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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
- THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission File Number 1-9824
THE MCCLATCHY COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 52-2080478
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2100 "Q" STREET, SACRAMENTO, CA. 95816
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (916) 321-1846
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Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Class A Common Stock, par value New York Stock Exchange
$.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K X .
---
Aggregate market value of the Company's voting stock held by
non-affiliates on March 26, 1998, based on the closing price for the Company's
Class A Common Stock on the New York Stock Exchange on such date: approximately
$653,878,909. For purposes of the foregoing calculation only, required by Form
10-K, the Registrant has included in the shares owned by affiliates the
beneficial ownership of Common Stock of officers and directors of the Registrant
and members of their families, and such inclusion shall not be construed as an
admission that any such person is an affiliate for any purpose.
Shares outstanding at March 27, 1998:
Class A Common Stock - 15,814,374 shares
Class B Common Stock - 28,675,912 shares
Documents incorporated by reference:
Definitive Proxy Statement for the Company's May 21, 1998 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 (incorporated in Part III to the extent provided
in Items 10, 11, 12 and 13 hereof).
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<PAGE>
INDEX TO THE McCLATCHY COMPANY
1997 FORM 10-K
Item No. Page
- -------- ----
PART I
1. Business............................................................... 1
Recent Event........................................................... 2
California Newspapers.................................................. 3
Northwest Newspapers................................................... 4
Carolinas Newspapers................................................... 6
Other Operations....................................................... 9
Raw Materials.......................................................... 9
Competition............................................................ 10
Employees - Labor...................................................... 10
2. Properties............................................................. 11
3. Legal Proceedings...................................................... 12
4. Submission of Matters to a Vote of Security
Holders............................................................ 12
PART II
5. Market for the Registrant's Common Stock
and Related Stockholder Matters.................................... 12
6. Selected Financial Data................................................ 13
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................... 14
8. Financial Statements and Supplementary Data............................ 21
9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure............................. 42
PART III
10. Directors and Executive Officers of the
Registrant......................................................... 42
11. Executive Compensation................................................. 43
12. Security Ownership of Certain Beneficial
Owners and Management.............................................. 43
13. Certain Relationships and Related
Transactions....................................................... 43
PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K............................................ 43
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
The McClatchy Company, a Delaware corporation, is a successor in
interest to McClatchy Newspapers, Inc., a Delaware corporation, and was created
as a result of the Amended and Restated Agreement and Plan of Merger and
Reorganization (the "merger"), dated as of February 13, 1998, between (among
others) McClatchy Newspapers, Inc. and Cowles Media Company, a Delaware
corporation ("Cowles"). Pursuant to the merger agreement, McClatchy Newspapers,
Inc. and Cowles each became wholly-owned subsidiaries of The McClatchy Company.
All references to the "Company" herein include the predecessor in interest,
McClatchy Newspapers, Inc. Prior to the merger, the Company owned and published
23 newspapers in three regions of the Country -- California, Northwest (Alaska
and Washington) and the Carolinas. These newspapers range from large dailies
serving metropolitan areas to non-daily newspapers serving small communities.
For the year ended December 31, 1997, the Company had an average paid daily
circulation of 979,900, Sunday circulation of 1,176,700 and non-daily
circulation of 69,400. The following discussion reviews the Company's existing
businesses prior to the merger. Please see the Recent Event section below for a
discussion of the merger.
Each of the Company's newspapers is semiautonomous in its business and
editorial operations so as to meet most effectively the needs of the communities
it serves. Publishers, editors and general managers of the newspapers make the
day-to-day decisions and within limits are responsible for their own budgeting
and planning. Policies on such matters as the amount and type of capital
expenditures, key personnel changes, and strategic planning and operating
budgets including wage and pricing matters, are approved or established by the
Company's senior management or Board of Directors.
The Company's overall strategy is to concentrate on developing its
newspapers and smaller related businesses. Each of its ten largest daily
newspapers has the largest circulation of any newspaper servicing its particular
metropolitan area. The Company believes that this circulation advantage is of
primary importance in attracting advertising, the principal source of revenues
for the Company. Advertising revenues approximated 79% of consolidated revenues
in 1997 and 78% of consolidated revenues in 1996. Circulation revenues
approximated 17% of consolidated revenues in 1997 and 18% of consolidated
revenues in 1996.
The Company's newspaper business is somewhat seasonal, with peak
revenues and profits generally occurring in the second and fourth quarters of
each year as a result of increased advertising activity during the Easter
holiday and spring advertising season, and Thanksgiving and Christmas periods.
The first quarter is historically the weakest quarter for revenues and profits.
Other businesses owned by the Company include Nando, the Company's
on-line publishing operation, and McClatchy Printing Company and Benson Printing
Company, commercial printing operations in California and North Carolina. The
Company also owns The Newspaper Network (TNN), a distributor of preprinted
advertising inserts and run-of-press advertising. In addition, the Company is a
partner (13.5% interest) in Ponderay Newsprint Company, a general partnership
that owns and operates a newsprint mill in Washington State.
1
<PAGE>
The Company is in the process of addressing the issue that many
automated information systems may not operate effectively as of January 1, 2000.
Please see the discussion in Part II, Item 7 under the heading "Year 2000
Compliance".
When used in this Report, the words "expect" and "project" and similar
expressions are generally intended to identify forward looking statements. Such
statements are subject to certain risks and uncertainties, including those
discussed in "Forward Looking Information" in Part II, Item 7, that could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward looking statements, which speak
only as of the date hereof.
RECENT EVENT
On February 13, 1998 the Company signed an amended and restated
agreement to acquire all of the outstanding shares of Cowles Media Company
(Cowles) in a transaction valued at $1.4 billion, including the assumption of
approximately $81 million in existing Cowles debt. Cowles publishes the STAR
TRIBUNE newspaper, which serves the Twin Cities of Minneapolis and St. Paul, and
also owns four separate subsidiaries that publish business magazines,
special-interest magazines and home improvement books. In January 1998, the
Company signed agreements to sell Cowles' magazine and book publishing
subsidiaries to two separate buyers. The combined proceeds plus debt and other
liabilities assumed by the buyers is valued in excess of $208 million and the
company used the proceeds to repay debt associated with the Cowles merger.
In connection with the merger, the Company issued approximately 6.4
million shares of Class A Common Stock and paid cash for the remainder of the
purchase price. The Class A shares were subject to an exchange ratio of 3.01667
shares of McClatchy Class A Common for each Cowles share (valued at $90.50 per
share). The Company obtained bank debt through a syndicate of banks and
financial institutions to finance the cash portion of the merger and to
refinance its existing debt, as well as Cowles existing debt. The merger and the
sales of the non-newspaper businesses closed on March 19, 1998.
The primary asset retained by the Company is the STAR TRIBUNE, the
leading newspaper in Minnesota with daily circulation of 373,000 and Sunday
circulation of 673,000. It is the 16th largest newspaper on a daily basis and
the 12th largest Sunday newspaper in the nation and is now the Company's largest
newspaper.
The merger will be accounted for as a purchase, and accordingly, assets
acquired and liabilities assumed will be recorded at their fair market values.
The Company will undertake an appraisal of substantially all assets and
liabilities as soon as possible. Cowles results of operations beginning as of
March 19, 1998, have been included in the Company's results. None of Cowles
results have been included in this Report. As a result of higher depreciation
and amortization, higher interest expense on the new debt, and the issuance of
additional stock, the acquisition is expected to be dilutive to the Company's
1998 net income and earnings per share.
2
<PAGE>
CALIFORNIA NEWSPAPERS
The three "Bee" newspapers have formed the core of the Company's
operations for many years and continue to have a significant influence on the
civic, political, economic and cultural life of California's Central Valley.
These newspapers are summarized below:
<TABLE>
<CAPTION>
1997 Circulation (1)
-----------------------------------------
Newspaper Daily/Weekly Sunday 1997 Revenues 1996 Revenues
--------- ------------ ------ ------------- -------------
<S> <C> <C> <C> <C>
The Sacramento Bee 284,200 349,100 $ 188,842,000 $ 178,801,000
The Fresno Bee 155,200 190,000 81,439,000 79,554,000
The Modesto Bee 83,300 90,400 45,319,000 43,332,000
Other newspapers 4,300 - 2,627,000 9,032,000
(1) Based on calendar year average paid daily circulation.
</TABLE>
THE BEE newspapers and other California papers produced approximately
49.6% of the total Company revenues in 1997, about the same as 1996. In February
1997, the Company sold four of its California newspapers that had a combined
daily circulation of approximately 10,150 and weekly circulation of 12,800.
These newspapers generated $7.6 million in revenues in 1996.
THE SACRAMENTO BEE
THE SACRAMENTO BEE, the Company's largest newspaper in 1997, is a
morning newspaper serving the California state capital and its metropolitan
area. In 1997, THE SACRAMENTO BEE'S average paid circulation increased 0.8%
daily and decreased 0.3% Sunday from 1996. As of December 31, 1997,
approximately 87.0% of the daily, and 82.0% of the Sunday circulation was home
delivered.
<TABLE>
THE SACRAMENTO BEE'S advertising linage for the years ended December
31, 1997 and 1996 is set forth in the following table:
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run 2,284 2,237
Part Run 377 289
Total Market Coverage 132 151
</TABLE>
Net revenues of THE SACRAMENTO BEE increased 5.6% from 1996.
THE FRESNO BEE
THE FRESNO BEE is a morning newspaper serving the Fresno, California
metropolitan area. THE FRESNO BEE'S average paid circulation increased 0.2%
daily and was up 0.7% on Sunday versus 1996. As of December 31, 1997,
approximately 88.2% of THE FRESNO BEE'S daily and 89.5% of the Sunday
circulation was home delivered.
THE FRESNO BEE'S advertising linage for the years ended December 31,
1997 and 1996 is set forth in the following table:
3
<PAGE>
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run 1,247 1,300
Part Run 192 138
Total Market Coverage 143 143
</TABLE>
Net revenues of THE FRESNO BEE increased 2.4% from 1996.
THE MODESTO BEE
THE MODESTO BEE is a morning newspaper that serves the Modesto,
California metropolitan area, located between Sacramento and Fresno. THE MODESTO
BEE'S average paid circulation declined 1.0% daily and 0.2% Sunday versus 1996.
As of December 31, 1997, approximately 88.5% of the daily and 86.8% of the
Sunday circulation was home delivered.
THE MODESTO BEE'S advertising linage for the years ended December 31,
1997, and 1996 is set forth in the following table:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run 1,083 1,078
Part Run 72 54
Total Market Coverage 471 501
</TABLE>
Net revenues of THE MODESTO BEE decreased 4.6% from 1996.
OTHER CALIFORNIA NEWSPAPER
In February 1997, the Company sold four of its nondaily California
newspapers, with the CLOVIS INDEPENDENT remaining its sole nondaily paper in the
region.
NORTHWEST NEWSPAPERS
The Company began to diversify geographically outside of California in
1979 when it purchased the ANCHORAGE DAILY NEWS. Later that year the Company
purchased the TRI-CITY HERALD in Southeastern Washington. In 1986, the Company
purchased its fourth (fifth after the Cowles merger) largest newspaper, THE
(Tacoma) NEWS TRIBUNE. In June 1995, the Company acquired the PENINSULA GATEWAY
in Gig Harbor, Washington, and in December 1996, the Company sold the Ellensburg
DAILY RECORD. The Company now publishes four newspapers in Washington State and
the largest daily newspaper in Alaska. These newspapers are summarized below:
4
<PAGE>
<TABLE>
<CAPTION>
1997 Circulation (1)
Newspaper Daily/Weekly Sunday 1997 Revenues 1996 Revenues
--------- ------------ ------ ------------- -------------
<S> <C> <C> <C> <C>
The News Tribune (Tacoma) 128,600 148,000 $ 70,561,000 $ 69,906,000
Anchorage Daily News 73,200 90,200 50,689,000 49,352,000
Tri-City Herald 39,600 43,500 18,939,000 18,708,000
Other newspapers 18,147 - 3,968,000 5,603,000
(1) Based on calendar year average paid circulation
</TABLE>
The Company's northwest newspapers produced approximately 22.5% of the
Company's total revenues in 1997 versus 23.0% in 1996.
THE NEWS TRIBUNE
THE NEWS TRIBUNE, a morning newspaper, primarily serves the Tacoma,
Washington metropolitan area in Pierce and South King Counties. It is the third
largest newspaper in the state. In 1996 the average paid circulation of THE NEWS
TRIBUNE declined 0.3% daily and increased 0.1% Sunday versus 1996.
Tacoma is approximately 30 miles south of Seattle. THE NEWS TRIBUNE
competes in the northern most fringes of its market with the major Seattle daily
newspapers. As of December 31, 1997 approximately 84.0% of the daily and 82.0%
of the Sunday circulation was home delivered.
THE NEWS TRIBUNE'S advertising linage for the years ended December 31,
1997 and 1996 is set forth in the following table:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run 1,080 1,138
Part Run 32 36
Total Market Coverage 75 93
</TABLE>
Net revenues of THE NEWS TRIBUNE increased 0.9% from 1996.
ANCHORAGE DAILY NEWS
The ANCHORAGE DAILY NEWS, a morning newspaper, is Alaska's largest
newspaper. The ANCHORAGE DAILY NEWS circulates throughout the state of Alaska
but its primary circulation is concentrated in the south central region of the
state comprised of metropolitan Anchorage, the Kenai Peninsula and the
Matanuska-Susitna Valley.
The DAILY NEWS' average paid daily circulation declined 0.3% in 1997,
while Sunday circulation declined 1.5% from 1996. As of December 31, 1997
approximately 72.0% of the daily and 65.0% of the Sunday circulation was home
delivered.
Comparative amounts of linage for the years ended December 31, 1997 and
1996 are set forth in the following table:
5
<PAGE>
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run 1,100 1,108
Total Market Coverage 28 28
</TABLE>
Net revenues of the ANCHORAGE DAILY NEWS increased 2.7% over 1996.
TRI-CITY HERALD
The TRI-CITY HERALD is a morning newspaper serving the Tri-Cities of
Richland, Kennewick and Pasco in southeastern Washington. The Tri-Cities economy
has benefited by the Department of Energy's (DOE) efforts to clean up nuclear
waste at nearby Hanford Nuclear reservation. However, recent layoffs by the DOE
at Hanford have begun to slow economic growth in the area.
The TRI-CITY HERALD'S average paid circulation has declined 1.3% daily
and 0.5% Sunday from 1996. As of December 31, 1997, approximately 91.0% of the
daily and 89.0% of the Sunday circulation was home delivered.
The TRI-CITY HERALD'S advertising linage for the years ended December
31, 1997 and 1996 is set forth in the following table:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run 860 853
Total Market Coverage 39 67
</TABLE>
Net revenues of the TRI-CITY HERALD increased 1.2% over 1996.
OTHER NORTHWESTERN NEWSPAPERS
The Ellensburg DAILY RECORD was sold in December 1996. The Company's
other non-daily newspapers include the PENINSULA GATEWAY in South Puget Sound
and the PIERCE COUNTY HERALD which circulates twice a week in Puyallup, near
Tacoma. The combined net revenues of the other northwestern newspapers declined
29.2% mostly due to the sale of The DAILY RECORD whose revenues were $1.6
million in 1996.
CAROLINAS NEWSPAPERS
In 1990, the Company purchased three daily and three nondaily
newspapers in South Carolina from The News and Observer Publishing Company
(N&O). On August 1, 1995, the Company purchased the remainder of N&O which
included THE NEWS & OBSERVER newspaper and six non-daily newspapers (and other
businesses discussed below). In mid 1997, the FORT MILL TIMES, a weekly
newspaper, was purchased in South Carolina.
6
<PAGE>
The Carolinas newspapers are summarized below:
<TABLE>
<CAPTION>
1997 Circulation (1)
-----------------------------------------
Newspaper Daily/Weekly Sunday 1997 Revenues 1996 Revenues (2)
--------- ------------ ------ ------------- -----------------
<S> <C> <C> <C> <C>
The News & Observer (Raleigh) 160,200 206,700 $ 124,182,000 $ 112,023,000
The Herald (Rock Hill) 30,400 31,800 12,761,000 11,355,000
The Island Packet (Hilton Head) 14,500 16,600 10,041,000 9,068,000
Beaufort Gazette 10,800 10,400 4,924,000 4,389,000
Nondaily newspapers (2) 46,900 - 15,571,000 16,839,000
(1) Based on calendar year average paid circulation.
(2) Four South Carolina non-daily newspapers revenues are consolidated with
revenues of THE (Rock Hill) HERALD in 1997.
</TABLE>
The Carolinas newspapers produced 26.1% of total Company revenues in
1997 versus 24.6% in 1996.
THE NEWS & OBSERVER
THE NEWS & OBSERVER, the Company's second largest newspaper in 1997, is
a morning daily serving North Carolina's state capital, Raleigh, and the
thriving Research Triangle which includes Raleigh, Durham and Chapel Hill, North
Carolina.
THE NEWS & OBSERVER'S average paid circulation in 1997 increased
approximately 2.2% daily and 1.1% Sunday over calendar year 1996. As of December
31, 1997 approximately 79.0% of the daily and 58.0% of the Sunday circulation
was home delivered.
<TABLE>
THE NEWS & OBSERVER'S advertising linage for the year ended December
31, 1997 and December 31, 1996 is set forth in the following table:
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run 2,019 1,868
Part Run 87 95
Total Market Coverage 9 8
</TABLE>
THE NEWS & OBSERVER'S revenues for 1997 increased 10.9% over 1996.
THE HERALD
THE HERALD is a morning newspaper serving Rock Hill and surrounding
communities in York County, South Carolina. Rock Hill is a community
approximately 25 miles southwest of Charlotte, North Carolina. In 1997, THE
HERALD'S average paid circulation increased 0.4% daily and was up 1.0% Sunday
from 1996.
THE HERALD'S main competitor is a zoned edition of the CHARLOTTE
OBSERVER, whose circulation in THE HERALD'S primary circulation area is
estimated to be approximately a third of THE HERALD'S circulation.
7
<PAGE>
As of December 31, 1997, approximately 80.0% of the daily and 77.0% of the
Sunday circulation was home delivered.
Advertising linage for the years ended December 31, 1997 and 1996 were
as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Full Run 945 910
Total Market Coverage 71 58
</TABLE>
Net revenues of THE HERALD increased 6.2% over 1996.
THE ISLAND PACKET AND THE BEAUFORT GAZETTE
THE ISLAND PACKET and THE BEAUFORT GAZETTE serve Beaufort County in
southeastern South Carolina. THE ISLAND PACKET serves Hilton Head Island where
tourism and retirement communities and services are the economic mainstays. THE
GAZETTE serves the city of Beaufort and northern Beaufort County encompassing
surrounding islands of Lady's, St. Helena, Fripp and Paris.
The average paid circulation increased 5.4% daily and 0.2% Sunday at
THE ISLAND PACKET and was up 2.0% daily and declined 0.7% Sunday at THE GAZETTE.
As of December 31, 1997, approximately 67.0% of the daily and 59.0% of
the Sunday circulation of THE PACKET was home delivered. Comparable amounts for
THE GAZETTE were 70.0% daily and 72.0% Sunday.
Advertising linage for the years ended December 31, 1997 and 1996 for
the newspapers were:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Advertising Linage (in thousands of six-column inches):
Packet Full Run 754 716
Packet Part Run 37 21
Packet Total Market Coverage 4 2
Gazette Full Run 547 409
Gazette Total Market Coverage 51 57
</TABLE>
Net revenues of THE PACKET increased 10.7 % over 1996, while THE
GAZETTE'S net revenues were up 12.2%.
8
<PAGE>
CAROLINAS NONDAILY NEWSPAPERS
The South Carolina nondaily newspapers include the CLOVER HERALD, the
YORKVILLE ENQUIRER, the LAKE WYLIE MAGAZINE and since mid 1997 the FORT MILL
TIMES, and serve small communities in Chester and York counties.
The North Carolina nondailies are newspapers that serve small
communities generally surrounding Raleigh. They are (circulation in
parenthesis): CHAPEL HILL NEWS (21,000 primarily free distribution), CARY NEWS
(12,300), ZEBULON RECORD (3,300), GOLD LEAF FARMER (3,300), MOUNT OLIVE TRIBUNE
(3,800) and SMITHFIELD HERALD (14,800). N&O also publishes Business North
Carolina, a monthly magazine distributed to approximately 24,000 homes
throughout North Carolina. Total net revenues for these operations for the year
ended December 31, 1997 were $15,571,000.
