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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 15, 1999 (October 1,
1999)
GRAY COMMUNICATIONS SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Georgia 0-13796 58-0285030
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification Number)
incorporation)
4370 Peachtree Road, NE
Atlanta, GA 30319
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(Address of principal executive offices) (Zip code)
(404) 504-9828
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(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 1, 1999, Gray Communications Systems, Inc. ("Gray")
completed its acquisition of all the outstanding capital stock of KWTX
Broadcasting Company ("KWTX") and Brazos Broadcasting Company ("Brazos"), as
well as the assets of KXII Broadcasters Ltd. ("KXII"). Gray acquired the capital
stock of KWTX and Brazos in merger transactions with the shareholders of KWTX
and Brazos receiving a combination of cash and Gray class B common stock for
their shares. Gray acquired the assets of KXII in an all cash transaction.
KWTX operates CBS affiliate KWTX-TV located in Waco, Texas and Brazos
operates KBTX-TV, a satellite station of KWTX-TV located in Bryan, Texas, each
serving the Waco-Temple-Bryan, Texas television market. KXII operates KXII-TV,
which is the CBS affiliate serving Sherman, Texas and Ada, Oklahoma.
For additional information with respect to these acquisitions,
reference is made to Gray's definitive proxy statement which is filed as an
exhibit hereto and is incorporated by reference herein.
Aggregate consideration (net of cash acquired) paid was approximately
$145.8 million which included a base purchase price of $139.0 million,
transaction expenses of $2.8 million, certain net working capital adjustments
(excluding cash) of $3.4 million and assumed liabilities of $600,000. Gray
funded the acquisitions by issuing 3,435,774 shares of Gray class B common stock
to the sellers, additional borrowings of $94.4 million under its amended bank
loan agreement and cash on hand.
The terms of the acquisition, including the consideration paid by Gray,
were determined in arms-length negotiations between Gray and the sellers.
In connection with the acquisitions, Gray entered into an amended loan
agreement with a group of lenders whose primary agents were Bank of America,
N.A., Banc of America Securities LLC, Key Corporate Capital Inc. and First Union
National Bank. The primary modifications to the loan agreement effected by the
amendment were an increase in committed available credit and an increase in
interest rates. Under the amended loan agreement, committed available credit
increased from $200.0 million to $300.0 million. Prior to the amendment, the
loan agreement consisted of a $100.0 million revolving commitment (the
"Revolving Commitment") and a $100.0 million term loan commitment ("Term Loan A
Commitment"). The increase in committed available credit was effected by the
addition of a second $100.0 million term loan commitment ("Term Loan B
Commitment").
Under the amended loan agreement, Gray, at its option, can borrow funds
at an interest rate equal to the London Interbank Offered Rate ("LIBOR") plus a
premium or at an interest rate equal to the lender's prime rate ("Prime") plus a
premium. As a result of the amended loan agreement, the interest rates payable
by Gray for funds borrowed under the Revolving Commitment and Term Loan A
Commitment increased as follows: the
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. (CONTINUED)
premium over Prime increased from a range of 0.0% to 0.5% to a range of 0.0% to
1.75% and the premium over LIBOR increased from a range of 0.75% to 2.25% to a
range of 1.25% to 3.0%. Under the new Term Loan B Commitment, funds can be
borrowed at Prime plus 1.75% to 2.0% and/or LIBOR plus 3.0% to 3.25%. The
premium above Prime and/or LIBOR payable by Gray will be determined by Gray's
operating leverage ratio that is calculated quarterly.
Immediately after the acquisitions, Gray had $231.0 million outstanding
under the amended bank loan agreement with $69.0 million remaining available. As
of October 1, 1999, Gray is incurring interest at a rate of Prime plus 1.5%
and/or LIBOR plus 2.75% for funds borrowed under the Revolving Commitment and
Term Loan A Commitment. For funds borrowed under Term Loan B Commitment, Gray is
incurring interest at Prime plus 2.0% and/or LIBOR plus 3.25%.
