth on Schedule 4.3 to this Agreement. All issued and outstanding Shares of
capital stock in the Company have been duly authorized and validly issued,
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are fully paid and nonassessable, were issued without violation of any
preemptive rights, are free of any preemptive rights and were issued pursuant to
a valid exemption from registration under the Securities Act of 1933, as
amended, (the "Securities Act"), and all applicable state securities laws. There
are no options, warrants, or other rights, nor any agreements, commitments, or
arrangements of any kind relating to the subscription to or the issuance,
voting, acquisition, sale, repurchase, transfer, or disposition of (i) any
capital stock of the Company or securities convertible into or exchangeable for
capital stock of the Company, or (ii) any options, warrants, or subscription
rights relating to any such capital stock or securities of the Company. No
Person has any contract or agreement or any right or privilege capable of
becoming a binding contract for the purchase from any of the Shareholders of any
of the Shares. The consummation of the transactions contemplated in this
Agreement will convey to Gray good title to the Shares free and clear of all
Encumbrances, security interests, charges, or restrictions on transfer of any
nature whatsoever.
4.5 Investments and Subsidiaries. The Company 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.
4.6 Noncontravention. The execution and delivery by the Company
of this Agreement and the other agreements contemplated on its part hereby does
not, and the consummation by the Company of the transactions contemplated hereby
and thereby will not, (i) violate any provision of the Articles of Incorporation
or Bylaws of the Company, (ii) violate, or result (with the passage of time, the
giving of notice or both) in a violation of, or result in the acceleration of or
entitle any party to accelerate any obligation under, or result in the creation
or imposition of, any Encumbrance upon any of the property of the Company
pursuant to any provision of any mortgage, lien, lease, agreement, license, or
instrument to which the Company is a party or is subject, (iii) constitute an
event permitting termination or acceleration of any mortgage, lien, lease,
agreement, license, or instrument to which the Company is a party, or (iv)
violate (A) any judgment, order, writ, injunction, decree, regulation, or rule
of any court or Governmental Authority applicable to the Company or the Station
or (B) any Law.
4.7 Consents, Approvals. Except for filings with and approvals of
the transactions contemplated hereby by the FCC and the expiration of applicable
waiting periods under the HSR Act, and except for consent from the CBS
Television Network, neither the Shareholders nor the Company is required to make
or obtain any consent, approval, notification, authorization or order of, or
declaration, filing, or registration with any third party, including, without
limitation, any Governmental Authority (i) in connection with the consummation
of the transactions contemplated hereby, (ii) to avoid the loss of any license
or the violation, breach, or termination of, or any default under, or the
creation of any lien on any of the assets of the Station pursuant to the terms
of any Law, order, or other requirement or any contract binding upon the Company
or to which assets of the Station may be subject, or (iii) to enable Merger
Corp. to continue the operation of the Station after the Closing substantially
as conducted prior to the Closing.
4.8 Financial Statements. Schedule 4.8 contains true and complete
copies of (i) the audited financial statements of the Company for calendar years
1994-1998, prepared by its
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independent auditors, Pattillo, Brown and Hill, Certified Public Accountants,
Waco, Texas (the "Tax Basis Statements") and (ii) (A) the audited balance sheet
of the Company as of December 31, 1998 and the audited statements of income and
cash flows for the year then ended and (B) the unaudited balance sheet of the
Company as of December 31, 1997 and 1996 and the unaudited statements of income
and cash flows of the Company for the years ended December 31, 1996 and 1997,
prepared by its independent auditors, Patillo, Brown and Hill, Certified Public
Accountants, Waco Texas (collectively, the "GAAP Basis Statements"). The Tax
Basis Statements have been prepared, and when prepared, the Preliminary Balance
Sheets and Final Balance Sheets will have been prepared, in accordance with the
accounting principles described in the independent auditors' reports and
footnotes accompanying said Tax Basis Statements and fairly present the
financial condition of the Company as of the respective dates thereof, and the
results of operations, cash flows and retained earnings, and changes in
financial position, respectively, of the Company, for the respective periods
thereof. In addition, the Preliminary Balance Sheets and Final Balance Sheets,
when prepared, will be based on the Company's historical accounting practices,
consistently applied. The GAAP Basis Statements have been prepared in accordance
with generally accepted accounting principles, consistently applied and fairly
present the financial condition of the Company as of the respective dates
thereof, and the results of operations, cash flows and retained earnings, and
changes in financial position, respectively, of the Company, for the respective
periods thereof. Since December 31, 1998, (i) the Company has carried on its
business only in the ordinary course of business consistent with past practice,
(ii) there has been no Material Adverse Change, and (iii) the Company has not
made any change in any method of accounting or any accounting practice.
4.9 Title to and Condition of Real Property.
(1) Schedule 4.9(1) contains a complete and accurate description
of all the Real Property and the Company's interest therein.
(2) The Company has good, marketable and insurable fee simple
title to all of the Real Property free and clear of all Encumbrances, except for
Permitted Liens, and no portion of the Real Property is included in a Tax parcel
that includes property other than Real Property.
(3) Schedule 4.9(3) contains a complete and accurate description
of all the Leased Property and of the applicable lease creating the Company's
interest in the Leased Property (the "Ground Leases") and the terms of the
Company's interest therein. The Company has good, marketable and insurable
leasehold title to all of the Leased Property described on Schedule 4.9(3) free
and clear of all Encumbrances, except for Permitted Liens. The Company has
delivered to Gray true and complete copies of all of the Ground Leases.
(4) Schedule 4.9(4) contains a complete and accurate description
of all leases of the Real Property and Leased Property pursuant to which the
Company is the landlord or sublandlord, (the "Tenant Leases") and the Company
has delivered true and complete copies of the Tenant Leases to Gray. There are
no leases or other agreements relating to occupancy of the Real Property or
Leased Property, except for the Tenant Leases and no Person other than the
tenants under the Tenant Leases has any right to occupancy of any portion of the
Real Property or Leased Property.
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The Company is the lessor or landlord or the successor lessor or landlord under
the Tenant Leases free and clear of all Encumbrances except for the Permitted
Liens and is entitled to receive the rents, issues and profits from the Tenant
Leases.
(5) Except as disclosed on Schedule 4.9(l), all towers, guy
anchors, buildings, and other improvements owned by the Company are located
entirely on the Real Property listed on Schedule 4.9(1).
(6) All Real Property (i) is available for immediate use in the
conduct of the business and operations of the Station and (ii) complies in all
material respects with all applicable building, fire, health, handicapped
persons, sanitation, use and occupancy or zoning Laws and the regulations of any
Governmental Authority having jurisdiction thereof. There is no pending or, to
the Company's Knowledge, threatened condemnation or eminent domain proceedings
that would affect the Real Property, or any part thereof and the Company has
full legal and practical access to the Real Property and all utilities are
available to the Real Property from a publicly dedicated right of way or through
a valid private easement. The Company has furnished to Gray copies of any and
all notices or reports received from any insurance company, engineer, or
Governmental Authority with respect to any violations (or potential violations)
of any applicable law affecting the Real Property or otherwise requiring or
recommending work be performed on or at any of the Real Property (or
improvements thereon), and all of the violations and requirements set forth in
any such notices and reports have been cured or fulfilled to the satisfaction of
those entities.
(7) The Real Property listed on Schedule 4.9(1) and the Tenant
Leases listed on Schedule 4.9(4) comprise all real property interests necessary
to conduct the business and operations of the Company as now conducted.
4.10 Title to and Condition of Tangible Personal Property.
(1) Schedule 4.10(1) lists all material items of Tangible
Personal Property owned by the Company, which together with the leased Tangible
Personal Property comprises all material items of Tangible Personal Property
necessary to conduct the business and operations of the Station as now
conducted. Except as specified on Schedule 4.10(1) the Company owns and has good
title to each item of Tangible Personal Property, and none of the Tangible
Personal Property owned by the Company is subject to any Encumbrance, other than
Permitted Liens. Each item of Tangible Personal Property is available for
immediate use in the business and operations of the Station. Each item of
Tangible 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 item of Tangible Personal Property is adequate for its
present and intended uses and operation. All items of transmitting equipment
included in the Tangible Personal Property permit the Station to operate in all
material respects in compliance with the terms of the FCC Licenses, the rules
and regulations of the FCC, and with all other applicable Laws.
(2) Schedule 4.1 0(2) contains a complete and accurate
description of all the leased Tangible Personal Property and of the applicable
lease creating the Company's interest in the leased Tangible Personal Property,
which includes the leases for motor vehicles (collectively,
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the "Personal Property Leases") and the terms of the Company's interest therein.
The Company has good leasehold title to the leased Tangible Personal Property
subject to the terms of the applicable Personal Property Lease and free of any
Encumbrances, other than Permitted Liens. The Company has delivered to Gray true
and complete copies of all of the Personal Property Leases. The owned Tangible
Personal Property listed on Schedule 4.10(1) and the leased Tangible Personal
Property listed on Schedule 4.10(2) comprise all personal property interests
necessary to conduct the business and operations of the Company as now
conducted.
4.11 Litigation. There are no actions, suits, claims,
investigations, or proceedings (legal, administrative, or arbitrative) pending,
or to the Company's Knowledge threatened, against the Company, and to the
Company's Knowledge no basis for any of the foregoing exists, whether at law or
in equity and whether civil or criminal in nature, before or by any Federal,
State, municipal, or other court, arbitrator, governmental department,
commission, agency, or instrumentality, domestic or foreign, nor are there are
any judgments, decrees, or orders of any such court, arbitrator, governmental
department, commission, agency, or instrumentality outstanding against the
Company. Except as disclosed on Schedule 4.11, no litigation (as described in
the preceding sentence) has been pending during the three (3) years prior to the
date hereof that, individually or in the aggregate, resulted in losses, damages,
costs or expenses (whether or not covered by insurance) in excess of $10,000 or
granted any injunctive relief against the Company.
4.12 Environmental Matters.
(1) To the Company's Knowledge, none of the Real Property, assets
or premises of the Company or the assets or premises formerly owned, leased,
operated or managed, directly or indirectly, by the Company or any of its
predecessors or any of its current or former subsidiaries (which are identified
on Schedule 4.5), contains, nor is there present at any such Real Property,
assets or premises of the Company or the assets or premises formerly owned,
leased, operated or managed, directly or indirectly, by the Company or any of
its predecessors or any of its current or former subsidiaries (which are
identified on Schedule 4.5), any (i) "hazardous substances" (as defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
42 U.S.C. 9601 et seq., as amended), (ii) asbestos, (iii) radon gas, (iv)
underground storage tanks, (v) items or equipment containing polychlorinated
biphenyls in excess of 50 parts per million, (vi) stored, spilled, or leaked
petroleum products, or (vii) accumulation of rubbish, debris, or other solid
waste; nor is any of the Real Property, assets or premises of the Company or the
assets or premises formerly owned, leased, operated or managed, directly or
indirectly, by the Company or any of its predecessors or any of its current or
former subsidiaries (which are identified on Schedule 4.5), the subject of
governmental regulation or liability because of the past release, threat of
release, discharge, storage, treatment, generation, or disposal of such
substances.
(2) To the Company's Knowledge, the Company is in compliance with
all laws, rules, and regulations of all federal, state, and local governments
(and all agencies thereof) concerning the environment, except for any
noncompliance which could not reasonably be expected to have a Material Adverse
Effect, and neither the Company nor any of its predecessors or any of its
current or former subsidiaries has received any written notice of a charge,
complaint, action, suit,
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proceeding, hearing, investigation, claim, demand, or notice having been filed
or commenced against the Company or any of its predecessors or any of its
current or former subsidiaries in connection with its operation of the Station
alleging any failure to comply with any such law, rule, or regulation.
(3) To the Company's Knowledge, neither the Company nor any of
its predecessors or any of its current or former subsidiaries has any liability
that could reasonably be expected to have a Material Adverse Effect under any
law, rule, or regulation of any federal, state, or local government (or agency
thereof) concerning the (i) release or threatened release of hazardous
substances, (ii) pollution, or (iii) protection of the environment.
(4) To the Company's Knowledge, all waste containing any
hazardous substances generated, used, handled, stored, treated or disposed of
(directly or indirectly) by the Company or any of its predecessors or any of its
current or its former subsidiaries has been released or disposed of in
compliance with all applicable reporting requirements under any Law, and neither
the Company nor the Shareholders have Knowledge of any Environmental Claim (as
herein defined) with respect to any such release or disposal.
(5) To the Company's Knowledge, without limiting the generality
of any of the foregoing, (i) all on-site and off-site locations where the
Company or any of its predecessors or any of its current or former subsidiaries
has stored, disposed or arranged for the disposal of hazardous substances are
identified in Schedule 4.12, and (ii) no polychlorinated biphenyls (PCB's) are
used or stored on or in any Real Property owned, leased, operated or managed by
the Company or any of its predecessors or any of its current or former
subsidiaries.
(6) For purposes of this Agreement:
(a) "Environmental Claim" shall mean any Litigation in any court
or before or by any Governmental Authority or private arbitrator, mediator or
tribunal against the Company (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.
(b) "Environmental Matter" shall mean any matter or circumstances
existing prior to Closing 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 Real Property.
4.13 Trade Names, Trade Marks, etc. The Company has and owns, or
has the right to use, all trademarks, service marks, trade names, business
names, copyrights, designs, trade
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secrets, and know-how used in the operation of the Station, including, but not
limited to, the items listed on Schedule 4.13 as a part of the Intangible
Property. There are no claims or proceedings pending, or to the Company's
Knowledge threatened, against the Company asserting that its use of any
Intangible Property infringes the rights of any other Person and the Company has
no Knowledge of any use by the Company that may, with notice or passage of time,
give rise to such a claim. The Company has not licensed or otherwise assigned
any Intangible Property to any third party and, to the Company's Knowledge,
there are no existing infringing uses of the Intangible Property by any third
parties. All royalties, limitations, restrictions, or other obligations of the
Company with respect to the ownership or use of the Intangible Property are set
forth on Schedule 4.13.
4.14 Governmental Authorization and Compliance With Laws. All
governmental licenses, certificates, permits, and approvals required for the
conduct of the Company's business as now conducted are listed on Schedule 4.14.
The Company has obtained all such licenses, permits, and approvals and all are
in full force and effect. The business of the Station has been operated in
compliance with all applicable Laws, orders, regulations, policies, and
guidelines of all Governmental Authorities (including, without limitation, those
relating to FCC matters and environmental laws and regulations), except for
violations of such Laws, orders, regulations, policies, and guidelines which do
not affect and cannot reasonably be expected to have a Material Adverse Effect
on the Station or the business, financial condition, assets, liabilities,
results of operations or cash flows of the Company. The Company has received no
notice of, and no investigation or review is pending before, or to the Company's
Knowledge threatened by, any Governmental Authority (i) with respect to any
alleged violation by the Company of any Law, order, regulation, policy, or
guideline of any Governmental Authority related to the operation of the Station,
or (ii) with respect to any alleged failure to have all permits, certificates,
licenses, approvals, and other authorizations required in connection with the
operation of the Station.
4.15 FCC Licenses. The Company is now and on the Closing Date
will be the holder of the FCC Licenses as listed in Schedule 4.15, with regular
unconditional renewals thereof having been granted for the full license term.
The FCC Licenses constitute all of the licenses and authorizations required for
and/or used in the operation of the Station as now operated, and the FCC
Licenses are now and on the Closing Date will be in full force and effect and
unimpaired by any act or omission of the Company, or its officers, directors,
employees, or agents. There is not now pending, or to the Company's Knowledge,
threatened, any action by or before the FCC to revoke, cancel, rescind, modify,
or refuse to renew in the ordinary course any of the FCC Licenses, or any
investigation, Order to Show Cause, Notice of Violation, Notice of Apparent
Liability, or a forfeiture or material complaint against the Station or the
Company. The Company does not Know of any reason why the FCC would not renew the
FCC Licenses in the ordinary course. In the event of any such action, or the
filing or issuance of any such order, notice, or complaint or Knowledge of the
threat thereof, the Company shall notify Gray of same in writing within five (5)
days, and shall take all reasonable measures to contest in good faith or seek
removal or rescission of such action, order, notice, or complaint, and shall pay
any sanctions imposed. All material reports, forms, and statements required to
be filed by the Company with the FCC with respect to the Station have been filed
and are complete and accurate in all material respects. The Station is now and
on the Closing Date will be operating in accordance with the FCC Licenses, and
in compliance with the
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Communications Act of 1934, as amended, and the Rules and Regulations of the
FCC. The operation of the Station, including, but not limited to, the Company's
use and operation of its existing tower sites, conforms to the standards adopted
by the FCC in Guidelines Evaluating the Environmental Effects of Radio Frequency
Radiation, Report and Order, IT Docket 93-62 (August 1, 1996) (FCC 96-326), as
modified on reconsideration, Second Memorandum Opinion and Order, FCC 97-303
(released August 23, 1997).
4.16 Labor Relations.
(1) The Company has paid or made provision for payment of all
salaries and wages of employees accrued through the date of this Agreement. The
Company is in compliance with all federal and state Laws respecting employment
and employment practices, terms and conditions of employment, safety of the
workplace, wages and hours, and nondiscrimination in employment, and is not
Knowingly engaged in any unfair or illegal employment practice;
(2) There is no charge, complaint, other claim, compliance
review, audit or investigation pending before, being conducted by or, to the
Company's Knowledge, threatened by any court, agency, arbitral panel or other
tribunal alleging, or that could result in an allegation of, unlawful
discrimination, unauthorized employment, harassment, any unfair labor practice
or violation of any Law or legal principle by the Company relating to any aspect
of employment or the workplace, nor to the Company's Knowledge is there a basis
for any such claims;
(3) There is no labor strike, dispute, slowdown, or stoppage
actually pending or, to the Company's Knowledge, threatened against or involving
the Company;
(4) There are no collective bargaining agreements binding on the
Company;
(5) To Company's Knowledge, no employee representative or labor
organization is seeking to represent the Company's employees or has requested an
election or a collective bargaining agreement, nor is the Company currently
negotiating or contemplating negotiating such an agreement; and
(6) Except as listed specifically on Schedule 4.16, the Company
has no written contract of employment, change of control agreement or other
agreement with any employee of the Station, and the Company has no unwritten
contract of employment, change of control agreement or other agreement that is
not terminable at will without any payment or other obligation on the part of
Company or any successor, including Merger Corp.
4.17 Insurance. Schedule 4.17 is a true and complete list,
showing company and type and amount of coverage, of all insurance policies
providing coverage for the Company or the operation of the Station, its
employees, or third parties. The Company has provided correct and complete
copies of each such policy to Gray on or before the date hereof. The Company is
neither in default with respect to any provision of any of its insurance
policies nor has it failed to give any notice or present any claim thereunder in
due or timely fashion or as required by any of such
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insurance policies which would result in failure to recover in full under such
policies. The Company has complied with the insurance requirements of (i) all
leases related to the Station to which it is a party; (ii) all other contracts
and agreements to which the Company is a party; and (iii) all Laws.
4.18 Accounts Receivable. All accounts receivable of the Company
reflected on its financial statements, as prepared and maintained through the
Closing Date, arose from bona fide transactions in the ordinary course of
business, and constitute valid and binding obligations of the account debtors
for the full face amount thereof, without discount, offset, or other claim or
allowance. The reserve for doubtful accounts contained in the financial
statements is adequate to protect the Company from losses by reason of
noncollection of such accounts.
4.19 Accounts Payable. All accounts payable of the Company
reflected on its financial statements, as prepared and maintained through the
Closing Date, arose from bona fide transactions in the ordinary course of
business, and constitute valid debts or obligations of the Company for the full
face amount thereof.
4.20 Tax Returns, Audits, and Liabilities.
(1) The Company has: (i) timely filed all Tax Returns in
accordance with all applicable laws (including any applicable extensions); (ii)
paid all Taxes shown to have become due pursuant to such Tax Returns; (iii)
properly accrued for all Taxes due or payable in respect of the current period
in the Financial Statements; and (iv) paid all Taxes for which a notice of, or
assessment or demand for, payment has been received or which are otherwise due
and payable, other than Taxes being contested in good faith, as identified on
Schedule 4.20 for which an adequate reserve has been established. All such Tax
Returns are true and correct in all material respects and reflected the true
facts regarding the income, business, assets, operations, activities, and status
of the Company and any other information required to be shown therein.
(2) Except as disclosed on Schedule 4.20, in the past five (5)
years, none of the Company's Tax Returns has been audited by any Governmental
Authority. There is no action, suit, proceeding, investigation, audit, claim, or
assessment pending or proposed with respect to Taxes or with respect to any Tax
Return for the Company; (ii) there are no liens for Taxes upon the assets of the
Company, other than liens for taxes not yet past due; (iii) there are no waivers
or extensions of any applicable statute of limitations for the assessment or
collection of Taxes with respect to any Tax Return that remains in effect; and
(iv) there are no Tax rulings, request for rulings, or closing agreements
relating to the Company that could affect its liability for Taxes for any period
after the Closing Date.
4.21 Bank Accounts. All of the Company's bank accounts, and the
names of all authorized signatories on all such accounts are set forth on
Schedule 4.21 to this Agreement.
4.22 Certain Contracts.
(1) Except as listed on Schedule 4.22:
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(a) the Company does not have any employment agreements or any
incentive compensation, profit-sharing, stock option, stock appreciation rights,
stock purchase, savings, deferred compensation, retirement, pension, or other
plans or benefit arrangements or practices with or for the benefit of any
officer, employee, or any other person, or any consulting agreement or other
arrangement with any officer, employee, former officer, or former employee;
(b) no officer, director or Shareholder of the Company has any
other agreement with the Company or any interest in any real, personal, or
intellectual property used in or pertaining to the operation of the Station; and
(c) except for contracts for the sale of advertising time entered
into in the normal course of business, the Company is not a party to or bound by
any contract, commitment, purchase order, or sales order, oral or written,
related to the operation of the Station. All leases, agreements, licenses, or
instruments to which the Company is a party are in full force and effect and are
binding obligations of the parties thereto, and no event or condition has
occurred or exists, or is alleged by any of the other parties thereto to have
occurred or existed, which constitutes, or with lapse of time or the giving of
notice or both, might constitute a material default or a basis for acceleration
of any obligation, force majeure, or other claim of excusable delay or
nonperformance thereunder or in respect thereof, whether on the part of the
Company or any other party. In connection with the Merger or otherwise, there
are no consents, approvals, notifications, or other actions required to be taken
pursuant to the terms of any contract or commitment to which the Company is a
party, except as described on Schedule 4.22.
(2) Schedule 4.22 contains a list and correct and complete copies
of the following contracts and agreements:
(a) all powers of attorney given by the Company;
(b) all programming and network affiliation agreements of
the Company or that relate to the Station;
(c) all Tradeout Agreements; and
(d) any contract or agreement that (i) provides for monthly
payments in excess of $1,000 or yearly payments in excess of $12,000; (ii)
requires performance by the Company of any obligation for a period of time
extending beyond six (6) months from the Effective Time or is not terminable by
the Company without penalty upon sixty (60) days or less notice; (iii)
evidences, creates or guarantees indebtedness of the Company; or (iv) guarantees
or endorses the liabilities or obligations of any other Person.
4.23 Employees. Schedule 4.23 is a true and complete list of all
personnel employed by the Company as of the date of this Agreement, including
the names and current addresses of all such persons, their job classifications,
rates of pay, length of service, and a brief description of the employment
benefits provided to them, including group insurance, vacation, severance,
health and accident benefits, and retirement pay, if any.
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4.24 Employee Benefit Plans.
(1) Schedule 4.24 contains an accurate and complete list of each
employee benefit plan established, maintained, or contributed to by the Company.
Each such plan is maintained and administered in material compliance with the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the Code
and any other applicable Laws, its governing documents and any oral or written
communications from the Company to any participant in or beneficiary of such
plan. Neither the Company nor any such employee benefit plan is liable for any
material fine, excise tax, or loss of income tax deduction with respect to the
operation of any such employee benefit plan. No reportable event, as defined in
Section 4043 of ERISA, that could have a Material Adverse Effect on the Company,
has occurred with respect to any employee benefit plan of the Company. The
consummation of the transactions contemplated by this Agreement will not result
in any withdrawal liability on the part of the Company under a multi-employer
plan. No plan or benefit arrangement established or maintained by the Company or
to which the Company is obligated to contribute has any "accumulated funding
deficiency" as defined by ERISA. The Company has not incurred any liability to
the Pension Benefit Guaranty Corporation with respect to any such plan. There
are no material claims (other than routine claims for benefits), lawsuits or
governmental proceedings pending or, to the Company's Knowledge, threatened with
respect to any employee benefit plan of the Company. No claims or liabilities in
respect of any of the Company's employee benefit plans shall be imposed upon
Gray or Merger Corp. as a result of the transactions described herein.
(2) The Company has filed all returns and reports required to be
filed with respect to its employee benefit plans, and has paid or made provision
for the payment of all fees, interest, penalties, assessments, or deficiencies
that may have become due pursuant to those returns or reports or pursuant to any
assessment or adjustment that has been made relating to those returns or
reports. All other fees, interest, penalties, and assessments that are payable
by or for the Company have been timely reported, fully paid, and discharged.
There are no unpaid fees, penalties, interest, or assessments due from the
Company relating to any employee benefit plan that are or could become an
Encumbrance on any assets of the Station or are otherwise material. The Company
has furnished to Gray true and complete copies of all documents setting forth
the terms and funding of each employee benefit plan.
(3) The Company is not liable for any welfare benefits (as
defined in ERISA Section 3(1)) to its employees or other individuals associated
with the Company after retirement or other separation from service other than to
the extent required by Code Section 4980B and Part VI of Title I of ERISA
(COBRA).
(4) For purposes of this Section 4.24, "Company" means the
Company and any entity which, together with the Company, would be treated as a
single employer under Section 414(n) of the Code.
4.25 No Brokers. Neither the Company nor any of its Shareholders
has employed any brokers or finders, or incurred any liability for any brokerage
fees, commissions, finders' fees, or financial advisory fees in connection with
the transactions contemplated hereby, and the
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Shareholders agree to hold Gray harmless from any claim relating to such fees or
compensation made by the Company or the Shareholders or anyone employed by the
Company or the Shareholders.
4.26 Computer Software and Database. All computer software
licensed, leased or otherwise used in connection with the Station is standard,
pre-packaged and licensed and none of such computer software is proprietary,
internally developed or owned by the Company. The Company has, and upon
consummation of the transactions contemplated by this Agreement, Merger Corp.
will have, all computer software and databases that are necessary to operate the
Station as presently conducted by the Company and all documentation and
necessary licenses relating to all such computer software and databases.
4.27 Interested Transactions. Except as set forth in Schedule
4.27, the Company is not a party to any contract or other transaction with any
Affiliate of the Company, any Related Party of any Affiliate of the Company
(other than as a Shareholder or employee of the Company), 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. Each of such contracts and other transactions described in the
preceding sentence was negotiated on an arm's length basis, contains pricing
terms that reflected fair market value at the time entered into and otherwise
contains terms and conditions comparable to those customarily contained in
similar transactions between unrelated parties. Except as described in Schedule
4.27, none of the Persons described in the first sentence of this Section 4.27
owns, or during the last three (3) years has owned, directly or indirectly,
beneficially or legally (individually or in the aggregate), five percent (5%) or
more of the equity or voting interests of any Person that competes with the
Company or the Station.
4.28 Full Disclosure. No statement contained herein or in any
document, certificate, or other writing furnished or to be furnished by the
Company to Gray pursuant to the provisions of this Agreement contains or shall
contain any untrue statement of a material fact or shall omit to state any
material fact necessary, in the light of the circumstances under which it was
made, to make the statements therein not misleading. The due diligence materials
delivered by the Company to Gray and Merger Corp. are correct and complete in
all material respects and do not omit any material facts necessary to make the
facts disclosed by such materials not misleading.