OTHER OPERATIONS
The Company continues to expand the distribution of preprinted
advertising inserts and run-of-press advertising nationally under The Newspaper
Network, Inc. The Newspaper Network has launched a national business of offering
advertisers one-order, one-bill sales of advertising in newspapers throughout
the country. The Company believes that this initiative is important for both
McClatchy and the newspaper industry in competing with direct mail on a national
basis.
As a result of the Company's continued research and development of new
technologies for its news and data, most of its larger papers are providing
subscriber and advertiser services through various forms of electronic
distribution. All ten of the Company's largest newspapers are available on-line
through the World Wide Web. In addition to business, sports, national and
international news and other information, Nando, the Company's on-line
publishing operations, includes classified advertising listings for the
Company's daily newspapers. As Nando continues to evolve, it has also become a
technology and content partner with other McClatchy newspapers' internet sites.
McClatchy Printing Company, located in Clovis, California and Benson
Printing, located in Benson, N.C. are commercial printers. They print various
commercial products and preprinted advertisements for third party customers and
also print various publications for some of the Company's newspapers.
Revenues for these other operations were $12,087,000, down 26.2% from
1996, and declined mostly due to the sale of Nando's internet access business in
1996 and a reorganization at McClatchy Printing in 1997. Revenues from these
ventures represent 1.8% of total revenues in 1997 and 2.6% in 1996.
RAW MATERIALS
In 1997, the Company consumed approximately 169,000 metric tons of
newsprint compared to 167,000 metric tons in 1996. The Company currently obtains
its supply of newsprint from a number of suppliers under long-term contracts.
Newsprint and supplement expense accounted for approximately 18.4% of
operating expenses in 1997 compared to 20.9% in 1996. Management believes its
newsprint sources of supply under existing
9
<PAGE>
arrangements are adequate for its anticipated needs. A world-wide imbalance
between newsprint supply and demand caused significant fluctuations in newsprint
prices in 1995, 1996 and 1997. Significant increases in the price of newsprint
would adversely affect the operating results of the Company to the extent that
it was not offset by advertising and circulation volume and/or rate increases.
The Company, through a wholly-owned subsidiary, Newsprint Ventures,
Inc., and four other publishers and a Canadian newsprint manufacturer, are
partners in Ponderay Newsprint Company, a general partnership which owns and
operates a newsprint mill located sixty miles northeast of Spokane, Washington.
The mill became operational in late 1989 and has a production capacity in excess
of 225,000 metric tons annually. The publisher partners have committed to take
126,000 metric tons of this anticipated production on a "take-if-tendered" basis
with the balance to be sold on the open market. The Company's annual commitment
is 28,400 metric tons. See Part II, Items 7 and 8 for further discussion of the
impact of this investment on the Company's business.
COMPETITION
The Company faces competition for advertising revenues from television,
radio and direct mail programs, suburban neighborhood and national newspapers
and other publications. Competition for advertising is based upon circulation
levels, readership demographics, price and advertiser results, while competition
for circulation is generally based upon the content, journalistic quality and
price of the newspaper. The Company's major daily newspapers are well ahead of
their newspaper competitors in both advertising linage and general circulation
in all of their markets.
EMPLOYEES - LABOR
As of December 31, 1997, the Company had 7,461 full and part-time
employees, of whom approximately 9.4% were represented by unions. All union
represented employees are currently working under labor agreements, the majority
of which will expire on December 31, 1998.
While the Company's newspapers have not had a strike since 1978 and
they do not currently anticipate a strike occurring, the Company cannot preclude
the possibility that a strike may occur at one or more of its newspapers when
future negotiations occur. The Company believes that, in the event of a
newspaper strike, it would be able to continue to publish and deliver to
subscribers, a capability which is critical to retaining revenues from
advertising and circulation.
10
<PAGE>
ITEM 2. PROPERTIES
The corporate headquarters of the Company are located at 2100 "Q"
Street, Sacramento, California. The general character, location and approximate
size of the principal physical properties used by the Company at December 31,
1997, are set forth below.
<TABLE>
<CAPTION>
Approximate Area
in Square Feet
---------------
Owned Leased
----- ------
<S> <C> <C>
Printing plants, business and editorial
offices and warehouse space located in:
Sacramento, California 685,914 22,367
Fresno, California 406,000 8,015
Tacoma, Washington 319,599 5,544
Raleigh, North Carolina 212,700 52,060
Modesto, California 153,603 19,574
Anchorage, Alaska 129,926
Garner, North Carolina 131,500
Kennewick, Washington 98,081
Rock Hill, South Carolina 49,000
Clovis, California 27,100 9,900
Beaufort, South Carolina 16,500 450
Gig Harbor, Washington 13,200
Mount Olive, North Carolina 13,200
Smithfield, North Carolina 11,149
Benson, North Carolina 10,700
Chapel Hill, North Carolina 10,504
Hilton Head, South Carolina 9,700
Puyallup, Washington 6,500 1,606
Durham, North Carolina 21,000
Cary, North Carolina 10,539
Federal Way, Washington 3,008
York, South Carolina 3,694
Other--principally northern California 2,800 177,368
</TABLE>
The Company believes that its current facilities are adequate to meet
the present and immediately foreseeable needs of its newspapers.
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company becomes involved from time to time in claims and lawsuits
incidental to the ordinary course of its business, including such matters as
libel, invasion of privacy and wrongful termination actions, and complaints
alleging discrimination. In addition, the Company is involved from time to time
in governmental and administrative proceedings concerning labor, environmental
and other claims. Management believes that the outcome of pending claims or
proceedings will not have a material adverse effect upon the Company's
consolidated results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Class A Common Stock is listed on the New York Stock
Exchange (NYSE symbol - MNI). Class A Stock is also traded on the Midwest Stock
Exchange and the Pacific Stock Exchange. The Company's Class B Stock is not
publicly traded. The following table lists dividends paid on Common Stock and
the prices of the Company's Class A Common Stock as reported by these exchanges
for 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
HIGH LOW DIVIDENDS High Low Dividends
-------- -------- ----------- -------- -------- -----------
<C> <C> <C> <C> <C> <C> <C>
1st Quarter $28.00 $23.75 $0.95 $19.70 $17.40 $.076
2nd Quarter $30.50 $23.38 $0.95 $22.10 $18.60 $.076
3rd Quarter $35.19 $29.25 $0.95 $22.80 $19.50 $.076
4th Quarter $34.69 $26.50 $0.95 $28.10 $21.90 $.095
The high and low sales prices and dividends per share have been adjusted
for 1996 to reflect the impact of a five-for-four stock split paid on
January 2, 1997.
</TABLE>
The Company's Board of Directors does not anticipate reducing the
present level of quarterly dividend payments. However, the payment and amount of
future dividends remain within the discretion of the Board of Directors and
will depend upon the Company's future earnings, financial condition and
requirements, and other factors considered relevant by the Board.
The number of record holders of Class A and Class B Common Stock at
March 27, 1998 was 1,774 and 24, respectively.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
FIVE-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
<CAPTION>
1997 1996 1995 1994 1993
-------------- -------------- ------------- -------------- --------------
CONSOLIDATED INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
REVENUES - NET:
Advertising $504,745 $484,460 $418,841 $368,068 $350,046
Circulation 107,298 108,317 95,248 85,017 83,729
Other 29,907 31,456 26,790 18,333 15,340
-------------- -------------- ------------- -------------- --------------
Total 641,950 624,233 540,879 471,418 449,115
OPERATING EXPENSES:
Depreciation and amortization 53,269 52,954 44,000 38,140 35,583
Other costs and expenses 472,926 486,044 434,505 361,410 348,428
-------------- -------------- ------------- -------------- --------------
Total 526,195 538,998 478,505 399,550 384,011
-------------- -------------- ------------- -------------- --------------
OPERATING INCOME 115,755 85,235 62,374 71,868 65,104
Partnership (income) losses 500 (3,024) 630 5,469 6,171
Other nonoperating expenses (income) (1,005) 10,344 2,729 (3,166) 17
-------------- -------------- ------------- -------------- --------------
INCOME BEFORE INCOME TAX PROVISION 116,260 77,915 59,015 69,565 58,916
Income tax provision 47,461 33,422 25,397 22,920 27,118
-------------- -------------- ------------- -------------- --------------
NET INCOME $68,799 $44,493 $33,618 $46,645 $31,798
============== ============== ============= ============== ==============
EARNINGS PER DILUTED COMMON SHARE:
Basic $1.81 $1.18 $0.90 $1.26 $0.88
============== ============== ============= ============== ==============
Diluted $1.80 $1.18 $0.90 $1.26 $0.88
============== ============== ============= ============== ==============
DIVIDENDS PER COMMON SHARE $0.380 $0.323 $0.304 $0.264 $0.216
============== ============== ============= ============== ==============
CONSOLIDATED BALANCE SHEET DATA:
Total assets $853,781 $875,666 $892,958 $586,637 $525,163
Long-term bank debt 94,000 190,000 243,000 - -
Stockholders' equity 564,669 503,114 465,694 442,220 383,523
All per share amounts have been adjusted for a five-for-four stock split paid on
January 2, 1997. Results for 1997 include a pre-tax gain of $9.3 million for the
sale of certain business operations and real estate. Results for 1996 include a
pre-tax gain of $2.8 million on the sale of a newspaper and other business
operations. Results for 1995 include a $2.7 million pre-tax charge related to
early retirement programs while 1994 includes a $6.0 million favorable
adjustment (included in the income tax provision) related to the resolution of
income tax audits. This summary should be read in conjunction with the
consolidated financial statements and notes thereto.
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RECENT EVENTS AND TRENDS
On December 4, 1996 the Company declared a five-for-four stock split in
the form of a 25% stock dividend which was paid on January 2, 1997. All
outstanding shares and per share amounts have been restated in this discussion
to reflect the stock dividend.
On February 13, 1998 the Company signed an amended and restated
agreement to acquire all of the outstanding shares of Cowles Media Company
(Cowles) in a transaction valued at $1.4 billion, including the assumption of
approximately $81 million in existing Cowles debt. Cowles publishes the STAR
TRIBUNE newspaper, which serves the Twin Cities of Minneapolis and St. Paul, and
also owns four separate subsidiaries that publish business magazines,
special-interest magazines and home improvement books. On January 9, 1998, the
Company announced that definitive agreements had been reached to sell the
Cowles' magazine publishing subsidiaries to PRIMEDIA Inc. and to sell the book
publishing subsidiary to a management group led by the subsidiary's president.
The combined proceeds plus debt and other liabilities assumed by the buyers is
valued in excess of $208 million and the Company used the proceeds to repay debt
associated with the Cowles merger. All three transactions closed on March 19,
1998. The STAR TRIBUNE is Minnesota's largest newspaper with daily circulation
of 387,000 and 673,000 on Sunday and is now the Company's largest newspaper. The
results of Cowles operations have not been included in the Company's results for
the year ended December 31, 1997 and were included beginning on March 19, 1998.
Because of the stock issued in the merger, interest expense related to the debt
incurred and amortization of intangible assets created by the merger, the
Company expects to report substantially lower income and earnings per share in
1998. See note 2 to the consolidated financial statements and the "Recent Event"
section of Item I of this Report.
In October 1996, the Company announced that it had entered into
agreements in principle to sell five community newspapers. In December 1996, the
Company completed the sale of the Ellensburg DAILY RECORD and recorded a pre-tax
gain of $3.2 million in other nonoperating (expenses) income. In February 1997,
the sale of the remaining four newspapers was completed and in the fourth
quarter, the Company sold Legi-Tech, its on-line legislative tracking company
and other non-strategic real estate assets. The Company recorded a nonrecurring
pre-tax gain of $9.3 million in nonoperating (expenses) income for its 1997
dispositions.
On August 1, 1995 the Company purchased The News and Observer
Publishing Company (N&O) (see note 3 to the consolidated financial statements).
N&O publishes THE NEWS AND OBSERVER (Raleigh, N.C.) newspaper, seven other
non-daily publications in North Carolina and Nando, an on-line publishing
company. The N&O newspaper has a daily circulation of approximately 160,000 and
207,000 on Sunday. The results of N&O have been included in the Company's
consolidated results beginning on August 1, 1995.
Newsprint prices fluctuated substantially during 1995 and 1996,
reaching an all-time high in early 1996. Prices began declining during the
second quarter of 1996 and the Company's newsprint purchases in the first nine
months of 1997 were made at average newsprint prices that were below the 1996
levels. While newsprint prices in the fourth quarter exceeded those paid in
1996, average newsprint prices in 1997 were below 1996 average prices. During
the period of increasing prices, the
14
<PAGE>
Company increased its inventory levels to minimize the effect of expected
further increases. As prices began to decline in 1996, the Company began
reducing its inventory levels in anticipation of further price decreases.
Accordingly, the Company's LIFO reserve in 1996 declined $4.2 million. The
change in the LIFO reserve in 1997 was not material to 1997 newsprint expense.
In September 1997, the Financial Accounting Standards Board adopted
Statements of Financial Accounting Standards No. 130 (REPORTING COMPREHENSIVE
INCOME), which requires that an enterprise report, by major components and as a
single total, the change in its net assets during the period from nonowner
sources; and No. 131 (DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION), which establishes annual and interim reporting standards for an
enterprise's business segments and related disclosures about its products,
services, geographic area, and major customers. Adoption of these statements is
not expected to impact the Company's consolidated financial position, results of
operations or cash flows or manner of reporting its financial results. Both
statements are effective in 1998.
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Net income was $68.8 million or $1.80 per share in 1997 compared to
$44.5 million or $1.18 per share in 1996. Net income from ongoing operations --
excluding the gains on the sales of community newspapers, other businesses and
non-strategic assets in 1997 and 1996 -- was $63.3 million or $1.66 per share in
1997 versus $42.9 million or $1.14 per share in 1996.
Much of the increase in earnings reflect higher revenues at the
Company's newspapers in the Carolinas, THE SACRAMENTO BEE and THE MODESTO BEE,
and lower average newsprint prices in 1997 than 1996. Net income also benefited
from lower interest expense as the Company repaid debt.
Revenues increased $17.7 million to $641.9 million, up 2.8% in 1997,
but were up $26.1 million excluding the sold community newspapers from the
comparisons. At ongoing operations, advertising revenues increased 5.6% --
mostly reflecting rate increases. Circulation revenues were up nominally as only
one of the Company's newspapers implemented a home delivery rate increase in
1997.
<TABLE>
OPERATING REVENUES (in thousands):
<CAPTION>
1997 1996 % Change
------------------ ------------------ ------------------
<S> <C> <C> <C>
California newspapers $ 318,227 $310,719 2.4%
Carolinas newspapers 167,479 153,674 9.0
Northwest newspapers 144,157 143,569 0.4
Non-newspaper operations 12,087 16,271 (25.7)
------------------ ------------------
$ 641,950 $624,233 2.8%
================== ==================
</TABLE>
The California newspapers generated 49.6% of total revenues in 1997 and
revenues increased $7.5 million over 1996. Revenues were up $14.1 million or
4.7% excluding the four community
15
<PAGE>
newspapers sold in February 1997. The three Bee newspapers, located in
Sacramento, Fresno and Modesto, California are the Company's primary businesses
in this region and recorded $12.0 million in higher advertising revenues.
Circulation revenues declined nominally, while revenues from non-traditional
sources, i.e. niche products, on-line services, etc., increased $2.0 million
(primarily at The Sacramento Bee).
Full run, run-of-press (ROP) advertising linage, which is found in the
body of the newspaper and generates a majority of advertising revenues,
increased 1.6% at the three Bees, but most of the revenue growth resulted from
advertising rate increases implemented in the first quarter of 1997. Daily
circulation was up 0.7% and Sunday was up 0.1% at the three Bees.
The Carolina newspapers generated 26.1% of total revenues in 1997 and
increased $13.8 million, with $12.2 million from the North Carolina newspapers
- -- primarily The News & Observer in Raleigh, and the remainder from the
Company's three South Carolina dailies. Advertising revenues increased $12.2
million while circulation revenues were up $918,000. Full run ROP advertising
linage increased 7.1%, and advertising rates were increased generally in the
first quarter of 1997. Daily circulation was up 2.1% and Sunday circulation
increased 0.9% in 1997.
The Northwest newspapers generated 22.5% of total revenues and reported
a $588,000 increase in revenues. Operating revenues were up $2.2 million or 1.6%
excluding the Ellensburg Daily Record which was sold in December 1996. Retailer
consolidation in the two Washington markets, Tacoma and Tri-Cities, and lower
commercial printing revenues at the Anchorage Daily News slowed the growth in
revenues in this region. Advertising revenues increased $2.1 million (excluding
Ellensburg) while circulation revenues declined $446,000 at the ongoing
operations. Full run ROP advertising linage was down 1.9%. Daily and Sunday
circulation declined 0.3% and 0.5%, respectively.
Revenues at the Company's non-newspaper operations declined $4.2
million. These operations which account for 1.8% of total company revenues
included The Newspaper Network, N&O's New Media Division (primarily Nando, the
Company's on-line publishing company), McClatchy Printing Company, Benson
Printing Company, and Legi-Tech. Revenues declined due mostly to the sale of
Nando's internet access business and a reorganization at McClatchy Printing
Company.
OPERATING EXPENSES:
Operating expenses were down 2.4% in 1997. However, excluding the
operating expenses of the sold newspapers, expenses were down 0.7%. At the
Company's ongoing operations, newsprint and supplement cost declined 13.4% due
primarily to lower average newsprint prices. Excluding newsprint and supplement
cost and expenses of the sold newspapers, total other operating expenses were up
2.7% reflecting increased costs associated with new product development and
promotions in 1997. Other expense increases were tempered by the low rate of
inflation in 1997.
NON-OPERATING (EXPENSES) INCOME - NET:
Interest expense declined $4.6 million as the Company paid down debt.
The Ponderay Newsprint Company (Ponderay) in which the Company owns a 13.5%
interest (see note 1 to the consolidated financial statements) reported a loss
in 1997 due to lower newsprint prices. Hence, the Company recorded a loss of
$500,000 in 1997 versus income of $3.0 million in 1996 as its share of
Ponderay's results.
16
<PAGE>
A pre-tax gain of $6.7 million was realized on the sale of four
community newspapers in 1997 versus a pre-tax gain of $2.8 million on the sale
of the Ellensburg Daily Record in 1996. Also, a pre-tax gain of $2.5 million was
recorded on the sale of Legi-Tech and other non-strategic real estate assets.
The Company's effective tax rate was 40.8% in 1997 versus 42.9% in
1996. The tax rate was lower primarily because of a difference in the book and
tax basis of intangibles at some of the sold operations -- see note 5 to the
consolidated financial statements.
1996 COMPARED TO 1995
Net income was $44.5 million, or $1.18 per share, and included a
net-after-tax gain of $1.6 million on the sale of the Ellensburg Daily Record
and various other non-newspaper business operations. Net income in 1995 was
$33.6 million, or $0.90 per share, and included an after-tax charge of $1.5
million for the cost of early retirement programs at THE SACRAMENTO BEE and THE
(Tacoma) NEWS TRIBUNE.
The earnings improvement in 1996 was largely due to strong revenue
growth at the Company's Carolinas newspapers, declining newsprint prices and
cost controls throughout the Company.
<TABLE>
OPERATING REVENUES (in thousands):
<CAPTION>
1996 1995 % Change
------------------ ------------------ ------------------
<S> <C> <C> <C>
California newspapers $ 310,719 $ 314,293 (1.1)%
Carolinas newspapers 153,674 72,944 NM
Northwest newspapers 143,569 140,839 1.9
Non-newspaper operations 16,271 12,803 27.1
------------------ ------------------
$ 624,233 $ 540,879 NM
================== ==================
NM - Not meaningful due to N&O acquisition on August 1, 1995.
</TABLE>
Revenues at the Company's California newspapers declined $3.6 million,
with advertising revenues down $4.3 million, offset partially by a $1.0 million
gain in circulation revenues. Advertising revenues declined primarily due to a
lackluster retail advertising climate at the Company's three Bee newspapers
located in Sacramento, Fresno and Modesto. These newspapers were also affected
by the consolidation of Macy's and Weinstocks department stores, previously
their two largest advertisers. Full run ROP advertising linage was down 5.6% at
the three Bee newspapers. This decline was partially offset by rate increases
implemented in the first quarter of 1996.