The maturity schedule for the Revolving Commitment and the Term Loan A
Commitment did not change as a result of the amendment to the loan agreement.
The amount outstanding under the newly established Term Loan B Commitment will
become fixed on March 30, 2001 and must be paid as follows: 1.0% in 2001, 1.0%
in 2002, 1.0% in 2003, 1.0% in 2004 and 96.0% in 2005. Reference is made to the
amended loan agreement, which is filed as an exhibit hereto and incorporated by
reference herein.
In connection with the amendment to the loan agreement, Gray incurred
approximately $2.6 million in additional financing costs of which $2.3 million
had been paid as of the date of the amendment. These financing costs were funded
through borrowings under the amended bank loan agreement.
Gray paid Bull Run Corporation, an affiliate of Gray, a fee of $1.39
million for advisory services performed for Gray in connection with the
acquisitions. This fee was paid in full as of the acquisition date and included
in the fee portion of the aggregate consideration for the acquisition described
above. Gray will pay an additional $300,000 to Bull Run Corporation for services
performed in connection with arranging the $100.0 million Term Loan B
Commitment. This financing fee is also included in the financing costs described
above.
ITEM 5. OTHER EVENTS.
The following matters were voted upon at the 1999 Annual Meeting of
Shareholders of Gray, on September 23, 1999, and votes were cast as indicated.
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ITEM 5. OTHER EVENTS. (CONTINUED)
1.) Election of Directors:
Nominee For Withheld Authority
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Richard L. Boger 63,757,400 1,493,769
Hilton H. Howell, Jr. 63,748,400 1,502,769
William E. Mayher, III 63,757,400 1,493,769
Zell Miller 63,743,150 1,508,019
Howell W. Newton 63,737,400 1,513,769
Hugh Norton 63,754,300 1,496,869
Robert S. Prather, Jr. 63,757,400 1,493,769
Harriett J. Robinson 63,725,229 1,525,940
J. Mack Robinson 63,745,229 1,505,940
2.) To approve the issuance of shares of Gray class B common stock in
connection with the proposed acquisitions of KWTX and Brazos.
Broker
For Against Abstain Non-Votes
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55,758,921 400,392 108,640 8,983,216
3.) To approve the amendment of the 1992 Long Term Incentive Plan to
increase the number of shares of Gray class B common stock issuable
thereunder.
Broker
For Against Abstain Non-Votes
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46,797,643 2,519,785 38,984 15,894,757
4.) To confirm the appointment of Ernst & Young LLP as independent auditors
of Gray for the year ending December 31, 1999.
For Against Abstain
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64,998,389 245,030 7,750
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The financial statements of the businesses acquired, as required by
this Item 7(c), are incorporated by reference to pages F-1 to F-49 of Gray's
definitive proxy statement, dated August 16, 1999.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (CONTINUED)
(b) Pro Forma Financial Information.
The pro forma financial information, as required by this item 7(b), is
incorporated by reference to the caption Pro Forma Condensed Combined Financial
Data which begins on page 50 of Gray's definitive proxy statement, dated August
16, 1999.
(c) Exhibits.
(99.1) Second Amended and Restated Loan Agreement dated as of October 1, 1999
by and among Gray Communications Systems, Inc., as Borrower; The
Financial Institutions Signatory Hereto, as Lenders; and Bank of
America, N.A., as Administrative Agent for the Lenders with Banc of
America Securities LLC as Lead Arranger and Book Manager; Key Corporate
Capital, Inc., as documentation agent and First Union National Bank, as
Syndication Agent
(99.2) Gray's definitive proxy statement, dated August 16, 1999
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 hereunto duly authorized.
Gray Communications Systems, Inc.
By: /s/ James C. Ryan
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James C. Ryan
Vice President-Finance
and Chief Financial Officer
Date: October 15, 1999
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