4.29 Reliance and Survival. The foregoing representations and
warranties have been made by the Company with the knowledge and expectation that
Gray and Merger Corp. are placing complete reliance thereon, and all such
representations and warranties shall survive the Closing.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF GRAY AND MERGER CORP.
Each of Gray and Merger Corp. represents and warrants to the
Company as follows:
5.1 Organization and Existence. Each of Gray and Merger Corp. is
a corporation duly organized and validly existing under the laws of the State of
Georgia and has the
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power and authority to own all of its properties and assets and to carry on its
business as it is now being conducted.
5.2 Authorization and Validity. Each of Gray and Merger Corp. has
the full power and authority to execute and deliver this Agreement and the other
agreements and instruments contemplated on its part hereby and to consummate the
transactions contemplated on its part hereby and thereby; each of Gray's and
Merger Corp.'s execution and delivery of this Agreement and consummation of the
transactions contemplated hereby and thereby have been duly authorized by its
Board of Directors; and this Agreement has been duly executed and delivered and
constitutes the valid and binding agreement of each of Gray and Merger Corp.
enforceable in accordance with its terms.
5.3 Noncontravention. Neither the execution nor delivery of this
Agreement by either Gray or Merger Corp. nor the consummation by either Gray or
Merger Corp. of the transactions contemplated hereby and thereby will violate
any provision of the Articles of Incorporation or Bylaws of either Gray or
Merger Corp., or of any other material instrument, agreement, order, or decree
binding on either Gray or Merger Corp. the effect of which violation would be
the prevention, delay, avoidance, or voidableness of this Agreement or the
transactions contemplated hereby.
5.4 Consents, Approvals. Except for filings with and approvals of
the transactions contemplated hereby by the FCC and expiration of applicable
waiting periods under the HSR Act, neither Gray nor Merger Corp. is required to
make or obtain any consent, approval, notification, authorization or order of,
or declaration, filing, or registration with any Governmental Authority or any
other third party in connection with consummation by either Gray or Merger Corp.
of the transactions contemplated hereby.
5.5 No Brokers. Other than an approximately 1% fee paid by Gray
to Bull Run Corporation (which does not affect the Merger Consideration
hereunder), neither Gray nor Merger Corp. has employed any brokers or finders or
incurred any liability for any brokerage fees, commissions, finders' fees, or
financial advisory fees in connection with the transactions contemplated hereby
and each of Gray and Merger Corp. agrees to hold the Company harmless from any
claim relating to such fees or compensation made by either Gray or Merger Corp.
or anyone employed by either of them.
5.6 Capitalization.
---------------
(1) The authorized capital stock of Gray consists of 15,000,000
shares of Gray Common Stock, 15,000,000 shares of Class A Common Stock, no par
value ("Class A Common Stock"), and 20,000,000 shares of Preferred Stock, no par
value ("Preferred Stock"), of which as of March 11, 1999 there were issued and
outstanding 5,125,465 shares of Gray Common Stock, 6,832,042 shares of Class A
Common Stock and 1,000 shares of Series A Preferred Stock and 350 shares of
Series B Preferred Stock. As of December 31, 1998, 135,080 issued shares of Gray
Common Stock, 1,129,532 issued shares of Class A Common Stock and no shares of
Preferred Stock were held as treasury shares. All issued shares of Gray Common
Stock, Class A Common Stock and
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Preferred Stock are duly authorized and validly issued and are fully paid and
nonassessable and no holder thereof is entitled to preemptive rights. All shares
of Gray Common Stock to be issued pursuant to the Merger, when issued in
accordance with this Agreement, will be duly authorized and validly issued,
fully paid and nonassessable and will not violate the preemptive rights of any
person.
(2) All outstanding shares of capital stock of the consolidated
subsidiaries of Gray (the "Gray Subsidiaries") (A) are owned by Gray or a wholly
owned subsidiary of Gray, free and clear of all liens, charges, encumbrances,
adverse claims and options of any nature except for pledge of the capital stock
of the Gray Subsidiaries to secure certain debt of Gray, (B) were duly
authorized and validly issued and are fully paid and nonassessable, and (C) have
not been issued in violation of any preemptive rights. There are not now, and at
the Effective Time there will not be, any outstanding options, warrants, scrip,
rights to subscribe for, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of any class of capital stock of the Gray Subsidiaries, or contracts,
understandings or arrangements to which Gray or a Gray Subsidiary is a party, or
by which any of them is or may be bound, to issue additional shares of capital
stock or options, warrants, scrip or rights to subscribe for, or securities or
rights convertible into or exchangeable for, any additional shares of capital
stock of any Gray Subsidiary.
(3) As of the date hereof, the authorized capital stock of Merger
Corp. consists of 1,000 shares of common stock, no par value per share, all of
which were duly authorized and validly issued and are fully paid and
nonassessable and are owned by Gray.
5.7 SEC Filings; Financial Statements. Gray and each of the Gray
Subsidiaries have timely filed all reports, registration statements and other
filings, together with any amendments required to be made with respect thereto,
that they have been required to file with the SEC under the Securities Act and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All
reports, registration statements and other filings (including all notes,
exhibits and schedules thereto and documents incorporated by reference therein)
filed by Gray with the SEC since January 1, 1998, through the date of this
Agreement, together with any amendments thereto, are sometimes collectively
referred to as the "Gray SEC Filings." As of the respective dates of their
filing with the SEC, the Gray SEC Filings complied in all material respects with
the Securities Act, the Exchange Act and the rules and regulations of the SEC
thereunder, and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
Each of the consolidated financial statements (including any related
notes or schedules) included in the Gray SEC Filings was prepared in accordance
with generally accepted accounting principles applied on a consistent basis
(except as may be noted therein or in the notes or schedules thereto) and
complied with all applicable rules and regulations of the SEC. Such consolidated
financial statements fairly present the consolidated financial position of Gray
and the Gray Subsidiaries as of the dates thereof and the results of operations,
cash flows and changes in stockholders' equity for the periods then ended
(subject, in the case of the unaudited interim financial
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statements, to normal year end audit adjustments on a basis consistent with past
periods).
5.8 Financial Ability. Gray has the financial ability to close
the transactions contemplated under this Agreement, and will close those
transactions according to the terms of, and subject to the conditions contained
in, this Agreement.
Section 6. FCC Approval.
6.1 Filing and Prosecution of Application. Within ten (10) days
after the execution of this Agreement, Gray and the Company shall each file
applications with the FCC requesting the transfer and assignment of the FCC
Licenses of the Station from the Company to Merger Corp. or its assignee (the
"Assignment Application"). Gray and the Company shall take all steps reasonably
necessary to the expeditious prosecution of the Assignment Application to a
favorable conclusion, using their commercially reasonable best efforts
throughout. The parties acknowledge that the Assignment Application to be filed
by Gray will need to include a request for satellite designation of KBTX-TV so
as to authorize continued common control of KWTX-TV and KBTX-TV, and Gray agrees
to prepare and file said request contemporaneously with its Assignment
Application.
6.2 Expenses. Each party shall bear its own expenses in
connection with the preparation of the applicable sections of the Assignment
Application and in connection with the prosecution of such application. The
Company and Gray will divide and pay equally any filing fee or grant fee imposed
by the FCC.
6.3 Time for FCC Consent. If the FCC rejects the Assignment
Application for incompleteness, it shall be completed by the party (or parties)
whose portion of the Assignment Application was incomplete and then shall be
promptly resubmitted. If the Assignment Application is rejected by the FCC for a
reason which precludes resubmission, this Agreement shall terminate without
notice or other action by the parties. If the FCC accepts the Assignment
Application, whether as initially filed or as resubmitted, then, if the FCC has
not given its written consent to the transfer of the FCC Licenses by December
31, 1999, the time for FCC consent shall be automatically extended until May 31,
2000, so long as no party is otherwise in default hereunder. In the event that
the FCC consent has not been granted on or before May 31, 2000, either party may
terminate this Agreement pursuant to Section 13.4. If the Closing has not
occurred prior to August 15, 1999, the Company shall apply to the FCC prior to
such date for all necessary authorizations to construct and operate digital
television facilities on or before May 1, 2002.
6.4 Control of Station. Until the Closing, Gray shall not,
directly or indirectly, control, supervise, or direct the operation of the
Station, but such operation shall be the sole responsibility of the Company.
Pending the Closing, Gray shall not represent that it is acting as agent or
representative of the Company in connection with the operation of the Station or
any personnel actions affecting the Station's employees.
6.5 No Reversion of Licenses. Neither the Shareholders, nor any
person affiliated with the Shareholders, has retained any right of reversion of
the FCC Licenses. Further, no person
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affiliated with the Shareholders has the right to a reassignment of the FCC
Licenses in the future, and the Shareholders or their affiliates have not
reserved the right to use the facilities of the Station for any period
whatsoever. There is no contract, arrangement, or understanding, express or
implied, pursuant to which, as consideration or partial consideration for the
transactions contemplated hereby, such rights as stated above are retained.
6.6 Regulatory Matters. Gray and the Shareholders will cooperate
and use their best efforts to prepare all documentation, to make all filings,
and to obtain all permits, consents, approvals, and authorizations of all third
parties and governmental bodies necessary to consummate the transactions
contemplated by this Agreement. Each party shall be primarily responsible for
accomplishing all such matters applicable to it (or them) but shall take all
such further action in that regard as the other party shall reasonably request.
SECTION 7. SPECIAL COVENANTS AND AGREEMENTS.
7.1 HSR Act. Within thirty (30) days after the execution of this
Agreement, each of the Company and Gray shall make the filings required by the
HSR Act. The Company and Gray (i) will cooperate with each other in connection
with such HSR Act filings by furnishing each other with any information or
documents that may be reasonably required in connection with such filing; (ii)
will promptly file, after any request by the Federal Trade Commission ("FTC") or
Department of Justice ("DOJ") and after appropriate negotiation with the FTC or
DOJ of the scope of such request, any information or documents requested by the
FTC or DOJ; and (iii) will furnish each other with any correspondence from or
to, and notify each other of any other communications with, the FTC or DOJ that
relates to the transactions contemplated hereunder, and to the extent
practicable, to permit each other to participate in any conferences with the FTC
or DOJ. The consummation of the transactions described in this Agreement is
expressly conditioned upon the waiting period relating to any such filings
having duly expired or been terminated by the appropriate Governmental
Authorities without the enforcement of any action by any such agencies to
restrain or postpone the transactions contemplated hereby. The Company and Gray
shall share equally in the payment of filing fees required for the HSR Act
filings. In addition, Gray shall make its legal counsel available to the Company
to assist in the preparation of the Company's filings required by the HSR Act
and Gray shall pay the first $10,000 of the fees of its legal counsel incurred
in connection with the Company's HSR filings.
7.2 Confidentiality. Except as necessary for the consummation of
the transactions contemplated by this Agreement, except as and to the extent
required by law or securities filings, and except as permitted by Section 7.10,
each party will keep confidential any information obtained from the other party
in connection with the transactions contemplated by this Agreement. If this
Agreement is terminated, each party will return to the other party all
information obtained by such party from the other party in connection with the
transactions contemplated by this Agreement.
7.3 Cooperation. Gray and the Company shall cooperate fully with
each other and their respective counsel and accountants in connection with any
actions required to be taken as part of their respective obligations under this
Agreement, and Gray and the Company shall execute
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such other documents as may be necessary and desirable to implement and
consummate this Agreement, and shall otherwise use their commercially reasonable
efforts to consummate the transaction contemplated hereby and to fulfill their
obligations under this Agreement, including without limitation accomplishing the
events listed in Section 13.6 by the dates identified in such Section.
7.4 Access to Books and Records. Gray shall provide the
Shareholder Representatives reasonable access and the right to copy for a period
of three years from the Closing Date any books and records relating to the
Company.
7.5 Certain Investments. Prior to the Closing, the Company will
liquidate any and all investment securities and cash equivalents which it owns
so that the current assets of the Company at the time of the Closing will
consist only of cash, accounts receivable and prepaid expenses. Prior to the
Closing, Employee accounts will be liquidated or written off at the election of
the Company.
7.6 Acquisition Proposals. None of the Shareholders, the Company
or any of its officers and directors shall, and the Company and each of the
Shareholders will use its best efforts to cause its respective employees,
agents, and representatives (including, without limitation, any investment
banker, attorney or accountant retained by the Company or the Shareholders) not
to, initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any proposal with respect to a merger, consolidation, share exchange
or similar transaction involving the Company, or any purchase of all or any
significant portion of the assets of the Company, or any equity interest in the
Company, other than the transactions contemplated hereby (an "Acquisition
Proposal"), or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to an Acquisition Proposal.
7.7 Meetings of Shareholders. The Company will take all actions
necessary in accordance with applicable law and its Articles of Incorporation
and By-Laws to convene a meeting of the Shareholders (the "Shareholder Meeting")
as promptly as practicable to consider and vote upon the approval of the Merger.
7.8 Meetings of Gray and Merger Corp. Shareholders. Gray and
Merger Corp. will each take all actions necessary in accordance with applicable
law and its Articles of Incorporation and By-Laws to convene a meeting of its
shareholders as promptly as practicable to consider and vote upon the approval
of the Merger, and to convene subsequent meetings of its shareholders as
necessary to consider and vote upon such other matters as may be required by
this Agreement.
7.9 Registration Statements.
(1) Gray will, at its sole cost and expense, as promptly as
practicable, prepare and file with the SEC a registration statement on Form S-4
or other appropriate form (the "Registration Statement"), containing a proxy
statement/prospectus, in connection with the registration under the Securities
Act of the Gray Common Stock issuable upon conversion of the
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Shares and the other transactions contemplated hereby. The Company will, as
promptly as practicable, prepare a proxy statement that will be the same proxy
statement/prospectus contained in the Registration Statement and form of proxy,
in connection with the vote of the Company's Shareholders with respect to the
Merger (such proxy statement/prospectus, together with any amendments thereof or
supplements thereto, in each case in the form or forms mailed to the Company's
Shareholders, is herein called the "Proxy Statement/Prospectus"). Gray and the
Company will use their commercially reasonable best efforts to have or cause the
Registration Statement declared effective as promptly as practicable, and also
will take any other action required to be taken under federal or state
securities laws, and the Company will use its commercially reasonable best
efforts to cause the Proxy Statement/Prospectus to be mailed to the Shareholders
at the earliest practicable date including without limitation, by providing to
Gray all financial statements, financial information and business information
required or desirable for the Registration Statement and the Proxy
Statement/Prospectus.
(2) Gray will, at its sole cost and expense, as promptly as
practicable after the Closing Date, prepare and file with the SEC a registration
statement on Form S-3 or other appropriate form (the "Resale Registration
Statement"), containing a prospectus, in connection with the registration under
the Securities Act of the resale by the Shareholders of the Gray Common Stock
issued in the Merger that are not otherwise eligible for public resale without
limitation without an effective resale registration statement. Gray and the
Company will use their commercially reasonable best efforts to have or cause the
Resale Registration Statement declared effective as promptly as practicable, and
also will take any other action required to be taken under federal or state
securities laws, and the Company and the Shareholders will provide to Gray all
financial statements, financial information and business information required or
desirable for the Resale Registration Statement. In the event that the Company
and the Shareholders whose Gray Common Stock is to be resold under the Resale
Registration Statement do not comply with the terms of this Section 7.9(2),
including without limitation, by providing information regarding such selling
Shareholders, the Company and the means of distribution of all Gray Common Stock
to be resold pursuant thereto, then Gray automatically shall be excused from its
obligations pursuant to this Section 7.9(2). Notwithstanding any other provision
of this Section 7.9 to the contrary, Gray shall not pay for, or otherwise be
responsible for, any brokerage or similar expenses associated with the resale of
any of the Gray Common Stock. Promptly upon request from Gray no more frequently
than once each 12 month period, the Shareholder Representative shall provide
Gray with the identity of such Shareholder who has resold any of the Gray Common
Stock issued in the Merger and the number of shares of Gray Common Stock sold by
each such Shareholder. Gray shall use its commercially reasonable best efforts
to keep the Resale Registration Statement effective until the earlier of (i) the
date on which all of the Gray Common Stock initially covered by the Resale
Registration Statement has been sold by the Shareholders or (ii) the date on
which all of the Gray Common Stock initially covered by the Resale Registration
Statement is eligible for public resale without limitation without an effective
resale registration statement. During such time as the effectiveness of the
Resale Registration Statement is required to be maintained pursuant to the
preceding sentence, Gray timely shall make all filings with the SEC and the NYSE
necessary to maintain the effectiveness of the Resale Registration Statement.
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(3) Gray shall cause (i) the Registration Statement and the
Resale Registration Statement to comply as to form in all material respects with
the requirements of the Securities Act and the Exchange Act and the respective
rules and regulations adopted thereunder, and (ii) the Registration Statement
and the Resale Registration Statement (except with respect to information
concerning the Company furnished in writing by or on behalf of the Company
specifically for use therein, for which information the Shareholders shall be
responsible) and the Proxy Statement (but only with respect to information
concerning Gray and the Gray Subsidiaries furnished in writing by or on behalf
of Gray specifically for use therein, for which information Gray shall be
responsible) to not contain any untrue statement of any material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements made therein not misleading. Gray will advise the Company in writing
if prior to the Effective Time it shall obtain knowledge of any fact that would,
in its opinion, make it necessary to amend or supplement the Registration
Statement or the Resale Registration Statement in order to make the statements
therein not misleading or to comply with applicable law.
(4) Prior to Closing, the Company will indemnify Gray, its
directors, officers, employees and agents, and each Person who controls Gray
within the meaning of Section 15 of the Securities Act against all expenses,
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained (or incorporated by reference) in the Registration
Statement, the Proxy Statement/Prospectus or the Resale Registration Statement
or any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse Gray and such directors, officers, employees and agents and
control Persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made (or incorporated by reference) in the Registration Statement,
the Proxy Statement/Prospectus or the Resale Registration Statement in reliance
upon and in conformity with information furnished to Gray by the Company or any
of the Shareholders for use therein.
(5) After Closing, each of the Shareholders will indemnify the
Company and Gray, each of their respective directors, officers, employees and
agents, and each Person who controls the Company or Gray within the meaning of
Section 15 of the Securities Act against all expenses, claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained (or
incorporated by reference) in the Registration Statement, the Proxy
Statement/Prospectus or the Resale Registration Statement or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and Gray and such directors, officers, employees and agents and
control Persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made (or incorporated by reference) in the Registration Statement,
the Proxy Statement/Prospectus or the
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Resale Registration Statement in reliance upon and in conformity with
information furnished to Gray by the Company or any of the Shareholders for use
therein.
7.10 Publicity. The parties hereto agree that they will consult
with each other concerning any proposed press release or public announcement
pertaining to the Merger and shall use their best efforts to agree upon the text
of any such press release or the making of such public announcement.
7.11 Registration and Listing of Gray Common Stock. Gray will use
its commercially reasonable best efforts to file the Registration Statement with
respect to the Gray Common Stock to be issued pursuant to this Agreement under
the applicable provisions of the Securities Act, and Gray will use its
commercially reasonable best efforts to cause the Gray Common Stock to be issued
pursuant to this Agreement to be listed for trading on the NYSE.
7.12 Supplying of Financial Statements. The Company shall deliver
to Gray within twenty (20) days following the end of each month true and
complete copies of all unaudited monthly financial statements of the Company for
each calendar month ending subsequent to December 31, 1998 and prior to the
Closing Date in the format historically utilized internally by the Company and,
to the extent applicable, within ninety (90) days following the end of each year
true and completed copies of annual audited financial statements of the Company
for each year subsequent to 1998.
7.13 Supplements to Schedules. The Company shall from time to
time after the date hereof, supplement or amend the Schedules referred to in
Section 4 with respect to any matter arising after the date hereof which, if
existing or occurring at the date hereof, would have been required to be set
forth or described in such Schedules. Gray may unilaterally extend the Closing
Date if necessary to allow Gray ten (10) business days to review such
supplements to the Schedules prior to the Closing Date. If, in Gray's reasonable
determination, any such supplements to the Schedules reveal any Material Adverse
Change, or any condition or event that reasonably threatens to result in a
Material Adverse Change, Gray shall give written notice to the Company of its
determination. The Company shall then have a period of ten (10) business days to
reasonably satisfy Gray that there has been no Material Adverse Change, or to
remedy such Material Adverse Change, or such condition or event, to Gray's
reasonable satisfaction. If, following such ten (10) business day cure period,
in Gray's reasonable determination, such Material Adverse Change, or such
condition or event that reasonably threatens to result in a Material Adverse
Change, still exists, Gray may terminate this Agreement pursuant to Section
13.5.
7.14 Affiliates of the Company. Prior to the Closing Date, the
Company shall deliver to Gray a letter identifying all Persons who are
reasonably and in good faith believed to be, at the time of the Shareholder
Meeting, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act. The Company shall use its best efforts to cause each Person who
is so identified as an affiliate to deliver to Gray, on or prior to the Closing
Date, a written agreement, in form reasonably satisfactory to Gray, that such
Person will not offer to sell or otherwise dispose of any
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of the shares of Gray Common Stock issued in connection with the Merger in
violation of the Securities Act.
SECTION 8. CONDITIONS PRECEDENT FOR THE COMPANY.
The Company's obligation to effect the Merger shall be subject,
to the extent not waived, to the satisfaction of each of the following
conditions at or prior to the Closing.
8.1 Representations and Warranties. The representations and
warranties of Gray and Merger Corp. contained in this Agreement shall be true,
complete, and correct in all material respects as of the date when made and,
except for changes expressly contemplated by this Agreement, on and as of the
Closing Date as though such representations and warranties had been made on and
as of the Closing Date, and Gray and Merger Corp. shall have delivered to the
Shareholder Representatives a certificate, signed by the Chairman or the
President of Gray and Merger Corp. and dated the Closing Date, to such effect.
8.2 Performance of this Agreement. Each of Gray and Merger Corp.
shall have performed and complied in all material respects with all covenants,
conditions, and agreements required by this Agreement to be performed or
complied with by it prior to or on the Closing Date and Gray and Merger Corp.
shall have delivered to the Company and its counsel all of the documents
specified or required to be delivered in accordance with the provisions hereof.
8.3 Proceedings. All corporate and other proceedings to be taken
by Gray and Merger Corp. in connection with the transactions contemplated hereby
shall have been completed and all such proceedings and all documents incident
thereto shall be reasonably satisfactory in substance and form to the Company,
and the Company shall have received all such counterpart originals or certified
or other copies of such documents as the Company may reasonably request.
8.4 FCC Consent. The FCC Consent shall have been granted without
the imposition of any condition thereon adverse to the Company or the
Shareholders and (unless waived by the Company) shall have become a Final Order.
All other consents and authorizations by third parties and all governmental
consents, approvals, licenses, and permits, the granting of which are necessary
for the consummation of the transactions contemplated hereby or for preventing
the termination of any material right, privilege, license, or agreement of the
Company or Merger Corp. related to the Station, or any material loss or
disadvantage to the Company or Merger Corp., upon the consummation of the
transactions contemplated hereby, shall have been obtained or made.
8.5 Litigation. No order of any court or administrative agency
shall be in effect which restrains or prohibits the transactions contemplated
hereby, there shall not be pending any action, inquiry, investigation, or
proceeding by or before any court or governmental agency or other regulatory or
administrative agency or commission challenging any of the transactions
contemplated by this Agreement.
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8.6 Expiration of HSR Waiting Periods. All applicable waiting
periods, including any extensions thereof, relating to the HSR Act, shall have
expired or otherwise terminated.
8.7 Effective Registration Statement. The Registration Statement
shall have become effective and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC or any other
Governmental Authority.
8.8 Legal Opinion. The Company shall have received a favorable
opinion from Alston & Bird LLP, Heyman & Sizemore or Proskauer Rose LLP (or a
combination thereof), counsel for Gray and Merger Corp., dated as of the Closing
Date, in form and substance satisfactory to the Company, to the effect that:
(1) each of Gray and Merger Corp. is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia and has the corporate power and authority to own and operate its
properties and to carry on its business as being conducted and to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated by this Agreement;
(2) all necessary corporate, stockholder and other action has
been taken on the part of each of Gray and Merger Corp. to authorize and approve
this Agreement and the transactions contemplated hereby; and this Agreement has
been duly executed and delivered by each of Gray and Merger Corp.;
(3) Gray has full legal power and authority to issue and deliver
the shares of Gray Common Stock to the Shareholders in the manner contemplated
by this Agreement; such shares are duly authorized and, upon consummation of the
Merger, will be validly issued, fully paid and nonassessable and free of any
lien, encumbrance, equity or claim created or suffered to exist by Gray or
Merger Corp.;
(4) the execution, delivery and performance of this Agreement by
Gray and Merger Corp. and the consummation by Gray and Merger Corp. of the
transactions contemplated by this Agreement (i) will not result in a breach or
violation by Gray or Merger Corp. of, or constitute a default by Gray or Merger
Corp. under, any statute, rule, regulation, judgment, decree, order,
governmental permit or license, agreement, indenture or instrument included as
an exhibit to the Gray SEC Filings to which Gray or any of its subsidiaries,
including Merger Corp., is a party or by which Gray or any of its subsidiaries
is bound or the Certificate or Articles of Incorporation or Bylaws of Gray or
any of its subsidiaries and (ii) do not require any consents, approvals,
authorizations, registrations or filings by Gray or Merger Sub that have not
been obtained or completed;
(5) the shares of Gray Common Stock which will be delivered to
the Shareholders pursuant to this Agreement are authorized for listing on the
New York Stock Exchange
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upon official notice of issuance; and the stockholders of Gray have no
preemptive rights with respect to such shares;
(6) the Registration Statement with respect to the shares of Gray
Common Stock which will be delivered to the Shareholders pursuant to this
Agreement has become effective; to the best of such counsel's knowledge no stop
order suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been initiated or threatened by the
SEC;
(7) except only for matters set forth in the Agreement or
Schedules thereto or in the Gray SEC Filings, to the best of such counsel's
knowledge there is no legal action or governmental proceeding or investigation
pending or threatened against or affecting Gray or any of its subsidiaries or
their respective businesses, properties, assets or goodwill which if determined
adversely to Gray or any of its subsidiaries would individually or in the
aggregate have a material adverse effect on the consolidated financial condition
or results of operations of Gray or would materially adversely affect or prevent
the Merger;
(8) as of the effective time specified in the Certificate of
Merger each issued and outstanding share of Company Common Stock will be
converted into the consideration provided in Section 3.1 of the Agreement.
In addition, such opinion shall state that such counsel has participated
in the preparation of the Registration Statement and in conferences with
officers and other representatives of the Company, representatives of the
independent public accountants for the Company, and representatives of the
Shareholders, at which the contents of the Registration Statement and related
matters were discussed and, although such counsel has made certain inquiries and
investigations in connection with the preparation of the Registration Statement,
such counsel did not independently verify the accuracy or completeness of the
statements made in the Registration Statement and the limitations inherent in
the role of outside counsel are such that such counsel cannot and does not
assume responsibility for or pass on the accuracy and completeness of such
statements, except insofar as such statements relate to such counsel and to the
extent set forth in certain specified paragraphs of the Registration Statement.
Subject to the foregoing, such counsel shall state to the Shareholders that such
counsel's work in connection with this matter did not disclose any information
that caused such counsel to believe that the Registration Statement as of its
date or as of the Effective Time, included or includes an untrue statement of a
material fact or omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances in which they
were made, not misleading (other than financial statement and other information
of a statistical or financial nature which are or should be contained therein
and other than FCC and other regulating matters, as to which such counsel need
express no view).
8.9 Tax Opinion. The Company shall have received an opinion from King &
Spalding or such other tax counsel as is reasonably acceptable to the Company,
dated as of the Effective Time, substantially to the effect that, on the basis
of the facts, representations and assumptions set forth in such opinions that
are consistent with the state of facts existing at the Effective Time, the
Merger
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will be treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and that accordingly:
(i) No gain or loss should be recognized by Gray, the
Company or Merger Corp. as a result of the Merger; and
(ii) No gain or loss should be recognized by the
Shareholders to the extent that they exchange their Company Common Stock for
Gray Common Stock pursuant to the Merger (except with respect to cash received
in lieu of a fractional share interest in Gray Common Stock).