The Company's Northwestern newspapers, located in the states of Alaska
and Washington, contributed 23.0% of its net revenues and posted a $2.7 million
increase over 1995. Advertising revenues increased $3.0 million, largely from
gains at the ANCHORAGE DAILY NEWS where advertising revenues increased $2.8
million. Full run ROP advertising linage declined 2.8% at the three larger daily
newspapers in the region. Circulation revenues increased $306,000, while other
revenues declined $538,000. The decline in other revenues was primarily
attributable to a decline in commercial printing at the ANCHORAGE DAILY NEWS.
17
<PAGE>
Revenues at the Company's Carolina newspapers increased $80.7 million.
Revenues from THE NEWS & OBSERVER and its sister non-daily newspapers were up
$78.2 million from inclusion of a full twelve months in 1996 versus five months
(August through December) in 1995. On a pro forma basis, i.e. including the
seven months prior to the Company's acquisition of N&O, revenues were up
approximately 10.0%. Meanwhile, revenues at the Company's South Carolina
newspapers were up 11.2% with strong growth in both advertising and circulation
revenues. Full run ROP advertising linage was up 9.7% at the South Carolina
dailies.
Revenues from the Company's non-newspaper operations increased $3.5
million. The increases were primarily at Benson Printing Company, The Newspaper
Network and N&O's New Media Division.
OPERATING EXPENSES:
Operating expenses increased 12.6%, due primarily to including a full
year of N&O expenses in 1996 versus only five months in 1995. Compensation costs
were up 12.3%, but after excluding N&O expenses from both periods and the early
retirement charges from 1995, compensation expenses declined 0.7%. Excluding N&O
costs from both periods, newsprint and supplement costs declined 11.4%, owing to
falling newsprint prices in the second half of 1996. All other operating
expenses, including depreciation and amortization, and excluding N&O from both
periods, increased only 0.7%, reflecting ongoing cost controls in place
throughout the Company.
NONOPERATING INCOME (EXPENSES) - NET:
The Company incurred $13.3 million in interest expense in 1996 on debt
incurred in 1995 to complete the N&O acquisition (see notes 2 and 3 to the
consolidated financial statements). In 1995 the Company earned $3.9 million in
investment income through July 31 and incurred $7.0 million in interest expense
from August through year-end.
The Company's share of income in 1996 from its investment in
Ponderay totaled $3.0 million versus a loss of $630,000 in 1995. Also included
in nonoperating income (expense) is a net pre-tax gain of $2.8 million related
to the sale of the Ellensburg DAILY RECORD and various small business
operations.
The Company's effective tax rate was 42.9% in 1996 versus 43.0% in
1995. See note 5 to the consolidated financial statements for a discussion of
taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $8.7 million at December
31, 1997 versus $5.9 million at the end of 1996. See notes 3 and 4 to the
consolidated financial statements for a discussion of the impact of the
acquisition of N&O on the Company's liquidity and capital resources, and notes 2
and 4 to the consolidated financial statements (and below) for a discussion of
the Cowles merger.
The Company generated $117.4 million of cash from operating activities
in 1997 and has generated an aggregate of $286.2 million over the last three
years. During 1997, the Company received $14.3 million in proceeds from the sale
of businesses and assets. The major uses of cash over the three year period have
been to consummate the N&O acquisition ($241.4 million in 1995 - see note 8 to
the consolidated financial statements for a discussion of this amount), to
purchase property, plant and
18
<PAGE>
equipment (see below), to invest in interest bearing securities and to repay
debt. Cash has also been used to pay dividends. In 1997, the Company repaid
$96.0 million of bank debt and paid $14.4 million in dividends. Proceeds from
issuing Class A stock under employee stock plans totaled $5.8 million in 1997.
See the Company's Statement of Cash Flows on page 26.
A total of $23.2 million was expended in 1997 for capital projects and
equipment to improve productivity and keep pace with growth and new technology.
Capital expenditures over the last three years have totaled $90.0 million and
planned expenditures in 1998 are estimated to be approximately $31 million at
existing operations (estimated $40 million post Cowles merger).
See notes 1 and 9 to the consolidated financial statements for a
discussion of the Company's commitments to Ponderay.
The Company had $216 million of available credit under its current bank
credit agreement at December 31, 1997; however, it replaced this credit line
under a new bank agreement obtained to finance the Cowles merger (see below).
The Company also had an interest rate swap that effectively converted
$50.0 million of its debt to fixed rate debt at a rate of 6.0%, which the
Company terminated upon the closing of the Cowles merger, with no significant
loss to the Company.
A syndicate of banks and financial institutions have provided the debt
financing of the Cowles merger under a new Bank Credit Agreement (Credit
Agreement). The Credit Agreement consists of the following: A term loan
consisting of Tranche A of $735 million bears interest at the London Interbank
Offered Rate ("LIBOR") plus 125 basis points, and will be payable in seven
years, and Tranche B of $330 million bears interest at LIBOR plus 175 basis
points and is payable in nine and one-half years. A revolving credit line of up
to $200 million bears interest at LIBOR plus 125 basis points and will be
payable in seven years. As the Company reduces the outstanding debt relative to
cash flow (as defined in the Credit Agreement), the interest rate spread over
LIBOR will decline. The debt is secured by certain assets of the Company, and
all of the debt is pre-payable without penalty. The Company intends to
accelerate payments on this debt as cash generation allows.
The definitive terms of the Credit Agreement include certain operating
and financial restrictions, such as limits on the Company's ability to incur
additional debt, create liens, sell assets, engage in mergers, make investments
and pay dividends.
While the Company expects that most of its free cash flow generated
from operations in 1998 and in the foreseeable future will be used to repay
debt, management is of the opinion that operating cash flow and its credit
facilities as described above are adequate to meet the liquidity needs of the
Company, including currently planned capital expenditures and other investments.
YEAR 2000 COMPLIANCE
The Company is currently in the process of addressing an issue that is
facing all users of automated information systems. The issue is that many
computer systems process transactions based on two digits for the year of the
transaction (for example, "97" for 1997), rather than a full four digits. These
computer systems may not operate effectively when the last two digits become
"00", as occurs on
19
<PAGE>
January 1, 2000. In some cases the new date will cause computers to stop
operating, while in other cases incorrect output may result. The issue could
affect a wide variety of automated information systems, such as mainframe
applications, personal computers and communications systems. A corporate task
force is in place to assess the needed changes to the Company's many different
information systems and an implementation plan is expected to be completed in
1998. A dedicated Year 2000 Compliance Coordinator will be named in early 1998
to ensure the Company meets its own internal deadlines for compliance. Many of
the necessary changes in computer instructional code are expected to be acquired
during the course of normal upgrading of systems that are budgeted between now
and the year 2000, and in the course of normal maintenance. Other changes will
necessitate re-writing of computer instructional code, the majority of which is
expected to occur in 1998 and the first half of 1999. At present, the Company
does not have an estimate of the total cost of evaluating and making required
changes. The costs incurred in addressing the Year 2000 issue will be expensed
as incurred, in compliance with generally accepted accounting principles. The
project may also impact capital expenditure budgets, through increased
expenditures for vendor-supplied software and computer hardware.
FORWARD LOOKING INFORMATION
The preceding management discussion contains estimates and other
forward-looking statements covering subjects related to financial operating
results. These forward-looking statements, and any other statements going beyond
historical facts that McClatchy management has discussed, are subject to risks
and uncertainties that could cause actual results to differ. These include
changes in interest rates to be paid on the Company's debt facilities, increases
in newsprint prices and/or printing and distribution costs over anticipated
levels, competition from other forms of media in the Company's principal
markets, increased consolidation among major retailers in the Company's
newspaper markets or other events depressing the level of advertising, an
economic downturn in the local economies of California's Central Valley,
Washington state, Alaska, the Carolinas or Minnesota; or other occurrences
leading to decreased circulation and diminished revenues from both display and
classified advertising.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Report of Deloitte & Touche LLP 22
Consolidated Statement of Income 23
Consolidated Balance Sheet 24
Consolidated Statement of Cash Flows 26
Consolidated Statement of Stockholders' Equity 27
Notes to Consolidated Financial Statements 28
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 47
All other schedules are omitted as not applicable under the rules of Regulation
S-X.
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
McClatchy Newspapers, Inc.:
We have audited the accompanying consolidated balance sheets of
McClatchy Newspapers, Inc. and its subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, cash flows and
stockholders' equity for each of the three years in the period ended December
31, 1997. Our audits also included the financial statement schedule listed in
the Index to Financial Statements and Financial Statement Schedules at Item 8.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of McClatchy Newspapers, Inc.
and its subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Sacramento, California
February 20, 1998
22
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
<CAPTION>
Year Ended
December 31,
-----------------------------------------------------------
1997 1996 1995
---------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES - NET
Newspapers:
Advertising $ 504,745 $ 484,460 $ 418,841
Circulation 107,298 108,317 95,248
Other 17,820 15,185 13,987
---------------- ----------------- -----------------
629,863 607,962 528,076
Non-newspapers 12,087 16,271 12,803
---------------- ----------------- -----------------
641,950 624,233 540,879
OPERATING EXPENSES
Compensation 254,048 253,327 225,505
Newsprint and supplements 96,869 112,716 104,587
Depreciation and amortization 53,269 52,954 44,000
Other operating expenses 122,009 120,001 104,413
---------------- ----------------- -----------------
526,195 538,998 478,505
---------------- ----------------- -----------------
OPERATING INCOME 115,755 85,235 62,374
NONOPERATING (EXPENSES) INCOME
Interest expense (8,698) (13,321) (7,014)
Investment income 83 102 3,925
Partnership income (loss) (500) 3,024 (630)
Gain on sale of newspaper operations and
other business operations/assets 9,254 2,840 -
Other - net 366 35 360
---------------- ----------------- -----------------
505 (7,320) (3,359)
---------------- ----------------- -----------------
INCOME BEFORE INCOME TAX PROVISION 116,260 77,915 59,015
INCOME TAX PROVISION 47,461 33,422 25,397
---------------- ----------------- -----------------
NET INCOME $ 68,799 $ 44,493 $ 33,618
================ ================= =================
NET INCOME PER COMMON SHARE:
Basic $1.81 $1.18 $0.90
Diluted $1.80 $1.18 $0.90
WEIGHTED AVERAGE
NUMBER OF COMMON SHARES:
Basic 37,971 37,593 37,420
Diluted 38,155 37,812 37,529
See notes to consolidated financial statements
</TABLE>
23
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
<CAPTION>
December 31,
--------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 8,671 $ 5,877
Trade receivables (less allowances of $2,162 in 1997 and $2,440 in 1996) 93,069 81,791
Other receivables 2,143 1,911
Newsprint, ink and other inventories 7,758 8,015
Deferred income taxes 8,437 10,223
Other current assets 2,717 3,193
----------------- -----------------
122,795 111,010
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 160,443 157,741
Equipment 371,312 369,346
----------------- -----------------
531,755 527,087
Less accumulated depreciation (246,236) (226,420)
----------------- -----------------
285,519 300,667
Land 34,199 32,591
Construction in progress 5,468 8,532
----------------- -----------------
325,186 341,790
INTANGIBLES - NET 393,215 411,393
NEWSPRINT MILL INVESTMENT 8,489 8,989
OTHER ASSETS 4,096 2,484
----------------- -----------------
TOTAL ASSETS $ 853,781 $ 875,666
================= =================
See notes to consolidated financial statements
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
----------------- ------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $35,613 $22,806
Accrued compensation 27,956 33,567
Income taxes 1,877 4,737
Unearned revenue 19,308 18,103
Carrier deposits 3,980 4,149
Other accrued liabilities 9,709 8,998
----------------- ------------------
98,443 92,360
LONG-TERM BANK DEBT 94,000 190,000
OTHER LONG-TERM OBLIGATIONS 40,406 29,814
DEFERRED INCOME TAXES 56,263 60,378
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY Common stock $.01 par value:
Class A - authorized
100,000,000 shares, issued
9,421,383 in 1997 and 8,941,651 in 1996 94 89
Class B - authorized
60,000,000 shares, issued
28,685,912 in 1997 and 28,842,287 in 1996 287 288
Additional paid-in capital 74,354 67,534
Retained earnings 489,934 435,574
Treasury stock, 25,003 Class A shares in 1996 - (371)
----------------- ------------------
564,669 503,114
----------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $853,781 $875,666
================= ==================
</TABLE>
25
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 68,799 $ 44,493 $ 33,618
Reconciliation to net cash provided:
Depreciation and amortization 53,411 53,110 44,146
Deferred income taxes (2,329) (1,648) 7,079
Partnership (income) losses 500 (3,024) 630
Gain on sale of newspaper operations
and other business operations/assets (9,254) (2,840) -
Changes in certain assets and liabilities - net 6,537 8,880 (17,931)
Other (221) 585 1,637
----------------- ----------------- -----------------
Net cash provided by operating activities 117,443 99,556 69,179
CASH FLOW FROM INVESTING ACTIVITIES:
Maturities of investments held to maturity - - 29,789
Proceeds from investments available for sale - - 20,539
Purchases of investments held to maturity - - (5,940)
Purchases of investments available for sale - - (3,637)
Purchases of property, plant and equipment (23,243) (31,737) (34,988)
Acquisition of newspaper and other operations (1,813) (1,844) (241,442)
Sale of newspaper and other business operations 14,340 6,808 -
Other - net 732 (85) (2,484)
----------------- ----------------- -----------------
Net cash used by investing activities (9,984) (26,858) (238,163)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from long-term debt - - 243,000
Repayment of long-term debt (96,000) (63,000) (129,194)
Payment of cash dividends (14,439) (12,163) (11,376)
Other - principally stock issuances 5,774 5,090 1,232
----------------- ----------------- -----------------
Net cash (used) provided by financing activities (104,665) (70,073) 103,662
----------------- ----------------- -----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,794 2,625 (65,322)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,877 3,252 68,574
----------------- ----------------- -----------------
CASH AND CASH EQUIVALENTS, END OF YEAR $8,671 $5,877 $3,252
================= ================= =================
See notes to consolidated financial statements.
</TABLE>
26
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
<CAPTION>
Par Value Additional Treasury
------------------- Paid-In Retained Stock
Class A Class B Capital Earnings At Cost Total
-------- ------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1994 $82 $291 $61,216 $381,002 $(371) $442,220
Net income 33,618 33,618
Dividends paid ($.304 per share) (11,376) (11,376)
Conversion of 181,819 Class B
shares to Class A 2 (2)
Issuance of 83,548 shares
under employee stock plans 1 1,231 1,232
-------- ------- -------- ---------- --------- ---------
BALANCES, DECEMBER 31, 1995 85 289 62,447 403,244 (371) 465,694
Net income 44,493 44,493
Dividends paid ($.323 per share) (12,163) (12,163)
Issuance of 71,875 Class B
shares to Class A 1 (1)
Issuance of 307,376 Class A shares
under employee stock plans 3 4,453 4,456
Tax benefit from stock plans 634 634
-------- ------- -------- ---------- --------- ---------
BALANCES, DECEMBER 31, 1996 89 288 67,534 435,574 (371) 503,114
Net income 68,799 68,799
Dividends paid ($.38 per share) (14,439) (14,439)
Issuance of 156,375 Class B
shares to Class A 1 (1)
Issuance of 348,357 Class A shares
under employee stock plans 4 5,805 5,809
Tax benefit from stock plans 1,386 1,386
Retirement of treasury stock (371) 371
-------- ------- -------- ---------- --------- ---------
BALANCES, DECEMBER 31, 1997 $94 $287 $74,354 $489,934 $ - $564,669
======== ======= ======== ========== ========= =========
See notes to consolidated financial statements
</TABLE>
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
McClatchy Newspapers, Inc. and its subsidiaries are engaged primarily
in the publication of newspapers located in California, the Northwest
(Washington and Alaska) and the Carolinas.
THE CONSOLIDATED FINANCIAL STATEMENTS include the Company and its
subsidiaries. Significant intercompany items and transactions are eliminated.
All share and per share amounts have been adjusted to reflect a five-for-four
stock split. See note 10. Certain amounts have been reclassified to conform to
the 1997 presentation. In preparing the financial statements, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION - Advertising revenues are recorded when
advertisements are placed in the newspaper and circulation revenues are recorded
as newspapers are delivered over the subscription term. Unearned revenues
represent prepaid circulation subscriptions.
CASH EQUIVALENTS are highly liquid debt investments with maturities of
three months or less when acquired.
CONCENTRATIONS OF CREDIT RISKS - Financial instruments which
potentially subject the Company to concentrations of credit risks are
principally cash and cash equivalents and trade accounts receivables. Cash and
cash equivalents are placed with major financial institutions. Accounts
receivable are with customers located primarily in the immediate area of each
city of publication. The Company routinely assesses the financial strength of
significant customers and this assessment, combined with the large number and
geographic diversity of its customers, limits the Company's concentration of
risk with respect to trade accounts receivable.
INVENTORIES are stated at the lower of cost (based principally on the
last-in, first-out method) or current market value. If the first-in, first-out
method of inventory accounting had been used, inventories would have increased
by $3,977,000 at December 31, 1997 and $3,246,000 at December 31, 1996.
RELATED PARTY TRANSACTIONS - The Company owns a 13.5% interest in
Ponderay Newsprint Company ("Ponderay") which owns and operates a newsprint mill
in the State of Washington. The investment is accounted for using the equity
method, under which the Company's share of earnings of Ponderay is reflected in
income as earned. The Company guarantees certain bank debt used to construct the
mill (see note 9) and is required to purchase 28,400 metric tons of annual
production on a "take-if-tendered" basis until the debt is repaid. The Company
satisfies this obligation by direct purchase (1997: $18,221,000, 1996:
$20,714,000 and 1995: $18,414,000) or reallocation to other buyers.
PROPERTY, PLANT AND EQUIPMENT are stated at cost. Major renewals and
betterments, as well as interest incurred during construction, are capitalized.
Such interest aggregated $36,000 in 1997, $536,000 in 1996 and $708,000 in 1995.
DEPRECIATION is computed generally on a straight-line basis over
estimated useful lives of:
- 10 to 60 years for buildings
- 9 to 25 years for presses
28
<PAGE>
- 3 to 15 years for other equipment
INTANGIBLES consist of the unamortized excess of the cost of acquiring
newspaper operations over the fair values of the newspapers' tangible assets at
the date of purchase. Identifiable intangible assets, consisting primarily of
lists of advertisers and subscribers, covenants not to compete and commercial
printing contracts, are amortized over three to forty years. The excess of
purchase prices over identifiable assets is amortized over forty years.
Management periodically evaluates the recoverability of intangible assets by
reviewing the current and projected cash flows of each of its newspaper
operations.
STOCK-BASED COMPENSATION - The Company accounts for stock-based awards
to employees using the intrinsic value method in accordance with APB No. 25,
Accounting for Stock Issued to Employees.
DEFERRED INCOME TAXES result from temporary differences between amounts
of assets and liabilities reported for financial and income tax reporting
purposes. See note 5.
EARNINGS PER SHARE (EPS) In the fourth quarter of 1997 the Company
adopted Statement of Financial Accounting Standard No. 128 ("Earnings Per
Share") which required the disclosure of Basic EPS and Diluted EPS. Basic EPS
excludes dilution and reflects income divided by the weighted average number of
common shares outstanding for the period. Diluted EPS is based upon the weighted
average number of outstanding shares of common stock and dilutive common stock
equivalents (stock options -- equivalents calculated using the treasury stock
method, no adjustment to net income required) in the period. All share and per
share amounts have been adjusted to reflect a five-for-four stock split. See
note 10.
NOTE 2. PROPOSED COWLES MEDIA COMPANY MERGER
On November 13, 1997 the Company signed a definitive agreement to
acquire all of the outstanding shares of Cowles Media Company (Cowles) in a
transaction valued at $1.4 billion, including the assumption of approximately
$91 million in existing Cowles debt. Cowles publishes the STAR TRIBUNE
newspaper, which serves the Twin Cities of Minneapolis and St. Paul, and also
owns four separate subsidiaries that publish business magazines,
special-interest magazines and home improvement books. In January 1998, the
Company signed agreements to sell Cowles' magazine and book publishing
subsidiaries. The combined proceeds plus debt and other liabilities assumed by
the buyers is valued in excess of $208 million and the company expects to use
the proceeds to repay debt associated with the Cowles merger.
The Company has agreed to issue Class A Common Stock for between 15% to
25% of the equity value and to pay cash for the remainder of the purchase price.
The Class A shares are subject to a minimum exchange ratio of 2.68820 and a
maximum exchange ratio of 3.01667 shares of McClatchy Class A Common for each
Cowles share (valued at $90.50 per share). The Company has obtained bank debt
agreements through a syndicate of banks and financial institutions to finance
the cash portion of the merger and to refinance its existing debt (see note 4)
as well as Cowles existing debt upon closing of the transaction. All three of
these transactions are expected to close in March 1998 and are subject to
regulatory approvals and shareholder approvals for the McClatchy/Cowles merger.
The primary asset to be retained by the Company is the STAR TRIBUNE,
the leading newspaper in Minnesota with daily circulation of 373,000 and Sunday
circulation of 673,000. It is the 16th
29
<PAGE>
largest newspaper on a daily basis and the 12th largest Sunday newspaper in the
nation and will become the Company's largest newspaper.
The merger will be accounted for as a purchase, and accordingly, assets
acquired and liabilities assumed will be recorded at their fair market values.
The Company will undertake an appraisal of all assets and liabilities as soon
after closing as possible. Cowles results of operations beginning as of the date
of closing will be included in the Company's results. As a result of higher
depreciation and amortization, higher interest expense on the new debt, and the
issuance of additional stock, the acquisition is expected to be dilutive to the
Company's 1998 net income and earnings per share.
NOTE 3. ACQUISITION
On August 1, 1995, the Company purchased The News and Observer
Publishing Company (N&O) for which it paid $247,000,000 in cash for all the
outstanding common stock of N&O and assumed $117,000,000 of pre-existing N&O
funded debt. An additional $10,000,000 was paid upon the resolution of certain
contingencies (N&O holdback). The cash portion of the purchase price was
financed with $138,000,000 in new long-term bank debt and $109,000,000 from
existing Company cash and investments. The Company refinanced the N&O funded
debt and recorded a prepayment penalty of $12,194,000 as part of N&O acquisition
costs. See note 4 for discussion of the Company's long-term debt.
N&O publishes THE NEWS & OBSERVER newspaper in Raleigh, N.C., seven
other non-daily publications in North Carolina and the Nando.net on-line
service. THE NEWS & OBSERVER had a daily circulation of about 154,000 and
200,000 Sunday at August 1, 1995.
The acquisition was accounted for as a purchase, and accordingly,
assets acquired and liabilities assumed were recorded at their estimated fair
values at the date of acquisition. Assets of N&O included approximately
$1,500,000 of working capital, $72,600,000 of property, plant and equipment and
$323,100,000 of intangible assets. Intangible assets include approximately
$299,100,000 of goodwill which is being amortized over a 40-year period. In
addition to the $117,000,000 of N&O long-term debt, the Company assumed deferred
income tax and other liabilities totaling $11,500,000.
The N&O operations have been included in the Company's consolidated
results beginning on August 1, 1995. The following table summarizes, on an
unaudited pro forma basis, the combined results of operations of the Company and
its subsidiaries as though the acquisition had taken place on January 1, 1995
(in thousands, except per share amounts):
Revenues $ 608,272
Net income 26,445
Diluted earnings per common share 0.70
NOTE 4. LONG-TERM BANK DEBT AND
OTHER LONG-TERM OBLIGATIONS
On July 28, 1995 the Company entered into a bank credit agreement
(Credit Agreement) providing for borrowings up to $310,000,000. At December 31,
1997 and December 31, 1996 the Company had long-term bank debt of $94,000,000
and $190,000,000, respectively. In addition, the Company also has an outstanding
letter of credit for $4,309,000 securing estimated obligations from
30
<PAGE>
workers' compensation claims. This debt is expected to be refinanced with the
new credit agreement resulting from the Cowles merger. See note 2 and the
discussion below.
Under the Credit Agreement, interest only is payable through July 1,
2000. The Company may select between alternative floating interest rates for
each drawdown. On December 31, 1997 the interest rate applicable to the amount
drawn ranged from 6.2% to 7.0%.
At December 31, 1997 the Company had an outstanding interest rate swap
that effectively converted $50,000,000 of debt under its Credit Agreement to a
fixed rate debt at a rate of 6.0%. The Company makes payments to a counterparty
depending on the change in variable interest rates which are recorded as
additions to or reductions of interest expense. The swap is expected to be
terminated upon the closing of the Cowles merger, with no significant loss to
the Company.
A syndicate of banks and financial institutions have committed to
provide the debt financing of the Cowles merger. A term loan consisting of
Tranche A of $735 million will bear interest at the London Interbank Offered
Rate ("LIBOR") plus 125 basis points, will be payable in seven years, and
Tranche B of up to $330 million will bear interest at LIBOR plus 175 basis
points and will be payable in nine and one-half years. A revolving credit line
of up to $200 million will bear interest at LIBOR plus 125 basis points and will
be payable in seven years. As the Company reduces the outstanding debt relative
to cash flow (as defined in the proposed debt agreement), the interest rate
spread over LIBOR will decline. The debt is expected to be secured by certain
assets of the Company, and all of the debt will be pre-payable without penalty.
The Company intends to accelerate payments on this debt as cash generation
allows.
An additional $170 million of financing will be added to Tranche B in
the event that the sales of Cowles magazine and book publishing businesses do
not close simultaneously with the closing of the Cowles merger.
The definitive terms of the debt agreement are expected to include
certain operating and financial restrictions, such as limits on the Company's
ability to incur additional debt, create liens, sell assets, engage in mergers,
make investments and pay dividends.
<TABLE>
Other long-term obligations consist of (in thousands):
<CAPTION>
December 31,
---------------- -----------------
1997 1996
---------------- -----------------
<S> <C> <C>
Pension obligations $28,639 $17,272
Post retirement benefits obligation 7,895 9,058
Deferred compensation and other 3,872 3,484
---------------- -----------------
Total other long-term obligations $40,406 $29,814
================ =================
</TABLE>
31
<PAGE>
NOTE 5. INCOME TAXES
<TABLE>
Income tax provisions consist of (in thousands):
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current:
Federal $42,994 $31,449 $15,870
State 6,796 3,621 2,448
Deferred:
Federal (2,342) (4,379) 6,332
State 13 2,731 747
----------------- ----------------- -----------------
Income tax provision $47,461 $33,422 $25,397
================= ================= =================
</TABLE>
<TABLE>
The effective tax rate and the statutory federal income tax rate are
reconciled as follows:
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1997 1996 1995
---------------- ----------------- -----------------
<S> <C> <C> <C>
Statutory rate 35% 35% 35%
State taxes, net of federal benefit 4 5 4
Amortization of intangibles 3 4 4
Tax basis adjustment of intangibles sold (1) - -
Other - (1) -
---------------- ----------------- -----------------
Effective tax rate 41% 43% 43%
================ ================= =================
</TABLE>
<TABLE>
The components of deferred tax liabilities (benefits) recorded in the
Company's Consolidated Balance Sheet on December 31, 1997 and 1996 are (in
thousands):
<CAPTION>
1997 1996
----------------- ------------------
<S> <C> <C>
Depreciation and amortization $ 55,571 $ 55,649
Partnership losses 7,897 8,283
State taxes 762 1,310
Deferred compensation (18,630) (16,540)
Other 2,226 1,453
----------------- ------------------
Deferred tax liability (net of $8,437
in 1997 and $10,223 in 1996 reported
as current assets) $ 47,826 $ 50,155
================= ==================
</TABLE>
32
<PAGE>
NOTE 6. INTANGIBLES
<TABLE>
Intangibles consist of (in thousands):
<CAPTION>
December 31,
------------------------------------------
1997 1996
------------------- --------------------
<S> <C> <C>
Identifiable intangible assets,
primarily customer lists $ 147,196 $ 148,692
Excess purchase prices over
identifiable intangible assets 362,098 365,604
------------------- --------------------
Total 509,294 514,296
Less accumulated amortization 116,079 102,903
------------------- --------------------
Intangibles - net $ 393,215 $ 411,393
=================== ====================
</TABLE>
NOTE 7. EMPLOYEE BENEFITS
Early Retirement Charge:
THE SACRAMENTO BEE and THE (Tacoma) NEWS TRIBUNE made early retirement
programs available to certain employees. Pre-tax charges of $2,318,000 and
$390,000 were recorded in September 1995 and December 1995, respectively, for
these programs.
Retirement Plans:
The Company has two defined benefit pension plans (retirement plans)
which together cover a majority of its employees. Benefits are based on years of
service and compensation. Contributions to the plans are made by the Company in
amounts deemed necessary to provide benefits. Plan assets consist primarily of
investments in marketable securities including common stocks, bonds and U.S.
government obligations, and other interest bearing accounts.
The Company also has three supplemental retirement plans to provide key
employees with additional retirement benefits. The terms of the plans are
generally the same as those of the retirement plans, except that the
supplemental retirement plans are limited to key employees and benefits under it
are reduced by benefits received under the retirement plans. These plans are
funded on a pay-as-you-go basis and the accrued pension obligation is included
in other long-term obligations.
33
<PAGE>
<TABLE>
The elements of pension costs are as follows (in thousands):
<CAPTION>
December 31,
-----------------------------------------------------------
1997 1996 1995
----------------- ------------------ ------------------
<S> <C> <C> <C>
Cost of benefits earned during the year $ 7,409 $ 7,451 $ 6,031
Interest on projected benefit obligation 10,456 9,367 8,461
Return on plan assets - (gain) (24,145) (17,843) (20,897)
Deferred gain - return on plan assets
greater than assumed 13,309 8,128 12,948
Net amortization and other deferrals 22 (8) (13)
----------------- ------------------ ------------------
Net pension cost $ 7,051 $ 7,095 $6,530
================= ================== ==================
</TABLE>
<TABLE>
The plans' funded status and amounts recognized in the Company's
Consolidated Balance Sheet at December 31, 1997 and 1996 are as follows (in
thousands):
<CAPTION>
1997 1996
------------------------------ -------------------------------
Supplemental Supplemental
Retirement Retirement Retirement Retirement
Plans Plans Plans Plans
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 117,282 $ 8,976 $ 102,825 $ 7,237
============= ============== ============== ==============
Accumulated benefit obligation 126,156 9,032 108,216 7,283
============= ============== ============== ==============
Plan assets at fair value 150,582 131,371
Projected benefit obligation 147,864 10,958 127,669 8,822
------------- -------------- -------------- --------------
Plan assets over (under) projected benefit 2,718 (10,958) 3,702 (8,822)
Unrecognized losses (gains) net (20,817) 48 (16,597) (1,145)
Unrecognized prior service cost 1,559 1,403 1,920 1,600
Unrecognized net pension transition asset,
amortized over 15 years (2,189) - (2,736) -
------------- -------------- -------------- -------------
Accrued pension obligation $ (18,729) $ (9,507) $ (13,711) $ (8,367)
============= ============== ============== ==============
</TABLE>
<TABLE>
Assumptions used for valuing defined benefit obligations were:
<CAPTION>
December 31,
--------------------------------
1997 1996
----------- ------------
<S> <C> <C>
Discount rate in determining
benefit obligation 7.25% 7.50%
Expected long-term rate of
return on assets 9.00% 9.00%
Rates of compensation increase 3.5% - 5.0% 3.5% - 5.0%
</TABLE>
34
<PAGE>
The Company has two deferred Compensation and Investment Plans (401(k)
plans) which enable qualified employees (including N&O since 1995) to
voluntarily defer compensation. The Company's mandatory matching contributions
to the 401(k) plans were $5,123,000 in 1997, $4,704,000 in 1996, and $4,203,000
in 1995.
POSTRETIREMENT BENEFITS:
The Company also provides or subsidizes certain retiree health care and
life insurance benefits. In 1997, the Company terminated certain life insurance
benefits for employees retiring on or after January 1, 1998, and accordingly,
recorded a curtailment gain of $417,000 which is included in 1997 amortization.
The elements of postretirement expenses are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
1997 1996 1995
----------------- ------------------ ------------------
<S> <C> <C> <C>
Service costs $ 3 $ 22 $ 144
Interest costs 351 401 552
Amortization (1,071) (184) (105)
----------------- ------------------ ------------------
Total postretirement benefit costs $ (717) $ 239 $ 591
================= ================== ==================
</TABLE>
<TABLE>
The plan's funded status and amounts recognized in the Company's
Consolidated Balance Sheet at December 31, 1997 and 1996 are as follows (in
thousands):
<CAPTION>
1997 1996
----------------- ------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation (APBO):
Retirees $ 4,761 $ 4,454
Active eligible employees 30 158
Active ineligible employees 104 923
----------------- ------------------
Total APBO 4,895 5,535
Unrecognized gains 3,215 3,757
----------------- ------------------
Net postretirement benefit liability $ 8,110 $ 9,292
================= ==================
</TABLE>
<TABLE>
Assumptions used for valuing postretirement obligations were:
<CAPTION>
December 31,
------------------
1997 1996
------ ------
<S> <C> <C>
Discount rate in determining
benefit obligation 7.25% 7.50%
Medical care cost trend rate 9.50% 8.50%
</TABLE>
The medical care cost trend rates are estimated to decline to 5.8% by
the year 2002. A 1.0% increase in the assumed health care cost trend rate would
have increased the APBO and the annual service cost by 1.4 %.
35
<PAGE>
NOTE 8. CASH FLOW INFORMATION
No significant acquisitions were made in 1997 and 1996. See note 2 for
a discussion of the proposed merger of Cowles. Net cash paid for the acquisition
of newspapers and other operations in 1995 consists of (in thousands):
<TABLE>
<CAPTION>
N&O Other
Acquisition Acquisitions Total
----------------- ----------------- ------------------
<S> <C> <C> <C>
Assets acquired $ 418,011 $ 2,971 $ 420,982
Liabilities assumed (161,120) (822) (161,942)
Holdback payable (10,000) - (10,000)
Cash paid 246,891 2,149 249,040
Fees and expenses 644 - 644
Less cash acquired (8,182) (60) (8,242)
----------------- ----------------- ------------------
Net cash paid $ 239,353 $ 2,089 $ 241,442
================= ================= ==================
</TABLE>
<TABLE>
Cash paid during the years ended December 31, 1997, 1996 and 1995 for
interest and income taxes were (in thousands):
<CAPTION>
1997 1996 1995
---------------- --------------- --------------
<S> <C> <C> <C>
Interest paid
(net of amount capitalized) $ 9,255 $ 13,699 $ 9,856
Income taxes paid
(net of refunds) 51,262 27,543 26,167
</TABLE>
36
<PAGE>
<TABLE>
Cash provided or used by operations was affected by changes in certain
assets and liabilities, net of the effects of acquired newspaper operations, as
follows (in thousands):
<CAPTION>
December 31,
----------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (decrease) in assets:
Trade receivables $ 11,875 $ 12,419 $ 1,303
Inventories 7 (5,658) 4,175
Other assets 391 (5,895) 5,199
----------------- ----------------- -----------------
Total 12,273 866 10,677
----------------- ----------------- -----------------
Increase (decrease) in liabilities:
Accounts payable 12,831 2,656 (2,013)
Accrued compensation 5,408 6,024 1,730
Income taxes (1,474) 4,737 (5,698)
Other liabilities 2,045 (3,671) (1,273)
----------------- ----------------- -----------------
Total 18,810 9,746 (7,254)
----------------- ----------------- -----------------
Net cash increase (decrease) from changes in
certain assets and liabilities $ 6,537 $ 8,880 $ (17,931)
================= ================= =================
</TABLE>
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company guarantees $20,736,000 of bank debt related primarily to
its joint venture in the Ponderay newsprint mill.
The Company and its subsidiaries rent certain facilities and equipment
under operating leases expiring at various dates through August 2003. Total
rental expense amounted to $2,838,000 in 1997, $2,584,000 in 1996, and
$2,027,000 in 1995. Minimum rental commitments under operating leases with
noncancelable terms in excess of one year are (in thousands):
<TABLE>
<S> <C>
1998 $2,488
1999 1,386
2000 897
2001 528
2002 145
Thereafter 10
--------------
Total $5,454
==============
</TABLE>
There are libel and other legal actions that have arisen in the
ordinary course of business and are pending against the Company. From time to
time, the Company is involved as a party in various governmental proceedings,
including environmental matters. Management believes, after reviewing such
actions with counsel, that the outcome of pending actions will not have a
material adverse effect on the Company's consolidated results of operations or
financial position.
37
<PAGE>
NOTE 10. COMMON STOCK AND STOCK PLANS
On December 4, 1996, the Board of Directors of the Company declared a
five-for-four split on its Class A and Class B common stock in the form of a
special 25% stock dividend, which was paid on January 2, 1997 to the holders
of record of the common stock as of the close of business on December 16, 1996.
All share and per share amounts have been adjusted in the financial statements
to reflect the stock split.
The Company's Class A and Class B common stock participate equally in
dividends. Holders of Class B common stock are entitled to one vote per share
and to elect as a class 75% of the Board of Directors, rounded down to the
nearest whole number. Holders of Class A common stock are entitled to one-tenth
of a vote per share and to elect as a class 25% of the Board of Directors,
rounded up to the nearest whole number. Class B common stock is convertible at
the option of the holder into Class A common stock on a share-for-share basis.
At December 31, 1997 the Company has five stock-based compensation
plans, which are described below. The Company applies APB Opinion 25 and related
interpretations in accounting for its plans. No significant amounts of
compensation costs have been recognized for its fixed stock option plans and its
stock purchase plan.
The Company's Amended Employee Stock Purchase Plan (the Purchase Plan)
reserved 1,875,000 shares of Class A common stock for issuance to employees.
Eligible employees may purchase shares at 85% of "fair market value" (as
defined) through payroll deductions. The Purchase Plan can be automatically
terminated by the Company at any time. As of December 31, 1997, 793,148 shares
of Class A common stock have been issued under the Purchase Plan.
The Company has three stock option plans which reserve 2,312,500 Class
A common shares for issuance to key employees -- the 1987, 1994 and 1997 plans
("Employee Plans"). Terms of each of the Employee Plans are substantially the
same. Options are granted at the market price of the Class A common stock on the
date of grant. The options vest in installments over four years, and once vested
are exercisable up to 10 years from the date of grant. Although the plans permit
the Company, at its sole discretion, to settle unexercised options by granting
stock appreciation rights, the Company does not intend to avail itself of this
alternative except in limited circumstances.
The Company's amended and restated stock option plan for outside
directors (the Directors' Plan) provides for the issuance of up to 187,500
shares of Class A stock. Under the plan each outside director was granted an
option at fair market value at the conclusion of each regular annual meeting of
stockholders for 1,875 shares. Going forward, the annual grant will be 2,500
shares. Terms of the Directors' Plan are similar to the terms of the Employee
Plans. Outstanding options are summarized as follows:
38
<PAGE>
<TABLE>
<CAPTION>
Employee Plans Directors' Plan
-------------------------------------- --------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
------------------ ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
December 31, 1994 815,125 $15.43 67,500 $16.89
Granted 184,875 17.80 15,000 18.40
Exercised (6,125) 13.78 (5,625) 16.14
Forfeited (4,875) 16.58 (1,875) 18.40
------------------ -----------------
Outstanding,
December 31, 1995 989,000 15.88 75,000 17.22
Granted 203,000 25.10 15,000 18.90
Exercised (215,382) 13.77 (5,625) 16.83
Forfeited (2,032) 16.94 - -
------------------ -----------------
Outstanding,
December 31, 1996 974,586 18.29 84,375 17.54
Granted 204,000 28.19 16,875 25.75
Exercised (270,307) 15.83 (7,500) 16.58
------------------ -----------------
Outstanding,
December 31, 1997 908,279 $21.24 93,750 $19.09
================== =================
</TABLE>
<TABLE>
<CAPTION>
Employee Directors'
Plans Plans
-------- ----------
<S> <C> <C>
Options exercisable:
December 31, 1995 439,156 43,594
December 31, 1996 367,737 50,166
December 31, 1997 298,834 55,792
</TABLE>
The following tables summarize information about fixed stock options
outstanding in the Stock Plans at December 31, 1997:
<TABLE>
<CAPTION>
EMPLOYEE PLANS
- ---------------------------------------------------------------------------------------------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE OPTIONS CONTRACTUAL LIFE EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING PRICE EXERCISABLE PRICE
------ ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 11.50 - $ 17.30 247,531 5.21 $ 15.51 182,290 $ 14.87
$ 17.80 - $ 19.20 253,748 6.61 $ 18.06 116,544 $ 18.30
$ 25.10 203,000 8.95 $ 25.10 - -
$ 28.19 204,000 9.96 $ 28.19 - -
39
<PAGE>
DIRECTORS' PLAN
- ---------------------------------------------------------------------------------------------------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF EXERCISE REMAINING AVERAGE AVERAGE
PRICES OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------ ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 14.60 - $ 17.20 26,250 3.51 $ 16.24 26,250 $ 16.24
$ 17.90 - $ 18.40 35,625 6.48 $ 18.12 25,790 $ 18.07
$ 18.90 15,000 8.37 $ 18.90 3,752 $ 18.90
$ 25.75 16,875 9.39 $ 25.75 - -
</TABLE>
Had compensation costs for the Company's four stock-based compensation
plans been determined based upon the fair value at the grant dates for awards
under those plans consistent with the method of FASB Statement No. 123, the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- ------------------
<S> <C> <C> <C>
Net income:
As reported $ 68,799 $ 44,493 $33,618
Pro forma $ 67,973 $ 44,242 $33,449
Earnings per common share:
As reported:
Basic $ 1.81 $ 1.18 $ 0.90
Diluted $ 1.80 $ 1.18 $ 0.90
Pro forma
Basic $ 1.79 $ 1.17 $ 0.89
Diluted $ 1.78 $ 1.17 $ 0.89
</TABLE>
The impact of outstanding non-vested stock options granted prior to
1995 has been excluded from the pro forma calculation; accordingly, the 1997,
1996, and 1995 pro forma adjustments are not indicative of future period pro
forma adjustments, when the calculation will apply to all applicable stock
options.