In rendering such opinion, such counsel may require and rely upon
representations and covenants including those contained in certificates of
officers of Gray, the Company and Merger Corp. and others.
8.10 NYSE Listing. The shares of Gray Common Stock issuable
pursuant to this Agreement shall have been approved for listing on the New York
Stock Exchange.
8.11 Voting Agreement and Irrevocable Proxy. Simultaneously
with the execution of this Agreement, each of Hilton H. Howell, Jr., Robert S.
Prather, Jr., J. Mack Robinson, Harriet J. Robinson and Bull Run Corporation
shall enter into a Voting Agreement and Irrevocable Proxy in form and substance
reasonably acceptable to the Company.
SECTION 9. CONDITIONS PRECEDENT FOR GRAY AND MERGER CORP.
Gray's and Merger Corp.'s obligations to effect the Merger shall
be subject, to the extent not waived, to the satisfaction of each of the
following conditions at or prior to the Closing.
9.1 Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true, complete,
and correct in all material respects as of the date when made and, except for
changes expressly contemplated by this Agreement, on and as of the Closing Date,
as though such representations and warranties had been made on and as of the
Closing Date, and the Company shall have delivered to Gray and Merger Corp. a
certificate, signed by the Chairman or the President of the Company and dated
the Closing Date, to such effect.
9.2 Performance of this Agreement. The Company and the
Shareholders shall have performed and complied in all material respects with all
covenants, conditions, and agreements required by this Agreement to be performed
or complied with by it prior to or on the Closing Date and the Company and the
Shareholders shall have delivered to Gray and Merger Corp. and their counsel all
of the instruments of transfer, certificates, Exhibits, Schedules, and other
documents specified or required to be delivered in accordance with the
provisions hereof.
9.3 Proceedings. All corporate and other proceedings to be taken
by the Company, its Board of Directors and the Shareholders in connection with
the transactions contemplated hereby shall have been completed and all such
proceedings and all documents incident thereto shall be reasonably satisfactory
in substance and form to Gray and Merger Corp., and Gray
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and Merger Corp. shall have received all such counterpart originals or certified
or other copies of such documents as Gray may reasonably request.
9.4 FCC Consent. The FCC Consent shall have been granted without
the imposition of any condition thereon adverse to Gray or Merger Corp. and
(unless waived by Gray) shall have become a Final Order. All other consents and
authorizations by third parties and all governmental consents, approvals,
licenses, and permits, the granting of which are necessary for the consummation
of the transactions contemplated hereby or for preventing the termination of any
material right, privilege, license, or agreement of the Company or Merger Corp.
related to the Station, or any material loss or disadvantage to Gray or Merger
Corp., upon the consummation of the transactions contemplated hereby, shall have
been obtained or made. Gray hereby agrees that a determination by the Mass Media
Bureau of the FCC that KBTX-TV is a satellite of KWTX-TV does not constitute an
adverse condition. The Company hereby agrees that a determination by the Mass
Media Bureau of the FCC that KBTX-TV is not a satellite of KWTX-TV does
constitute an adverse condition.
9.5 Litigation. No order of any court or administrative agency
shall be in effect which restrains or prohibits the transactions contemplated
hereby or which would limit or affect Gray's ownership or control of the
Company, the Station or Merger Corp., and there shall not be pending any action,
inquiry, investigation, or proceeding by or before any court or governmental
agency or other regulatory or administrative agency or commission challenging
any of the transactions contemplated by this Agreement.
9.6 Opinions of Counsel for the Company. Gray and Merger Corp.
shall have received opinions from Deaver & Deaver, counsel to the Company, and
from Dennis Kelly, special FCC counsel to the Company, dated as of the Closing
Date, in substantially the forms attached hereto as Exhibits F and G,
respectively.
9.7 Title Insurance Policies. Gray or Merger Corp., at Gray's
sole cost and expense, shall have received standard form policies of owner's or
lessee's title insurance, issued by a title insurance company doing business in
the state in which such property is located, acceptable to Gray, insuring the
Company's title as owner or as lessee, as the case may be, with current survey
coverage, based on a current ALTA Survey, in form and substance reasonably
satisfactory to Gray, in all of the Real Property in amounts specified by Gray,
containing only those exceptions, conditions, and reservations acceptable to
Gray and its counsel in their reasonable discretion (collectively, the
"Permitted Exceptions"), together with legible copies of the documents creating
the Permitted Exceptions.
9.8 Environmental Audit.
(1) Gray, at Gray's sole cost and expense, shall have received
the written results of an environmental audit, prepared at the direction of
Gray, confirming that:
(i) The Real Property does not contain any hazardous wastes,
hazardous substances, toxic substances, hazardous air pollutants, or toxic
pollutants, as those terms
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are defined in state and federal environmental laws and regulations promulgated
pursuant to such laws, in amounts which are in violation of such laws or
regulations;
(ii) No part of the Real Property is currently or
potentially subject to any federal, state, or local compliance or enforcement
action, clean-up action, or other action because of the presence of stored,
leaked, spilled, or disposed petroleum products, waste materials or debris,
"PCB's" or "PCB items," underground storage tanks, "asbestos," or any dangerous,
hazardous, or toxic substance as defined in or regulated by any federal or state
or local laws, regulations, or orders;
(iii) No part of the Real Property has been filled
with debris, garbage, stumps, or other similar waste materials; and
(iv) No condition currently exists on the Real
Property, whether owned or leased, which is or may be characterized by any
federal, state, or local government or agency as an actual or potential threat
or danger to public health or the environment.
(2) If the environmental audit obtained by Gray
recommends remedial measures to clean up contamination identified in the
environmental audit, the Company may complete the remedial measures at its sole
cost and expense so long as such cost and expense is less than the Working
Capital Surplus of the Company, in which case, the time for the Closing
hereunder shall be extended up to 120 days as reasonably necessary to allow for
such remediation. If the Company refuses to complete such remedial measures,
Gray may, at Gray's option,
(i) complete the remedial measures at Gray's sole
cost and expense, in which case, the time for Closing hereunder shall be
extended as reasonably necessary to allow for such remediation and the cash
portion of the Merger Consideration shall be reduced by such cost and expense,
or
(ii) cancel and terminate this Agreement without
further liability to Gray or the Company.
9.9 Expiration of HSR Waiting Periods. All applicable waiting
periods, including any extensions thereof, relating to the HSR Act, shall have
expired or otherwise terminated.
9.10 Consummation of Related Transactions. All conditions and
approvals necessary for the consummation of related transactions under the KWTX
Agreement shall have occurred or been performed or fulfilled, so that the
transactions described under this Agreement can be closed simultaneously with or
immediately after the closing under the KWTX Agreement.
9.11 Effective Registration Statement. The Registration Statement
shall have become effective and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC or any other
Governmental Authority.
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9.12 Tax Opinion. Gray and Merger Corp. shall have received an
opinion from King & Spalding or such other tax counsel as is reasonably
acceptable to Gray and Merger Corp., dated as of the Effective Time,
substantially to the effect that, on the basis of the facts, representations and
assumptions set forth in such opinions that are consistent with the state of
facts existing at the Effective Time, the Merger will be treated for Federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code and that accordingly:
(i) No gain or loss should be recognized by Gray, the Company or
Merger Corp. as a result of the Merger; and
(ii) No gain or loss should be recognized by the Shareholders who
exchange their Company Common Stock for Gray Common Stock pursuant to the Merger
(except with respect to cash received in lieu of a fractional share interest in
Gray Common Stock).
In rendering such opinion, such counsel may require and rely upon
representations and covenants including those contained in certificates of
officers of Gray, the Company and Merger Corp. and others.
9.13 NYSE Listing. The shares of Gray Common Stock issuable
pursuant to this Agreement shall have been approved for listing on the New York
Stock Exchange.
9.14 Gray Shareholder Approval. The shareholders of Gray shall
have approved the issuance of the Gray Common Stock as required by this
Agreement.
9.15 Affiliates of the Company. On or prior to the Closing Date,
Gray shall have received the agreements and instruments referred to in Section
7.13.
9.16 Voting Agreement and Irrevocable Proxy. Simultaneously with
the execution of this Agreement, each Shareholder of the Company who is an
officer or director of the Company or who holds at least 5% of the outstanding
Company Common Stock shall enter into a Voting Agreement and Irrevocable Proxy
in form and substance reasonably acceptable to Gray and Merger Corp.
9.17 Shareholder Approval. This Agreement and the merger
contemplated hereby shall have been approved by an affirmative vote of all of
the Shareholders.
9.18 Due Diligence and Schedules. Gray and Merger Corp. shall be
reasonably satisfied with their due diligence review of the Company and the
Station, including the information disclosed on the Schedules. This condition
shall be deemed to have been satisfied if notice to the contrary has not been
given to the Company no later than ten (10) business days after receipt by Gray
and Merger Corp. of all of the due diligence information reasonably requested by
them and receipt by Gray and Merger Corp. of all of the Schedules.
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SECTION 10. CLOSING.
10.1 Deliveries by the Company. At the Closing, Gray will release
and pay or cause the payment of the Merger Consideration upon receipt of the
following instruments and documents executed by the Company, where appropriate,
in form and content satisfactory to Gray and its counsel:
(1) All original minute book(s) and stock transfer book(s)
of the Company;
(2) The corporate seal of the Company;
(3) A true and complete copy of the Articles of
Incorporation of the Company and all amendments thereto certified by its state
of incorporation;
(4) A Certificate of Account Status for the Company from the
Texas Comptroller of Public Accounts, dated no more than thirty (30) days prior
to the Closing Date;
(5) A true and complete copy of the Bylaws and all
amendments thereto of the Company certified by its secretary;
(6) A certificate of the secretary of the Company stating
that the Articles of Incorporation have not been amended since the date of the
certificate described in Subsection 10.1(3) above and that nothing has occurred
since the date of issuance of the Certificate of Account Status specified in
Subsection 10.1(4) above that would adversely affect the Company's corporate
existence or good standing;
(7) The Closing Certificate referred to in Section 9.1 of
this Agreement;
(8) An Owner's and Contractor's Affidavit and such other
form documents, instruments or information as may be requested by the title
insurance company which is providing owner's or lessee's title insurance
coverage for the Real Property;
(9) The opinions of the Company's counsel and the Company'
special FCC counsel; and
(10) Such other documents as Gray or its Counsel may
reasonably request for the complete fulfillment of the Company's and the
Shareholders' obligation hereunder.
10.2 Postponement of Closing Date.
(1) If either the average Market Value (as defined in
Section 3.2(1)(ii)) during the Valuation Period (as defined in Section
3.2(1)(iii)) or the Market Value at the Closing Date is less than $10 per share
and additional shares of Gray Common Stock are required to be issued pursuant to
Section 3.2(7), Gray may unilaterally extend the Closing Date for as much time
as reasonably may be required to allow Gray to obtain approval of Gray's
shareholders for the
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issuance of additional shares of Gray Common Stock sufficient to allow the
Closing to occur and to effect the registration of such Gray Common Stock under
the Securities Act and the listing of such Gray Common Stock for trading on the
NYSE.
(2) In the event that Gray and Merger Corp. elect in their
sole and absolute discretion to pay the Merger Consideration pursuant to the
Cash Election Option (as defined in Section 3.1(3)), Gray in its sole and
absolute discretion may unilaterally extend the Closing Date for thirty (30)
days from the time of the exercise of the Cash Election Option.
SECTION 11. INDEMNIFICATION.
11.1 By the Shareholders. After the Closing Date, to the limit of
the Escrow Fund described in Section 11.4, below, the Shareholders shall
indemnify and hold harmless each of Gray and Merger Corp. and their respective
officers, directors, employees, agents, representatives, successors, and
permitted assigns against:
(1) any damages, losses, obligations, liabilities, claims,
actions, or causes of action sustained or suffered by Gray or Merger Corp. and
arising from a breach of any representation or warranty of the Company or the
Shareholders contained in this Agreement;
(2) any damages, losses, obligations, liabilities, claims,
actions, or causes of action sustained or suffered by Gray or Merger Corp. and
arising from a breach of any agreement of the Company or the Shareholders
contained in this Agreement;
(3) any damages, losses, obligations, liabilities, claims,
actions, or causes of action sustained or suffered by Gray or Merger Corp. and
arising from any debt, obligation, or liability of the Company not specifically
and expressly reflected on the Company's December 31, 1998 Balance Sheet, or if
incurred in the ordinary course of business thereafter, on the Final Balance
Sheets, including any Taxes relating to the period ending on the Closing Date;
(4) any damages, losses, obligations, liabilities, claims,
actions, or causes of action sustained or suffered by Gray or Merger Corp. and
arising from any Environmental Claim or any Environmental Matter;
(5) all ordinary and necessary costs, expenses, or
settlement payments (including, without limitation, reasonable attorneys',
accountants', and other professional fees) incurred by Gray in connection with
any action, claim, suit, proceeding, demand, assessment, or judgment incident to
any of the matters indemnified against under this Section 11.
The Company and the Shareholders acknowledge and agree that the provisions of
this Section 11 are intended to complement corresponding provisions of the KWTX
Agreement so that Gray and Merger Corp. shall be entitled to indemnification for
and recovery of any damages, losses, obligations, liabilities, claims, actions
or causes of action sustained or suffered by Gray or Merger Corp. on account of
acquisition of Brazos Broadcasting Company, payable one-half from the
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Shareholders and one-half from the persons named as the Shareholders in the KWTX
Agreement, on a several and pro-rata basis.
11.2 By Gray and Merger Corp. After the Closing Date, to the
limit of the amount of the Escrow Fund, from time to time, described in Section
11.4 below, each of Gray and Merger Corp. shall indemnify and hold harmless the
Shareholders and their respective successors and permitted assigns against:
(1) any damages, losses, obligations, liabilities, claims,
actions, or causes of action sustained or suffered by the Shareholders and
arising from a breach of any representation or warranty of Gray or Merger Corp.
contained in this Agreement;
(2) any damages, losses, obligations, liabilities, claims,
actions, or causes of action sustained or suffered by the Shareholders and
arising from a breach of any agreement of Gray or Merger Corp. contained in this
Agreement;
(3) any damages, losses, obligations, liabilities, claims,
actions, or causes of action sustained or suffered by the Shareholders and
arising from (a) any debt, obligation, or liability of the Company properly
reflected on the Final Balance Sheets; or, (b) the conduct of the business of
the Company after the Closing Date;
(4) any taxes incurred by the Company, Gray or Merger Corp.,
resulting from the merger contemplated hereby; and
(5) all ordinary and necessary costs, expenses, or
settlement payments (including, without limitation, reasonable attorneys',
accountants', and other professional fees) incurred by the Shareholders or the
Shareholder Representative in connection with any action, suit, proceeding,
demand, assessment, or judgment incident to any of the matters indemnified
against under this Section 11.
11.3 Procedure for Indemnification. The procedure for
indemnification shall be as follows:
(1) The party claiming indemnification (the "Claimant")
shall promptly give notice to the party from which indemnification is claimed
(the "Indemnifying Party") of any claim, whether between the parties or brought
by a third party, specifying in reasonable detail the factual basis for the
claim. If the claim relates to an action, suit, or proceeding filed by a third
party against Claimant, such notice shall be given by Claimant within ten (10)
days after written notice of such action, suit, or proceeding was given to
Claimant, provided that any failure to give notice of such action, suit, or
proceeding within such ten (10) day period shall not relieve the Indemnifying
Party of its obligations hereunder except to the extent such failure shall have
prejudiced such party in the defense or resolution of any such claim. The notice
of a claim may be amended on one or more occasions with respect to the amount of
the claim at any time prior to final resolution of the obligation to indemnify
relating to the claim.
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(2) With respect to claims solely between the parties,
following receipt of notice from the Claimant of the claim, the Indemnifying
Party shall have thirty (30) days to make such investigation of the claim as the
Indemnifying Party deems necessary or desirable. For the purposes of such
investigation, the Claimant agrees to make available to the Indemnifying Party
and/or its authorized representatives the information relied upon by the
Claimant to substantiate the claim. If the Claimant and the Indemnifying Party
agree at or prior to the expiration of the thirty-day (30) period (or any
mutually agreed upon extension thereof) to the validity and amount of such
claim, the Indemnifying Party shall immediately pay to the Claimant the amount
of the claim. If the Claimant and the Indemnifying Party do not agree within the
thirty-day (30) period (or any mutually agreed upon extension thereof), the
Claimant may seek an appropriate remedy at law or equity.
(3) With respect to any claim by a third party as to which
the Claimant is entitled to indemnification under this Agreement, the
Indemnifying Party shall have the right, at its own expense, to participate in
or assume control of the defense of such claim, and the Claimant shall cooperate
fully with the Indemnifying Party, subject to reimbursement for actual
out-of-pocket expenses incurred by the Claimant as the result of a request by
the Indemnifying Party. The Indemnifying Party may elect to compromise or
contest, at its own expense and with counsel reasonably acceptable to the
Claimant, any third party claim. If the Indemnifying Party elects to compromise
or contest such third party claim, it shall within thirty (30) days after
receipt of the notice of the claim (or sooner, if the nature of the third party
claim so requires) notify the Claimant of its intent to do so by sending a
notice to the Indemnified Party (the "Contest Notice"), and the Claimant shall
cooperate, at the expense of the Indemnifying Party, in the compromise or
contest of such third party claim. If the Indemnifying Party elects not to
compromise or contest the third party claim, fails to notify the Claimant of its
election as herein provided or contests its obligation to indemnify under this
Agreement, the Claimant (upon further notice to the Indemnifying Party) shall
have the right to pay, compromise or contest such third party claim on behalf of
and for the account and risk of the Indemnifying Party. Anything in this Section
11.3 to the contrary notwithstanding, (i) the Claimant shall have the right, at
its own cost and for its own account, to compromise or contest any third party
claim, and (ii) the Indemnifying Party shall not, without the Claimant's written
consent, settle or compromise any third party claim or consent to entry of any
judgment which does not include an unconditional term releasing the Claimant
from all liability in respect of such third party claim. In any event, the
Claimant and the Indemnifying Party may participate, at their own expense, in
the contest of such third party claim. In addition, with respect to any claim
related to Taxes, Gray and Merger Corp. shall have the right to participate in
and attend any meeting or proceeding (at Gray's and Merger Corp.'s own cost and
expense) with respect thereto, shall be provided with copies of any written
communication or information regarding any oral communication with respect
thereto as soon as possible after the receipt thereof (including, but not
limited to, information with respect to any proposed meeting or proceeding) and
shall have the right to approve any settlement thereof if the terms of such
settlement could increase, directly or indirectly, any liability for Taxes of
Gray or Merger Corp. in any period following the Closing. If the Indemnifying
Party elects to assume control of the defense of a third-party claim, the
Claimant shall have the right to participate in the defense of such claim at its
own expense. If the Indemnifying Party does not elect to assume control or
otherwise participate in the defense of any
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third party claim, it shall be bound by the results obtained by the Claimant
with respect to such claim.
(4) If a claim, whether between the parties or by a third
party, requires immediate action, the parties will make every effort to reach a
decision with respect thereto as expeditiously as possible.
(5) The indemnification rights provided in Sections 11.1 and
11.2 shall extend to the shareholders, directors, officers, members, employees,
and representatives of any Claimant.
11.4 Escrow Fund. At the Closing, the sum of Two Hundred Fifty
Thousand Dollars ($250,000.00) out of the Merger Consideration (the "Escrow
Fund") shall be deposited with the Escrow Agent. The Escrow Fund shall be held
in accordance with the terms hereof and the terms of the Escrow Agreement
substantially in the form of Exhibit B attached hereto. The Escrow Fund shall be
used as a source of funds to satisfy indemnification claims by Gray and Merger
Corp. under this Section 11. Upon final determination of a claim in favor of
Gray and Merger Corp. by a court of competent jurisdiction or by mutual
agreement of Gray, Merger Corp. and the Shareholder Representative, Gray and
Merger Corp. shall be entitled to the amount of such claim from the Escrow Fund.
On the first anniversary of the Closing Date, the Escrow Fund shall be reduced
to One Hundred Twenty-Five Thousand Dollars ($125,000.00), unless there are
outstanding claims presented by Gray or Merger Corp. against the Escrow Fund, in
which case, the Escrow Fund shall be reduced to the sum which is One Hundred
Twenty-Five Thousand Dollars ($125,000.00) more than the pending claims of Gray
and Merger Corp. All claims by Gray and Merger Corp. against the Escrow Fund
must be made by Gray or Merger Corp. before the date which is four (4) years
after the Closing Date (the "Indemnity Termination Date"). On the Indemnity
Termination Date, the Escrow Agent shall disburse to the Shareholder
Representative the Indemnity Fund together with all interest earned thereon less
the amount of any claims made by Gray or Merger Corp. against the Escrow Fund
prior to such date (the "Claim Amount"). The Claim Amount shall be retained by
the Escrow Agent in escrow until the underlying claim or claims related thereto
have been finally determined by a court of competent jurisdiction or by mutual
agreement of Gray and the Shareholder Representative. Gray and the Shareholder
Representative hereby agree to jointly direct the Escrow Agent to disburse any
portion of the Escrow Fund to any party which is entitled thereto pursuant to
the terms hereof.
11.5 Limitation on Damages. Notwithstanding any provision of this
Agreement to the contrary, the Shareholders' liability to Gray and Merger Corp.
for any breach of any representation, warranty or other applicable provision of
this Agreement shall be several and divided pro-rata among the Shareholders, in
accordance with their percentage ownership of the Shares, and, after Closing,
shall be limited to the Escrow Fund described in Section 11.4. In no event,
after the Closing hereof, shall the total amount of monetary damages that Gray
and Merger Corp. may collect from Shareholders as damages for one or more
breaches by the Shareholders or the Company under this Agreement exceed said
Escrow Fund. Notwithstanding any other provision of this Agreement to the
contrary, after the Closing, Merger Corp., as successor to the Company, shall
not be liable to
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the Shareholders for any inaccuracy in any representation or warranty or any
breach of any covenant or agreement made or to be performed by the Company
pursuant to this Agreement and the Shareholders shall have no right of
contribution from or any other claim or action against Merger Corp., as
successor to the Company.
SECTION 12. CONDUCT OF BUSINESS PENDING CLOSING.
The Company covenants, represents, and warrants in favor of Gray
and Merger Corp. that, pending the Closing, unless otherwise agreed to in
writing by Gray:
12.1 The Company will not sell, transfer, or otherwise dispose
of, or enter into any transaction, contract, or commitment for the sale or
disposition of all or any portion of the assets of the Station, except in the
ordinary course of business, none of which transactions shall materially affect
Merger Corp. or the Station from and after the Closing Date.
12.2 The Company will carry and continue in full force through
the Closing such fire and extended coverage, and theft, liability, and other
insurance in substantially the same form and amount as are currently in force.
12.3 The Company will use its best efforts to preserve the
business organization and all equipment and records thereof in good order, to
keep available for Merger Corp. all of the present employees of the Company, and
to preserve for Merger Corp. the goodwill of suppliers, customers, advertisers,
and others having business relationships with the Company.
12.4 The Company will maintain, repair and replace the Leased
Property, Real Property and the Tangible Personal Property in accordance with
its customary practices, in substantially the same condition and state of repair
as all such property is in on the date of this Agreement, ordinary wear and tear
excepted.
12.5 The Company shall permit Gray and its representatives,
independent accountants, and attorneys, reasonable access during normal business
hours to its properties, books, records, and other information with respect to
the Company as Gray may request, and to make copies of such books, records, and
other documents that Gray considers necessary or appropriate for the purposes of
familiarizing itself with the Company.
12.6 Between the date of this Agreement and the Closing Date, the
Company will deliver to Gray information necessary to update the Schedules
hereto and the lists, documents, and other information furnished by the Company
as contemplated by this Agreement, and updated copies of new or changed
documents relating to or included as a part of such Schedules, in order that all
such Schedules, lists, documents, and other information and items shall be
complete and accurate in all respects as of the Closing Date.
12.7 Except for written employment agreements in existence on
the date hereof and listed in Schedule 4.22, none of the Company, any of the
Shareholders or any of their respective representatives has made or will make
oral, written or other representations to any employee of the
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Company or to any other Person regarding the benefits, compensation or other
terms or conditions of employment that will be provided to such individuals
after the Closing Date. Whether or not a particular individual will or will not
be retained in employment after the Closing Date constitutes a term or condition
of employment.
SECTION 13. TERMINATION.
This Agreement may be terminated at any time prior to the Closing
Date in the following manner:
13.1 by mutual written consent of Gray, Merger Corp. and the
Company;
13.2 if any representation, warranty, covenant or agreement of
the Company, or if any representation, warranty, covenant or agreement of Gray
or Merger Corp., contained herein (that materially affects the financial
condition or business of Gray or the Company) shall have been incorrect or
breached and shall not have been cured or otherwise resolved to the reasonable
satisfaction of the other party on or before the Closing Date; provided,
however, that prior to such termination the party in default shall be given
written notice by the other party, and shall have ten (10) days in which to cure
such default;
13.3 by Gray and Merger Corp., if any condition to the
consummation of the transactions contemplated hereby which must be fulfilled to
its satisfaction has (in their good faith judgment) not been fulfilled, or has
become impossible to fulfill;
13.4 without any action by Gray and Merger Corp. or the Company,
if the Closing Date has not occurred by December 31, 1999, unless the Assignment
Application jointly filed by the Company or the Shareholders and Gray and Merger
Corp. is still pending before the FCC on that date, in which case this Agreement
shall not be terminated until May 31, 2000 pursuant to this Section 13.4, but
after which, either the Company or Gray and Merger Corp. may terminate the
Agreement;
13.5 by Gray and Merger Corp. pursuant to Section 7.13; or
13.6 by the Company if Gray fails to accomplish the following events by the
dates indicated:
(a) filing the Registration Statement by the later of (i)
thirty (30) days after Gray receives from the Company, KWTX Broadcasting
Company, KXII Broadcasters, Inc., KXII Broadcasters, Ltd., KXII Television, Ltd.
and K-Twelve, Ltd. all of the financial statements, financial information and
business information required or desirable for inclusion in the Registration
Statement or (ii) sixty (60) days after the date of this Agreement;
(b) obtaining Gray shareholder approval of the issuance of
the Gray Common Stock in the Merger within forty (40) days after the
Registration Statement has been declared effective by the SEC; and
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(c) file the Resale Registration Statement by the later of
(i) twenty (20) days after the approval of the Merger by the Shareholders or
(ii) twenty (20) days after the Closing Date.
If the termination of this Agreement occurs without breach or
default of the Company or Gray and Merger Corp., then this Agreement shall
become wholly void and shall have no further force and effect, and neither Gray
or Merger Corp., on the one hand, nor the Company, on the other, shall have any
liability or obligation with respect to each other. Upon such termination, the
Escrow Agent shall refund the Earnest Money to Gray within three (3) days after
the date upon which the termination becomes effective. If the termination occurs
as a result of a breach or default by the Company, then Gray and Merger Corp.
shall be entitled to seek specific performance of the Company's obligation to
effect the Merger in accordance with the provisions hereof, or obtain the return
of the Earnest Money. If the termination occurs as a result of a breach or
default by Gray or Merger Corp., the Company may request the Earnest Money from
the Escrow Agent and retain the Earnest Money as liquidated damages to
compensate the Company and the Shareholders for the damages resulting from such
breach or default. The parties agree that actual damages pursuant to a breach of
this Agreement prior to Closing would be impossible to measure. Receipt of the
Earnest Money shall be the sole and exclusive remedy that the Company shall have
in the event of such breach or default and shall constitute a waiver of any and
all other legal or equitable rights or remedies that the Company may otherwise
have as a result of Gray's or Merger Corp.'s breach or default, and that in
consideration for the receipt of the Earnest Money as liquidated damages, the
Company may not obtain any further legal or equitable relief, including specific
performance, to which it may otherwise have been entitled and neither Gray nor
Merger Corp. shall have any further liability to the Company or the Shareholders
as a result of such breach or default or the non-occurrence of Closing. If the
Closing does not occur due to the nonfulfillment of any of the conditions in
Section 9 or for any other reason except Gray's or Merger Corp.'s material
breach or default in the performance of any of its obligations under this
Agreement, the Company shall not be entitled to the proceeds of the Earnest
Money and, promptly after the termination of this Agreement, the proceeds of the
Earnest Money shall be returned to Gray.