Compensation costs are calculated for the fair value of the employees'
purchase rights, which was estimated using the Black-Scholes model with the
following assumptions for 1997, 1996 and 1995, respectively: dividend yield of
1.2% to 1.4% for all years; an expected life of one to seven years for all
years; expected volatility of .2838, .2791 and .2860; and risk-free interest
rates of 5.72 % to 6.62 % in 1997 and 5.4% to 6.4% in 1996 and 1995,
respectively. The weighted-average fair value of those purchase rights granted
in 1997, 1996 and 1995 was $8.99, $8.31 and $5.78, respectively for Employee
Plans and $8.28, $5.61 and $5.52, respectively for the Directors' Plan.
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments",
requires the determination of fair value for certain of the Company's assets,
liabilities and contingent liabilities. The following methods
40
<PAGE>
and assumptions were used to estimate the fair value of those financial
instruments included in the following categories:
Cash and Cash Equivalents - The carrying amount approximates fair value
based on quoted market prices.
Long-Term Bank Debt - The carrying value approximates fair value based
on interest rates available to the Company on debt instruments with
similar terms.
Interest Rate Swap Agreement - When considering interest rates at
December 31, 1997, it is estimated that the Company could terminate the
interest rate swap agreement with only a nominal loss, which is its
intent, upon closing of the Cowles merger (see note 2).
NOTE 12. SALE OF NEWSPAPER AND
OTHER BUSINESS OPERATIONS
On February 28, 1997, the Company completed the sale of the GILROY
DISPATCH, THE HOLLISTER FREE LANCE, the MORGAN HILL TIMES and the AMADOR LEDGER
DISPATCH. These newspapers had combined daily circulation of approximately
10,150 and weekly circulation of 12,800, and generated $7,574,000 in revenues in
1996. The Company reported a $6,748,000 pre-tax gain on the sale which is
included in nonoperating (expenses) income. The Company sold Legi-Tech, its
on-line legislative tracking company and certain real estate and recorded a
$2,506,000 pre-tax gain in this area.
The Ellensburg DAILY RECORD in Washington state was sold in December
1996 and a pre-tax gain of $3,218,000 was recorded in nonoperating income. The
Company also sold Nando's internet access operations and Legi-Tech's Florida
operations in 1996 and recorded a pre-tax loss of $378,000 on the sales.
NOTE 13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's business is somewhat seasonal, with peak revenues and
profits generally occurring in the second and fourth quarters of each year as a
result of increased advertising activity during the spring holiday and Christmas
periods. The first quarter is historically the weakest quarter for revenues and
profits. The Company's quarterly results are summarized as follows (in
thousands, except per share amounts):
41
<PAGE>
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
1997:
Revenues-net $ 150,621 $ 162,280 $ 159,600 $ 169,449
Operating income 22,790 32,542 26,926 33,497
Net income 15,357 17,592 15,525 20,325
Net income per common share (1) .40 .46 .41 .53
1996:
Revenues-net $ 146,303 $ 156,919 $ 155,543 $ 165,468
Operating income 10,097 22,195 22,639 30,304
Net income 4,386 11,205 11,442 17,460
Net income per common share (1) .12 .30 .30 .46
1995:
Revenues-net $ 113,798 $ 124,648 $ 141,961 $ 160,472
Operating income 10,358 19,734 11,030 21,252
Net income 6,642 12,531 4,449 9,996
Net income per common share (1) .18 .33 .12 .27
(1) All earnings per share (EPS) amounts have been adjusted to reflect
a five-for-four stock split paid on January 2, 1997 and reflect basic and
diluted EPS, except the first quarter 1997 when basic EPS is $0.41 and diluted
EPS is $0.40.
</TABLE>
In February 1997, the Company recorded an after-tax gain of $3,995,000
on the sale of four community newspapers, while in the third and fourth quarters
of 1997 the Company recorded an after-tax gain of $298,000 and $1,178,000,
respectively, on the sale of a non-newspaper business and certain real estate
assets.
In December 1996, the Company recorded an after-tax gain of $1,623,000
on the sale of various small business operations. In the third quarter of 1995,
the Company acquired The News and Observer Publishing Company and separately,
recorded an early retirement expense of $2,318,000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Biographical information for Class A Directors, Class B Directors and
executive officers contained under the captions "Nominees for Class A
Directors", "Nominees for Class B Directors" and "Other Executive Officers"
under the heading "Election of Directors" in the definitive Proxy Statement for
the Company's 1998 Annual Meeting of Stockholders is incorporated herein by
reference.
42
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the headings "Compensation", "Executive
Compensation", "Stock Option Awards", "Option Exercises and Holdings", "Pension
Plans" and "Employment Agreement" in the definitive Proxy Statement for the
Company's 1998 Annual Meeting of Stockholders is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the heading "Stock Ownership" in the
definitive Proxy Statement for the Company's 1998 Annual Meeting of Stockholders
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
a) (1)&(2) Financial Statements and Financial Statement
Schedules filed as a part of this Report as listed in the
Index to Financial Statements and Financial Statement
Schedules on page 21 hereof.
(3) Exhibits filed as part of this Report as listed in the
Exhibit Index beginning on page 48 hereof.
b) Reports on Form 8-K
The Company's filed a Current Report on Form 8-K dated
November 13, 1997, to report under Item 5 of Form 8-K the
execution of a definitive agreement in connection with the
Cowles merger.
43
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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 ON MARCH 30, 1998.
THE McCLATCHY COMPANY
By /s/ GARY B. PRUITT
---------------------------------------
Gary B. Pruitt
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
PRINCIPAL EXECUTIVE OFFICERS:
<S> <C> <C>
/s/ GARY B. PRUITT President, Chief Executive March 30, 1998
- -------------------------------------------------- Officer and Director
(Gary B. Pruitt)
PRINCIPAL FINANCIAL OFFICER:
/s/ JAMES P. SMITH Vice President, March 30, 1998
- -------------------------------------------------- Finance, Treasurer
(James P. Smith) and Director
PRINCIPAL ACCOUNTING OFFICER:
/s/ ROBERT W. BERGER Controller March 30, 1998
- --------------------------------------------------
(Robert W. Berger)
44
<PAGE>
SIGNATURES-(CONTINUED)
SIGNATURE TITLE DATE
--------- ----- ----
DIRECTORS:
/s/ ELIZABETH BALLANTINE Director March 30, 1998
- --------------------------------------------------
(Elizabeth Ballantine))
/s/ WILLIAM K. COBLENTZ Director March 30, 1998
- --------------------------------------------------
(William K. Coblentz)
/s/ MOLLY MALONEY EVANGELISTI Director March 30, 1998
- --------------------------------------------------
(Molly Maloney Evangelisti)
/s/ JOAN F. LANE Director March 30, 1998
- --------------------------------------------------
(Joan F. Lane)
/s/ R. LARRY JINKS Director March 30, 1998
- --------------------------------------------------
(R. Larry Jinks)
/s/ BETTY LOU MALONEY Director March 30, 1998
- --------------------------------------------------
(Betty Lou Maloney)
/s/ JAMES B. McCLATCHY Publisher and March 30, 1998
- --------------------------------------------------
(James B. McClatchy) Director
Director
- --------------------------------------------------
(William Ellery McClatchy)
45
<PAGE>
SIGNATURES-(CONTINUED)
SIGNATURE TITLE DATE
--------- ----- ----
DIRECTORS:
/s/ ERWIN POTTS Chairman of the Board and March 30, 1998
- -------------------------------------------------- Director
(Erwin Potts)
/s/ S. DONLEY RITCHEY, JR. Director March 30, 1998
- --------------------------------------------------
(S. Donley Ritchey, Jr.)
/s/ WILLIAM M. ROTH Director March 30, 1998
- --------------------------------------------------
(William M. Roth)
/s/ FREDERICK R. RUIZ Director March 30, 1998
- --------------------------------------------------
(Frederick R. Ruiz)
</TABLE>
46
<PAGE>
SCHEDULE II
<TABLE>
MCCLATCHY NEWSPAPERS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
(in thousands)
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Deductions
Additions (1) for
------------------------------ Purposes
Balance Charged to Charged to for Which Balance at End
Beginning Costs and Other Accounts Were of Period
of Period Expenses Accounts Set Up
------------- -------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Deduct from assets to which
they apply:
Uncollectible accounts $ (2,000) $ (3,688) $ - $ 3,361 $ (2,327)
YEAR ENDED DECEMBER 31, 1996:
Deduct from assets to which
they apply:
Uncollectible accounts $ (2,327) $ (5,567) $ - $ 5,454 $ (2,440)
YEAR ENDED DECEMBER 31, 1997:
Deduct from assets to which
they apply:
Uncollectible accounts $ (2,440) $ (4,793) $ - $ 5,071 $ (2,162)
(1) Amounts written off net of bad debt recoveries.
</TABLE>
47
<PAGE>
INDEX OF EXHIBITS
EXHIBIT
-------
3.1 The Company's Restated Certificate of Incorporation dated
March 18, 1998.
3.2* The Company's By-laws included as an Exhibit 3.2 in the
Company's Registration Statement No. 333-46501 on Form S-4.
10.1* Amended and Restated Agreement and Plan of Merger and
Reorganization between The McClatchy Company and Cowles
Media Company dated February 13, 1998 included as an Exhibit
2.1 in the Company's Registration Statement No. 333-46501 on
Form S-4.
10.2 Credit Agreement dated March 10, 1998 between The McClatchy
Company (formerly MNI Newco, Inc.), the lenders party
thereto, Salomon Brothers, Inc., as Arranger and Syndication
Agent and Bank of America National Trust and Savings
Association as Swingline Lender, Administrative Agent and
Collateral Agent.
10.3* Ponderay Newsprint Company Partnership Agreement dated as of
September 12, 1985 between Lake Superior Forest Products,
Inc., Central Newsprint Company, Inc., Bradley Paper
Company, Copley Northwest, Inc., Puller Paper Company,
Newsprint Ventures, Inc., Wingate Paper Company, Tribune
Newsprint Company and Nimitz Paper Company included in
Exhibit 10.10 to McClatchy Newspapers, Inc. Registration
Statement No. 33-17370 on Form S-1.
**10.4* McClatchy Newspapers, Inc. Management by Objective Plan
Description included in Exhibit 10.1 to McClatchy
Newspapers, Inc. Registration Statement No. 33-17270 on Form
S-1.
**10.5* Supplemental Executive Retirement Plan included in Exhibit
10.7 to McClatchy Newspapers, Inc. 1988 Report on Form 10-K.
**10.6*+ Amended and Restated 1987 Stock Option Plan dated August 15,
1996 included as Exhibit 10.7 to the McClatchy Newspapers,
Inc. 1996 Report on Form 10-K.
**10.7*+ Amended and Restated 1994 Stock Option Plan dated August 15,
1996 included as Exhibit 10.8 to the McClatchy Newspapers,
Inc. 1996 Report on Form 10-K.
10.8+ 1997 Stock Option Plan dated December 10, 1997.
**10.9* Group Executive Life Insurance Plan included in Exhibit 10.9
to McClatchy Newspapers, Inc. Registration Statement No.
33-17270 on Form S-1.
**10.10* Group Executive Long Term Disability Insurance Plan included
in Exhibit 10.8 to McClatchy Newspapers, Inc. Registration
Statement No. 33-17270 on Form S-1.
**10.11* Executive Performance Plan adopted on January 1, 1990,
included in Exhibit 10.13 to McClatchy Newspapers, Inc. 1989
Report on Form 10-K.
**10.12+ Amended and Restated 1990 Directors' Stock
Option Plan dated February 1, 1998.
**10.13+ Employment Agreement between the Company and Gary B. Pruitt
dated June 1, 1996 included as Exhibit 10.13 to the
McClatchy Newspapers, Inc. 1996 Report on Form 10-K.
21 Subsidiaries of the Company.
23 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule for the Year Ended December 31,
1997.
27.2 Restated Financial Data Schedule for the Quarter Ended
March 31, 1997.
- ---------------
* Incorporated by reference
** Compensation plans or arrangements for the Company's executive officers
and directors.
+ Assumed by the Company from McClatchy Newspapers, Inc. on March 19, 1998.
48
RESTATED CERTIFICATE OF INCORPORATION
OF
THE McCLATCHY COMPANY
(Originally incorporated on
November 18, 1997
under the name MNI Newco, Inc.)
ARTICLE I
The name of the corporation is THE McCLATCHY COMPANY.
ARTICLE II
The address of its registered office in the State of Delaware is 1209
Orange Street, in the City of Wilmington, County of New Castle, 19801. The name
of its registered agent at such address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the Delaware General Corporation Law.
ARTICLE IV
(a) Authorized Capitalization. The total number of shares of all
classes of stock which the Corporation shall have authority to issue is one
hundred sixty million (160,000,000) shares, consisting of one hundred million
(100,000,000) shares of Class A Common Stock, with a par value of one cent
($.01) per share, and sixty million (60,000,000) shares of Class B Common Stock,
with a par value of one cent ($.01) per share. The number of authorized shares
of Class A Common Stock or Class B Common Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the voting power of all of the then
outstanding shares of Common Stock voting together as a single class without the
separate vote of the holders of any other class of stock.
-1-
<PAGE>
(b) Class A Common Stock. The shares of Class A Common Stock and shares
of Class B Common Stock shall be identical in all respects and shall have equal
rights and privileges except as set forth in this paragraph (b) and in paragraph
(c) of this Article IV. Upon dissolution of the Corporation, holders of Class A
Common Stock and holders of Class B Common Stock are entitled to share ratably
in the assets thereof that may be available for distribution after satisfaction
of creditors.
(i) Dividends.
(A) Such dividends or distributions as may be determined by the Board
of Directors of the Corporation from time to time may be declared and paid or
made upon the Class A Common Stock out of any source at the time lawfully
available for the payment of dividends, provided that (subject to subparagraph
(B) and (C) below of this paragraph (b)(i)) identical dividends or distributions
are declared and paid concurrently upon the Class B Common Stock. If dividends
or distributions are declared and paid upon the Class B Common Stock (subject to
subparagraphs (B) and (C) below of this paragraph (b)(i)) an identical dividend
shall be declared and paid concurrently on the Class A Common Stock.
(B) No dividend may be declared and paid in Class A Common Stock unless
the dividend is payable only to holders of Class A Common Stock and a dividend
payable to Class B Common Stock is declared and paid concurrently in respect of
outstanding shares of Class B Common Stock in the same number of shares of Class
B Common Stock per outstanding share.
(C) If a dividend is declared and paid in Class B Common Stock in
respect of outstanding shares of Class B Common Stock, then a dividend shall be
declared and paid concurrently in shares of Class A Common Stock in respect of
outstanding shares of Class A Common Stock so that each holder of outstanding
shares of Class A Common Stock receives (on a per outstanding share basis) a
total number of dividend shares of Class A Common Stock equal to the number of
dividend shares of Class B Common Stock received by the holders of the
outstanding shares of Class B Common Stock.
(ii) Stock Combinations and Subdivisions. The Class A Common Stock
shall not be combined or subdivided unless at the same time there is a
proportionate combination or subdivision of the Class B Common Stock. If the
Class B Common Stock is combined or subdivided, a proportionate combination or
subdivision of the Class A Common Stock shall be made at the same time.
(iii) Voting. The holders of Class A Common Stock shall have the voting
rights set forth below:
(A) With respect to the election of Directors, the holders of
Class A Common Stock voting as a separate class shall be entitled to elect that
number of Directors which constitutes twenty-five percent (25%) of the total
membership of the Board of Directors, and if such twenty-five percent (25%) is
not a whole number, then the holders of Class A Common
-2-
<PAGE>
Stock will be entitled to elect the nearest higher whole number of directors
which constitutes twenty-five percent (25%) of such membership. Such election
shall be from a slate of Director nominees separate from a slate of Director
nominees from which holders of Class B Common Stock shall elect Directors. There
shall be no cumulative voting for either holders of Class A Common Stock or
holders of Class B Common Stock.
(B) The holders of Class A Common Stock will be entitled to
vote as a separate class on the removal, with or without cause, of any Director
elected by the holders of Class A Common Stock, provided that, to the extent
permitted by applicable law, any Director may be removed for cause by the Board
of Directors.
(C) Except as may otherwise be required by law, the holders of
Class A Common Stock shall, in all matters not referred to in subparagraphs (A)
or (B) of this paragraph (b)(iii) or in subparagraphs (A) or (B) of paragraph
(c)(iii) of this Article IV, vote together with the holders of Class B Common
Stock as a single class, provided that the holders of Class A Common Stock will
have one-tenth (1/10) of a vote for each share and the holders of Class B Common
Stock shall have one (1) vote for each share.
(D) Notwithstanding anything herein to the contrary, the
holders of Class A Common Stock shall have exclusive voting power on all matters
at any time when no shares of Class B Common Stock are issued and outstanding.
(c) Class B Common Stock.
(i) Dividends and Distributions. Subject to the provisions of paragraph
(b)(i) of this Article IV, such dividends and distributions may be declared and
paid or made upon the Class B Common Stock as may be permitted by applicable
law.
(ii) Stock Combinations and Subdivisions. Subject to the provisions of
paragraph (b)(ii) of this Article IV, the Class B Common Stock may be combined
or subdivided in such manner as may be permitted by applicable law.
(iii) Voting. Subject to the provisions of paragraph (b)(iii) of this
Article IV, the Class B Common Stock shall have one (1) vote per share on all
matters that may be submitted to a vote of the stockholders.
Without limiting the generality of the foregoing:
(A) With respect to the election of Directors, the holders of
Class B Common Stock shall be entitled, voting as a separate class, to elect the
remaining Directors not subject to the priority rights of the holders of the
Class A Common Stock set forth in paragraph (b)(iii)(A) of this Article IV; and
(B) The holders of the Class B Common Stock will be entitled
to vote as a separate class on the removal, with or without cause, of any
Director who was elected either by the holders of the Class B Common Stock or by
Directors who were elected by the holders of
-3-
<PAGE>
the Class B Common Stock, provided that any Director may be removed for cause by
the Board of Directors.
(iv) Conversion.
(A) Each holder of record of Class B Common Stock may, in such holder's
sole discretion and at such holder's option, convert any whole number or all of
such holder's shares of Class B Common Stock into fully paid and nonassessable
shares of Class A Common Stock at the rate (subject to adjustment as hereinafter
provided) of one (1) share of Class A Common Stock for each share of Class B
Common Stock surrendered for conversion. Any such conversion may be effected by
any holder of Class B Common Stock surrendering such holder's certificate or
certificates for the shares of Class B Common Stock to be converted, duly
endorsed, at the office of the Corporation or any transfer agent for the Class B
Common Stock, together with a written notice to the Corporation at such office
that such holder elects to convert all or a specified number of shares of Class
B Common Stock and stating the name or names in which such holder desires the
certificate or certificates for such shares of Class A Common Stock to be
issued. Promptly thereafter, the Corporation shall issue and deliver to such
holder or such holder's nominee or nominees, a certificate or certificates for
the number of shares of Class A Common Stock to which such holder shall be
entitled as aforesaid. Such conversion shall be deemed to have been made at the
close of business on the date of such surrender and the person or persons
entitled to receive the shares of Class A Common Stock issuable on such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Class A Common Stock on that date.