SECTION 14. MISCELLANEOUS PROVISIONS.
14.1 Expenses of Negotiation and Transfer.
(1) The Company and Gray shall share equally in the payment
of FCC filing fees, and the HSR filing fees, and the Shareholders and Gray shall
share equally in the payment of the fees of the Neutral Auditors.
(2) Except as provided above, each party to this Agreement
shall pay its own expenses and other costs incidental to or resulting from this
Agreement, whether or not the transactions contemplated hereby are consummated.
14.2 Schedules. Any disclosure with respect to a Section or
Schedule of this Agreement shall be deemed to be disclosure for each of the
other Sections or Schedules of this
49
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Agreement with respect to which the substance of the disclosure is clear and
unambiguous on the face of the disclosure.
14.3 Survival. All of the covenants, agreements, representations,
and warranties made in this Agreement or made pursuant hereto shall survive the
Closing and the consummation of the transactions contemplated by this Agreement.
14.4 Entire Agreement; Amendment; Waivers. This Agreement and the
documents referred to herein and to be delivered pursuant hereto constitute the
entire agreement of the parties pertaining to the subject matter hereof, and
supersede all prior and contemporaneous agreements understandings, negotiations,
and discussions of the parties, whether oral or written, and there are no
warranties, representations, or other agreements between the parties in
connection with the subject matter hereof, except as specifically set forth
herein. No amendment, supplement, modification, waiver, or termination of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision or breach of this Agreement,
whether or not similar, unless otherwise expressly provided.
14.5 Headings. The descriptive headings of the Sections and
Subsections of this Agreement and the Table of Contents are for convenience only
and do not constitute a part of this Agreement.
14.6 Further Assurances. Each party agrees to execute and deliver
such further certificates, agreements, and other documents and it shall take
such other actions as the other party may reasonably request to consummate or
implement the transactions contemplated hereby or to evidence such events or
matters.
14.7 Situs and Construction. This Agreement and any other
agreements to be made and entered into pursuant hereto shall be construed in
accordance with and governed by the laws of the State of Texas.
14.8 Notices. All notices under this Agreement shall be made in
writing and shall be delivered by U. S. Mail, overnight courier, facsimile, or
other means calculated to give prompt, actual notice to the recipient party, in
the following manner:
If to the Company: Milford N. Bostick, Chairman
Brazos Broadcasting Company
200 West Highway 6
Suite 210
Waco, TX 76712
Phone: 254-772-9155
Fax: 254-772-7350
50
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with a copy to: Kyle Deaver and John Lee Deaver
Deaver & Deaver
200 West Highway 6
Suite 501
Waco, TX 76712
Phone: 254-741-0400
Fax: 254-751-8369
If to the Gray: Robert S. Prather, Jr.
Gray Communications Systems, Inc.
4370 Peachtree Road
Atlanta, Georgia 30319
Phone: 404-266-8333
Fax: 404-261-9067
with a copy to: Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: Stephen A. Opler
Phone: 404-881-7000
Fax: 404-881-4777
14.9 Binding Effect. All of the covenants, conditions,
agreements, and undertakings set forth in this Agreement shall extend to and be
binding upon the Company, the Shareholders, Gray and Merger Corp. and their
respective successors and assigns. No party to this Agreement may assign any of
its rights or obligations hereunder, except that Merger Corp. may assign its
rights and obligations to any other entity of which Gray owns a majority of the
equity interests.
14.10 Execution in Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original, and all
of which shall be deemed but one instrument.
14.11 Shareholder Representative.
(1) By approving this Merger Agreement and accepting the
Merger Consideration, each of the Shareholders hereby irrevocably makes,
constitutes, and appoints Ray M. Deaver as the representative, agent and true
and lawful attorney in fact of and for each of the Shareholders in connection
with this Agreement (the "Shareholder Representative"). Each of the Shareholders
hereby authorizes and empowers the Shareholder Representative to make or give
any approval, waiver, request, consent, instruction or other communication on
behalf of each of the Shareholders as each such Shareholder could do for
himself, itself or herself, including with respect to the amendment of any
provision of this Agreement. Each of the Shareholders further authorizes and
empowers the Shareholder Representative to (i) receive all demands, notices or
other
51
<PAGE>
communications directed to such Shareholder under this Agreement and to take any
action (or to determine to refrain from taking any action) with respect thereto
as he may deem appropriate as effectively as such Shareholder could act for
himself, itself or herself (including, without limitation, the settlement or
compromise of any dispute or controversy) and (ii) execute and deliver all
instruments and documents of every kind incident to the foregoing with the same
effect as if such Shareholder had executed and delivered such instruments and
documents personally. Accordingly, any demands, notices or other communications
directed to the Shareholders hereunder shall be deemed effective if given to the
Shareholder Representative. Upon the death, resignation or incapacity of the
Shareholder Representative, or at any other time, a successor may be appointed
by the vote of the holders of a majority of the Shares outstanding immediately
prior to the Effective Time, and such successor shall agree in writing to accept
such appointment in accordance with the terms hereof. Notice of the selection of
a successor Shareholder Representative appointed in the manner permitted in this
Section 14.11 shall be provided to Gray and Merger Corp. promptly.
(2) Without limiting the generality of the foregoing
paragraph (1), if Gray, Merger Corp. or any of the other Persons specified in
Section 11.1 asserts a claim for indemnification based upon the provisions of
Section 11, the notice requirements of Sections 11.3 and 14.8 shall be satisfied
by delivery of any required notice to the Shareholder Representative as
representative of and on behalf of each of the Shareholders, and the Shareholder
Representative shall exercise all rights of the Shareholders, as indemnifying
parties under Section 11, and shall cause all obligations of the Shareholders,
as indemnifying parties under Section 11, to be performed. Each of the
Shareholders agrees to be bound by all actions and failures to act of the
Shareholder Representative in accordance with this Section 14.11.
Notwithstanding the foregoing, it shall be the obligation of each Shareholder,
and not of the Shareholder Representative, to indemnify Gray, Merger Corp. and
the other Persons specified in Section 11.1 based upon the provisions of Section
11. By approving this Merger Agreement and by accepting the Merger
Consideration, each Shareholder hereby agrees to indemnify and to save and hold
harmless the Shareholder Representative from any liability incurred by the
Shareholder Representative based upon or arising out of any act, whether of
omission or commission, of the Shareholder Representative pursuant to the
authority herein granted, other than acts, whether of omission or commission, of
the Shareholder Representative that constitute gross negligence or willful
misconduct in the exercise by the Shareholder Representative of the authority
herein granted.
52
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[SIGNATURES ON FOLLOWING PAGE]
53
<PAGE>
IN WITNESS WHEREOF, the Company, Gray and Merger Corp. have executed
this Agreement and Plan of Merger by their duly authorized officers on and as of
the date set forth above.
GRAY:
ATTEST: Gray Communications Systems, Inc.
/s/ Ross Sams, Jr By: /s/ Robert S. Prather, Jr.
- -------------------------- --------------------------------
Title: Secretary Title: Executive Vice President
------------------ --------------------------------
MERGER CORP.:
ATTEST: Gray Communications of Texas, Inc.
/s/ Ross Sams, Jr. By: /s/ Robert S. Prather, Jr.
- -------------------------- ---------------------------------
Title: Secretary Title: President
------------------ ---------------------------------
THE COMPANY:
ATTEST: Brazos Broadcasting Company
/s/ Ross Sams, Jr. By: /s/ Ray M. Deaver
- -------------------------- --------------------------------
Title: Secretary Title: President
------------------ --------------------------------
54
Exhibit 10.3
ASSET PURCHASE AGREEMENT
by and among
Gray Communications Systems, Inc.,
Gray Communications of Texas-Sherman, Inc.
KXII Licensee Corp.,
KXII Broadcasters, Ltd.,
KXII Television, Ltd.,
K-Twelve, Ltd.,
KBI 1, Inc.,
KBI 2, Inc.,
KXII Properties, Inc.
and
The Shareholders of KXII Properties, Inc.
Dated as of April 26, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION 1 DEFINITIONS 1
<S> <C>
1.1 Accounts Payable.....................................................................1
1.2 Accounts Receivable..................................................................2
1.3 Affiliate............................................................................2
1.4 Agreement............................................................................2
1.5 Assets...............................................................................2
1.6 Assignment Application...............................................................2
1.7 Assumed Liabilities..................................................................3
1.8 Audited Balance Sheets...............................................................3
1.9 Audited Balance Sheet Date...........................................................3
1.10 Business.............................................................................3
1.11 Closing..............................................................................3
1.12 Closing Date.........................................................................3
1.13 Code.................................................................................3
1.14 Contract.............................................................................3
1.15 Default..............................................................................3
1.16 Earnest Money........................................................................3
1.17 Earnest Money Escrow Agent...........................................................3
1.18 Employee Benefit Plan................................................................4
1.19 Encumbrances.........................................................................4
1.20 Environmental Claim..................................................................4
1.21 Environmental Matter.................................................................4
1.22 ERISA................................................................................4
1.23 ERISA PLAN...........................................................................4
1.24 FCC..................................................................................4
1.25 FCC Consent..........................................................................5
1.26 FCC Licenses.........................................................................5
1.27 Final Order..........................................................................5
1.28 Financial Statements.................................................................5
1.29 GAAP.................................................................................5
1.30 GAAP Basis Financial Statements......................................................5
1.31 Gray.................................................................................5
1.32 Governmental Authority...............................................................5
1.33 Historical Financial Statements......................................................5
1.34 Indemnity Escrow Agent...............................................................5
1.35 Intangible Property..................................................................5
1.36 KBI 1................................................................................6
1.37 KBI 2................................................................................6
1.38 KBII Parties.........................................................................6
1.39 KXII Properties......................................................................6
1.40 KXII Television......................................................................6
1.41 KBTX Merger Agreement................................................................6
1.42 Knowledge, Know, Known...............................................................6
1.43 K-Twelve.............................................................................6
1.44 KWTX Merger Agreement................................................................6
1.45 Law..................................................................................6
1.46 Leased Property......................................................................6
1.47 Liability............................................................................6
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1.48 Licensee.............................................................................6
1.49 Litigation...........................................................................7
1.50 Material or Materially...............................................................7
1.51 Material Adverse Change or Material Adverse Effect...................................7
1.52 Order................................................................................7
1.53 Other Agreements.....................................................................7
1.54 Owners...............................................................................7
1.55 Permits..............................................................................7
1.56 Permitted Liens......................................................................7
1.57 Person...............................................................................8
1.58 Preliminary Statement of Accounts Receivable.........................................8
1.59 Program Rights.......................................................................8
1.60 Purchase Price.......................................................................8
1.61 Purchaser............................................................................8
1.62 Real Property........................................................................8
1.63 Related Person.......................................................................9
1.64 Retained Assets......................................................................9
1.65 Retained Liabilities.................................................................9
1.66 Schedule............................................................................10
1.67 Seller..............................................................................10
1.68 Station.............................................................................10
1.69 Subsidiary..........................................................................10
1.70 Tangible Personal Property..........................................................10
1.71 Tax or Taxes........................................................................11
1.72 Tax Returns.........................................................................11
1.73 Third Party or Third Parties........................................................11
1.74 Tradeout Agreement..................................................................11
1.75 Unaudited Balance Sheets............................................................11
1.76 Unaudited Balance Sheet Date........................................................11
1.77 Undisclosed Liabilities.............................................................11
SECTION 2 PURCHASE AND SALE OF ASSETS 11
2.1 Purchase of the Assets and the FCC Licenses.........................................11
2.2 Purchase Price......................................................................12
2.3 Determination of Accounts Receivable................................................12
2.4 Payment of the Cash Portion of the Purchase Price...................................13
2.5 Prorations and Certain Payments.....................................................13
2.6 Closing.............................................................................14
2.7 Deliveries..........................................................................14
SECTION 3 ASSUMPTION OF LIABILITIES 14
3.1 General.............................................................................14
3.2 Assumption of the Liabilities.......................................................15
3.3 Assignment of Certain Contracts.....................................................15
3.4 Payment of Accounts Payable and Other Liabilities of Seller.........................16
3.5 No Intention to Benefit Third Parties...............................................16
SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE KXII PARTIES 16
4.1 Organization, Power, and Qualifications of Seller...................................16
4.2 Organization, Power, and Qualifications of K-Twelve.................................16
4.3 Organization, Power, and Qualifications of KXII Television..........................16
4.4 Organization, Corporate Power, and Qualifications of KBI 1..........................17
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4.5 Organization, Corporate Power, and Qualifications of KBI 2..........................17
4.6 Organization, Corporate Power, and Qualifications of KXII Properties................17
4.7 Authorization and Validity..........................................................17
4.8 Ownership of Equity Interests.......................................................17
4.9 Noncontravention....................................................................17
4.10 Consents, Approvals.................................................................18
4.11 Subsidiaries and Investments........................................................18
4.12 Financial Statements................................................................18
4.13 Title to and Condition of Real Property.............................................18
4.14 Title to and Condition of Tangible Personal Property................................20
4.15 Litigation..........................................................................20
4.16 Environmental Matters...............................................................21
4.14 Trade Names, Trade Marks, etc.......................................................22
4.18 Governmental Authorization and Compliance With Laws.................................22
4.19 FCC Licenses........................................................................23
4.20 Labor Relations.....................................................................23
4.21 Insurance...........................................................................24
4.22 Accounts Receivable.................................................................24
4.23 Accounts Payable....................................................................25
4.24 Tax Returns, Audits, and Liabilities................................................25
4.25 Certain Contracts...................................................................25
4.26 Employees...........................................................................26
4.27 Employee Benefit Plans..............................................................26
4.28 No Brokers..........................................................................27
4.29 Computer Software and Database......................................................27
4.30 Interested Transactions.............................................................28
4.31 Full Disclosure.....................................................................28
4.32 Absence of Undisclosed Liabilities..................................................28
4.33 Compliance with the Immigration Reform and Control Act..............................28
4.34 Absence of Changes..................................................................29
4.35 Reliance and Survival...............................................................29
SECTION 5 REPRESENTATIONS AND WARRANTIES OF GRAY, PURCHASER AND LICENSEE 29
5.1 Organization and Existence of Gray, Purchaser and Licensee..........................29
5.2 Authorization and Validity..........................................................29
5.3 Noncontravention....................................................................30
5.4 Consents, Approvals.................................................................30
5.5 No Brokers..........................................................................30
5.6 Financial Ability...................................................................30
SECTION 6 FCC APPROVAL 30
6.1 Filing and Prosecution of Application...............................................30
6.2 Expenses............................................................................30
6.3 Time for FCC Consent................................................................31
6.4 Control of Station..................................................................31
6.5 No Reversion of Licenses............................................................31
6.6 Regulatory Matters..................................................................31
SECTION 7 SPECIAL COVENANTS AND AGREEMENTS 31
7.1 Confidentiality.....................................................................31
7.2 Cooperation.........................................................................32
7.3 Access to Books and Records.........................................................32
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7.4 Certain Investments.................................................................32
7.5 Acquisition Proposals...............................................................32
7.6 Publicity...........................................................................32
7.7 Supplying of Financial Statements...................................................32
7.8 Cooperation in Preparation of Filings...............................................33
7.9 Supplements to Schedules............................................................33
7.10 Use of Name.........................................................................33
7.11 Certain Tax Matters.................................................................33
7.12 Other Expenses......................................................................34
7.13 Further Assurances..................................................................34
7.14 Title Search; Discharge of Encumbrances; Title Insurance............................34
7.15 Transfer of Real Property...........................................................34
7.16 Transfer of Certain Assets..........................................................35
7.17 Digital Television Applications.....................................................35
7.18 Earnest Money.......................................................................35
SECTION 8 CONDITIONS PRECEDENT FOR SELLER 35
8.1 Representations and Warranties......................................................35
8.2 Performance of this Agreement.......................................................35
8.3 Proceedings.........................................................................35
8.4 FCC Consent.........................................................................35
8.5 Litigation..........................................................................36
8.6 Closing of Mergers..................................................................36
SECTION 9 CONDITIONS PRECEDENT FOR GRAY, PURCHASER AND LICENSEE 36
9.1 Representations and Warranties......................................................36
9.2 Performance of this Agreement.......................................................36
9.3 Proceedings.........................................................................36
9.4 FCC Consent.........................................................................36
9.5 Litigation..........................................................................37
9.6 Opinions of Counsel for Seller......................................................37
9.7 Title Insurance Commitments.........................................................37
9.8 Environmental Audit.................................................................37
9.9 No Material Adverse Change..........................................................38
9.10 Zoning Certificate..................................................................38
9.11 Closing of Mergers..................................................................38
9.12 Transfer of Real Property...........................................................38
9.13 Transfer of Certain Assets..........................................................38
9.14 Due Diligence and Schedules.........................................................39
SECTION 10 CLOSING 39
10.1 Deliveries by Seller................................................................39
10.2 Deliveries by Gray, Purchaser and Licensee..........................................40
SECTION 11 INDEMNIFICATION 41
11.1 By Seller...........................................................................41
11.2 By Gray, Purchaser and Licensee.....................................................42
11.3 Procedure for Indemnification.......................................................42
11.4 Escrow Fund.........................................................................44
11.5 Limitation on Damages...............................................................44
SECTION 12 CONDUCT OF BUSINESS PENDING CLOSING 45
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12.1 Conduct of Business Pending Closing.................................................45
SECTION 13 TERMINATION 46
13.1 Termination.........................................................................46
13.2 Risk of Loss........................................................................47
SECTION 14 MISCELLANEOUS PROVISIONS 47
14.1 Expenses of Negotiation and Transfer................................................47
14.2 Schedules...........................................................................47
14.3 Survival............................................................................48
14.4 Entire Agreement; Amendment; Waivers................................................48
14.5 Headings............................................................................48
14.6 Further Assurances..................................................................48
14.7 Situs and Construction..............................................................48
14.8 Notices.............................................................................48
14.9 Binding Effect......................................................................49
14.10 Execution in Counterparts.........................................................49
</TABLE>
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INDEX OF SCHEDULES
Schedule 2.2(b) Purchase Price Allocation
Schedule 4.1 Foreign Qualifications
Schedule 4.8 Stock Ownership
Schedule 4.12 Financial Statements
Schedule 4.13(a) Description of Real Property
Schedule 4.13(c) Ground Leases
Schedule 4.13(d) Tenant Leases
Schedule 4.14(a) Owned Tangible Personal Property
Schedule 4.14(b Leased Tangible Personal Property
Schedule 4.15 Litigation
Schedule 4.16 Environmental Sites
Schedule 4.17 Trade Names, Trade Marks, etc.
Schedule 4.18 Governmental Licenses, Certificates, Permits and Approvals
Schedule 4.19 FCC Licenses
Schedule 4.20 Employment and Related Agreements
Schedule 4.21 Insurance
Schedule 4.24 Tax Matters
Schedule 4.25 Certain Contracts
Schedule 4.26 Employees
Schedule 4.27 Employee Benefit Plans
Schedule 4.30 Interested Transactions
Schedule 4.34 Absence of Changes
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INDEX OF EXHIBITS
Exhibit A Form of Escrow Agreement (Earnest Money)
Exhibit B Form of Opinion of Deaver & Deaver
Exhibit C Form of Opinion of Dennis Kelly
Exhibit D Bill of Sale
Exhibit E Assignment and Assumption Agreement
Exhibit F Form of Escrow Agreement (Indemnity)
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and executed as
of April 26, 1999, by and among GRAY COMMUNICATIONS SYSTEMS, INC., a Georgia
corporation ("Gray"), GRAY COMMUNICATIONS OF TEXAS-SHERMAN, INC., a Georgia
corporation and wholly-owned subsidiary of Gray ("Purchaser"), KXII LICENSEE
CORP., a Delaware corporation ("Licensee"), KXII BROADCASTERS LTD., a Texas
limited partnership ("Seller"), KXII TELEVISION, LTD., a Texas limited
partnership ("KXII Television"), K-TWELVE, LTD., a Texas limited partnership
("K-Twelve"), KBI 1, INC., a Delaware corporation ("KBI 1"), KBI 2, INC., a
Delaware corporation ("KBI 2"), KXII PROPERTIES, INC., a Texas corporation
("KXII Properties"), and Rich Adams, Ellen Deaver, John Deaver, Kyle Deaver (all
residents of the State of Texas) and Martha Phipps, a resident of the State of
Oklahoma (individually, a "Shareholder" and collectively, the "Shareholders" and
together with KBI 1, KBI 2 and KXII Properties, sometimes individually referred
to as an "Owner" and collectively as the "Owners").
RECITALS
Seller owns and operates television station KXII in Sherman, Texas
pursuant to authorizations issued by the Federal Communications Commission
("FCC"). The Owners are the direct and indirect owners of all of the partnership
interests of Seller. KBI 1 is the 1% general partner of Seller and KBI 2 is the
99% limited partner of Seller. Each of KBI 1 and KBI 2 are wholly-owned
subsidiaries of KXII Properties. KXII Properties is owned by the Shareholders.
KXII Television is owned by Seller and the Shareholders and, pursuant to
a contract with Seller, operates the sales of advertising for Seller. K-Twelve
owns certain real estate used by Seller in its operation of the Station. Seller
is the owner of, and desires to sell, and Purchaser desires to purchase,
substantially all of the assets of Seller related to the Business upon the terms
and subject to the conditions set forth herein. Certain defined terms used in
this Agreement are defined in Section 1 hereof.
IN CONSIDERATION OF the foregoing, the mutual covenants, agreements,
representations and warranties contained in this Agreement, $10.00 in hand paid,
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:
SECTION 1. DEFINITIONS.
The following terms, when used in capitalized form within this
Agreement, or within any Exhibit or Schedule to this Agreement in which the
terms are not otherwise defined, shall have the following meanings:
1.1 "Accounts Payable" means all accounts payable (trade and otherwise)
and all other monies due from Seller, KXII Television and, solely with respect
to the Real Property, K-Twelve for purchases of goods and the performance of
services.
<PAGE>
1.2 "Accounts Receivable" means all accounts receivable, notes
receivable and other monies due to Seller for sales and deliveries of goods,
sale of advertising or broadcasting time, performance of services and other
business transactions (whether or not on the books of Seller) on the Closing
Date;
1.3 "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; and (iii)
any entity for which a Person described in (ii) above acts in any such capacity.
1.4 "Agreement" means this Asset Purchase Agreement and all Exhibits,
Schedules, certificates, and instruments attached hereto or referred to herein.
1.5 "Assets" means all of the assets, properties and rights of Seller,
KXII Television and, solely with respect to the Real Property, K-Twelve, 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 date hereof and any
additions thereto on or before the Closing Date, whether or not carried on the
books and records of Seller or KXII Television, and whether or not owned in the
name of Seller or KXII Television or any Affiliate of Seller or KXII Television
and wherever located, including but not limited to the following:
(i) the Real Property;
(ii) the Tangible Personal Property;
(iii) the Inventory;
(iv) the Accounts Receivable;
(v) the Intangible Property of Seller and KXII Television;
(vi) the Contracts of Seller, KXII Television and, solely with
respect to the Real Property, K-Twelve;
(vii) the Permits of Seller, K-Twelve and KXII Television;
(viii) the Goodwill of the Business, including, but not limited
to, goodwill associated with trademarks, service marks, and
tradenames and assumed names; and
(ix) the customer lists, advertiser lists, mailing lists,
customer files, advertiser files, supplier files, electronic
data files, sales agent and representative files, credit
files, and credit data relating to the Assets and the
Assumed Liabilities, 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 any other tangible
assets owned by Seller or KXII Television on the Closing
Date and used in the Business.
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1.6 "Assignment Application" has the meaning specified in Section 6.1
below.
1.7 "Assumed Liabilities" means Liabilities for which an obligation to
pay or perform becomes due on or after the Closing Date under or pursuant to
Contracts of Seller, K-Twelve or KXII Television assigned to Purchaser pursuant
to this Agreement (including, without limitation, outstanding purchase orders
and sales commitments of Seller or KXII Television); provided, however, such
Liabilities shall not include any Liabilities resulting from or arising out of
any Default by Seller, K-Twelve or KXII Television prior to the Closing Date
under or with respect to any of such Contracts.
1.8 "Audited Balance Sheets" means the audited balance sheets of Seller
and KXII Television as of December 31, 1998 included in the Financial
Statements.
1.9 "Audited Balance Sheet Date" means the date of the Audited Balance
Sheet.
1.10 "Business" means Seller's business of owning and operating
television station KXII in Sherman, Texas and related operations in Ardmore,
Oklahoma.
1.11 "Closing" means the consummation of the asset acquisitions and the
other transactions contemplated by this Agreement in accordance with Section 10.
1.12 "Closing Date" means the date on which the closing occurs, as
determined pursuant to Section 2.6.
1.13 "Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
1.14 "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.
1.15 "Default" means (1) a breach of, default under, or
misrepresentation in or with respect to any Contract, Permit or FCC 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, Permit or FCC 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, Permit or
FCC License or to accelerate, increase, or impose any Liability under any
Contract, Permit or FCC License.
1.16 "Earnest Money" means the cash deposit in the amount of One Million
Dollars ($1,000,000) paid by Gray to the Earnest Money Escrow Agent upon the
execution of this Agreement, in the amount and in accordance with the provisions
set forth in Section 7.18 below, together with interest thereon, if any.
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1.17 "Earnest Money Escrow Agent" means American Bank, N.A., Waco,
Texas.
1.18 "Employee Benefit Plan" means collectively, each pension,
retirement, profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, bonus or other incentive plan, any other
written or unwritten employee program, arrangement, agreement or understanding,
whether arrived at through collective bargaining or otherwise, any medical,
vision, dental or other health plan, any life insurance plan, or any other
employee benefit plan or fringe benefit plan, including, without limitation, any
"employee benefit plan," as that term is defined in Section 3(3) of ERISA
currently or previously adopted, maintained by, sponsored in whole or in part
by, or contributed to by Seller or KXII Television or any Subsidiary of either
of them or Affiliate of either of them for the benefit of employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries
and under which employees, retirees, dependents, spouses, directors, independent
contractors or other beneficiaries are eligible to participate. The "employee
benefit plans" as defined in section 3(3) of ERISA and any other plan, fund,
policy, program, practice, custom, understanding or arrangement providing
compensation or other benefits to any current or former officer or employee of
Seller or KXII Television or any Subsidiary of either of them, or any dependent
or beneficiary of either of them, maintained by Seller or KXII Television or any
Subsidiary of either of them or under which Seller or KXII Television or any
Subsidiary of either of them has any obligation or Liability, whether or not
they are or are intended to be (i) covered or qualified under the Code, ERISA or
any other applicable Law, (ii) written or oral, (iii) funding or unfunded, (iv)
actual or contingent, or (v) generally available to any or all employees (or
former employees) of Seller or KXII Television or any Subsidiary of either of
them (or their beneficiaries or dependents), including, without limitation, all
incentive, bonus, deferred compensation, flexible spending accounts, cafeteria
plans, vacation, holiday, medical, disability, share purchase or other similar
plans, policies, programs, practices or arrangements.