(B) The number of shares of Class A Common Stock into which the shares
of Class B Common Stock may be converted shall be subject to adjustment from
time to time in the event of any capital reorganization, reclassification of
stock of the Corporation, consolidation or merger of the Corporation with or
into another corporation, or sale or conveyance of all or substantially all of
the assets of the Corporation to another corporation or other entity or person.
Each share of Class B Common Stock shall thereafter be convertible into such
kind and amount of securities or other assets, or both, as are issuable or
distributable in respect of the number of shares of Class A Common Stock into
which each share of Class B Common Stock is convertible immediately prior to
such reorganization, reclassification, consolidation, merger, sale or
conveyance. In any such case, appropriate adjustments shall be made by the Board
of Directors of the Corporation in the application of the provisions herein set
forth with respect to the rights and interest thereafter of the holders of Class
B Common Stock to the end that the provisions set forth herein (including
provisions for adjustment of the conversion rate) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any securities or
other assets thereafter deliverable on conversion of the Class B Common Stock.
(C) The Corporation shall, at all times, reserve and keep available out
of the authorized and unissued shares of Class A Common Stock, solely for the
purpose of effecting the conversion of the outstanding Class B Common Stock,
such number of shares of Class A Common Stock as shall from time to time be
sufficient to effect conversion of all outstanding Class B Common Stock and if,
at any time, the number of authorized and unissued shares of
-4-
<PAGE>
Class A Common Stock shall not be sufficient to effect conversion of the then
outstanding Class B Common Stock, the Corporation shall take such corporate
action as may be necessary to increase the number of authorized and unissued
shares of Class A Common Stock to such number as shall be sufficient for such
purposes.
ARTICLE V
In the consideration and approval of all policies and actions of the
Corporation, the Board of Directors shall have the right to consider all
relevant factors which are in the best interests of the Corporation and its
stockholders, including and in addition to the financial interests of
stockholders, community standards and values, the welfare of employees, and the
quality and independence of the Corporation and its publishing enterprise.
ARTICLE VI
The Board of Directors is expressly authorized to make, alter or repeal
the by-laws of the Corporation.
ARTICLE VII
(a) A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
(b) Each director or officer of the Corporation who was or is made a
party or is threatened to be made a party to or is in any way involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including without limitation any
action, suit or proceeding brought by or in the right of the Corporation to
procure a judgment in its favor) (hereinafter a "proceeding"), including any
appeal therefrom, by reason of the fact that he or she, or a person of whom he
or she is the legal representative, is or was a director, officer, employee,
agent or fiduciary of the Corporation or a predecessor corporation or of a
subsidiary of the Corporation or any such predecessor corporation, or is or was
serving at the request of the Corporation or any such predecessor corporation,
as a director, officer, manager, partner, trustee, employee, fiduciary or agent
of another entity or enterprise, or by reason of anything done or not done in
such capacity, shall be indemnified and held harmless by the Corporation, and
the Corporation shall advance all expenses incurred by any such person in
connection with any such proceeding prior to its final determination, to the
fullest extent authorized by the Delaware General Corporation Law. In any
proceeding against the Corporation to enforce these rights, such person shall be
presumed
-5-
<PAGE>
to be entitled to indemnification, and the Corporation shall have the burden of
proof to overcome that presumption. The rights to indemnification and
advancement of expenses conferred by this Article shall be presumed to have been
relied upon by directors and officers of the Corporation in serving or
continuing to serve the Corporation and shall be enforceable as contract rights.
Said rights shall not be exclusive of any other rights to which those seeking
indemnification may otherwise be entitled. The Corporation may, upon written
demand presented by a director or officer of the Corporation or of a subsidiary
of the Corporation, or by a person serving at the request of the Corporation as
a director or officer of another entity or enterprise, enter into contracts to
provide such persons with specific rights to indemnification, which contracts
may confer rights and protections to the maximum extent permitted by the
Delaware General Corporation Law. The Corporation may create trust funds, grant
security interests, obtain letters of credit, or use other means to ensure
payment of such amounts as may be necessary to perform the obligations provided
for in this Article or in any such contract.
(c) Any repeal or modification of the foregoing provisions of this
Article by the stockholders of the Corporation shall not adversely affect any
right or protection of a director or officer of the Corporation existing at the
time of such repeal or modification, including without limitation any
contractual rights arising under or authorized by this Article.
(d) In addition to any vote of the holders of any class or series of
the stock of this Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of at least 66-2/3% of the
voting power of all of the then outstanding shares of the Common Stock of the
Corporation voting together as a single class, shall be required to amend or
repeal this Article.
ARTICLE VIII
The Corporation shall be entitled to treat the person in whose name any
share is registered as the owner thereof, for all purposes, and shall not be
bound to recognize any equitable or other claim to, or interest in, such share
on the part of any other person, whether or not the Corporation shall have
notice thereof, save as expressly provided by the laws of the United States of
America or of the State of Delaware.
-6-
<PAGE>
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, which
restates and integrates and further amends the provisions of the Certificate of
Incorporation of this Corporation, and which has been duly adopted in accordance
with Sections 242 and 245 of the Delaware General Corporation Law, has been
executed by The McClatchy Company by its duly authorized officer this 18th day
of March, 1998.
THE McCLATCHY COMPANY
By /s/ Gary Pruitt
-------------------------------
Gary B. Pruitt
President
TABLE OF CONTENTS
ARTICLE I DEFINITIONS...........................2
SECTION 1.01. DEFINED TERMS...................................................2
SECTION 1.02. TERMS GENERALLY................................................31
ARTICLE II THE CREDITS.........................32
SECTION 2.01. COMMITMENTS....................................................32
SECTION 2.02. LOANS..........................................................32
SECTION 2.03. BORROWING PROCEDURE............................................35
SECTION 2.04. EVIDENCE OF DEBT; REPAYMENT OF LOANS...........................35
SECTION 2.05. FEES...........................................................36
SECTION 2.06. INTEREST ON LOANS..............................................38
SECTION 2.07. DEFAULT INTEREST...............................................38
SECTION 2.08. ALTERNATE RATE OF INTEREST.....................................39
SECTION 2.09. TERMINATION AND REDUCTION OF COMMITMENTS.......................39
SECTION 2.10. CONVERSION AND CONTINUATION OF BORROWINGS......................40
SECTION 2.11. REPAYMENT OF TERM BORROWINGS...................................42
SECTION 2.12. PREPAYMENT.....................................................43
SECTION 2.13. MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS................44
SECTION 2.14. RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES..................46
SECTION 2.15. CHANGE IN LEGALITY.............................................48
SECTION 2.16. INDEMNITY......................................................49
SECTION 2.17. PRO RATA TREATMENT.............................................50
SECTION 2.18. SHARING OF SETOFFS.............................................50
SECTION 2.19. PAYMENTS.......................................................51
SECTION 2.20. TAXES..........................................................52
SECTION 2.21. ASSIGNMENT OF COMMITMENTS UNDER CERTAIN
CIRCUMSTANCES; DUTY TO MITIGATE............................55
SECTION 2.22. SWINGLINE LOANS................................................57
SECTION 2.23. LETTERS OF CREDIT..............................................59
ARTICLE III REPRESENTATIONS AND WARRANTIES.....65
SECTION 3.01. ORGANIZATION; POWERS...........................................65
SECTION 3.02. AUTHORIZATION..................................................65
SECTION 3.03. ENFORCEABILITY.................................................66
SECTION 3.04. GOVERNMENTAL APPROVALS.........................................66
SECTION 3.05. FINANCIAL STATEMENTS...........................................66
SECTION 3.06. NO MATERIAL ADVERSE CHANGE.....................................67
SECTION 3.07. TITLE TO PROPERTIES; POSSESSION UNDER
LEASES.............................................67
SECTION 3.08. SUBSIDIARIES...................................................68
SECTION 3.09. LITIGATION; COMPLIANCE WITH LAWS...............................68
SECTION 3.10. AGREEMENTS.....................................................69
SECTION 3.11. FEDERAL RESERVE REGULATIONS....................................69
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<PAGE>
SECTION 3.12. INVESTMENT COMPANY ACT; PUBLIC
UTILITY HOLDING COMPANY ACT........................69
SECTION 3.13. USE OF PROCEEDS................................................69
SECTION 3.14. TAX RETURNS....................................................69
SECTION 3.15. NO MATERIAL MISSTATEMENTS......................................70
SECTION 3.16. EMPLOYEE BENEFIT PLANS.........................................70
SECTION 3.17. ENVIRONMENTAL MATTERS..........................................70
SECTION 3.18. INSURANCE......................................................71
SECTION 3.19. SECURITY DOCUMENTS.............................................72
SECTION 3.20. LOCATION OF REAL PROPERTY AND LEASED
PREMISES...........................................72
SECTION 3.21. LABOR MATTERS..................................................73
SECTION 3.22. SOLVENCY.......................................................73
SECTION 3.23. COPYRIGHTS, TRADEMARKS, ETC....................................73
SECTION 3.24. YEAR 2000 COMPLIANCE...........................................74
ARTICLE IV CONDITIONS OF LENDING...............74
SECTION 4.01. ALL CREDIT EVENTS..............................................74
SECTION 4.02. FIRST CREDIT EVENT.............................................75
ARTICLE V AFFIRMATIVE COVENANTS................81
SECTION 5.01. EXISTENCE; BUSINESSES AND PROPERTIES...........................81
SECTION 5.02. INSURANCE......................................................81
SECTION 5.03. OBLIGATIONS AND TAXES..........................................83
SECTION 5.04. FINANCIAL STATEMENTS, REPORTS, ETC.............................84
SECTION 5.05. LITIGATION AND OTHER NOTICES...................................86
SECTION 5.06. EMPLOYEE BENEFITS..............................................86
SECTION 5.07. MAINTAINING RECORDS; ACCESS TO
PROPERTIES AND INSPECTIONS.........................86
SECTION 5.08. USE OF PROCEEDS................................................87
SECTION 5.09. COMPLIANCE WITH ENVIRONMENTAL LAWS.............................87
SECTION 5.10. PREPARATION OF ENVIRONMENTAL REPORTS...........................87
SECTION 5.11. CASUALTY AND CONDEMNATION......................................87
SECTION 5.12. FURTHER ASSURANCES.............................................88
SECTION 5.13. INTEREST RATE PROTECTION.......................................89
SECTION 5.14. DESIGNATION OF UNRESTRICTED SUBSIDIARIES.......................89
ARTICLE VI NEGATIVE COVENANTS..................90
SECTION 6.01. INDEBTEDNESS...................................................90
SECTION 6.02. LIENS..........................................................92
SECTION 6.03. SALE AND LEASE-BACK TRANSACTIONS...............................94
SECTION 6.04. INVESTMENTS, LOANS AND ADVANCES................................94
SECTION 6.05. MERGERS, CONSOLIDATIONS, SALES OF
ASSETS AND ACQUISITIONS............................95
SECTION 6.06. DIVIDENDS AND DISTRIBUTIONS; RESTRICTIONS
ON ABILITY OF BORROWER AND RESTRICTED
SUBSIDIARIES TO PAY DIVIDENDS......................96
SECTION 6.07. TRANSACTIONS WITH AFFILIATES...................................97
SECTION 6.08. BUSINESS OF BORROWER AND RESTRICTED
SUBSIDIARIES.......................................97
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<PAGE>
SECTION 6.09. HEDGING AGREEMENTS.............................................97
SECTION 6.10. AMENDMENT OF MATERIAL DOCUMENTS................................97
SECTION 6.11. FINANCIAL COVENANTS............................................98
ARTICLE VII EVENTS OF DEFAULT..................99
ARTICLE VIII THE ADMINISTRATIVE AGENT AND
THE COLLATERAL AGENT.............103
SECTION 8.01. APPOINTMENT AND AUTHORIZATION.................................103
SECTION 8.02. DELEGATION OF DUTIES..........................................103
SECTION 8.03. LIABILITY OF AGENT............................................103
SECTION 8.04. RELIANCE BY AGENT.............................................104
SECTION 8.05. NOTICE OF DEFAULT.............................................105
SECTION 8.06. CREDIT DECISION...............................................105
SECTION 8.07. INDEMNIFICATION OF AGENT......................................106
SECTION 8.08. AGENT IN INDIVIDUAL CAPACITY..................................107
SECTION 8.09. SUCCESSOR AGENT...............................................107
SECTION 8.10. COLLATERAL MATTERS............................................107
SECTION 8.11. SYNDICATION AGENT; ARRANGER...................................108
ARTICLE IX MISCELLANEOUS......................109
SECTION 9.01. NOTICES.......................................................109
SECTION 9.02. SURVIVAL OF AGREEMENT.........................................109
SECTION 9.03. BINDING EFFECT................................................110
SECTION 9.04. SUCCESSORS AND ASSIGNS........................................110
SECTION 9.05. EXPENSES; INDEMNITY...........................................115
SECTION 9.06. RIGHT OF SETOFF...............................................116
SECTION 9.07. APPLICABLE LAW................................................116
SECTION 9.08. WAIVERS; AMENDMENT............................................117
SECTION 9.09. INTEREST RATE LIMITATION......................................118
SECTION 9.10. ENTIRE AGREEMENT..............................................118
SECTION 9.11. WAIVER OF JURY TRIAL..........................................118
SECTION 9.12. SEVERABILITY..................................................119
SECTION 9.13. COUNTERPARTS..................................................119
SECTION 9.14. HEADINGS......................................................119
SECTION 9.15. JURISDICTION; CONSENT TO SERVICE
OF PROCESS........................................119
SECTION 9.16. CONFIDENTIALITY...............................................120
SECTION 9.17. RELEASE OF LIENS AND GUARANTEES...............................121
LIST OF EXHIBITS
EXHIBIT A Form of Administrative Questionnaire
Section 1.01
EXHIBIT B Form of Assignment and Acceptance Section 1.01
EXHIBIT C Form of Borrowing Request Section 1.01
EXHIBIT D Guarantee Agreement Section 1.01
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<PAGE>
EXHIBIT E Indemnity,Subrogation and Contribution
Agreement Section 1.01
EXHIBIT F Pledge Agreement Section 1.01
EXHIBIT G Security Agreement Section 1.01
EXHIBIT H Opinions of Counsel Section 4.02(a)
EXHIIBT I Notice of Conversion/Continuation Section 2.10
LIST OF SCHEDULES
Schedule 1.01(a) Stock Plans
Schedule 1.01(b) Restricted Subsidiaries
Schedule 1.01(c) McClatchy Family Member
Schedule 1.01(d) Refinanced Indebtedness
Schedule 1.01(e) Unrestricted Subsidiaries
Schedule 2.01 Commitments
Schedule 3.07(c) Properties - Condemnation Notices
Schedule 3.07(d) Properties - Options
Schedule 3.08(a) Subsidiaries
Schedule 3.08(b) Stock Options and Rights
Schedule 3.09 Litigation
Schedule 3.17 Environmental Matters
Schedule 3.18 Insurance
Schedule 3.20(a) Owned Real Property
Schedule 3.20(b) Leased Real Property
Schedule 3.21(b) Collective Bargaining Agreement Rights
as a result of Transactions
Schedule 3.23 Intellectual Property
Schedule 4.02(a) Local Counsel
Schedule 6.01(a) Existing Indebtedness and Guarantees
Schedule 6.01(j) Litigation Indebtedness
Schedule 6.02 Existing Liens
Schedule 6.07 Contracts with Affiliates
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<PAGE>
CREDIT AGREEMENT dated as of March 10, 1998,
among MNI NEWCO, INC., a Delaware corporation (the
"BORROWER"), the Lenders (as defined in Article I),
SALOMON BROTHERS INC, as arranger (in such capacity,
the "ARRANGER") and as syndication agent (in such
capacity, the "SYNDICATION AGENT") and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as
swingline lender (in such capacity, the "SWINGLINE
LENDER"), and as administrative agent (in such
capacity, the "ADMINISTRATIVE AGENT") and as
collateral agent (in such capacity, the "COLLATERAL
AGENT") for the Lenders.
The Borrower has requested the Lenders to extend credit in the form of
(a) Tranche A Term Loans (such term and each other capitalized term used but not
defined herein having the meaning given it in Article I) on the Closing Date, in
an aggregate principal amount not in excess of $735,000,000, (b) Tranche B Term
Loans on the Closing Date, in an aggregate principal amount not in excess of
$330,000,000, and (c) Revolving Loans at any time and from time to time prior to
the Revolving Credit Maturity Date, in an aggregate principal amount at any time
outstanding not in excess of $200,000,000; PROVIDED, HOWEVER, that on the
Closing Date, the Borrower may, upon written request to the Administrative
Agent, increase the aggregate principal amount of the Tranche B Loans by up to
an amount equal to $170,000,000 less all cash consideration received from, and
debt assumed by, Persons other than the Borrower and its Subsidiaries in
connection with the sale after the date hereof and on or prior to the Closing
Date of (i) any capital stock of Cowles Business Media, Inc., Cowles Enthusiast
Media, Inc., Southwest Art, Inc. and/or Cowles Creative Publishing, such
increase to be allocated on a pro rata basis to Salomon Brothers Holding Company
Inc and Bank of America National Trust and Savings Association and Schedule 2.01
to be revised to reflect such additional allocations. The Borrower has requested
the Swingline Lender to extend credit, at any time and from time to time prior
to the Revolving Credit Maturity Date, in the form of Swingline Loans. The
Borrower has requested the Issuing Banks to issue letters of credit, in an
aggregate face amount at any time outstanding not in excess of $50,000,000, to
support payment obligations incurred in the ordinary course of business by the
Borrower and its Subsidiaries. The proceeds of the Term Loans will be used
solely to pay a portion of the Cash Consideration and the Transaction Costs and
to repay the Refinanced Indebtedness in connection with the
<PAGE>
2
Acquisition; the proceeds of the Revolving Loans are to be used solely to pay
the remainder of the Cash Consideration and Transaction Costs in connection with
the Acquisition and, together with the proceeds of the Swingline Loans, for
working capital and other general corporate purposes.
The Lenders and the Swingline Lender are willing to extend such credit
to the Borrower and the Issuing Banks are willing to issue letters of credit for
the account of the Borrower on the terms and subject to the conditions set forth
herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINED TERMS. As used in this Agreement, the following
terms shall have the meanings specified below:
"ABR BORROWING" shall mean a Borrowing comprised of
ABR Loans.
"ABR LOAN" shall mean any ABR Term Loan or ABR Revolving Loan.
"ABR REVOLVING LOAN" shall mean any Revolving Loan bearing interest at
a rate determined by reference to the Alternate Base Rate plus the Applicable
Percentage in accordance with the provisions of Article II.
"ABR TERM BORROWING" shall mean a Borrowing comprised of ABR Term
Loans.
"ABR TERM LOAN" shall mean any Term Loan bearing interest at a rate
determined by reference to the Alternate Base Rate plus the Applicable
Percentage in accordance with the provisions of Article II.
"ACQUISITION" shall mean the creation of the Borrower as a wholly owned
subsidiary of McClatchy, the acquisition by the Borrower of all the stock of
each of McClatchy and Cowles Media Company through mergers of wholly owned
subsidiaries of the Borrower with and into each of McClatchy and Cowles and, in
connection therewith, the repayment by the Borrower of the Refinanced
Indebtedness.
<PAGE>
3
"ADDITIONAL AMOUNT" shall have the meaning assigned to such term in
Section 2.20(a).
"ADJUSTED EBITDA" means, for any period, Consolidated EBITDA for such
period less Capital Expenditures for such period.
"ADJUSTED LIBO RATE" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/100 of 1%) equal to the product of (a) the LIBO Rate
in effect for such Interest Period and (b) Statutory Reserves.
"ADMINISTRATIVE AGENT FEES" shall have the meaning assigned to such
term in Section 2.05(b).
"ADMINISTRATIVE QUESTIONNAIRE" shall mean an
Administrative Questionnaire in the form of Exhibit A.
"AFFILIATE" shall mean, when used with respect to a specified Person,
another Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the Person
specified.