1.19 "Encumbrances" means security interests, mortgages, liens, pledges,
options, rights of first refusal, and other restrictions on the use or
transferability of property and claims or charges on any interest in property in
favor of a Person other than the owner of the property, whether or not relating
to the extension of credit or the borrowing of money and whether or not existing
by reason of statute, contract, or common law.
1.20 "Environmental Claim" shall have the meaning ascribed in Section
4.16(f)(i).
1.21 "Environmental Matter" shall have the meaning ascribed in Section
4.16(f)(iv).
1.22 "ERISA" means Employee Retirement Income Security Act of 1974, as
amended.
1.23 "ERISA Plan" means any Employee Benefit Plan which is an "employee
pension benefit plan," as that term is defined in Section 3(2) of ERISA, or an
"employee welfare benefit plan" as that term is defined in Section 3(1) of
ERISA.
1.24 "FCC" means the Federal Communications Commission, as defined in
the recitals to this Agreement.
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1.25 "FCC Consent" means action by the FCC in the form of a public
notice or some other written document granting its consent to the Assignment
Application.
1.26 "FCC Licenses"shall mean all licenses and authorizations issued by
the FCC to Seller in connection with the business or operations of the Station,
including the right to use the call letters "KXII-TV," along with goodwill
associated therewith.
1.27 "Final Order" means action of the FCC approving the transfer of the
FCC Licenses of Seller to Licensee, which action is no longer subject to
reconsideration or court review under the provisions of the Communications Act
of 1934, as amended, and with respect to which no timely filed request for
administrative or judicial review or stay is pending and as to which the time
for filing any such request, or for the FCC to set aside the action on its own
motion, has expired.
1.28 "Financial Statements" means the combined financial statements of
Seller and KXII Television set forth in Schedule 4.12 and to be delivered
pursuant to Section 7.7.
1.29 "GAAP" means generally accepted accounting principles consistently
applied.
1.30 "GAAP Basis Financial Statements" means the combined audited
financial statements of Seller and KXII Television for the calendar year ended
December 31, 1998 and the combined unaudited financial statements of Seller and
KXII Television for the calendar years ended December 31, 1997 and 1996. Such
financial statements shall include the balance sheet at such dates and
statements of operations, retained earnings and cash flows for the periods then
ended.
1.31 "Gray" means Gray Communications Systems, Inc., as identified
above, a Georgia corporation, with its principal offices at 4370 Peachtree Road,
Atlanta, Georgia 30319.
1.32 "Governmental Authority" means any federal, state, county, local,
foreign or other governmental or public agency, instrumentality, commission,
authority, board or body.
1.33 "Historical Financial Statements" means the combined unaudited tax
basis financial statements of Seller and KXII Television for the calendar years
1998, 1997 and 1996. Such financial statements shall include the balance sheet
at such dates and statements of operations, retained earnings and cash flows for
the periods then ended.
1.34 "Indemnity Escrow Agent" means American Bank, N.A., Waco, Texas.
1.35 "Intangible Property" means all copyrights, trademarks, trade
names, service marks, service names, the call letters "KXII-TV," licenses,
patents, permits, jingles, proprietary information, technical information and
data, electronic data files, computer software, formats, customer lists,
advertiser lists, machinery and equipment warranties, and other similar
intangible property rights and interests (other than the FCC Licenses) (and any
goodwill associated with
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any of the foregoing) applied for, issued to, or owned by Seller or KXII
Television or, solely with respect to the Real Property, K-Twelve or under which
Seller or KXII Television or, solely with respect to the Real Property, K-Twelve
is licensed or franchised and which are used or useful in the Business and
operations of the Station, together with any additions thereto between the date
of this Agreement and the Closing Date.
1.36 "KBI 1" means KBI 1, Inc., a Delaware corporation.
1.37 "KBI 2" means KBI 2, Inc., a Delaware corporation.
1.38 "KXII Parties" means Seller, K-Twelve, KXII Television and the
Owners.
1.39 "KXII Properties" means KXII Properties, Inc., a Texas corporation.
1.40 "KXII Television" means KXII Television, Ltd., a Texas limited
partnership.
1.41 "KBTX Merger Agreement" means that certain Agreement and Plan of
Merger, dated as of April 13, 1999, by and among Gray, Gray Communications of
Texas, Inc., and Brazos Broadcasting Company.
1.42 "Knowledge," "Know," "Known" and words of similar import, with
respect to Seller, K-Twelve and KXII Television, mean collectively those facts
actually known, now or in the past, by Seller, K-Twelve, KXII Television, KBI 1,
KBI 2, Rich Adams, Ray M. Deaver and M.N. Bostick.
1.43 "K-Twelve" means K-Twelve, Ltd., a Texas limited partnership.
1.44 "KWTX Merger Agreement" means that certain Agreement and Plan of
Merger, dated as of April 13, 1999, by and among Gray, Gray Communications of
Texas, Inc., and KWTX Broadcasting Company.
1.45 "Law" means any federal, state, local or foreign code, law, legal
principal, order, ordinance, regulation, rule, or statute of any Governmental
Authority.
1.46 "Leased Property" means any and all Real Property used or occupied
by Seller as lessee under any oral or written lease, together with any additions
thereto, and extensions or renewals thereof, between the date of this Agreement
and the Closing Date.
1.47 "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.
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1.48 "Licensee" means KXII Licensee Corp., a Delaware corporation.
1.49 "Litigation" means any action, administrative or other proceeding,
arbitration, cause of action, claim, complaint, criminal prosecution, inquiry,
hearing, investigation (governmental or otherwise), notice (written or oral) by
any Person alleging potential Liability or requesting information relating to or
affecting Seller, the Business, the Assets (including, without limitation,
Contracts or FCC Licenses of or relating to Seller or KXII Television or, solely
with respect to the Real Property K-Twelve), or the transactions contemplated by
this Agreement.
1.50 "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.
1.51 "Material Adverse Change" or "Material Adverse Effect" means a
significant negative impact on Seller, KXII Television and, solely with respect
to the Real Property, K-Twelve, taken as a whole or the Business of the Station,
excluding any negative impact attributable to (i) factors affecting the
television broadcasting industry generally, (ii) general national, regional, or
local economic conditions, or (iii) governmental or legislative laws, rules, or
regulations affecting the television broadcasting industry generally.
1.52 "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.
1.53 "Other Agreements" means the agreements, documents, assignments and
instruments to be executed and delivered by any of the KXII Parties, Gray,
Licensee and Purchaser pursuant to this Agreement.
1.54 "Owners" means KBI 1, KBI 2, KXII Properties, Rich Adams, Ellen
Deaver, John Deaver, Kyle Deaver and Martha Phipps.
1.55 "Permits" means all licenses, permits, and other authorizations
(other than the FCC Licenses), issued to Seller or KXII Television or, solely
with respect to the Real Property, K-Twelve by the Federal Aviation
Administration or any other federal, state, or local governmental authority in
connection with the conduct of the Business and operations of the Station,
together with any additions, extensions, or renewals of same between the date of
this Agreement and the Closing Date.
1.56 "Permitted Liens" means (i) liens for taxes and assessments not yet
due and payable, mechanics' and other statutory liens arising in the ordinary
course of business that secure obligations not delinquent, (ii) restrictions or
rights granted to Governmental Authorities under applicable Law that are not
otherwise objectionable to Gray, and (iii) liens, restrictions and easements on
the Real Property (as defined below) that in Gray's reasonable judgment, do not
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detract from the value or impair the use of the property subject thereto;
provided, however, in no event shall "Permitted Liens" include Encumbrances
relating to the extension of credit or the borrowing of money.
1.57 "Person" means a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a business association,
corporation, general partnership, joint venture, limited partnership, limited
liability company, trust, or any person acting in a representative capacity.
1.58 "Preliminary Statement of Accounts Receivable" shall have the
meaning set forth in Section 2.3.
1.59 "Program Rights" means all rights of Seller, presently existing or
obtained prior to the Closing, to broadcast television programs, movies, and
films, including all film and program rights under barter agreements, as a part
of the programming for the Station, for which Seller is obligated to compensate
the vendor of such Program Rights.
1.60 "Purchase Price" means the total consideration to be paid to Seller
by Purchaser and Licensee for the purchase of the Assets and the FCC Licenses
pursuant to this Agreement and which shall be calculated in accordance with
Section 2.2 and paid in accordance with Section 2.4 of this Agreement.
1.61 "Purchaser" means Gray Communications of Texas-Sherman, Inc., a
Georgia corporation and wholly-owned subsidiary of Gray.
1.62 "Real Property" means collectively all of the real property or
interests in real property used in or necessary to conduct the Business,
including, without limitation, the real property or interests in real property
listed on Schedule 4.13(a), together with (i) all rights, easements, tenements,
hereditaments, appurtenances, privileges, immunities, mineral rights and other
benefits belonging or appertaining to the real property or interests in real
property listed on Schedule 4.13(a) which have not been previously reserved or
conveyed, and which run with said real property and (ii) all right, title and
interest, if any, of Seller or K-Twleve in and to (A) any land lying in the bed
of any street, road, avenue, open or proposed, adjoining said real property, (B)
any award made or to be made in lieu of the land described in the preceding
clause (A), (C) any unpaid award for damage to said real property, (D) all
strips and rights-of-way abutting or adjoining said real property, if any, and
(E) all other real property interests which are used in the Business or
operations of the Station, together with any additions thereto between the date
of this Agreement and the Closing Date. The Real Property includes, without
limitation, all buildings, structures, fixtures and other improvements located
on the land described in the preceding sentence. Notwithstanding anything to the
contrary contained herein, the parties hereto agree that the real property owned
by K-Twelve which is located in the State of Louisiana and in McLennan County,
Texas is not used or necessary to conduct the Business, and forms no part of the
Real Property.
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1.63 "Related Person" means, with regard to any Person, his 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.
1.64 "Retained Assets" means the following assets, none of which are
being purchased by Purchaser or Licensee pursuant to this Agreement:
(i) all of Sellers' and KXII Television's cash or cash
equivalents and Tax refunds;
(ii) records and reports maintained by Seller pertaining
exclusively to other Retained Assets or Retained Liabilities; and
(iii) the Beechcraft King Air F-90 airplane, Serial Number LJ-64,
FAA registration number N322GK.
1.65 "Retained Liabilities" means any Liability of Seller, KXII
Television or K-Twelve that is not an Assumed Liability, including, without
limitation, the following:
(i) any Liabilities for any Taxes of any KXII Party;
(ii) any Liabilities relating to current or former assets of
Seller, KXII Television or K-Twelve not being acquired by
Purchaser or Licensee pursuant to this Agreement, including,
without limitation, the Retained Assets;
(iii) any Contract of Seller, KXII Licensee or K-Twelve not
validly assigned to Purchaser;
(iv) any Liability incurred by the KXII Parties as a result of
any Default by any KXII Party under any provision of this
Agreement or the Other Agreements;
(v) any Liability of Seller or KXII Television for severance
payments or other severance obligations relating to any Person
employed by Seller or KXII Television on or before the Closing
Date;
(vi) any Liability of Seller or KXII Television for continuation
of coverage under any group health plan maintained by Seller or
KXII Television required under the provisions of Code ss.4980B or
Sections 601-608 of ERISA with respect to any Person employed by
Seller or KXII Television who experiences a "qualifying event"
(as defined in the Code and ERISA) on or before the Closing Date;
(vii) any Liability of Seller or KXII Television to pay bonuses
or other compensation on account of the transactions contemplated
by this Agreement;
(viii) any Undisclosed Liability;
(ix) any Liability of Seller, KXII Television or K-Twelve, of any
nature whatsoever, to any current or former Owner or Affiliate of
Seller, KXII Television or K-Twelve;
(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
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Business or the ownership of the Assets or the FCC Licenses prior
to the Closing Date or (B) any act, omission, transaction,
circumstance, sale of goods, services, advertising or
broadcasting time, state of facts or other condition which
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 or KXII Television with
regard to any employees or any site of employment;
(xii) any of the events, circumstances, or conditions described
in Schedule 4.16, or any Environmental Claim, or Liability
arising from any Environmental Matter;
(xiii) any Liability of Seller or KXII Television under or
relating to any Employee Benefit Plan; (xiv) any Liability to or
Encumbrance 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 or the FCC Licenses
(whether asserted against Seller, any of the Owners, K-Twelve,
the Assets, the FCC Licenses, Gray, Purchaser or Licensee);
(xv) any claim by any broker, finder or other Person employed or
allegedly employed by Seller, K-Twelve or any of the Owners in
connection with the transactions contemplated by this Agreement;
or
(xvi) any Accounts Payable.
1.66 "Schedule" means those Schedules referred to in this Agreement
delivered concurrently with the execution of this Agreement and attached hereto
(or bound separately) or delivered pursuant to Section 9.14, all of which
Schedules are incorporated in and made a part hereof by reference.
1.67 "Seller" means KXII Broadcasters, Ltd., as identified above, a
Texas limited partnership with its principal offices at 4201 Texoma Parkway,
Sherman, Texas.
1.68 "Station" means KXII-TV, Channel 12, a CBS affiliate licensed to
Seller, as identified above.
1.69 "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 which is at the time directly or
indirectly owned or controlled by another Person, or by any one or more
Subsidiaries.
1.70 "Tangible Personal Property" means all of Seller's and KXII
Television's fixed assets, furniture, fixtures, equipment, machinery, motor
vehicles, leasehold improvements, office equipment, computer hardware, spare
parts, inventory, and other such tangible personal property
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which is used or useful in the conduct of the business or operations of the
Station, together with any additions, replacements, or improvements thereto
between the date of this Agreement and the Closing Date.
1.71 "Tax" or "Taxes" means taxes of any kind, levies or other like
assessments, customs, duties, imposts, charges or fees imposed or payable to the
United States, or any state, county, local, or foreign government, subdivision
or agency thereof, and in each instance, such term shall include any interest,
penalties, or additions to tax attributable to any such Tax.
1.72 "Tax Returns" means any returns, statements, filings, reports,
estimates, declarations, and forms relating to Taxes that Seller, KXII
Television or, solely with respect to the Real Property, K-Twelve is required to
file, record, or deposit with any Governmental Authority, including any
attachment thereto or amendment thereof.
1.73 "Third Party" or "Third Parties" means any Person that is not
Purchaser, Gray, Licensee, or a KXII Party.
1.74 "Tradeout Agreement" means any written contract, agreement, or
commitment of Seller or KXII Television, pursuant to which Seller or KXII
Television has sold or traded commercial air time of the Station in
consideration of any property or services in lieu of or in addition to cash,
excluding all film and program barter agreements.
1.75 "Unaudited Balance Sheets" means the combined unaudited balance
sheets of Seller and KXII Television as of December 31, 1997 and 1996 included
in the Financial Statements.
1.76 "Unaudited Balance Sheet Date" means the date of the Unaudited
Balance Sheets.
1.77 "Undisclosed Liabilities" means any Liability that is not fully
reflected or reserved against in the Financial Statements or fully disclosed in
a Schedule.
SECTION 2. PURCHASE AND SALE OF ASSETS.
2.1 Purchase of the Assets and the FCC Licenses.
(a) Subject to the terms and conditions of this Agreement, at the
Closing, (i) Seller shall sell, convey, transfer, assign and deliver to
Purchaser and Purchaser shall purchase and accept from Seller all of the Assets,
free and clear of any and all Encumbrances other than the Permitted Liens and
(ii) Seller shall sell, convey, transfer and deliver to Licensee and Licensee
shall purchase and accept from Seller the FCC Licenses, free and clear of any
and all Encumbrances other than the Permitted Liens.
(b) None of the Retained Assets are being purchased by Purchaser or
Licensee pursuant to this Agreement.
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2.2 Purchase Price.
(a) The total Purchase Price for the acquisition of the Assets and the
FCC Licenses shall be equal to the sum of (i) the amount of the Assumed
Liabilities plus (ii) Forty-One Million Five Hundred Thousand Dollars
($41,500,000) plus (iii) the value of the Accounts Receivable set forth on the
Preliminary Statement of Accounts Receivable reduced by an amount equal to two
percent (2%) of such value minus all reserves for doubtful accounts or similar
reserves (Accounts Receivable as so reduced being called herein the "Accounts
Receivable Adjustment").
(b) The Purchase Price shall be allocated among the Assets and the FCC
Licenses as set forth in Schedule 2.2(b) and Purchaser, Licensee and Seller
shall execute and file with the IRS in a timely manner Form 8594 with respect to
such allocation. None of Purchaser, Licensee or any of the KXII Parties shall
file a Tax Return or take any position with any Taxing Authority that is
inconsistent with such final allocation.
2.3 Determination of Accounts Receivable.
(a) On the day immediately prior to the Closing Date, Seller shall
prepare and deliver to Gray, Purchaser and Licensee pro forma statements of the
estimated Accounts Receivable of Seller (including all Accounts Receivable of
KXII Television, if any) as of 11:59 p.m. on the day immediately preceding the
Closing Date (the "Preliminary Statement of Accounts Receivable"). The
Preliminary Statement of Accounts Receivable, when prepared, will be based on
Seller's historical accounting practices, consistently applied.
(b) Within ninety (90) days after the Closing, Gray, Purchaser and
Licensee shall prepare a final statement of Accounts Receivable of Seller as of
the Closing Date (the "Final Statement of Accounts Receivable") and shall submit
such statement to Seller for review and approval. Gray, Purchaser and Licensee
shall also provide all information reasonably necessary to determine the correct
amount of the Accounts Receivable, including appropriate supporting documents
and such other information as may be reasonably requested by Seller. The Final
Statement of Accounts Receivable shall be based on Seller's historical
accounting practices, consistently applied and shall be certified by an officer
on behalf of Gray, Purchaser and Licensee to be true and complete. Seller shall
have the right to visit the Station during normal business hours to verify and
review such documentation upon providing reasonable notice to Gray, Purchaser
and Licensee. If Seller disputes the amount of Accounts Receivable determined by
Gray, Purchaser and Licensee, it shall so notify Gray, Purchaser and Licensee
within thirty (30) days after receipt of the Final Statement of Accounts
Receivable and provide Gray, Purchaser and Licensee with its own Final Statement
of Accounts Receivable. If Seller notifies Gray that it accepts the Final
Statement of Accounts Receivable, or fails to deliver its own alternate Final
Statement of Accounts Receivable within the thirty (30) day period specified in
the preceding sentence, Gray's, Purchaser's and Licensee's determination of the
amount of Accounts Receivable shall be conclusive and binding on the parties
upon the expiration of such period.
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(c) Gray and Seller shall use good faith efforts to resolve any dispute
involving the determination of the amount of Accounts Receivable and the Final
Statement of Accounts Receivable. If the parties are unable to resolve any
dispute within fifteen days following the delivery of Seller's notice concerning
disputed adjustments, Gray and Seller shall jointly designate a qualified Big 5
firm of independent certified public accountants (the "Neutral Auditors") to
resolve such dispute. If the parties are unable to agree on the designation of
the Neutral Auditors, then an accounting firm will be selected by lot from two
names submitted by Seller and two names submitted by Gray, none of which shall
be employed by Seller or Gray. The Neutral Auditors' resolution of the dispute
shall be made within sixty (60) days of their selection, shall be based on
presentations by Seller and Gray and not by independent financial audit, and
shall be final and binding on the parties. The Neutral Auditors' resolution of
the dispute may be enforced by any court of competent jurisdiction. Fees of the
Neutral Auditors shall be split equally between the parties.
(d) If the amount of Accounts Receivable reflected on the Final
Statement of Accounts Receivable as finally determined in accordance with the
preceding provisions of this Section 2.3 are more than $500 less than the amount
reflected on the Preliminary Statement of Accounts Receivable, then the
Indemnity Escrow Agent shall refund the entire difference (without regard to the
$500 threshold) to Purchaser out of the Escrow Fund; provided, however, that
payments received on the Closing Date shall become the property of Purchaser,
and any corresponding Account Receivable reflected on the Preliminary Statement
of Accounts Receivable shall be deemed to be outstanding for the purposes of the
calculations set forth in this Section 2.3. If the amount of the Accounts
Receivable as finally determined in accordance with the preceding provisions of
this Section 2.3 are more than $500 more than the amounts reflected on the
Preliminary Statement of Accounts Receivable, then Gray shall pay the entire
difference by wire transfer to Seller. The payment required hereunder shall be
made within seven (7) days after all of the procedures specified in this Section
2.3 have run their course.
(e) If Neutral Auditors should be appointed by the parties to the KWTX
Merger Agreement or KBTX Merger Agreement, then the Neutral Auditors so
appointed shall serve as the Neutral Auditors under this Agreement, and all
proceedings before the Neutral Auditors shall be consolidated to promote
efficiency and reduce expenses of the parties.
2.4 Payment of the Cash Portion of the Purchase Price. On the Closing
Date, Purchaser and Licensee shall pay the cash portion of the Purchase Price to
Seller by delivering to Seller the sum of Forty One Million Five Hundred
Thousand Dollars ($41,500,000) plus the Accounts Receivable Adjustment, by wire
transfer of immediately available funds, or in such other form and manner as may
be mutually satisfactory less the amount of the Earnest Money, which shall be
paid by the Earnest Money Escrow Agent to Seller.
2.5 Prorations and Certain Payments. The following prorations relating
to the Assets will be made as of the Closing Date, with Seller liable to the
extent such items relate to any time period prior to the Closing and Purchaser
liable to the extent such items relate to periods on or after the Closing:
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(i) personal and real property ad valorem or other similar Taxes,
if any, on or with respect to the Assets;
(ii) business and occupation or other similar Taxes related to
the Business;
(iii) the amount of sewer rents and charges for water, telephone,
electricity and other utilities and fuel; and
(iv) all other items that shall be paid by Purchaser or otherwise
affect the Business or the Assets and that relate, in whole or in
part, to periods prior to the Closing Date (other than the
Assumed Liabilities).
The net amount of all such prorations will be settled and paid on the Closing
Date. In the event that the amount of any of the items to be prorated pursuant
to this Section 2.5 is not known by Seller and Purchaser at the Closing, the
proration shall be made based upon the amount of the most recent cost of such
item to Seller. After Closing, Purchaser and Seller 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 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.
2.6 Closing. The Closing shall take place contemporaneously with the
closing of the transactions contemplated in the KWTX Merger Agreement and KBTX
Merger Agreement, at the offices of Deaver & Deaver, 200 West Highway 6, Suite
501, Waco, Texas, or at such place as may be mutually agreed upon by the parties
on the Closing Date. For purposes of this Agreement, "Closing Date" shall have
the meaning assigned thereto in the KWTX Merger Agreement. Title to the Assets
shall pass from Seller to Purchaser effective as of 11:59 p.m. on the day
immediately preceding the Closing Date and title to the FCC Licenses shall pass
from Seller to Licensee effective as of 11:59 p.m. on the day immediately
preceding the Closing Date in each case unless the parties shall otherwise have
agreed in writing.
2.7 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.
SECTION 3. ASSUMPTION OF LIABILITIES.
3.1. General.
(a) Neither Purchaser nor Licensee is assuming and shall not be liable
for or with respect to any Retained Liability.
(b) Notwithstanding anything in this Agreement to the contrary, in no
event shall any Liability due to any Affiliate of Seller or due to the Owners be
assumed by Purchaser or Licensee.
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(c) Nothing contained in this Section 3.1 or in any instrument of
assumption executed by Purchaser at the Closing shall be deemed to release or
relieve any of the KXII Parties from their respective representations,
warranties, covenants and agreements contained in this Agreement or any of the
Other Agreements, including, without limitation, the obligations of the KXII
Parties to indemnify Gray, Purchaser and Licensee (and the other specified
parties) in accordance with the provisions of Section 11. Further, Seller 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 and the Owners contained in this Agreement or any of
the Other Agreements shall affect Seller's obligation to pay, satisfy and
perform all of the Retained Liabilities.
3.2. Assumption of the Assumed Liabilities.
(a) Purchaser shall assume the Assumed Liabilities on the terms provided
in subsection 3.2(b), except as set forth in Section 3.3.
(b) Purchaser expressly agrees, effective on the Closing Date, to assume
the Assumed Liabilities and thereafter to pay, perform and discharge in full, in
accordance with their terms where applicable, the Assumed Liabilities. 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 and the Owners shall provide
reasonable assistance to Purchaser in so contesting and defending such claims.
Notwithstanding anything contained in this Agreement to the contrary, Purchaser
shall not assume, pay, satisfy or discharge any of the Assumed Liabilities to
the extent that such Liabilities are insured against (or but for the transfer of
the Assets and assignment and assumption of the Assumed Liabilities pursuant to
this Agreement, would have been insured against) by a Third Party under policies
of insurance which Seller, KXII Television or, solely with respect to the Real
Property, K-Twelve is unable to assign to Purchaser and which are maintained by
Seller.
3.3. Assignment of Certain Contracts.
(a) Nothing contained in this Agreement shall be construed as an attempt
to agree to assign any Contract which is in Law non-assignable without the
consent of any other party thereto, unless such consent shall have been given.
Each of Seller, KXII Television and, solely with respect to the Real Property,
K-Twelve shall use its commercially reasonable efforts to obtain all such
necessary consents prior to the Closing, and to the extent any such necessary
consent has not been obtained, each of Seller, KXII Television and, solely with
respect to the Real Property, K-Twelve shall continue its commercially
reasonable efforts to obtain such consent after the Closing, except that receipt
of the FCC Consent and Final Order is a condition precedent to Closing. In
order, however, that the full value of every such Contract which is included
within the Assets may be realized, at Purchaser's request, direction and
expense, Seller shall take all such commercially reasonable action as shall in
the opinion of Purchaser be necessary or proper (i) in order to preserve for the
benefit of Purchaser the rights and obligations of Seller under such Contracts,
and (ii) to facilitate the collection of the monies due and payable,
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or to become due and payable, to Seller pursuant to every such Contract, and
Seller shall remit such monies to Purchaser within five (5) business days of
collection.
(b) Purchaser shall be entitled to the benefits accruing after the
Closing Date of any such non-assigned Contract. Purchaser, at its expense, shall
perform all of Seller's, KXII Television's or, solely with respect to the Real
Property, K-Twelve's obligations due to be performed under any such non-assigned
Contract that is included among the Assumed Liabilities to the extent (i)
Purchaser can perform such obligations without violating the terms of such
non-assigned Contract, and (ii) Purchaser is being provided the benefits of such
non-assigned Contract.
3.4. Payment of Accounts Payable and Other Liabilities of Seller. On or
before the Closing Date, Seller shall pay all Accounts Payable out of its cash
(and not through the proceeds of liquidating any of the Assets or using any of
the Assets themselves). On the Closing Date Seller shall have no Accounts
Payable.
3.5. No Intention to Benefit Third Parties. This Agreement is not
intended to, and shall not, (i) benefit any Person other than the KXII Parties,
Purchaser, Licensee and Gray or (ii) create any third party beneficiary right in
any Person.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE KXII PARTIES.
Each of the KXII Parties jointly and severally represents and warrants
unto Gray, Licensee and Purchaser, and this Agreement is made and expressly
conditioned upon, the following representations and warranties:
4.1 Organization, Power, and Qualifications of Seller. Seller is a
limited partnership duly organized, validly existing, and in good standing under
the laws of the State of Texas and has the full power and authority to own all
of its properties and assets and to carry on its business as it is now being
conducted. Seller is duly qualified as a foreign limited partnership in each
jurisdiction where the nature and extent of its Business requires such
qualification, as set forth on Schedule 4.1.
4.2 Organization, Power, and Qualifications of K-Twelve. K-Twelve is a
limited partnership duly organized, validly existing, and in good standing under
the laws of the State of Texas and has the full power and authority to own all
of its properties and assets and to carry on its business as it is now being
conducted. K-Twelve is duly qualified as a foreign limited partnership in each
jurisdiction where the nature and extent of its Business requires such
qualification.