"AGENT RELATED PERSONS" means all Affiliates, directors, officers,
employees and agents of the Administrative Agent.
"AGENTS" shall have the meaning assigned to such term
in Article VIII.
"AGGREGATE REVOLVING CREDIT EXPOSURE" shall mean the aggregate amount
of the Lenders' Revolving Credit Exposures.
"ALTERNATE BASE RATE" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/100 of 1%) equal to the greatest
of (a) the Reference Rate in effect on such day and (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that, by reason of circumstances affecting the
relevant market, it is unable to ascertain the Federal Funds Effective Rate for
any reason, including the inability or failure of the Administrative Agent to
obtain sufficient quotations in accordance with the terms of the definition
thereof, the Alternate Base Rate shall be determined without regard to clause
(b) of the preceding sentence until the circumstances giving rise to such
inability no longer exist. Any change in the Alternate Base Rate due to a change
in the
<PAGE>
4
Reference Rate or the Federal Funds Effective Rate shall be effective on the
effective date of such change in the Reference Rate or the Federal Funds
Effective Rate, respectively.
"ANNUALIZED EBITDA" means (i) for the first fiscal quarter beginning
after the Closing Date, Consolidated EBITDA for such fiscal quarter multiplied
by four, (ii) for the second fiscal quarter beginning after the Closing Date,
the sum of Consolidated EBITDA for such fiscal quarter and Consolidated EBITDA
for the directly preceding fiscal quarter multiplied by two, (iii) for the third
fiscal quarter beginning after the Closing Date, the sum of Consolidated EBITDA
for such quarter and Consolidated EBITDA for the two directly preceding fiscal
quarters multiplied by a fraction the numerator of which is four and the
denominator of which is three and (iv) for any other fiscal quarter,
Consolidated EBITDA for the period of four consecutive fiscal quarters ending on
the last day of such fiscal quarter.
"APPLICABLE PERCENTAGE" shall mean, for any day, with respect to any
Eurodollar Loan or ABR Loan, or with respect to the Commitment Fees or L/C
Participation Fees, as the case may be, the applicable percentage set forth
below under the caption "Eurodollar Spread", "ABR Spread", "Commitment Fee Rate"
or "L/C Participation Fee", as the case
<PAGE>
5
may be, based upon the Leverage Ratio on such date:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Revolving Loans/
Tranche A Term Tranche B Term
Loans Loans
- -----------------------------------------------------------------------------------------------------------------------
L/C
Leverage Eurodollar ABR Eurodollar ABR Commitment Participation
Category Ratio Spread Spread Spread Spread Fee Rate Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Greater 1.750% 0.750% 2.25% 1.25% 0.50% 1.750%
I than
5.5 to 1.0
- -----------------------------------------------------------------------------------------------------------------------
Less than 1.500 0.500 2.00 1.00 0.45 1.500
or equal
to 5.5 to
II 1.0 but
greater
than
5.0 to 1.0
- -----------------------------------------------------------------------------------------------------------------------
Less than 1.250 0.250 1.75 0.75 0.40 1.250
or equal
to
5.0 to 1.0
III but
greater
than
4.5 to 1.0
- -----------------------------------------------------------------------------------------------------------------------
Less than 1.000 0 1.50 0.50 0.35 1.000
or equal
to
4.5 to 1.0
IV but
greater
than
4.0 to 1.0
- -----------------------------------------------------------------------------------------------------------------------
Less than 0.750 0 1.50 0.50 0.30 0.750
or equal
to
4.0 to 1.0
V but
greater
than
3.5 to 1.0
- -----------------------------------------------------------------------------------------------------------------------
Less than 0.625 0 1.50 0.50 0.25 0.625
or equal
to
3.5 to 1.0
VI but
greater
than
3.0 to 1.0
- -----------------------------------------------------------------------------------------------------------------------
<PAGE>
6
- -----------------------------------------------------------------------------------------------------------------------
Less than 0.625 0 1.50 0.50 0.20 0.625
or equal
to
3.0 to 1.0
VII but
greater
than
2.5 to 1.0
- -----------------------------------------------------------------------------------------------------------------------
VIII Less than 0.625 0 1.50 0.50 0.20 0.625
or equal
to
2.5 to 1.0
</TABLE>
Each change in the Applicable Percentage resulting from a change in the
Leverage Ratio shall be effective with respect to all Loans and Commitments and
Letters of Credit outstanding on and after the date of delivery to the
Administrative Agent of the financial statements and certificates required by
Section 5.04(a) or (b) indicating such change until the date immediately
preceding the next date of delivery of such financial statements and
certificates indicating another such change. Notwithstanding the foregoing, (i)
at any time (x) during which the Borrower has failed to deliver the financial
statements and certificates required by Section 5.04(a) or (b) or (y) after the
occurrence and during the continuance of an Event of Default, the Leverage Ratio
shall be deemed to be that set forth in Category I for purposes of determining
the Applicable Percentage, (ii) with respect to Tranche B Term Loans, prior to
December 31, 1998, the Applicable Percentage shall not be less than 1.75 for
Eurodollar Loans and 0.75 for ABR Loans and (iii) with respect to Tranche A Term
Loans and Commitments and Revolving Loans and Commitments, prior to December 31,
1998, the Leverage Ratio shall be deemed not to be lower than that set forth in
Category III for purposes of determining the Applicable Percentage.
"APPROVED FUND" shall mean, with respect to any Lender that is a fund
that invests in bank loans, any other fund that invests in bank loans and is
advised or managed by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.
"ASSET SALE" shall mean the sale, transfer or other disposition (by way
of merger or otherwise) by the Borrower or any Subsidiary to any Person other
than the Borrower or a Restricted Subsidiary of (a) any capital stock or equity
interest of any Restricted Subsidiary or (b) any other assets of the Borrower or
any Restricted Subsidiary (other than inventory, obsolete or worn out assets,
and Permitted Investments, in each case occurring in the ordinary course
<PAGE>
7
of business); PROVIDED that any asset sale or series of related asset sales
described in clause (b) above having a value not in excess of $1,000,000 in the
aggregate shall not be deemed an "Asset Sale" for purposes of this Agreement.
"ASSIGNMENT AND ACCEPTANCE" shall mean an assignment and acceptance
entered into by a Lender and an assignee, and accepted by the Administrative
Agent, in the form of Exhibit B or such other form as shall be approved by the
Administrative Agent.
"ATTRIBUTABLE AMOUNT" shall mean, in connection with any designation of
a Restricted Subsidiary as an Unrestricted Subsidiary pursuant to Section 5.14,
the aggregate amount of Total Consolidated EBITDA for the most recent four
consecutive fiscal quarter period for which financial statements have been
delivered in accordance with Section 5.04, determined at the time of such
designation, which was attributable to (i) such Subsidiary and (ii) all other
Subsidiaries designated as Unrestricted Subsidiaries at or prior to such time.
"BOARD" shall mean the Board of Governors of the Federal Reserve System
of the United States of America.
"BORROWING" shall mean a group of Loans of a single Type made by the
Lenders on a single date and as to which a single Interest Period is in effect.
"BORROWING REQUEST" shall mean a request by the Borrower in accordance
with the terms of Section 2.03 and substantially in the form of Exhibit C.
"BREAKAGE EVENT" shall have the meaning assigned to
such term in Section 2.16.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or day
on which banks in San Francisco or New York are authorized or required by law to
close; PROVIDED, HOWEVER, that when used in connection with a Eurodollar Loan,
the term "BUSINESS DAY" shall also exclude any day on which banks are not open
for dealings in dollar deposits in the London interbank market.
"CAPITAL EXPENDITURES" means, for any period, (a) the additions to
property, plant and equipment and other capital expenditures of the Borrower and
its Restricted Subsidiaries that are (or would be) set forth in a consolidated
statement of cash flows of the Borrower and its Restricted Subsidiaries for such
period prepared in accordance with
<PAGE>
8
GAAP and (b) Capital Lease Obligations incurred by the Borrower and its
Restricted Subsidiaries during such period.
"CAPITAL LEASE OBLIGATIONS" of any Person shall mean the obligations of
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"CAPITAL STOCK" means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants, rights or options to purchase or subscribe for any of
the foregoing, or any warrants, rights or options to purchase or subscribe for
any such warrants, rights or options.
"CASH CONSIDERATION" shall mean the aggregate cash consideration
received upon conversion of the outstanding shares of Cowles into shares of the
Borrower pursuant to Article II of the Merger Agreement.
"CASH INTEREST EXPENSE" means, for any period, (a) Consolidated
Interest Expense for such period, minus (b) the aggregate amount of pay-in-kind
or accreted Consolidated Interest Expense for such period not involving any
payment in cash.
A "CHANGE IN CONTROL" shall be deemed to have occurred if (a) any
Person or group (within the meaning of Rule 13d-5 of the Securities Exchange Act
of 1934 as in effect on the date hereof) shall own directly or indirectly,
beneficially or of record, shares representing more than 50.0% of the aggregate
ordinary voting power represented by the issued and outstanding capital stock of
the Borrower; (b) a majority of the seats (other than vacant seats) on the board
of directors of the Borrower shall at any time be occupied by Persons who were
neither (i) nominated by the board of directors of the Borrower, nor (ii)
appointed by directors so nominated; (c) any change in control (or similar
event, however denominated) with respect to the Borrower or any Subsidiary shall
occur under and as defined in any indenture or agreement in respect of
Indebtedness to which the Borrower or any Subsidiary is a party; or (d) any
Person or group shall otherwise directly or indirectly Control the Borrower
other than any Person or group that Controls the
<PAGE>
9
Borrower on the Closing Date; PROVIDED, HOWEVER that neither (i) the
consummation of the Transactions nor (ii) transfers of shares of the capital
stock of the Borrower between Members of the McClatchy Family shall constitute a
Change in Control.
"CHARGES" shall have the meaning assigned to such term
in Section 9.09.
"CLOSING DATE" shall mean the date of the First Credit Event as
specified in Section 4.02.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COLLATERAL" shall mean all the "Collateral" as defined
in any Security Document.
"COMMITMENT" shall mean, with respect to any Lender,
such Lender's Revolving Credit Commitment, Term Loan
Commitment and Swingline Commitment.
"COMMITMENT FEE" shall have the meaning assigned to
such term in Section 2.05(a).
"CONFIDENTIAL INFORMATION MEMORANDUM" shall mean the
Confidential Information Memorandum of the Borrower dated
December 1997.
"CONSOLIDATED EBITDA" means, for any period, Consolidated Net Income
plus, to the extent deducted in computing such Consolidated Net Income, the sum
of (a) income or franchise tax expense for such period, (b) interest expense,
(c) depreciation and amortization expense and (d) any non-cash charges or
non-cash losses, minus, to the extent added in computing such Consolidated Net
Income, (i) any non-cash gains or other non-cash items and (ii) any income tax
credits, all as determined on a consolidated basis with respect to the Borrower
and the Restricted Subsidiaries in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the interest
expense of the Borrower and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including but not
limited to the portion of any payments or accruals with respect to Capital Lease
Obligations that are allocable to interest expense.
"CONSOLIDATED NET INCOME" means, for any period, net
income or loss of the Borrower and the Restricted
<PAGE>
10
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP; PROVIDED that there shall be excluded (a) all income or losses of
Unrestricted Subsidiaries, (b) the income or loss of any Person in which any
other Person (other than the Borrower or any of the Restricted Subsidiaries or
any director holding qualifying shares in compliance with applicable law) has a
joint interest, (c) any after tax gains or losses attributable to sales of
assets out of the ordinary course of business and (d) (to the extent not
included in clauses (a), (b) or (c) above) any extraordinary gains or
extraordinary losses.
"CONTROL" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise, and the terms "CONTROLLING" and "CONTROLLED" shall have meanings
correlative thereto.
"COWLES" means Cowles Media Company.
"CREDIT EVENT" shall have the meaning assigned to such
term in Section 4.01.
"DEBT SERVICE" means for any period, the sum of (a) Cash Interest
Expense for such period plus (b) scheduled principal amortization of Total Debt
for such period.
"DEFAULT" shall mean any event or condition which upon notice, lapse of
time or both would constitute an Event of Default.
"DOLLARS" or "$" shall mean lawful money of the United
States of America.
"DOMESTIC SUBSIDIARIES" shall mean all Subsidiaries incorporated or
organized under the laws of the United States of America, any State thereof or
the District of Columbia.
"ENVIRONMENT" shall mean ambient air, surface water and groundwater
(including potable water, navigable water and wetlands), the land surface or
subsurface strata, the workplace or as otherwise defined in any Environmental
Law.
"ENVIRONMENTAL CLAIM" shall mean any written accusation, allegation,
notice of violation, claim, demand, order, directive, cost recovery action or
other cause of action by, or on behalf of, any Governmental Authority or any
Person for damages, injunctive or equitable relief, Personal injury (including
sickness, disease or death),
<PAGE>
11
Remedial Action costs, tangible or intangible property damage, natural resource
damages, nuisance, pollution, any adverse effect on the environment caused by
any Hazardous Material, or for fines, penalties or restrictions, resulting from
or based upon (a) the existence, or the continuation of the existence, of a
Release (including sudden or non-sudden, accidental or non-accidental Releases),
(b) exposure to any Hazardous Material, (c) the presence, use, handling,
transportation, storage, treatment or disposal of any Hazardous Material or (d)
the violation or alleged violation of any Environmental Law or Environmental
Permit.
"ENVIRONMENTAL LAW" shall mean any and all applicable present and
future treaties, laws, rules, regulations, codes, ordinances, orders, decrees,
judgments, injunctions, notices or binding agreements issued, promulgated or
entered into by any Governmental Authority, relating in any way to the
environment, preservation or reclamation of natural resources, the management,
Release or threatened Release of any Hazardous Material or to health and safety
matters, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. sections 9601 et seq. (collectively
"CERCLA"), the Solid Waste Disposal Act, as amended by the Resource Conservation
and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42
U.S.C. sections 6901 et seq., the Federal Water Pollution Control Act, as
amended by the Clean Water Act of 1977, 33 U.S.C. sections 1251 et seq., the
Clean Air Act of 1970, as amended 42 U.S.C. sections 7401 ET SEQ., the Toxic
Substances Control Act of 1976, 15 U.S.C. sections 2601 et seq., the
Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. sections 651
et seq., the Emergency Planning and Community Right-to-Know Act of 1986, 42
U.S.C. sections 11001 et seq., the Safe Drinking Water Act of 1974, as amended,
42 U.S.C. sections 300(f) et seq., the Hazardous Materials Transportation Act,
49 U.S.C. sections 5101 et seq., and any similar or implementing state or local
law, and all amendments or regulations promulgated under any of the foregoing.
"ENVIRONMENTAL PERMIT" shall mean any permit, approval, authorization,
certificate, license, variance, filing or permission required by or from any
Governmental Authority pursuant to any Environmental Law.
"EQUITY ISSUANCE" shall mean any issuance or sale by the Borrower or
any Subsidiary of any partnership interest, capital stock or other equity
interests, as applicable, of the Borrower or any such Subsidiary or any
obligations convertible into or exchangeable for, or giving any Person a
<PAGE>
12
right, option or warrant to acquire such securities or interests or such
convertible or exchangeable obligations, except in each case for (a) any
issuance or sale to the Borrower or any Guarantor and (b) any issuance of
directors' qualifying shares or equity interests and (c) any issuance or sale by
the Borrower of capital stock or other equity interests in the Borrower (i) to
an Unrestricted Subsidiary or (ii) to employees of the Borrower or its
Restricted Subsidiaries pursuant to (x) the management incentive, employee stock
option and other plans described on Schedule 1.01(a) and (y) other employee
stock or option plans approved by the Board of Directors of the Borrower.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as the same may be amended from time to time.
"ERISA AFFILIATE" shall mean any trade or business (whether or not
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code, or solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA EVENT" shall mean (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder, with respect to a
Plan; (b) the adoption of any amendment to a Plan that would require the
provision of security pursuant to Section 401(a)(29) of the Code or Section 307
of ERISA; (c) the existence with respect to any Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived; (d) the filing pursuant to Section 412(d) of the Code or
Section 303(d) of ERISA of an application for a waiver of the minimum funding
standard with respect to any Plan; (e) the incurrence of any liability under
Title IV of ERISA with respect to the termination of any Plan or the withdrawal
or partial withdrawal of the Borrower or any of its ERISA Affiliates from any
Plan or Multiemployer Plan; (f) the receipt by the Borrower or any ERISA
Affiliate from the PBGC or a plan administrator of any notice relating to the
intention to terminate any Plan or Plans or to appoint a trustee to administer
any Plan; (g) the receipt by the Borrower or any ERISA Affiliate of any notice
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA; (h) the occurrence of a "PROHIBITED
TRANSACTION" with respect to which the Borrower or any of its Subsidiaries is a
"disqualified Person" (within the meaning of Section 4975 of the Code) or with
respect to which the Borrower or any such
<PAGE>
13
Subsidiary could otherwise be liable; and (i) any other event or condition with
respect to a Plan or Multiemployer Plan that could reasonably be expected to
result in liability of the Borrower.
"EURODOLLAR BORROWING" shall mean a Borrowing comprised
of Eurodollar Loans.
"EURODOLLAR LOAN" shall mean any Eurodollar Revolving Loan or
Eurodollar Term Loan.
"EURODOLLAR REVOLVING LOAN" shall mean any Revolving Loan bearing
interest at a rate determined by reference to the Adjusted LIBO Rate in
accordance with the provisions of Article II.
"EURODOLLAR TERM BORROWING" shall mean a Borrowing comprised of
Eurodollar Term Loans.
"EURODOLLAR TERM LOAN" shall mean any Term Loan bearing interest at a
rate determined by reference to the Adjusted LIBO Rate in accordance with the
provisions of Article II.
"EVENT OF DEFAULT" shall have the meaning assigned to
such term in Article VII.
"EXCESS CASH FLOW" shall mean, with respect to the Borrower and its
Restricted Subsidiaries on a consolidated basis, for any period, the sum
(without duplication) of:
(a) Consolidated Net Income for such period; plus
(b) depreciation, amortization and other non-cash charges or
losses deducted in determining such Consolidated Net Income for such
period; plus
(c) the sum of (i) the amount, if any, by which Net Working
Capital decreased during such period plus (ii) the amount, if any, by
which the consolidated deferred revenues of the Borrower and its
consolidated Restricted Subsidiaries increased during such period plus
(iii) the aggregate principal amount of Capital Lease Obligations and
other Indebtedness incurred during such period to finance Capital
Expenditures, to the extent that mandatory principal payments in
respect of such Indebtedness would not be excluded from clause (g)
below when made; minus
(d) the sum of (i) any non-cash gains included in determining
such Consolidated Net Income for such period plus (ii) the amount, if
any, by which Net
<PAGE>
14
Working Capital increased during such period plus (iii) the amount, if
any, by which the consolidated deferred revenues of the Borrower and
its consolidated Restricted Subsidiaries decreased during such period;
minus
(e) Capital Expenditures for such period; minus
(f) Cash dividends paid during such period that are permitted
by Section 6.06 and have not otherwise been deducted in determining
Consolidated Net Income; minus
(g) the aggregate principal amount of Indebtedness repaid or
prepaid by the Borrower and its consolidated Restricted Subsidiaries
during such period, excluding (i) Indebtedness in respect of Revolving
Loans and Letters of Credit, (ii) Term Loans prepaid pursuant to
clauses (b) through (e) of Section 2.13, (iii) repayments or
prepayments of Indebtedness financed by incurring other Indebtedness,
to the extent that mandatory principal payments in respect of such
other Indebtedness would not be excluded from this clause (g) when
made, (iv) Indebtedness referred to in clauses (c) through (i) of
Section 6.01 and (vi) voluntary prepayments of Indebtedness other than
Term Loans.