4.3 Organization, Power, and Qualifications of KXII Television. KXII
Television is a limited partnership duly organized, validly existing, and in
good standing under the laws of the State of Texas and has the full power and
authority to own all of its properties and assets and to carry on its business
as it is now being conducted. KXII Television is duly qualified as a foreign
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limited partnership in each jurisdiction where the nature and extent of its
Business requires such qualification.
4.4 Organization, Corporate Power, and Qualifications of KBI 1. KBI 1 is
a corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and has the full corporate power and authority to
own all of its properties and assets and to carry on its business as it is now
being conducted. KBI 1 is duly qualified as a foreign corporation in each
jurisdiction where the nature and extent of its Business requires such
qualification.
4.5 Organization, Corporate Power, and Qualifications of KBI 2. KBI 2 is
a corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and has the full corporate power and authority to
own all of its properties and assets and to carry on its business as it is now
being conducted. KBI 2 is duly qualified as a foreign corporation in each
jurisdiction where the nature and extent of its business requires such
qualification.
4.6 Organization, Corporate Power, and Qualifications of KXII
Properties. KXII Properties is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Texas and has the full
corporate power and authority to own all of its properties and assets and to
carry on its business as it is now being conducted. KXII Properties is duly
qualified as a foreign corporation in each jurisdiction where the nature and
extent of its business requires such qualification.
4.7 Authorization and Validity. Each of the KXII Parties has the
requisite corporate or other power, capacity and authority necessary to enter
into and perform its obligations under this Agreement and the Other Agreements
and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated herein have been duly and validly authorized by
all necessary corporate or other appropriate action in respect thereof on the
part of each of the KXII Parties. This Agreement has been executed and delivered
by each KXII Party who is an individual, the duly authorized general partners of
each KXII Party that is a limited partnership and by the duly authorized
officers of each KXII Party that is a corporation and constitutes the legal,
valid, and binding obligation of each of the KXII Parties. This Agreement is
enforceable against each of the KXII Parties in accordance with its terms.
4.8 Ownership of Equity Interests. Each of the Owners owns (beneficially
and legally) the number and types of equity interests specified on Schedule 4.8
with respect to any other KXII Party, opposite his, her, or its name, free and
clear of any Encumbrance of any kind.
4.9 Noncontravention. The execution and delivery by the KXII Parties of
this Agreement and the other agreements contemplated on its part hereby does
not, and the consummation by the KXII Parties of the transactions contemplated
hereby and thereby will not, (i) violate any provision of the Articles of
Incorporation, Partnership Agreement, or Bylaws, as applicable, of any of the
KXII Parties, (ii) violate, or result (with the passage of time, the giving
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of notice or both) in a violation of, or result in the acceleration of or
entitle any party to accelerate any obligation under, or result in the creation
or imposition of, any Encumbrance upon any of the property of any of the KXII
Parties pursuant to any provision of any mortgage, lien, lease, agreement,
license, or instrument to which any KXII Party is a party or is subject, (iii)
constitute an event permitting termination or acceleration of any mortgage,
lien, lease, agreement, license, or instrument to which any KXII Party is a
party, or (iv) violate (A) any judgment, order, writ, injunction, decree,
regulation, or rule of any court or Governmental Authority applicable to any
KXII Party, the Assets or the Station or (B) any Law.
4.10 Consents, Approvals. Except for filings with and approvals of the
transactions contemplated hereby by the FCC and except for consent from the CBS
Television Network, none of the KXII Parties is required to make or obtain any
consent, approval, notification, authorization or order of, or declaration,
filing, or registration with any third party, including, without limitation, any
Governmental Authority (i) in connection with the consummation of the
transactions contemplated hereby, (ii) to avoid the loss of any license or the
violation, breach, or termination of, or any default under, or the creation of
any lien on any of the Assets pursuant to the terms of any Law, order, or other
requirement or any contract binding upon any KXII Party or to which Assets may
be subject, or (iii) to enable Gray, Purchaser and Licensee to continue the
operation of the Business after the Closing substantially as conducted prior to
the Closing.
4.11 Subsidiaries and Investments. Seller has no Subsidiaries and Seller
has not in the past and does not currently own, directly or indirectly, any
capital stock or other equity, ownership, proprietary or voting interest in any
Person.
4.12 Financial Statements. Schedule 4.12 contains true and complete
copies of the Historical Financial Statements. GAAP Basis Financial Statements,
prepared by Seller's independent auditors Jaynes, Reitmeier, Boyd & Therrell,
PC, Certified Public Accountants, Waco, Texas shall be delivered in accordance
with Section 7.8. The GAAP Basis Financial Statements will have been prepared in
accordance with GAAP, consistently applied and will fairly present the financial
condition of Seller and KXII Television as of the respective dates thereof, and
the results of operations, cash flows and retained earnings, and changes in
financial position, respectively, of Seller and KXII Television, for the
respective periods thereof. The Historical Financial Statements have been
prepared based on Seller's and KXII Television's historical accounting
practices, consistently applied and fairly present the financial condition of
Seller and KXII Television as of the respective dates thereof, and the results
of operations, cash flows and retained earnings, and changes in financial
position, respectively, of Seller and KXII Television, for the respective
periods thereof. Since December 31, 1998, (i) each of Seller and KXII Television
have carried on its business only in the ordinary course of business consistent
with past practice, (ii) there has been no Material Adverse Change, and (iii)
neither Seller nor KXII Television has made any change in any method of
accounting or any accounting practice.
4.13 Title to and Condition of Real Property.
(a) Schedule 4.13(a) contains a complete and accurate description of all
the Real Property to be conveyed by Seller to Gray, indicating each KXII Party's
interest therein.
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The Real Property comprises all of the real property necessary to conduct the
Business and operations of the Station as now conducted.
(b) Each KXII Party indicated on Schedule 4.13(a) to have a fee simple
interest in any of the Real Property has good, marketable, and insurable fee
simple title to the Real Property to which that KXII Party is indicated to have
a fee simple interest. Such interest is free and clear of all Encumbrances,
except for Permitted Liens, and no portion of the Real Property is included in a
Tax parcel that includes property other than the Real Property.
(c) Schedule 4.13(c) contains a complete and accurate description of all
the Leased Property and of the applicable lease creating each KXII Party's
interest in the Leased Property (the "Ground Leases") and the terms of the KXII
Party's interest therein. Each KXII Party has good, marketable and insurable
leasehold title to all of the Leased Property described on Schedule 4.13(c) free
and clear of all Encumbrances, except for Permitted Liens. Each KXII Party has
delivered to Gray true and complete copies of all of the Ground Leases.
(d) Schedule 4.13(d) contains a complete and accurate description of all
leases of the Real Property and Leased Property pursuant to which any KXII Party
is the landlord or sublandlord, (the "Tenant Leases") and the KXII Parties have
delivered true and complete copies of the Tenant Leases to Gray. There are no
leases or other agreements relating to occupancy of the Real Property or Leased
Property, except for the Tenant Leases and no Person other than the tenants
under the Tenant Leases has any right to occupancy of any portion of the Real
Property or Leased Property. The KXII Party that is party to any Tenant Lease is
the lessor or landlord or the successor lessor or landlord under such Tenant
Lease free and clear of all Encumbrances except for the Permitted Liens and is
entitled to receive the rents, issues and profits from such Tenant Lease.
(e) Except as disclosed on Schedule 4.13(a), all towers, guy anchors,
buildings, and other improvements owned by any KXII Party are located entirely
on the Real Property listed on Schedule 4.13(a).
(f) All Real Property (i) is available for immediate use in the conduct
of the Business and operations of the Station and (ii) complies in all material
respects with all applicable building, fire, health, handicapped persons,
sanitation, use and occupancy or zoning Laws and the regulations of any
Governmental Authority having jurisdiction thereof. There is no pending or, to
any KXII Party's Knowledge, threatened condemnation or eminent domain
proceedings that would affect the Real Property, or any part thereof and the
KXII Parties have full legal and practical access to the Real Property and all
utilities are available to the Real Property from a publicly dedicated right of
way or through a valid private easement. The KXII Parties have furnished to Gray
copies of any and all notices or reports received from any insurance company,
engineer, or Governmental Authority with respect to any violations (or potential
violations) of any applicable law affecting the Real Property or otherwise
requiring or recommending work be performed on or at any of the Real Property
(or improvements thereon), and all of the violations and requirements set forth
in any such notices and reports have been cured or fulfilled to the satisfaction
of those entities.
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(g) The Real Property listed on Schedule 4.13(a) and the Leased Property
listed on Schedule 4.13(d) comprise all real property interests necessary to
conduct the Business and operations of Seller as now conducted.
4.14 Title to and Condition of Tangible Personal Property. (a) Schedule
4.14(a) lists all material items of Tangible Personal Property owned by any KXII
Party, which comprises all material items of Tangible Personal Property
necessary to conduct the Business and operations of the Station as now
conducted. Except as specified on Schedule 4.14(a) such KXII Party owns and has
good title to each item of Tangible Personal Property, and none of the Tangible
Personal Property owned by such KXII Party is subject to any Encumbrance, other
than Permitted Liens. Each item of Tangible Personal Property is available for
immediate use in the Business and operations of the Station. Each item of
Tangible 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 item of Tangible Personal Property is adequate for its
present and intended uses and operation. All items of transmitting equipment
included in the Tangible Personal Property permit the Station to operate in all
material respects in compliance with the terms of the FCC Licenses, the rules
and regulations of the FCC, and with all other applicable Laws.
(b) Schedule 4.14(b) contains a complete and accurate description of all
the leased Tangible Personal Property and of the applicable lease creating any
KXII Party's interest in the leased Tangible Personal Property, which includes
the leases for motor vehicles (collectively, the "Personal Property Leases") and
the terms of such KXII Party's interest therein. Such KXII Party has good
leasehold title to the Leased Tangible Personal Property subject to the terms of
the applicable Personal Property Leases and free of any Encumbrances, other than
Permitted Liens. The KXII Parties have delivered to Gray true and complete
copies of all of the Personal Property Leases. The owned Tangible Personal
Property listed on Schedule 4.14(a) and the leased Tangible Personal Property
listed on Schedule 4.14(b) comprise all personal property interests necessary to
conduct the business and operations of Seller as now conducted.
4.15 Litigation. There are no actions, suits, claims, investigations, or
proceedings (legal, administrative, or arbitrative) pending, or to the KXII
Parties' Knowledge threatened, against the KXII Parties, and to the KXII
Parties' Knowledge no basis for any of the foregoing exists, whether at law or
in equity and whether civil or criminal in nature, before or by any Federal,
State, municipal, or other court, arbitrator, governmental department,
commission, agency, or instrumentality, domestic or foreign, nor are there are
any judgments, decrees, or orders of any such court, arbitrator, governmental
department, commission, agency, or instrumentality outstanding against the KXII
Parties. Except as disclosed on Schedule 4.15, no litigation (as described in
the preceding sentence) has been pending during the three (3) years prior to the
date hereof that, individually or in the aggregate, resulted in losses, damages,
costs or expenses (whether or not covered by insurance) in excess of $10,000 or
granted any injunctive relief against the KXII Parties.
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4.16 Environmental Matters.
(a) To the KXII Parties' Knowledge, none of the Real Property, assets or
premises of the KXII Parties pertaining to the Business, or the assets or
premises formerly owned, leased, operated or managed, directly or indirectly, by
the KXII Parties pertaining to the Business, or any of their predecessors or any
of their current or former subsidiaries, contains, nor is there present at any
such Real Property, assets or premises of the KXII Parties, or the assets or
premises formerly owned, leased, operated or managed, directly or indirectly, by
the KXII Parties, or any of their predecessors or any of their current or former
subsidiaries, any (i) "hazardous substances" (as defined in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. 9601
et seq., as amended), (ii) asbestos, (iii) radon gas, (iv) underground storage
tanks, (v) items or equipment containing polychlorinated biphenyls in excess of
50 parts per million, (vi) stored, spilled, or leaked petroleum products, or
(vii) accumulation of rubbish, debris, or other solid waste; nor is any of the
Real Property, assets or premises pertaining to the Business of the KXII
Parties, or the assets or premises pertaining to the Business formerly owned,
leased, operated or managed, directly or indirectly, by the KXII Parties, or any
of their predecessors or any of their current or former subsidiaries, the
subject of governmental regulation or liability because of the past release,
threat of release, discharge, storage, treatment, generation, or disposal of
such substances.
(b) To the KXII Parties' Knowledge, the KXII Parties are in compliance
with all laws, rules, and regulations of all federal, state, and local
governments (and all agencies thereof) concerning the environment, except for
any noncompliance which could not reasonably be expected to have a Material
Adverse Effect, and none of the KXII Parties, nor any of their predecessors or
any of their current or former subsidiaries has received any written notice of a
charge, complaint, action, suit, proceeding, hearing, investigation, claim,
demand, or notice having been filed or commenced against any of the KXII
Parties, or any of their predecessors or any of their current or former
subsidiaries in connection with their operation of the Station alleging any
failure to comply with any such law, rule, or regulation.
(c) To the KXII Parties' Knowledge, none of the KXII Parties, nor any of
their predecessors or any of their current or former subsidiaries has any
liability that could reasonably be expected to have a Material Adverse Effect
under any law, rule, or regulation of any federal, state, or local government
(or agency thereof) concerning the (i) release or threatened release of
hazardous substances, (ii) pollution, or (iii) protection of the environment.
(d) To the KXII Parties' Knowledge, all waste containing any hazardous
substances generated, used, handled, stored, treated or disposed of (directly or
indirectly) by the KXII Parties, or any of their predecessors or any of their
current or their former subsidiaries has been released or disposed of in
compliance with all applicable reporting requirements under any Law, and none of
the KXII Parties has Knowledge of any Environmental Claim (as herein defined)
with respect to any such release or disposal.
(e) To the KXII Parties' Knowledge, without limiting the generality of
any of the foregoing, (i) all on-site and off-site locations where the KXII
Parties, or any of their
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predecessors or any of their current or former subsidiaries has stored, disposed
or arranged for the disposal of hazardous substances are identified in Schedule
4.16, and (ii) no polychlorinated biphenyls (PCB's) are used or stored on or in
any Real Property owned, leased, operated or managed by the KXII Parties, or any
of their predecessors or any of their current or former subsidiaries.
(f) For purposes of this Agreement:
(i) "Environmental Claim" shall mean any Litigation in any court
or before or by any Governmental Authority or private arbitrator,
mediator or tribunal against any of the KXII Parties (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.
(ii) "Environmental Matter" shall mean any matter or
circumstances existing prior to Closing 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 Real Property.
4.17 Trade Names, Trade Marks, etc. Seller has and owns, or has the
right to use, all trademarks, service marks, trade names, business names,
copyrights, designs, trade secrets, and know-how used in the Business,
including, but not limited to, the items listed on Schedule 4.17 as a part of
the Intangible Property. There are no claims or proceedings pending, or to
Seller's Knowledge threatened, against Seller asserting that its use of any
Intangible Property infringes the rights of any other Person and Seller has no
Knowledge of any use by Seller that may, with notice or passage of time, give
rise to such a claim. Seller has not licensed or otherwise assigned any
Intangible Property to any third party and, to Seller's Knowledge, there are no
existing infringing uses of the Intangible Property by any third parties. All
royalties, limitations, restrictions, or other obligations of Seller with
respect to the ownership or use of the Intangible Property are set forth on
Schedule 4.17.
4.18 Governmental Authorization and Compliance With Laws. All
governmental licenses, certificates, permits, and approvals required for the
conduct of the Business as now conducted are listed on Schedule 4.18. Seller has
obtained all such licenses, permits, and approvals and all are in full force and
effect. The Business of the Station has been operated in compliance with all
applicable Laws, orders, regulations, policies, and guidelines of all
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Governmental Authorities (including, without limitation, those relating to FCC
matters and environmental laws and regulations), except for violations of such
Laws, orders, regulations, policies, and guidelines which do not affect and
cannot reasonably be expected to have a Material Adverse Effect on the Assets or
the Business, financial condition, Assets, liabilities, results of operations or
cash flows of Seller. Seller has received no notice of, and no investigation or
review is pending before, or to Seller's Knowledge threatened by, any
Governmental Authority (i) with respect to any alleged violation by Seller of
any Law, order, regulation, policy, or guideline of any Governmental Authority
related to the operation of the Station, or (ii) with respect to any alleged
failure to have all permits, certificates, licenses, approvals, and other
authorizations required in connection with the Business, Assets or operation of
the Station.
4.19 FCC Licenses. Seller is now and on the Closing Date will be the
holder of the FCC Licenses as listed in Schedule 4.19, with regular
unconditional renewals thereof having been granted for the full license term.
The FCC Licenses constitute all of the licenses and authorizations required for
and/or used in the operation of the Business as now operated, and the FCC
Licenses are now and on the Closing Date will be in full force and effect and
unimpaired by any act or omission of Seller, or its officers, directors,
employees, or agents. There is not now pending, or to Seller's or any of the
Owners' Knowledge, threatened, any action by or before the FCC to revoke,
cancel, rescind, modify, or refuse to renew in the ordinary course any of the
FCC Licenses, or any investigation, Order to Show Cause, Notice of Violation,
Notice of Apparent Liability, or a forfeiture or material complaint against the
Station or Seller. None of Seller or any of the Owners Knows of any reason why
the FCC would not renew the FCC Licenses in the ordinary course. In the event of
any such action, or the filing or issuance of any such order, notice, or
complaint or Knowledge of the threat thereof, Seller shall notify Purchaser of
same in writing within five (5) days, and shall take all reasonable measures to
contest in good faith or seek removal or rescission of such action, order,
notice, or complaint, and shall pay any sanctions imposed. All material reports,
forms, and statements required to be filed by Seller with the FCC with respect
to the Station have been filed and are complete and accurate in all material
respects. The Station is now and on the Closing Date will be operating in
accordance with the FCC Licenses, and in compliance with the Communications Act
of 1934, as amended, and the Rules and Regulations of the FCC. The operation of
the Station, including, but not limited to, Seller's use and operation of its
existing tower sites, conforms to the standards adopted by the FCC in Guidelines
Evaluating the Environmental Effects of Radio Frequency Radiation, Report and
Order, IT Docket 93-62 (August 1, 1996) (FCC 96-326), as modified on
reconsideration, Second Memorandum Opinion and Order, FCC 97-303 (released
August 23, 1997).
4.20 Labor Relations.
(a) Seller and KXII Television have paid or made provision for payment
of all salaries and wages of employees accrued through the date of this
Agreement. Seller and KXII Television are in compliance with all federal and
state Laws respecting employment and employment practices, terms and conditions
of employment, safety of the workplace, wages and hours, and nondiscrimination
in employment, and is not Knowingly engaged in any unfair or illegal employment
practice;
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(b) There is no charge, complaint, other claim, compliance review, audit
or investigation pending before, being conducted or, to Seller's and KXII
Television's Knowledge, threatened by any court, agency, arbitral panel or other
tribunal alleging, or that could result in an allegation of, unlawful
discrimination, unauthorized employment, harassment, any unfair labor practice
or violation of any Law or legal principle by Seller and KXII Television
relating to any aspect of employment or the workplace, nor to Seller and KXII
Television's Knowledge is there a basis for any such claims;
(c) There is no labor strike, dispute, slowdown, or stoppage actually
pending or, to Seller's and KXII Television's Knowledge, threatened against or
involving Seller and KXII Television;
(d) There are no collective bargaining agreements binding on Seller and
KXII Television;
(e) To Seller's and KXII Television's Knowledge, no employee
representative or labor organization is seeking to represent Seller's and KXII
Television's employees or has requested an election or a collective bargaining
agreement, nor are Seller or KXII Television currently negotiating or
contemplating negotiating such an agreement; and
(f) Except as listed specifically on Schedule 4.20, Seller and KXII
Television have no written contract of employment, change of control agreement
or other agreement with any employee of the Station, and Seller and KXII
Television have no unwritten contract of employment, change of control agreement
or other agreement that is not terminable at will without any payment or other
obligation on the part of Seller or KXII Television or any successor.
4.21 Insurance. Schedule 4.21 is a true and complete list, showing
company and type and amount of coverage, of all insurance policies providing
coverage for the KXII Parties, the Assets, the Business or the operation of the
Station, its employees, or third parties. The KXII Parties have provided correct
and complete copies of each such policy to Gray on or before the date hereof.
The KXII Parties are neither in default with respect to any provision of any of
its insurance policies nor has it failed to give any notice or present any claim
thereunder in due or timely fashion or as required by any of such insurance
policies which would result in failure to recover in full under such policies.
The KXII Parties have complied with the insurance requirements of (A) all leases
related to the Station to which it is a party; (B) all other contracts and
agreements to which the KXII Parties are a party; and (C) all Laws.
4.22 Accounts Receivable. All accounts receivable of Seller reflected on
its financial statements, as prepared and maintained through the Closing Date,
arose from bona fide transactions in the ordinary course of business, and
constitute valid and binding obligations of the account debtors for the full
face amount thereof, without discount, offset, or other claim or allowance. The
reserve for doubtful accounts contained in the financial statements is adequate
to protect the Purchaser from losses by reason of non-collection of such
accounts.
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4.23 Accounts Payable. All accounts payable of each of Seller and KXII
Television reflected on its financial statements, as prepared and maintained
through the Closing Date, arose from bona fide transactions in the ordinary
course of business, and constitute valid debts or obligations of Seller and KXII
Television for the full face amount thereof.
4.24 Tax Returns, Audits, and Liabilities.
(a) Seller (or its predecessor) and KXII Television have: (i) timely
filed all Tax Returns in accordance with all applicable laws (including any
applicable extensions); (ii) paid all Taxes shown to have become due pursuant to
such Tax Returns; (iii) properly accrued for all Taxes due or payable in respect
of the current period in the Financial Statements; and (iv) paid all Taxes for
which a notice of, or assessment or demand for, payment has been received or
which are otherwise due and payable, other than Taxes being contested in good
faith, as identified on Schedule 4.24 for which an adequate reserve has been
established. All such Tax Returns are true and correct in all material respects
and reflected the true facts regarding the income, business, assets, operations,
activities, and status of Seller (or its predecessor) and KXII Television and
any other information required to be shown therein.
(b) Except as disclosed on Schedule 4.24, in the past five (5) years,
none of Seller's or KXII Television's Tax Returns has been audited by any
Governmental Authority. There is no action, suit, proceeding, investigation,
audit, claim, or assessment pending or proposed with respect to Taxes or with
respect to any Tax Return for Seller or KXII Television; (ii) there are no liens
for Taxes upon the assets of Seller or KXII Television, other than liens for
taxes not yet past due; (iii) there are no waivers or extensions of any
applicable statute of limitations for the assessment or collection of Taxes with
respect to any Tax Return that remains in effect; and (iv) there are no Tax
rulings, request for rulings, or closing agreements relating to Seller or KXII
Television that could affect its liability for Taxes for any period after the
Closing Date.
4.25 Certain Contracts.
(a) Except as listed on Schedule 4.25:
(i) the KXII Parties do not have any employment agreements or any
incentive compensation, profit-sharing, stock option, stock
appreciation rights, stock purchase, savings, deferred
compensation, retirement, pension, or other plans or benefit
arrangements or practices with or for the benefit of any officer,
employee, or any other person, or any consulting agreement or
other arrangement with any officer, employee, former officer, or
former employee;
(ii) no officer, director or any KXII Party has any other
agreement with Seller or any interest in any of the Assets; and
(iii) except for contracts for the sale of advertising time
entered into in the normal course of business, none of the KXII
Parties is a party to or bound by any contract, commitment,
purchase order, or sales order, oral or
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written, related to the Business or operation of the Station. All
leases, agreements, licenses, or instruments related to the
Business to which any of the KXII Parties is a party are in full
force and effect and are binding obligations of the parties
thereto, and no event or condition has occurred or exists, or is
alleged by any of the other parties thereto to have occurred or
existed, which constitutes, or with lapse of time or the giving
of notice or both, might constitute a material default or a basis
for acceleration of any obligation, force majeure, or other claim
of excusable delay or nonperformance thereunder or in respect
thereof, whether on the part of the KXII Parties or any other
party. In connection with the consummation of the transactions
contemplated by this Agreement or otherwise, there are no
consents, approvals, notifications, or other actions required to
be taken pursuant to the terms of any contract or commitment to
which any of the KXII Parties is a party, except as described on
Schedule 4.25.
(b) Schedule 4.25 contains a list and correct and complete copies of the
following contracts and agreements:
(i) all powers of attorney given by the KXII Parties;
(ii) all programming and network affiliation agreements of Seller
or that relate to the Business, the Assets or the Station;
(iii) all Tradeout Agreements; and
(iv) any contract or agreement that (i) provides for monthly
payments in excess of $1,000 or yearly payments in excess of
$12,000; (ii) requires performance by Seller, K-Twelve and KXII
Television of any obligation for a period of time extending
beyond six (6) months from the Closing Date or is not terminable
by Seller, K-Twelve and KXII Television without penalty upon
sixty (60) days or less notice; (iii) evidences, creates or
guarantees indebtedness of Seller, K-Twelve and KXII Television;
or (iv) guarantees or endorses the liabilities or obligations of
any other Person.
4.26 Employees. Schedule 4.26 is a true and complete list of all
personnel employed by Seller as of the date of this Agreement, including the
names and current addresses of all such persons, their job classifications,
rates of pay, length of service, and a brief description of the employment
benefits provided to them, including group insurance, vacation, severance,
health and accident benefits, and retirement pay, if any.
4.27 Employee Benefit Plans.
(a) Schedule 4.27 contains an accurate and complete list of each
employee benefit plan established, maintained, or contributed to by Seller or
KXII Television. Each such plan is maintained and administered in material
compliance with the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), the Code and any other applicable Laws, its governing documents and
any oral or written communications from Seller or KXII Television to
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any participant in or beneficiary of such plan. Neither Seller nor KXII
Television nor any such employee benefit plan is liable for any material fine,
excise tax, or loss of income tax deduction with respect to the operation of any
such employee benefit plan. No reportable event, as defined in Section 4043 of
ERISA, that could have a Material Adverse Effect on Seller or KXII Television,
has occurred with respect to any employee benefit plan of Seller or KXII
Television. The consummation of the transactions contemplated by this Agreement
will not result in any withdrawal liability on the part of Seller or KXII
Television under a multi-employer plan. No plan or benefit arrangement
established or maintained by Seller or KXII Television or to which Seller or
KXII Television is obligated to contribute has any "accumulated funding
deficiency" as defined by ERISA. Seller and KXII Television have not incurred
any liability to the Pension Benefit Guaranty Corporation with respect to any
such plan. There are no material claims (other than routine claims for
benefits), lawsuits or governmental proceedings pending or, to Seller's and KXII
Television's Knowledge, threatened with respect to any employee benefit plan of
Seller or KXII Television. No claims or liabilities in respect of any of
Seller's and KXII Television's employee benefit plans shall be imposed upon
Purchaser or Gray as a result of the transactions described herein.
(b) Seller and KXII Television have filed all returns and reports
required to be filed with respect to its employee benefit plans, and has paid or
made provision for the payment of all fees, interest, penalties, assessments, or
deficiencies that may have become due pursuant to those returns or reports or
pursuant to any assessment or adjustment that has been made relating to those
returns or reports. All other fees, interest, penalties, and assessments that
are payable by or for Seller or KXII Television have been timely reported, fully
paid, and discharged. There are no unpaid fees, penalties, interest, or
assessments due from Seller or KXII Television relating to any employee benefit
plan that are or could become an Encumbrance on any assets of the Station or are
otherwise material. Seller and KXII Television have furnished to Purchaser true
and complete copies of all documents setting forth the terms and funding of each
employee benefit plan.
(c) Neither Seller nor KXII Television is liable for any welfare
benefits (as defined in ERISA Section 3(1)) to its employees or other
individuals associated with Seller and KXII Television after retirement or other
separation from service other than to the extent required by Code Section 4980B
and Part VI of Title I of ERISA (COBRA).
(d) For purposes of this Section 4.27, "Seller" and "KXII Television"
mean Seller and KXII Television and any entity which, together with Seller or
KXII Television, would be treated as a single employer under Section 414(n) of
the Code.
4.28 No Brokers. None of the KXII Parties has employed any brokers or
finders, or incurred any liability for any brokerage fees, commissions, finders'
fees, or financial advisory fees in connection with the transactions
contemplated hereby, and the KXII Parties agree to hold Gray, Purchaser and
Licensee harmless from any claim relating to such fees or compensation made by
the KXII Parties or anyone employed by the KXII Parties.
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4.29 Computer Software and Database. All computer software licensed,
leased or otherwise used in connection with the Business and the Station is
standard, pre-packaged and licensed and none of such computer software is
proprietary, internally developed or owned by Seller or KXII Television. Each of
Seller and KXII Television has, and upon consummation of the transactions
contemplated by this Agreement, Purchaser will have, all computer software and
databases that are necessary to operate the Business as presently conducted by
Seller and KXII Television and all documentation and necessary licenses relating
to all such computer software and databases.
4.30 Interested Transactions. Except as set forth in Schedule 4.30,
neither Seller nor KXII Television is a party to any contract or other
transaction with any Affiliate of Seller or KXII Television, any Related Party
of any Affiliate of Seller or KXII Television (other than as an Owner or
employee of Seller or KXII Television), 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. Each of such contracts and other transactions described in the
preceding sentence was negotiated on an arm's length basis, contains pricing
terms that reflected fair market value at the time entered into and otherwise
contains terms and conditions comparable to those customarily contained in
similar transactions between unrelated parties. Except as described in Schedule
4.30, none of the Persons described in the first sentence of this Section 4.30
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 Seller
or the Station.
4.31 Full Disclosure. No statement contained herein or in any document,
certificate, or other writing furnished or to be furnished by the KXII Parties
to Gray, the Licensee and the Purchaser pursuant to the provisions of this
Agreement contains or shall contain any untrue statement of a material fact or
shall omit to state any material fact necessary, in the light of the
circumstances under which it was made, to make the statements therein not
misleading. The due diligence materials delivered by the KXII Parties to Gray,
the Licensee and Purchaser are correct and complete in all material respects and
do not omit any material facts necessary to make the facts disclosed by such
materials not misleading.
4.32 Absence of Undisclosed Liabilities. None of the KXII Parties has
Knowledge of any Undisclosed Liabilities or any basis for or threat of an
assertion against any of the KXII Parties, the Business or the Assets of any
Undisclosed Liability, except for Liabilities incurred since the Unaudited
Balance Sheet Date in the ordinary course of business consistent with past
practice, none of which are Material.
4.33 Compliance with the Immigration Reform and Control Act. Each of
KXII Television and 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"). With
respect to each employee (as defined in Section 274a.1(f) of Title 8, Code of
Federal Regulations) of Seller and KXII Television for whom compliance with the
Immigration Laws by an employer (as defined in Section 274a.1(g) of Title 8,
Code of Federal Regulations) is required, Seller and KXII Television have
supplied, or shall
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supply prior to the Closing Date, to Purchaser such employee's Form I-9
(Employment Eligibility Verification Form) and all other records, documents or
papers which are retained with the Form I-9 by the employer pursuant to the
Immigration Laws. Neither KXII Television nor Seller has ever been the subject
of any inspection or investigation relating to its compliance with or violation
of the Immigration Laws, nor has either 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.
4.34 Absence of Changes. Except as disclosed on Schedule 4.34, since the
Unaudited Balance Sheet Date, (i) the Business has been carried on only in the
ordinary course of business 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, KXII Television, the Business, the Station or the Assets, (iii) neither
Seller nor KXII Television has directly or indirectly declared or authorized any
dividends or other distributions or payments in respect of its partnership
interests which have not been paid in full, (iv) neither Seller nor KXII
Television has made any change in any method of accounting or accounting
practice, and (v) neither Seller nor KXII Television has cancelled, modified or
waived, without receiving payment or performance in full, any (a) Liability owed
to Seller or KXII Television, including without limitation, any receivable of
Seller or KXII Television from any Affiliate or any Related Party to an
Affiliate, (b) Litigation Seller or KXII Television may have against other
Persons, or (c) other rights of Seller or KXII Television.
4.35 Reliance and Survival. The foregoing representations and warranties
have been made by the KXII Parties with the knowledge and expectation that each
of Purchaser, Licensee and Gray is placing complete reliance thereon, and all
such representations and warranties shall survive the Closing.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF GRAY, PURCHASER AND LICENSEE.
Each of Gray, Purchaser and Licensee represents and warrants to the KXII
Parties as follows:
5.1 Organization and Existence of Gray, Purchaser and Licensee. (a) Gray
is a corporation duly organized and validly existing under the laws of the State
of Georgia and has the power and authority to own all of its properties and
assets and to carry on its business as it is now being conducted.
(b) Purchaser is a corporation duly organized and validly existing under
the laws of the State of Georgia and has the power and authority to own all of
its properties and assets and to carry on its business as it is now being
conducted.
(b) Licensee is a corporation duly organized and validly existing under
the laws of the State of Delaware and has the power and authority to own all of
its properties and assets and to carry on its business as it is now being
conducted.
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5.2 Authorization and Validity. Each of Gray, Purchaser and Licensee has
the full power and authority to execute and deliver this Agreement and the other
agreements and instruments contemplated on its part hereby and to consummate the
transactions contemplated on its part hereby and thereby; each of Gray's,
Purchaser's and Licensee's execution and delivery of this Agreement and
consummation of the transactions contemplated hereby and thereby have been duly
authorized by its Board of Directors; and this Agreement has been duly executed
and delivered and constitutes the valid and binding agreement of each of Gray,
Purchaser and Licensee, enforceable in accordance with its terms.
5.3 Noncontravention. Neither the execution nor delivery of this
Agreement by any of Gray, Purchaser or Licensee nor the consummation by any of
Gray, Purchaser or Licensee of the transactions contemplated hereby and thereby
will violate any provision of the Articles of Incorporation or Bylaws of any of
Gray, Purchaser or Licensee, or of any other material instrument, agreement,
order, or decree binding on any of Gray, Purchaser or Licensee, the effect of
which violation would be the prevention, delay, avoidance, or voidableness of
this Agreement or the transactions contemplated hereby.
5.4 Consents, Approvals. Except for filings with and approvals of the
transactions contemplated hereby by the FCC, none of Gray, Purchaser nor
Licensee is required to make or obtain any consent, approval, notification,
authorization or order of, or declaration, filing, or registration with any
Governmental Authority or any other third party in connection with consummation
by any of Gray, Purchaser or Licensee of the transactions contemplated hereby.
5.5 No Brokers. Other than an approximately 1% fee paid by Gray to Bull
Run Corporation (which does not affect the Purchase Price hereunder), none of
Gray, Purchaser nor Licensee has employed any brokers or finders or incurred any
liability for any brokerage fees, commissions, finders' fees, or financial
advisory fees in connection with the transactions contemplated hereby, and each
of Gray, Purchaser and Licensee agrees to hold Seller harmless from any claim
relating to such fees or compensation made by any of Gray, Purchaser or anyone
employed by either of them.
5.6 Financial Ability. Gray, Purchaser and Licensee have the financial
ability to close the transactions contemplated under this Agreement, and will
close those transactions according to the terms of, and subject to the
conditions contained in, this Agreement.
SECTION 6. FCC APPROVAL.
6.1 Filing and Prosecution of Application. Within ten (10) days after
the execution of this Agreement, Licensee and Seller shall each file
applications with the FCC requesting the transfer and assignment of the FCC
Licenses of the Station from Seller to Licensee. (the "Assignment
Applications"). Licensee and Seller shall take all steps reasonably necessary to
the expeditious prosecution of the Assignment Applications to a favorable
conclusion, using their best efforts throughout.
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6.2 Expenses. Each party shall bear its own expenses in connection with
the preparation of the applicable sections of the Assignment Application and in
connection with the prosecution of such application. Seller and Gray will divide
and pay equally any filing fee or grant fee imposed by the FCC.
6.3 Time for FCC Consent. If the FCC rejects the Assignment Application
for incompleteness, it shall be completed by the party (or parties) whose
portion of the Assignment Application was incomplete and then shall be promptly
resubmitted. If the Assignment Application is rejected by the FCC for a reason
which precludes resubmission, this Agreement shall terminate without notice or
other action by the parties. If the FCC accepts the Assignment Application,
whether as initially filed or as resubmitted, then, if the FCC has not given its
written consent to the transfer of the FCC Licenses by December 31, 1999, the
time for FCC consent shall be automatically extended until May 31, 2000, so long
as no party is otherwise in default hereunder. In the event that the FCC consent
has not been granted on or before May 31, 2000, either party may terminate this
Agreement pursuant to Section 13.1. If the Closing has not occurred prior to
August 15, 1999, the Company shall apply to the FCC prior to such date for all
necessary authorizations to construct and operate digital television facilities
on or before May 1, 2002.
6.4 Control of Station. Until the Closing, none of Purchaser, Gray nor
Licensee shall, directly or indirectly, control, supervise, or direct the
operation of the Station, but such operation shall be the sole responsibility of
Seller. Pending the Closing, none of Purchaser, Gray nor Licensee shall
represent that it is acting as agent or representative of Seller in connection
with the operation of the Station or any personnel actions affecting the
Station's employees.
6.5 No Reversion of Licenses. Neither the Owners, nor any person
affiliated with the Owners, has retained any right of reversion of the FCC
Licenses. Further, no person affiliated with the Owners has the right to a
reassignment of the FCC Licenses in the future, and the Owners or their
affiliates have not reserved the right to use the facilities of the Station for
any period whatsoever. There is no contract, arrangement, or understanding,
express or implied, pursuant to which, as consideration or partial consideration
for the transactions contemplated hereby, such rights as stated above are
retained.
6.6 Regulatory Matters. Gray, Purchaser, Licensee and the KXII Parties
will cooperate and use their best efforts to prepare all documentation, to make
all filings, and to obtain all permits, consents, approvals, and authorizations
of all third parties and governmental bodies necessary to consummate the
transactions contemplated by this Agreement. Each party shall be primarily
responsible for accomplishing all such matters applicable to it (or them) but
shall take all such further action in that regard as the other party shall
reasonably request.
SECTION 7. SPECIAL COVENANTS AND AGREEMENTS.
7.1 Confidentiality. Except as necessary for the consummation of the
transactions contemplated by this Agreement, except as and to the extent
required by law or securities filings, and except as permitted by Section 7.8,
each party will keep confidential any information
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obtained from the other party in connection with the transactions contemplated
by this Agreement. If this Agreement is terminated, each party will return to
the other party all information obtained by such party from the other party in
connection with the transactions contemplated by this Agreement.
7.2 Cooperation. Gray, Purchaser, Licensee and the KXII Parties shall
cooperate fully with each other and their respective counsel and accountants in
connection with any actions required to be taken as part of their respective
obligations under this Agreement, and Gray, Purchaser, Licensee and the KXII
Parties shall execute such other documents as may be necessary and desirable to
implement and consummate this Agreement, and shall otherwise use their
commercially reasonable efforts to consummate the transaction contemplated
hereby and to fulfill their obligations under this Agreement.
7.3 Access to Books and Records. Gray, Licensee and Purchaser shall
provide Seller reasonable access and the right to copy for a period of three
years from the Closing Date any books and records relating to Seller.
7.4 Certain Investments. Prior to the Closing, Employee accounts will be
liquidated or written off at the election of Seller.
7.5 Acquisition Proposals. None of the KXII Parties or any of their
officers and directors, as the case may be, shall, and each of the KXII Parties
will, use its best efforts to cause its respective employees, agents, and
representatives (including, with limitation, any investment banker, attorney or
accountant retained by the KXII Parties) not to, initiate, solicit or encourage,
directly or indirectly, any inquiries or the making of any proposal with respect
to a merger, consolidation, share exchange or similar transaction involving
Seller, or any purchase of all or any significant portion of the Assets of
Seller, or any equity interest in Seller, other than the transactions
contemplated hereby (an "Acquisition Proposal"), or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition.
7.6 Publicity. The parties hereto agree that they will consult with each
other concerning any proposed press release or public announcement pertaining to
the Agreement and the transactions contemplated thereby and shall use their best
efforts to agree upon the text of any such press release or the making of such
public announcement.
7.7 Supplying of Financial Statements. Seller and KXII Television shall
deliver to Gray and Purchaser promptly upon completion of the audit at Gray's or
Purchaser's cost and expense, audited Financial Statements of Seller and KXII
Television for the year ended December 31, 1998, prepared by its independent
auditors, Jaynes, Reitmeier, Boyd & Therrell, PC, Certified Public Accountants,
Waco, Texas, which Financial Statements will have been prepared in accordance
with GAAP. Furthermore, Seller and KXII Television shall deliver to Gray and
Purchaser within twenty (20) days following the end of each month true and
complete copies of all unaudited monthly financial statements of Seller and KXII
Television for each calendar month ending subsequent to December 31, 1998 and
prior to the Closing Date in the
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format historically utilized internally by Seller and KXII Television and, to
the extent applicable, within ninety (90) days following the end of each year
true and completed copies of annual audited financial statements of Seller and
KXII Television for each year subsequent to 1998.
7.8 Cooperation in Preparation of Filings. The KXII Parties shall
cooperate in providing to Gray all information required or reasonably desirable
for the preparation of the Registration Statements described in the KWTX Merger
Agreement and KBTX Merger Agreement and such other filings with the Securities
and Exchange Commission as Gray deems necessary or appropriate.
7.9 Supplements to Schedules. Seller shall from time to time after the
date hereof, supplement or amend the Schedules referred to in Section 4 with
respect to any matter arising after the date hereof which, if existing or
occurring at the date hereof, would have been required to be set forth or
described in such Schedules. Gray and Purchaser may unilaterally extend the
Closing Date if necessary to allow Gray and Purchaser ten (10) business days to
review such supplements to the Schedules prior to the Closing Date. If, in
Gray's reasonable determination, any such supplements to the Schedules reveal
any Material Adverse Change, Gray and Purchaser shall give written notice to
Seller of its determination. Seller shall then have a period of ten (10)
business days to reasonably satisfy Gray and Purchaser that there has been no
Material Adverse Change, or to remedy such Material Adverse Change. If,
following such ten (10) business day cure period, in Gray's and Purchaser's
reasonable determination, such Material Adverse Change still exists, Gray and
Purchaser may terminate this Agreement pursuant to Section 13.1(e).
7.10 Use of Name. Within 10 days after the Closing Date, each of the
KXII Parties, other than K-Twelve, as applicable, (i) shall change its name and
cause any and all Affiliates to change their names to a name wholly dissimilar
to "KXII," and any variation or derivation thereof; (ii) shall provide such
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 name
"KXII", or any similar name or variation or derivation thereof in any
circumstances. In connection with enabling Purchaser, at or after the Closing,
to use the name "KXII," and any variation or derivation thereof, the KXII
Parties shall execute and deliver to Purchaser all consents related to such use
of names as may be reasonably requested by Purchaser from time to time. All
rights to the name "KXII," and any variation or derivation thereof, and all
rights to all names used in connection with the Business are being conveyed to
Purchaser as part of the Assets.
7.11 Certain Tax Matters.
(a) Seller shall file all Tax Returns required to be filed by it on or
before the Closing Date.
(b) Purchaser, on the one hand, and the KXII Parties, on the other hand,
shall provide the other parties to this Agreement, at the expense of the
requesting party, with such assistance as may reasonably be requested by any of
them in connection with the preparation of any Tax Return, any audit or other
examination by any Governmental Authority, or any judicial or
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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.
(c) At the Closing, Seller shall pay out of the Purchase Price all Taxes
relating to the Transfer of the Assets to Purchaser. Seller shall file all
necessary documentation and Tax Returns required to be filed by it with respect
to such Taxes.
7.12 Other Expenses.
(a) Seller or the Owners (after the Closing and not from or out of the
Assets) shall pay any fees and expenses in connection with the prepayment,
release, satisfaction or removal of any Encumbrances affecting the Assets other
than Permitted Liens.
(b) Gray shall pay all costs and fees relating to the environmental
report or reports required by Section 9.8.
7.13 Further Assurances. At any time and from time to time after the
Closing, the KXII Parties shall, at the request of Purchaser, Licensee or Gray,
take any and all actions necessary to fulfill their respective obligations
hereunder, to put Purchaser in actual possession and operating control of the
Assets and execute and deliver such further instruments of conveyance, sale,
transfer and assignment, and take such other actions necessary or desirable to
effectuate, record of perfect the transfer of the Assets to Purchaser free and
clear of all Encumbrances (other than Permitted Encumbrances), to confirm the
title of the Assets to Purchaser, to assist Purchaser in exercising rights
relating thereto, or to otherwise effectuate or consummate any of the
transactions contemplated hereby.
7.14 Title Search; Discharge of Encumbrances; Title Insurance. As soon
as practicable after the date hereof, the KXII Parties shall (i) each use
commercially reasonable efforts to ascertain all Encumbrances, if any, to which
any of the Assets or the FCC Licenses is subject, (ii) notify Gray, Purchaser
and Licensee in writing of the nature and extent thereof, and (iii) discharge
all such Encumbrances (other than Permitted Liens). Without limiting the
generality of the foregoing, the KXII Parties shall provide to Gray, Purchaser
and Licensee 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 or K-Twelve has any Assets. The KXII Parties agree to
provide the title insurance company issuing title insurance policies or
commitments to Purchaser with any and all certificates, affidavits, indemnities
or other assurances that it may reasonably request for the purpose of permitting
such title insurer to delete the standard, general or printed exceptions set
forth in the title policy or title commitment and any Encumbrances other than
Permitted Liens.
7.15 Transfer of Real Property. Prior to the Closing Date, K-Twelve and
each other KXII party indicated on Schedule 4.13(a) shall deliver to Seller a
general warranty deed transferring all of K-Twelve's and each such other KXII
Party's right, title and interest in the Real Property to Seller.
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7.16 Transfer of Certain Assets. Prior to the Closing Date, KXII
Television shall transfer to Seller all of its rights, title and interest in and
to each of the Assets that it owns, free and clear of all Encumbrances other
than Permitted Liens.
7.17 Digital Television Applications. If the Closing has not occurred
prior to August 15, 1999, Seller agrees to apply to the FCC prior to such date
for all necessary authorizations to construct and operate digital television
facilities on or before May 1, 2002.
7.18 Earnest Money. The Earnest Money, in the form of cash, shall be
paid to the Earnest Money Escrow Agent for the account of Seller within three
(3) business days after the date hereof. The cash Earnest Money shall be held in
accordance with the provisions of the Escrow Agreement substantially in the form
of Exhibit A attached hereto and shall be paid to Seller at the Closing.
SECTION 8. CONDITIONS PRECEDENT FOR SELLER AND THE OWNERS.
Seller's and the Owners' obligation to effect the transactions
contemplated by this Agreement shall be subject, to the extent not waived, to
the satisfaction of each of the following conditions at or prior to the Closing.
8.1 Representations and Warranties. The representations and warranties
of Gray, Licensee and Purchaser contained in this Agreement shall be true,
complete, and correct in all material respects as of the date when made and,
except for changes expressly contemplated by this Agreement, on and as of the
Closing Date as though such representations and warranties had been made on and
as of the Closing Date, and Gray, Licensee and Purchaser shall have delivered to
Seller a certificate or certificates, signed by the Chairman or the President of
Gray, Licensee and Purchaser and dated the Closing Date, to such effect.
8.2 Performance of this Agreement. Each of Gray, Licensee and Purchaser
shall have performed and complied in all material respects with all covenants,
conditions, and agreements required by this Agreement to be performed or
complied with by it prior to or on the Closing Date and Gray, Licensee and
Purchaser shall have delivered to Seller and its counsel all of the documents
specified or required to be delivered in accordance with the provisions hereof.
8.3 Proceedings. All corporate and other proceedings to be taken by
Gray, Licensee and Purchaser in connection with the transactions contemplated
hereby shall have been completed and all such proceedings and all documents
incident thereto shall be reasonably satisfactory in substance and form to
Seller, and Seller shall have received all such counterpart originals or
certified or other copies of such documents as Seller may reasonably request.
8.4 FCC Consent. The FCC Consent shall have been granted without the
imposition of any condition thereon adverse to Seller or the Owners and (unless
waived by the Purchaser) shall have become a Final Order. All other consents and
authorizations by third parties and all governmental consents, approvals,
licenses, and permits, the granting of which are necessary for
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the consummation of the transactions contemplated hereby or for preventing the
termination of any material right, privilege, license, or agreement of Seller or
Purchaser related to the Business, the Station, or any material loss or
disadvantage to Seller or Purchaser, upon the consummation of the transactions
contemplated hereby, shall have been obtained or made.
8.5 Litigation. No order of any court or administrative agency shall be
in effect which restrains or prohibits the transactions contemplated hereby,
there shall not be pending any action, inquiry, investigation, or proceeding by
or before any court or governmental agency or other regulatory or administrative
agency or commission challenging any of the transactions contemplated by this
Agreement.
8.6 Closing of Mergers. The transactions contemplated by the KWTX Merger
Agreement and the KBTX Merger Agreement shall have been consummated.
SECTION 9. CONDITIONS PRECEDENT FOR GRAY, PURCHASER AND LICENSEE.
Gray's, Purchaser's and Licensee's obligations to effect the
consummation of the transactions contemplated by the Agreement shall be subject,
to the extent not waived, to the satisfaction of each of the following
conditions at or prior to the Closing.
9.1 Representations and Warranties. The representations and warranties
of the KXII Parties contained in this Agreement shall be true, complete, and
correct in all material respects as of the date when made and, except for
changes expressly contemplated by this Agreement, on and as of the Closing Date,
as though such representations and warranties had been made on and as of the
Closing Date, and the KXII Parties each shall have executed and delivered to
Gray, Purchaser and Licensee a certificate, dated the Closing Date, to such
effect.
9.2 Performance of this Agreement. The KXII Parties shall have performed
and complied in all material respects with all covenants, conditions, and
agreements required by this Agreement to be performed or complied with by it
prior to or on the Closing Date and the KXII Parties shall have delivered to
Gray, Purchaser and Licensee and their counsel all of the instruments of
transfer, certificates, Exhibits, Schedules, and other documents specified or
required to be delivered in accordance with the provisions hereof.
9.3 Proceedings. All corporate and other proceedings to be taken by the
KXII Parties in connection with the transactions contemplated hereby shall have
been completed and all such proceedings and all documents incident thereto shall
be reasonably satisfactory in substance and form to Gray, Purchaser and
Licensee, and Gray, Purchaser and Licensee shall have received all such
counterpart originals or certified or other copies of such documents as Gray may
reasonably request.
9.4 FCC Consent. The FCC Consent shall have been granted without the
imposition of any condition thereon adverse to Gray, Purchaser or Licensee and
(unless waived by Gray) shall have become a Final Order. All other consents and
authorizations by third parties and all governmental consents, approvals,
licenses, and permits, the granting of which are necessary for
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the consummation of the transactions contemplated hereby or for preventing the
termination of any material right, privilege, license, or agreement of Seller or
Purchaser related to the Station, the Assets or the Business, or any material
loss or disadvantage to Gray, Purchaser or Licensee, upon the consummation of
the transactions contemplated hereby, shall have been obtained or made.
9.5 Litigation No order of any court or administrative agency shall be
in effect which restrains or prohibits the transactions contemplated hereby or
which would limit or affect Purchaser's ownership of the Assets or the Business,
and there shall not be pending any action, inquiry, investigation, or proceeding
by or before any court or governmental agency or other regulatory or
administrative agency or commission challenging any of the transactions
contemplated by this Agreement.
9.6 Opinions of Counsel for Seller. Gray, Purchaser and Licensee shall
have received opinions from Deaver & Deaver, counsel to Seller, and from Dennis
Kelly, special FCC counsel to Seller, dated as of the Closing Date, in
substantially the forms attached hereto as Exhibits C and D, respectively.
9.7 Title Insurance Commitments. Gray or Purchaser, at Gray's sole cost
and expense, shall have received commitments for standard form policies of
owner's or lessee's title insurance, issued by a title insurance company doing
business in the State of Texas, acceptable to Gray, insuring Seller's title as
owner or as lessee, as the case may be, with current survey coverage, based on a
current ALTA Survey, in form and substance reasonably satisfactory to Gray, in
all of the Real Property in amounts specified by Gray, containing only those
exceptions, conditions, and reservations acceptable to Gray and its counsel in
their reasonable discretion (collectively, the "Permitted Exceptions"), together
with legible copies of the documents creating the Permitted Exceptions.
9.8 Environmental Audit.
(a) Gray, at Gray's sole cost and expense, shall have received the
written results of an environmental audit, prepared at the direction of Gray,
confirming that:
(i) The Real Property does not contain any hazardous wastes,
hazardous substances, toxic substances, hazardous air pollutants,
or toxic pollutants, as those terms are defined in state and
federal environmental laws and regulations promulgated pursuant
to such Laws, in amounts which are in violation of, or might give
rise to Liability under, such Laws or regulations;
(ii) No part of the Real Property is currently or potentially
subject to any federal, state, or local compliance or enforcement
action, clean-up action, or other action because of the presence
of stored, leaked, spilled, or disposed petroleum products, waste
materials or debris, "PCB's" or "PCB items," underground storage
tanks, "asbestos," or any dangerous,
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hazardous, or toxic substance as defined in or regulated by any
federal or state or local laws, regulations, or orders;
(iii) No part of the Real Property has been filled with debris,
garbage, stumps, or other similar waste materials; and
(iv) No condition currently exists on the Real Property, whether
owned or leased, which is or may be characterized by any federal,
state, or local government or agency as an actual or potential
threat or danger to public health or the environment.
(b) If the environmental audit obtained by Gray recommends remedial
measures to clean up contamination identified in the environmental audit, Seller
may complete the remedial measures at its sole cost and expense, in which case,
the time for the Closing hereunder shall be extended up to 120 days as
reasonably necessary to allow for such remediation. If Seller refuses to
complete such remedial measures, Gray may, at Gray's option,
(i) complete the remedial measures at Gray's sole cost and
expense, in which case, the time for Closing hereunder
shall be extended as reasonably necessary to allow for
such remediation and the Purchase Price shall be reduced
by such cost and expense, or
(ii) cancel and terminate this Agreement without further
liability to Gray, Purchaser, Licensee and the KXII
Parties.
9.9 No Material Adverse Change. There shall not have occurred any
Material Adverse Change with respect to Seller, the Assets, or the Business, or
any condition or event which threatens a Material Adverse Change with respect to
Seller, the Assets or the Business, from the Unaudited Audited Balance Sheet
Date. Seller and the Owners each shall have delivered to Purchaser a certificate
dated as of the Closing Date executed by Seller and the Owners, respectively,
certifying the foregoing statement.
9.10 Zoning Certificate. With respect to Real Property that is subject
to zoning ordinances, Seller shall have furnished to Purchaser no later than
seven (7) days prior to the Closing Date (i) a statement of the appropriate
Governmental Authority, that the Real Property, as improved and used, complies
with all applicable zoning Laws and (ii) certificate(s) of occupancy, as
applicable, with respect to the Real Property.
9.11 Closing of Mergers. The transactions contemplated by the KWTX
Merger Agreement and the KBTX Merger Agreement shall have been consummated.
9.12 Transfer of Real Property. K-Twelve and each other KXII Party
indicated on Schedule 4.13(a) shall have transferred all of its right, title and
interest in the Real Property, and any and all contracts related thereto, to
Seller pursuant to Section 7.15.
9.13 Transfer of Certain Assets. KXII Television shall have transferred
all of its right, title and interest in and to all of the Assets held by it to
Seller pursuant to Section 7.16.
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9.14 Due Diligence and Schedules. Gray and Purchaser shall be reasonably
satisfied with their due diligence review of the Company and the Station,
including the information disclosed on the Schedules. This condition shall be
deemed to have been satisfied if notice to the contrary has not been given to
the Company no later than ten (10) business days after receipt by Gray and
Purchaser of all of the due diligence information reasonably requested by them
and receipt by Gray and Purchaser of all of the Schedules.
SECTION 10. CLOSING.
10.1 Deliveries by Seller. At the Closing, Purchaser will pay or cause
the payment of the Purchase Price upon receipt of the following instruments and
documents executed by the KXII Parties, where appropriate, in form and content
satisfactory to each of Gray, Purchaser, Licensee and their counsel:
(a) All original documents, books and records pertaining to the Business
(except minute books and stock records) and to the Assets 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.
Seller may retain copies of any of the foregoing for its own use. Without
limiting the generality of the foregoing, Seller shall deliver to Purchaser at
the Closing all documents and records relating to the Intangible Property,
including, without limitation, the original Certificates of Registration for all
Letters Patent, trademarks, service marks and trade names listed on Schedule
4.13 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 Governmental Authorities.
(b) A Certificate of Account Status for Seller from the Texas
Comptroller of Public Accounts, dated no more than thirty (30) days prior to the
Closing Date;
(c) Certificate of KBI 1 as general partner of Seller dated the Closing
Date certifying the incumbency of all officers of KBI 1 who have executed this
Agreement or any of the Other Agreements. This Certificate shall contain
specimens of the signatures of each of such officers and shall be executed by an
officer of KBI 2 other than an officer whose incumbency or authority is
certified.
(d) A true and complete copy of the Partnership Agreement and all
amendments thereto of Seller certified by its general partner;
(e) A certificate of the secretary of KBI 1 stating that the partnership
agreement of Seller has not been amended since the date of this Agreement and
that nothing has occurred since the date of issuance of the Certificate of
Account Status specified in Subsection 10.1(c) above that would adversely affect
Seller's existence or good standing;
(f) The Closing Certificate referred to in Section 9.1 of this
Agreement;
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(g) The Certificate referred to in Section 9.10 of this Agreement;
(h) An executed Bill of Sale substantially in the form attached hereto
as Exhibit D;
(i) An executed Assignment and Assumption Agreement substantially in the
form attached hereto as Exhibit E;
(j) Copies of the resolutions adopted by the general partners of the
limited partnerships and the Boards of Directors and shareholders of the
corporations comprising the KXII Parties approving this Agreement, the Other
Agreements, and the consummation of the transactions contemplated hereby and
thereby, certified by the Secretary or general partner of each such KXII Party,
as applicable.
(k) A Certificate of Account Status from the Texas Comptroller of Public
Accounts stating that no sales or use Taxes are due and payable, if such a
Certificate has not previously been received by Gray.
(l) Certificate of the Secretary of the State of the State of Texas
dated not more than ten (10) days before the Closing Date, stating that Seller
is a partnership in existence under the laws of such state and has paid all
applicable Taxes due to such state and certificates of the appropriate officials
of the states and foreign jurisdictions listed on Schedule 4.1, each dated not
more than ten (10) days before the Closing Date, stating that Seller is duly
qualified and in good standing to transact business as a foreign corporation and
has paid all applicable Taxes due to each such state or foreign jurisdiction;
(m) A general warranty deed in respect of the Real Property (which
general warranty deed shall include a transfer or assignment of any warranties
of title, whether general, statutory or limited, which Seller has received from
any of its grantors);
(n) An Owner's and Contractor's Affidavit and such other documents,
instruments and information as may be requested by the title insurance company
which is providing owner's or lessee's title insurance coverage for the Real
Property;
(o) The opinions of Seller's counsel and Seller' special FCC counsel;
and
(p) Such other documents as Gray, Purchaser, Licensee or their Counsel
may reasonably request for the complete fulfillment of the KXII Parties'
obligations hereunder.
10.2 Deliveries by Gray, Purchaser and Licensee.
(a) The Closing Certificate referred to in Section 8.1 of this
Agreement;
(b) The opinion of Gray's, Purchaser's and Licensee's legal counsel;
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(c) An executed Assignment and Assumption Agreement substantially in the
form attached hereto as Exhibit E.
(d) An incumbency certificate or certificates dated the Closing Date
certifying the incumbency of all officers of Purchaser, of Licensee and of Gray
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 Purchaser other than an officer whose
incumbency or authority is certified.
SECTION 11. INDEMNIFICATION.
11.1 By Seller. After the Closing Date, to the limit of the Escrow Fund
described in Section 11.4, below, the KXII Parties shall indemnify and hold
harmless each of Gray, Purchaser and Licensee and their respective officers,
directors, employees, agents, representatives, successors, and permitted
assigns, against:
(i) any damages, losses, obligations, liabilities, claims,
actions, or causes of action sustained or suffered by Gray,
Purchaser or Licensee and arising from a breach of any
representation or warranty of the KXII Parties contained in this
Agreement;
(ii) any damages, losses, obligations, liabilities, claims,
actions, or causes of action sustained or suffered by Gray,
Purchaser or Licensee and arising from a breach of any agreement
of the KXII Parties contained in this Agreement;
(iii) any damages, losses, obligations, liabilities, claims,
actions, or causes of action sustained or suffered by Gray,
Purchaser or Licensee and arising from any debt, obligation, or
Liability of Seller not specifically and expressly reflected on
Seller's December 31, 1998 Audited Balance Sheet, including any
Taxes relating to the period ending on the Closing Date;
(iv) any damages, losses, obligations, liabilities, claims,
actions, or causes of action sustained or suffered by Gray,
Purchaser or Licensee and arising from any Environmental Claim or
any Environmental Matter;
(v) any Retained Liability; and
(vi) all ordinary and necessary costs, expenses, or settlement
payments (including, without limitation, reasonable attorneys',
accountants', and other professional fees) incurred by Gray,
Purchaser or Licensee in connection with any action, claim, suit,
proceeding, demand, assessment, or judgment incident to any of
the matters indemnified against under this Section 11.
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11.2 By Gray, Purchaser and Licensee. After the Closing Date, to the
limit of the amount of the Escrow Fund, each of Gray, Purchaser and Licensee
shall indemnify and hold harmless the KXII Parties and their respective
successors and permitted assigns, against:
(i) any damages, losses, obligations, liabilities, claims,
actions, or causes of action sustained or suffered by the KXII
Parties and arising from a breach of any representation or
warranty of Gray, Purchaser or Licensee contained in this
Agreement;
(ii) any damages, losses, obligations, liabilities, claims,
actions, or causes of action sustained or suffered by the KXII
Parties and arising from a breach of any agreement of Gray,
Purchaser or Licensee contained in this Agreement;
(iii) any Assumed Liability; and
(iv) all ordinary and necessary costs, expenses, or settlement
payments (including, without limitation, reasonable attorneys',
accountants', and other professional fees) incurred by the KXII
Parties in connection with any action, suit, proceeding, demand,
assessment, or judgment incident to any of the matters
indemnified against under this Section 11.2.
11.3 Procedure for Indemnification. The procedure for indemnification
shall be as follows:
(a) The party claiming indemnification (the "Claimant") shall promptly
give notice to the Indemnity Escrow Agent and the party from which
indemnification is claimed (the "Indemnifying Party") of any claim, whether
between the parties or brought by a third party, specifying in reasonable detail
the factual basis for the claim. If the claim relates to an action, suit, or
proceeding filed by a third party against Claimant, such notice shall be given
by Claimant within ten (10) days after written notice of such action, suit, or
proceeding was received by Claimant, provided that any failure to give notice of
such action, suit, or proceeding within such ten (10) day period shall not
relieve the Indemnifying Party of its obligations hereunder except to the extent
such failure shall have prejudiced such party in the defense or resolution of
any such claim. The notice of a claim may be amended on one or more occasions
with respect to the amount of the claim at any time prior to final resolution of
the obligation to indemnify relating to the claim.
(b) With respect to claims solely between the parties, following receipt
of notice from the Claimant of the claim, the Indemnifying Party shall have
thirty (30) days to make such investigation of the claim as the Indemnifying
Party deems necessary or desirable. For the purposes of such investigation, the
Claimant agrees to make available to the Indemnifying Party and/or its
authorized representatives the information relied upon by the Claimant to
substantiate the claim. If the Claimant and the Indemnifying Party agree at or
prior to the expiration of the thirty-day (30) period (or any mutually agreed
upon extension thereof) to the validity and amount
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of such claim, the Indemnifying Party shall immediately pay to the Claimant the
amount of the claim. If the Claimant and the Indemnifying Party do not agree
within the thirty-day (30) period (or any mutually agreed upon extension
thereof), the Claimant may seek an appropriate remedy at law or equity.
(c) With respect to any claim by a third party as to which the Claimant
is entitled to indemnification under this Agreement, the Indemnifying Party
shall have the right, at its own expense, to participate in or assume control of
the defense of such claim, and the Claimant shall cooperate fully with the
Indemnifying Party, subject to reimbursement for actual out-of-pocket expenses
incurred by the Claimant as the result of a request by the Indemnifying Party.
The Indemnifying Party may elect to compromise or contest, at its own expense
and with counsel reasonably acceptable to the Claimant, any third party claim.
If the Indemnifying Party elects to compromise or contest such third party
claim, it shall within thirty (30) days after receipt of the notice of the claim
(or sooner, if the nature of the third party claim so requires) notify the
Claimant of its intent to do so by sending a notice to the Indemnified Party
(the "Contest Notice"), and the Claimant shall cooperate, at the expense of the
Indemnifying Party, in the compromise or contest of such third party claim. If
the Indemnifying Party elects not to compromise or contest the third party
claim, fails to notify the Claimant of its election as herein provided or
contests its obligation to indemnify under this Agreement, the Claimant (upon
further notice to the Indemnifying Party) shall have the right to pay,
compromise or contest such third party claim on behalf of and for the account
and risk of the Indemnifying Party. Anything in this Section 11.3 to the
contrary notwithstanding, (i) the Claimant shall have the right, at its own cost
and for its own account, to compromise or contest any third party claim, and
(ii) the Indemnifying Party shall not, without the Claimant's written consent,
settle or compromise any third party claim or consent to entry of any judgment
which does not include an unconditional term releasing the Claimant from all
liability in respect of such third party claim. In any event, the Claimant and
the Indemnifying Party may participate, at their own expense, in the contest of
such third party claim. In addition, with respect to any claim related to Taxes,
Gray, Purchaser and Licensee shall have the right to participate in and attend
any meeting or proceeding (at Gray's, Purchaser's and Licensee's own cost and
expense) with respect thereto, shall be provided with copies of any written
communication or information regarding any oral communication with respect
thereto as soon as possible after the receipt thereof (including, but not
limited to, information with respect to any proposed meeting or proceeding) and
shall have the right to approve any settlement thereof if the terms of such
settlement could increase, directly or indirectly, any liability for Taxes of
Gray, Purchaser or Licensee in any period following the Closing. If the
Indemnifying Party elects to assume control of the defense of a third-party
claim, the Claimant shall have the right to participate in the defense of such
claim at its own expense. If the Indemnifying Party does not elect to assume
control or otherwise participate in the defense of any third party claim, it
shall be bound by the results obtained by the Claimant with respect to such
claim.
(d) If a claim, whether between the parties or by a third party,
requires immediate action, the parties will make every effort to reach a
decision with respect thereto as expeditiously as possible.
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(e) The indemnification rights provided in Sections 11.1 and 11.2 shall
extend to the owners, shareholders, directors, officers, members, employees, and
representatives of any Claimant.
11.4 Escrow Fund. At the Closing, the sum of Three Hundred Thousand
Dollars ($300,000) out of the Purchase Price (the "Escrow Fund") shall be
deposited with the Indemnity Escrow Agent. The Escrow Fund shall be held in
accordance with the terms hereof and the terms of the Escrow Agreement in the
form of Exhibit F attached hereto. The Escrow Fund shall be used as a source of
funds to satisfy indemnification claims by Purchaser, Gray and Licensee under
this Section 11. Upon final determination of a claim in favor of Gray, Purchaser
and Licensee by a court of competent jurisdiction or by mutual agreement of
Gray, Purchaser, Licensee and Seller, Gray, Purchaser and Licensee shall be
entitled to the amount of such claim from the Escrow Fund. On the first
anniversary of the Closing Date, the Escrow Fund shall be reduced to One Hundred
Fifty Thousand Dollars ($150,000), unless there are outstanding claims presented
by Gray, Purchaser or Licensee against the Escrow Fund, in which case, the
Escrow Fund shall be reduced to the sum which is One Hundred Fifty Thousand
Dollars ($150,000) more than the pending claims of Gray, Purchaser and Licensee.
All claims by Gray, Purchaser and Licensee against the Escrow Fund must be made
by Gray, Purchaser or Licensee before the date which is four (4) years after the
Closing Date (the "Indemnity Termination Date"). On the Indemnity Termination
Date, the Indemnity Escrow Agent shall disburse to Seller the Indemnity Fund
together with all interest earned thereon less the amount of any claims made by
Gray, Purchaser or Licensee against the Escrow Fund prior to such date (the
"Claim Amount"). The Claim Amount shall be retained by the Indemnity Escrow
Agent in escrow until the underlying claim or claims related thereto have been
finally determined by a court of competent jurisdiction or by mutual agreement
of Gray, Purchaser, Licensee and Seller. Gray, Purchaser, Licensee and Seller
hereby agree to jointly direct the Indemnity Escrow Agent to disburse any
portion of the Escrow Fund to any party which is entitled thereto pursuant to
the terms hereof.
11.5 Limitation on Damages.
(a) Notwithstanding any provision of this Agreement to the contrary, the
KXII Parties' liability to Gray, Purchaser and Licensee for any breach of any
representation, warranty or other provision of this Agreement after Closing,
shall be limited to the Escrow Fund described in Section 11.4. In no event,
after the Closing hereof, shall the total amount of monetary damages that Gray,
Purchaser or Licensee may collect from the KXII Parties as damages for one or
more breaches by the KXII Parties under this Agreement exceed said Escrow Fund.
(b) Notwithstanding any provision of this Agreement to the contrary,
Gray, Purchaser and Licensee's aggregate liability to the KXII Parties or any of
their Affiliates for any breach of any representation, warranty or other
provision of this Agreement after Closing shall be limited to $300,000 until the
first anniversary of the Closing Date and $150,000 for the next three years. In
no event, after the Closing hereof, shall the total amount of monetary damages
that the KXII Parties or any of their Affiliates collect from Gray, Purchaser
and Licensee under this Agreement exceed $300,000 until the first anniversary of
the Closing Date and $150,000 for the next three years in the aggregate.
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SECTION 12. CONDUCT OF BUSINESS PENDING CLOSING
12.1 Conduct of Business Pending Closing. Seller covenants, represents,
and warrants in favor of Gray, Purchaser and Licensee that, pending the Closing,
unless otherwise agreed to in writing by Gray:
(a) Seller will not sell, transfer, or otherwise dispose of, or enter
into any transaction, contract, or commitment for the sale or disposition of all
or any portion of the Assets, except in the ordinary course of business, none of
which transactions shall materially affect Purchaser, Licensee or the Assets
from and after the Closing Date.
(b) Seller will carry and continue in full force through the Closing
such fire and extended coverage, and theft, liability, and other insurance in
substantially the same form and amount as are currently in force.
(c) Seller will use its best efforts to preserve the business
organization and all equipment and records thereof in good order, to keep
available for Purchaser all of the present employees of Seller, and to preserve
for Purchaser the goodwill of suppliers, customers, advertisers, and others
having business relationships with Seller.
(d) Seller will maintain, repair and replace the Leased Property, Real
Property and the Tangible Personal Property in accordance with its customary
practices, in substantially the same condition and state of repair as all such
property is in on the date of this Agreement, ordinary wear and tear excepted.
(e) Seller shall permit Gray, Purchaser and Licensee and their
representatives, independent accountants, and attorneys, reasonable access
during normal business hours to its properties, books, records, and other
information with respect to Seller as Gray, Purchaser or Licensee may request,
and to make copies of such books, records, and other documents that Gray,
Purchaser and Licensee consider necessary or appropriate for the purposes of
familiarizing themselves with Seller.
(f) Between the date of this Agreement and the Closing Date, Seller will
deliver to Gray information necessary to update the Schedules hereto and the
lists, documents, and other information furnished by Seller as contemplated by
this Agreement, and updated copies of new or changed documents relating to or
included as a part of such Schedules, in order that all such Schedules, lists,
documents, and other information and items shall be complete and accurate in all
respects as of the Closing Date.
(g) Except for written employment agreements in existence on the date
hereof and listed on Schedule 4.22, none of the KXII Parties or any of their
respective representatives has made or will make oral, written or other
representations to any employee of Seller or to any other Person regarding the
benefits, compensation or other terms or conditions of employment that will be
provided to such individuals after the Closing Date. Whether or not a particular
individual
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will or will not be hired by Gray or Purchaser after the Closing Date
constitutes a term or condition of employment.
SECTION 13. TERMINATION.
13.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date in the following manner:
(a) by mutual written consent of Gray, Purchaser, Licensee and Seller;
(b) by Gray, Purchaser and Licensee, if any representation, warranty,
covenant or agreement of the KXII Parties, or by Seller if any representation,
warranty, covenant or agreement of Gray, Purchaser or Licensee, contained herein
(that materially affects the financial condition or business of Gray or Seller)
shall have been incorrect or breached and shall not have been cured or otherwise
resolved to the reasonable satisfaction of the other party on or before the
Closing Date; provided, however, that prior to such termination the party in
default shall be given written notice by the other party, and shall have ten
(10) days in which to cure such default;
(c) by Gray, Purchaser or Licensee, if any condition to the consummation
of the transactions contemplated hereby which must be fulfilled to its
satisfaction has (in its good faith judgment) not been fulfilled, or has become
impossible to fulfill;
(d) without any action by Gray, the Purchaser, Licensee or Seller, if
the Closing Date has not occurred by December 31, 1999, unless the Assignment
Application jointly filed by Seller or other KXII Party and Licensee is still
pending before the FCC on that date, in which case this Agreement shall not be
terminated until May 31, 2000 pursuant to this Section 13.1, but after which,
either Seller or Gray may terminate the Agreement;
(e) by Gray, Purchaser or Licensee pursuant to Section 7.9.
If the termination of this Agreement occurs without breach or default of
the KXII Parties or Gray, Licensee and Purchaser, then this Agreement shall
become wholly void and shall have no further force and effect, and neither Gray,
Licensee or Purchaser, on the one hand, nor any of the KXII Parties, on the
other, shall have any liability or obligation with respect to each other. Upon
such termination, the Earnest Money Escrow Agent shall refund the Earnest Money
to Gray within three (3) days after the date upon which the termination becomes
effective. If the termination occurs as a result of breach or default of any of
the KXII Parties, then Gray, Licensee and Purchaser shall be entitled to seek
specific performance of the KXII Parties' obligation to effect the transaction
contemplated herein in accordance with the provisions hereof, or obtain the
return of the Earnest Money. If the termination occurs as a result of a breach
or default by Gray, Licensee or Purchaser, Seller may request the Earnest Money
from the Earnest Money Escrow Agent and retain the Earnest Money as liquidated
damages to compensate the KXII Parties for the damages resulting from such
breach or default. The parties agree that actual damages pursuant to a breach of
this Agreement prior to Closing would be impossible to measure.
-46-
<PAGE>
Receipt of the Earnest Money shall be the sole and exclusive remedy that the
KXII Parties shall have in the event of such breach or default and shall
constitute a waiver of any and all other legal or equitable rights or remedies
that the KXII Parties may otherwise have as a result of Gray's, Licensee's or
Purchaser's breach or default, and that in consideration for the receipt of the
Earnest Money as liquidated damages, the KXII Parties may not obtain any further
legal or equitable relief, including specific performance, to which it may
otherwise have been entitled and none of Gray, Licensee or Purchaser shall have
any further liability to the KXII Parties as a result of such breach or default
or the non-occurrence of Closing. If the Closing does not occur due to the
nonfulfillment of any of the conditions in Section 9 or for any other reason
except Gray's, Licensee's or Purchaser's material breach or default in the
performance of any of its obligations under this Agreement, the KXII Parties
shall not be entitled to the proceeds of the Earnest Money and, promptly after
the termination of this Agreement, the proceeds of the Earnest Money shall be
returned to Gray.
13.2 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 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 Materially affected, or if the Business is interrupted
or curtailed or the Assets are Materially affected and Purchaser nevertheless
foregoes the right to terminate this Agreement, then all insurance or
condemnation proceeds shall be assigned to Purchaser and 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 in the same manner as provided in the Escrow Agreement.
SECTION 14. MISCELLANEOUS PROVISIONS
14.1 Expenses of Negotiation and Transfer.
(a) Seller and Gray shall share equally in the payment of FCC filing
fees, and the Owners and Gray shall share equally in the payment of the fees of
the Neutral Auditors.
(b) Except as provided above, each party to this Agreement shall pay its
own expenses and other costs incidental to or resulting from this Agreement,
whether or not the transactions contemplated hereby are consummated.
14.2 Schedules. Any disclosure with respect to a Section or Schedule of
this Agreement shall be deemed to be disclosure for each other Sections or
Schedules of this Agreement with respect to which the substance of the
disclosure is clear and unambiguous on the face of the disclosure.
-47-
<PAGE>
14.3 Survival. All of the covenants, agreements, representations, and
warranties made in this Agreement or made pursuant hereto shall survive the
Closing and the consummation of the transactions contemplated by this Agreement.
14.4 Entire Agreement; Amendment; Waivers. This Agreement and the
documents referred to herein and to be delivered pursuant hereto constitute the
entire agreement of the parties pertaining to the subject matter hereof, and
supersede all prior and contemporaneous agreements understandings, negotiations,
and discussions of the parties, whether oral or written, and there are no
warranties, representations, or other agreements between the parties in
connection with the subject matter hereof, except specifically set forth herein.
No amendment, supplement, modification, waiver, or termination of this Agreement
shall be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision or breach of this Agreement, whether
or not similar, unless otherwise expressly provided.
14.5 Headings. The descriptive headings of the Sections and Subsections
of this Agreement and the Table of Contents are for convenience only and do not
constitute a part of this Agreement.
14.6 Further Assurances. Each party agrees to execute and deliver such
further certificates, agreements, and other documents and it shall take such
other actions as the other party may reasonably request to consummate or
implement the transactions contemplated hereby or to evidence such events or
matters.
14.7 Situs and Construction. This Agreement and any other agreements to
be made and entered into pursuant hereto shall be construed in accordance with
and governed by the laws of the State of Texas.
14.8 Notices. All notices under this Agreement shall be made in writing
and shall be delivered by U. S. Mail, overnight courier, facsimile, or other
means calculated to give prompt, actual notice to the recipient party, in the
following manner:
If to the KXII Parties: Milford N. Bostick, Chairman
KXII
4201 Texoma Parkway
Sherman, TX 75090
Phone:
Fax:
-48-
<PAGE>
with a copy to: Kyle Deaver and John Lee Deaver
Deaver & Deaver
200 West Highway 6
Suite 501
Waco, TX 76712
Phone: 254-741-0400
Fax: 254-751-8369
If to Gray, Licensee
or the Purchaser: Robert S. Prather, Jr.
Gray Communications Systems, Inc.
4370 Peachtree Road
Atlanta, Georgia 30319
Phone: 404-266-8333
Fax: 404-261-9067
with a copy to: Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: Stephen A. Opler
Phone: 404-881-7000
Fax: 404-881-4777
14.9 Binding Effect. All of the covenants, conditions, agreements, and
undertakings set forth in this Agreement shall extend to and be binding upon the
KXII Parties, Gray, Purchaser, Licensee and their respective successors and
assigns. No party to this Agreement may assign any of its rights or obligations
hereunder, except each of Licensee and Purchaser may assign its rights and
obligations to any other entity of which Gray owns a majority of the equity
interest.
14.10 Execution in Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, and all of
which shall be deemed but one instrument. The Owners may sign separate original
signature pages for attachment to this Agreement, which shall be effective
against and binding upon each Owner as and when signed and delivered.
[SIGNATURES ON FOLLOWING PAGE]
-49-
<PAGE>
IN WITNESS WHEREOF, the KXII Parties, Gray, Purchaser and Licensee have
executed this Agreement individually or by their duly authorized officers or
general partners on and as of the date set forth above.
GRAY:
ATTEST: Gray Communications Systems, Inc.
/s/ James C. Ryan
-----------------
Title: Vice President and By: /s/ Robert S. Prather, Jr.
Chief Financial Officer --------------------------
Title: Executive Vice President
------------------------
PURCHASER:
ATTEST: Gray Communications of Texas-Sherman, Inc.
/s/ James C. Ryan
-----------------
Title: Vice President and By: /s/ Robert S. Prather, Jr.
Chief Financial Officer --------------------------
Title: President
---------
LICENSEE:
ATTEST: KXII Licensee Corp.
/s/ James C. Ryan
-----------------
Title: Vice President and By: /s/ Robert S. Prather, Jr.
Chief Financial Officer --------------------------
Title: President
---------
<PAGE>
SELLER:
ATTEST: KXII Broadcasters, Ltd.
ATTEST: By: KBI 1, Inc.
Its: General Partner
/s/ Kyle Deaver
---------------
Title: Secretary
By: /s/ Ray Deaver
--------------
Title: President
---------
K-TWELVE:
K-Twelve, Ltd.
ATTEST: By: K-Twelve Management, LC
-----------------------
Its: General Partner
/s/ John L. Deaver By: /s/ Kyle Deaver
------------------ ---------------
Title: Secretary Title: President
----------
KXII TELEVISION, LTD.:
KXII Television, Ltd.
ATTEST: By: KXII Properties, Inc.
---------------------
Its: General Partner
/s/ Kyle Deaver By: /s/ Ray Deaver
--------------- --------------
Title: Secretary Title: President
---------
-2-
<PAGE>
THE OWNERS:
ATTEST: KBI 1, Inc.
/s/ Kyle Deaver
-------------------
Title: Secretary By: /s/ Ray Deaver
--------------
Title: President
----------
ATTEST: KBI 2, Inc.
/s/ Kyle Deaver
----------------
Title: Secretary By: /s/ Ray Deaver
--------------
Title: President
---------
ATTEST: KXII Properties, Inc.
/s/ Kyle Deaver
---------------
Title: Secretary By: /s/ Ray Deaver
--------------
Title: President
----------------
/s/ Rich Adams (seal)
-----------------------------------------
Rich Adams
/s/ Ellen Deaver (seal)
------------------------------------------
Ellen Deaver
/s/ John Deaver (seal)
------------------------------------------
John Deaver
/s/ Kyle Deaver (seal)
------------------------------------------
Kyle Deaver
/s/ Martha Phipps (seal)
------------------------------------------
Martha Phipps
-3-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the March 31, 1999 unaudited condensed consolidated financial statements of
Gray Communications Systems Inc. and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-12-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,312,580
<SECURITIES> 0
<RECEIVABLES> 22,227,174
<ALLOWANCES> 1,187,000
<INVENTORY> 1,111,054
<CURRENT-ASSETS> 29,502,877
<PP&E> 85,032,581
<DEPRECIATION> 31,182,233
<TOTAL-ASSETS> 480,246,217
<CURRENT-LIABILITIES> 23,203,637
<BONDS> 282,882,368
0
13,500,000
<COMMON> 67,353,124
<OTHER-SE> 43,684,818
<TOTAL-LIABILITY-AND-EQUITY> 480,246,217
<SALES> 31,392,070
<TOTAL-REVENUES> 31,392,070
<CGS> 0
<TOTAL-COSTS> 27,059,114
<OTHER-EXPENSES> (421,748)
<LOSS-PROVISION> 70,476
<INTEREST-EXPENSE> 6,770,163
<INCOME-PRETAX> (2,015,459)
<INCOME-TAX> (455,000)
<INCOME-CONTINUING> (1,560,459)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,812,960)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