"FAMILY PERCENTAGE HOLDING" shall mean the aggregate percentage of the
securities held by a Qualifying Trust representing, directly or indirectly, an
interest in voting shares or rights to voting shares of the Borrower, that it is
reasonable, under all the circumstances, to regard as being held beneficially
for Qualified Persons (or any class consisting of two or more Qualified
Persons); PROVIDED always that in calculating the Family Percentage Holding (A)
in respect of any power of appointment or discretionary trust capable of being
exercised in favor of any of the Qualified Persons such trust or power shall be
deemed to have been exercised in favor of Qualified Persons until such trust or
power has been otherwise exercised; (B) where any beneficiary of a Qualified
Trust has assigned, transferred or conveyed, in any manner whatsoever, his or
her beneficial interest to another Person, then, for the purpose of determining
the Family Percentage Holding in respect of such Qualifying Trust, the Person to
whom such interest has been assigned, transferred or conveyed shall be regarded
as the only Person beneficially interested in the Qualifying Trust in respect of
such interest but in the case where the interest so assigned, transferred or
conveyed is an interest in a discretionary trust or is an interest which may
arise as a result of the exercise in favor of the assignor of a
<PAGE>
15
discretionary power of appointment and such discretionary trust or power of
appointment is also capable of being exercised in favor of a Member of the
McClatchy Family, such discretionary trust or power shall be deemed to have been
so exercised in favor of Qualified Persons until it has in fact been otherwise
exercised; and (C) the interest of any Permitted Residuary Beneficiary shall be
ignored until its interest has indefeasibly vested.
"FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day that is a Business Day, the average of
the quotations for the day for such transactions received by the Administrative
Agent from three Federal funds brokers of recognized standing selected by it.
"FEE LETTERS" shall mean the Fee Letter dated November 10, 1997,
between McClatchy and the Arranger and the Fee Letter dated January 6, 1998,
between McClatchy and the Administrative Agent.
"FEES" shall mean, the Arranger's Fees, the Commitment Fees, the
Administrative Agent's Fees, the L/C Participation Fees and the Issuing Bank
Fees.
"FINANCIAL OFFICER" of any corporation shall mean the chief financial
officer, principal accounting officer, Treasurer or Controller of such
corporation.
"FIXED CHARGES" means (a) Debt Service and
(b) dividends paid by the Borrower.
"FIXED CHARGES RATIO" means (i) for the first fiscal quarter beginning
after the Closing Date, the ratio of Adjusted EBITDA for such fiscal quarter to
Fixed Charges for such fiscal quarter, (ii) for the second fiscal quarter
beginning after the Closing Date, the ratio of (x) the sum of Adjusted EBITDA
for such fiscal quarter and Adjusted EBITDA for the directly preceding fiscal
quarter to (y) the sum of Fixed Charges for such fiscal quarter and Fixed
Charges for the directly preceding fiscal quarter (iii) for the third fiscal
quarter beginning after the Closing Date, the ratio of (x) the sum of Adjusted
EBITDA for such fiscal quarter and Adjusted EBITDA for the two directly
preceding fiscal quarters to (y) the sum of Fixed Charges for such quarter and
Fixed Charges for the two directly preceding fiscal quarters and (iv) for any
other fiscal quarter, the
<PAGE>
16
ratio of Adjusted EBITDA for the period of four consecutive fiscal quarters
ending on the last day of such fiscal quarter to Fixed Charges for the period of
four consecutive fiscal quarters ending on the last day of such fiscal quarter.
"FOREIGN SUBSIDIARY" shall mean any Subsidiary that is
not a Domestic Subsidiary.
"GAAP" shall mean generally accepted accounting principles applied on a
consistent basis.
"GOVERNMENTAL AUTHORITY" shall mean any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or regulatory
body and the National Association of Insurance Commissioners (the "NAIC").
"GUARANTEE" of or by any Person shall mean any obligation, contingent
or otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person (the "PRIMARY OBLIGOR") in any
manner, whether directly or indirectly, and including any obligation of such
Person, direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of such
Indebtedness, (b) to purchase or lease property, securities or services for the
purpose of assuring the owner of such Indebtedness of the payment of such
Indebtedness or (c) to maintain working capital, equity capital or any other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness; PROVIDED, HOWEVER, that the
term "Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business.
"GUARANTEE AGREEMENT" shall mean the Guarantee Agreement, substantially
in the form of Exhibit D, made by the Guarantors in favor of the Collateral
Agent for the benefit of the Secured Parties.
"GUARANTORS" shall mean, on the Closing Date, each Person that is a
Restricted Subsidiary of the Borrower after giving effect to the Acquisition,
all of which are listed on Schedule 1.01(b), and, after the Closing Date shall
mean each Person that is, at any time, a party to a Guarantee Agreement as a
Guarantor, and the permitted successors and assigns of each such Person.
"HAZARDOUS MATERIALS" shall mean all explosive or
radioactive substances or wastes, hazardous or toxic
<PAGE>
17
substances or wastes, pollutants, solid, liquid or gaseous wastes, including
petroleum or petroleum distillates, asbestos or asbestos containing materials,
polychlorinated biphenyls ("PCBS") or PCB-containing materials or equipment,
radon gas, infectious or medical wastes and all other substances or wastes of
any nature regulated pursuant to any Environmental Law.
"HEDGING AGREEMENT" means any interest rate protection agreement,
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"INDEBTEDNESS" of any Person shall mean, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property or assets purchased by such Person, (e) all obligations of such Person
issued or assumed as the deferred purchase price of property or services
(excluding (x) trade accounts payable and accrued obligations incurred in the
ordinary course of business and (y) obligations to dissenting shareholders who
choose appraisal rights in connection with the Acquisition), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any Lien on
property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations of such Person in respect of interest rate protection
agreements, foreign currency exchange agreements or other interest or exchange
rate hedging arrangements and (j) all obligations of such Person as an account
party in respect of letters of credit and bankers' acceptances. The Indebtedness
of any Person shall include the Indebtedness of any partnership in which such
Person is a general partner.
"INDEMNITEE" shall have the meaning assigned to such
term in Section 9.05(b).
"INDEMNITY, SUBROGATION AND CONTRIBUTION AGREEMENT" shall mean the
Indemnity, Subrogation and Contribution Agreement, substantially in the form of
Exhibit E, among the Borrower, the Guarantors and the Collateral Agent.
<PAGE>
18
"INDEX DEBT" means senior, unsecured, long-term indebtedness for
borrowed money of the Borrower that is not guaranteed by any other Person or
subject to any other credit enhancement.
"INTEREST COVERAGE RATIO" means (i) for the first fiscal quarter
beginning after the Closing Date, the ratio of Consolidated EBITDA for such
fiscal quarter to Net Interest Expense for such fiscal quarter, (ii) for the
second fiscal quarter beginning after the Closing Date, the ratio of (x) the sum
of Consolidated EBITDA for such fiscal quarter and Consolidated EBITDA for the
directly preceding quarter to (y) the sum of Net Interest Expense for such
fiscal quarter and Net Interest Expense for the directly preceding fiscal
quarter (iii) for the third fiscal quarter beginning after the Closing Date, the
ratio of (x) the sum of Consolidated EBITDA for such fiscal quarter and
Consolidated EBITDA for the two directly preceding fiscal quarters to (y) the
sum of Net Interest Expense for such quarter and Net Interest Expense for the
two directly preceding fiscal quarters and (iv) for any other fiscal quarter,
the ratio of Consolidated EBITDA for the period of four consecutive fiscal
quarters ending on the last day of such fiscal quarter to Net Interest Expense
for the period of four consecutive fiscal quarters ending on the last day of
such fiscal quarter.
"INTEREST PAYMENT DATE" shall mean, with respect to (a) any ABR
Borrowing, the period commencing on the date of such Borrowing and ending on the
earliest of (i) the next succeeding March 31, June 30, September 30 or December
31 and (b) with respect to any Eurodollar Borrowing, the last day of the
Interest Period applicable to the Borrowing of which such Loan is a part and, in
the case of a Eurodollar Borrowing with an Interest Period of more than three
months' duration, each day that would have been an Interest Payment Date had
successive Interest Periods of three months' duration been applicable to such
Borrowing, and, in addition, the date of any prepayment of such Borrowing or
conversion of such Borrowing to a Borrowing of a different Type.
"INTEREST PERIOD" means with respect to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, on the last
day) in the calendar month that is 1, 2, 3 or 6 months (or, if Interest Periods
of such duration are available from each Lender, 9 or 12 months) thereafter, as
the Borrower may elect; PROVIDED, HOWEVER, that if any Interest Period would end
on a day other than a Business Day, such Interest Period
<PAGE>
19
shall be extended to the next succeeding Business Day unless such next
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day. Interest
shall accrue from and including the first day of an Interest Period to but
excluding the last day of such Interest Period.
"ISSUING BANK" shall mean, as the context may require, Bank of America
National Trust and Saving Association or such other Lenders as are designated
from time to time by
the Borrower.
"ISSUING BANK FEES" shall have the meaning assigned to such term in
Section 2.05(c).
"L/C COMMITMENT" shall mean, with respect to any Issuing Bank, the
commitment of such Issuing Bank to issue Letters of Credit pursuant to Section
2.23.
"L/C DISBURSEMENT" shall mean a payment or disbursement made by an
Issuing Bank pursuant to a Letter of Credit.
"L/C EXPOSURE" shall mean at any time the sum of (a) the aggregate
undrawn amount of all outstanding Letters of Credit at such time PLUS (b) the
aggregate principal amount of all L/C Disbursements that have not yet been
reimbursed at such time. The L/C Exposure of any Revolving Credit Lender at any
time shall mean its Pro Rata Percentage of the aggregate L/C Exposure at such
time.
"L/C PARTICIPATION FEE" shall have the meaning assigned to such term in
Section 2.05(c).
"LENDERS" shall mean (a) the financial institutions listed on Schedule
2.01, as such schedule may be revised on the Closing Date in accordance with the
preamble to this Credit Agreement (other than any such financial institution
that has ceased to be a party hereto pursuant to an Assignment and Acceptance)
and (b) any financial institution that has become a party hereto pursuant to an
Assignment and Acceptance. Unless the context clearly indicates otherwise, the
term "Lenders" shall include the Swingline Lender.
"LETTER OF CREDIT" means any letter of credit issued
pursuant to this Agreement.
"LEVERAGE RATIO" shall mean, on any date, the ratio of Total Debt on
such date to Consolidated EBITDA for the most recently ended period of four
consecutive fiscal quarters for which financial statements have been delivered
in accordance with Section 5.04.
<PAGE>
20
"LIBO RATE" shall mean, with respect to any Eurodollar Borrowing for
any Interest Period, the rate appearing on Page 3750 of the Dow Jones Markets
Service (or on any successor or substitute page of such Service, or any
successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that
such rate is not available at such time for any reason, then the "LIBO Rate"
with respect to such Eurodollar Borrowing for such Interest Period shall be the
rate at which dollar deposits in an amount most closely equal to the amount of
such Borrowing and for a maturity comparable to such Interest Period are offered
by the principal London office of the Administrative Agent in immediately
available funds in the London interbank market at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period.
"LIEN" shall mean, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement (or any financing lease
having substantially the same economic effect as any of the foregoing) relating
to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.
"LOAN DOCUMENTS" shall mean this Agreement, the Letters of Credit, the
Guarantee Agreement, the Security Documents, the Indemnity, Subrogation and
Contribution Agreement, the Commitment Letter between McClatchy and the Arranger
dated November 10, 1997 and the Fee Letters.
"LOAN PARTIES" shall mean the Borrower and the
Guarantors.
"LOANS" shall mean the Revolving Loans, the Term Loans
and the Swingline Loans.
"MARGIN STOCK" shall have the meaning assigned to such
term in Regulation U.
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21
"MATERIAL ADVERSE EFFECT" shall mean (a) a materially adverse effect on
the business, assets, operations, prospects or condition, financial or
otherwise, of the Borrower and the Subsidiaries, taken as a whole, (b) material
impairment of the ability of the Borrower or any other Loan Party to perform any
of its obligations under any Loan Document to which it is or will be a party or
(c) material impairment of the rights of or benefits available to the Lenders
under any Loan Document taken as a whole.
"MAXIMUM RATE" shall have the meaning assigned to such term in Section
9.09.
"MCCLATCHY" means McClatchy Newspapers, Inc.
"MEMBER OF THE MCCLATCHY FAMILY" shall mean:
(i) the Persons listed on Schedule 1.01(c);
(ii) the spouse, for the time being and from time to time, of any
Person listed on Schedule 1.01(c);
(iii) after the death of any Person listed on Schedule 1.01(c), the
widow or widower, if any, of any Person listed on Schedule
1.01(c);
(iv) the issue of any Person listed on Schedule 1.01(c);
(v) individuals adopted by any Person listed on Schedule 1.01(c)
or adopted by any of the issue of any Person listed on
Schedule 1.01(c), PROVIDED that such individuals have not
attained the age of majority at the date of such adoption,
together with the issue of any such adopted individuals;
PROVIDED that if any Person is born out of wedlock he shall not be
deemed to be the issue of another Person for the purposes hereof unless
and until he is proven or acknowledged to be the issue of such Person;
or
(vi) a Qualifying Trust, but only to the extent of its Family
Percentage Holding of voting shares or rights to voting shares
of the capital stock of the Borrower at such time.
"MERGER AGREEMENT" shall mean the Agreement and Plan of
Merger and Reorganization dated November 13, 1997 between
McClatchy and Cowles.
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22
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"NET CASH PROCEEDS" shall mean (a) with respect to any Asset Sale, the
cash proceeds thereof net of (i) costs of sale (including any legal and advisory
fees and expenses directly incurred in connection therewith and payment of the
outstanding principal amount of, premium or penalty, if any, interest and other
amounts on any Indebtedness (other than Loans) required to be repaid under the
terms thereof as a result of such Asset Sale), (ii) taxes paid or payable in the
year such Asset Sale occurs or in the following year as a result thereof and
(iii) amounts provided as a reserve, in accordance with GAAP, against any
liabilities under any indemnification obligations associated with such Asset
Sale (PROVIDED that, to the extent and at the time any such amounts are released
from such reserve, such amounts shall constitute Net Cash Proceeds), (b) with
respect to any Equity Issuance, the cash proceeds thereof net of underwriting
commissions or placement fees and expenses directly incurred in connection
therewith, (c) with respect to any casualty, insurance proceeds received in
connection therewith and (d) with respect to any condemnation or similar event,
condemnation awards and similar payments received in connection therewith.
"NET INTEREST EXPENSE" means, for any period, Consolidated Interest
Expense less the interest income of the Borrower and the Restricted Subsidiaries
for such period determined on a consolidated basis in accordance with GAAP.
"NET WORKING CAPITAL" means, at any date, (a) the consolidated current
assets of the Borrower and its Restricted Subsidiaries as of such date
(excluding cash and Permitted Investments) minus (b) the consolidated current
liabilities of the Borrower and its Restricted Subsidiaries as of such date
(excluding current liabilities in respect of Indebtedness). Net Working Capital
at any date may be a positive or negative number. Net Working Capital increases
when it becomes more positive or less negative and decreases when it becomes
less positive or more negative.
"NEW LENDING OFFICE" shall have the meaning assigned to such term in
Section 2.20(e).
"NON-U.S. LENDER" shall have the meaning assigned to
such term in Section 2.20(e).
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23
"OBLIGATIONS" shall mean all obligations defined as "Obligations" in
the Guarantee Agreement and the Security Documents.
"OTHER TAXES" shall have the meaning assigned to such term in Section
2.20(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
and defined in ERISA.
"PERFECTION CERTIFICATE" shall mean the Perfection Certificate
substantially in the form of Annex 2 to the Security Agreement.
"PERMITTED ACQUISITIONS" means acquisitions of not less than a majority
of the outstanding equity securities of any entity, a division of any entity or
any similar business unit (or of substantially all the assets and business of
any of the foregoing) engaged in a Related Business so long as in the case of
each such acquisition of capital stock, such acquisition was not preceded by an
unsolicited tender offer for such capital stock by the Borrower or any of its
Affiliates.
"PERMITTED DIVIDEND AMOUNT" shall mean an amount per share (subject to
adjustment in the event of a stock split) per annum equal to $0.38 for the
12-month period following the Closing Date, which may be increased by up to $.02
per share per annum; such permitted annual increase to be $.04 per share if the
Leverage Ratio is less than 4.5 to 1, $.08 per share if the Leverage Ratio is
less than 4.0 to 1, $.11 per share if the Leverage Ratio is less than 3.5 to 1
and $.14 per share if the Leverage Ratio is less than 3.0 to 1.
"PERMITTED INVESTMENTS" shall mean:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States
of America (or by any agency thereof to the extent such obligations are
backed by the full faith and credit of the United States of America),
in each case maturing within one year from the date of acquisition
thereof;
(b) investments in commercial paper maturing within 180 days
from the date of acquisition thereof and having, at such date of
acquisition, the highest credit rating obtainable from Standard &
Poor's Ratings Service or from Moody's Investors Service, Inc.;
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24
(c) investments in certificates of deposit, banker's
acceptances and time deposits maturing within 180 days from the date of
acquisition thereof issued or guaranteed by or placed with, and money
market deposit accounts issued or offered by, any domestic office of
any commercial bank organized under the laws of the United States of
America or any State thereof that has a combined capital and surplus
and undivided profits of not less than $250,000,000; and
(d) other investment instruments approved in writing by the
Required Lenders and offered by financial institutions which have a
combined capital and surplus and undivided profits of not less than
$250,000,000.
"PERMITTED RESIDUARY BENEFICIARY" shall mean any Person who is a
beneficiary of a Qualifying Trust and, under the terms of the Qualifying Trust,
is entitled to distributions out of the capital of such Qualifying Trust only
after the death of all of the Qualified Persons who are beneficiaries of such
Qualifying Trust.
"PERSON" shall mean any natural person, corporation, business trust,
joint venture, association, company, partnership or government, or any agency or
political subdivision thereof.
"PLAN" shall mean any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 307 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"PLEDGE AGREEMENT" shall mean the Pledge Agreement, substantially in
the form of Exhibit G, between the Borrower, the Subsidiaries party thereto and
the Collateral Agent for the benefit of the Secured Parties.
"PREPAYMENT ACCOUNT" shall have the meaning assigned to
such term in Section 2.13(i).
"PRO FORMA COMPLIANCE" shall mean compliance by the Borrower on a pro
forma basis with the covenants set forth in Sections 6.04 and 6.11 for the four
fiscal quarter period ending on the last day of the most recently ended fiscal
quarter for which financial statements have been delivered in accordance with
Section 5.04 as if the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary with
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25
respect to which Pro Forma Compliance is being measured had occurred on the
first day of such period.
"PROPERTY" shall have the meaning assigned to such term
in Section 3.17
"PRO RATA PERCENTAGE" of any Revolving Credit Lender at any time shall
mean the percentage of the Total Revolving Credit Commitment represented by such
Lender's Revolving
Credit Commitment.
"QUALIFIED PERSON" shall mean a Person referred to in clauses (i)
through (v) of the definition of "Member of the McClatchy Family" or the spouse,
widow or widower for the time being and from time to time of any Person
described in clauses (iv) or (v) of the definition of "Member of the McClatchy
Family".
"QUALIFYING TRUST" shall mean a trust (whether testamentary or inter
vivos) any beneficiary of which is a Qualified Person.
"REFERENCE RATE" shall mean the rate of interest per annum publicly
announced from time to time by the Administrative Agent as its reference rate in
effect at its principal office in San Francisco; each change in the Reference
Rate shall be effective on the date such change is publicly announced as being
effective. The Reference Rate is a rate set by the Administrative Agent based
upon various factors including the Administrative Agent's costs and desired
return, general economic conditions and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above, or below
such announced rate.
"REFINANCED INDEBTEDNESS" shall mean the existing Indebtedness of
Cowles and McClatchy that is described on Schedule 1.01(d) hereto, all of which
will be refinanced on Closing Date.
"REGISTER" shall have the meaning given such term in
Section 9.04(d).
"REGULATION G" shall mean Regulation G of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"REGULATION U" shall mean Regulation U of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
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26
"REGULATION X" shall mean Regulation X of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"RELATED BUSINESS" means any business of the types conducted by the
Borrower and its Restricted Subsidiaries as conducted on the Closing Date and
any business substantially related thereto, including on-line services
businesses and other media and telecommunications businesses.
"RELEASE" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing,
depositing, dispersing, emanating or migrating of any Hazardous Material in,
into, onto or through the environment.
"REMEDIAL ACTION" shall mean (a) "remedial action" as such term is
defined in CERCLA, 42 U.S.C. Section 9601(24), and (b) all other actions
required by any Governmental Authority or voluntarily undertaken to: (i)
cleanup, remove, treat, abate or in any other way address any Hazardous Material
in the environment; (ii) prevent the Release or threat of Release, or minimize
the further Release of any Hazardous Material so it does not migrate or endanger
or threaten to endanger public health, welfare or the environment; or (iii)
perform studies and investigations in connection with, or as a precondition to,
(i) or (ii) above.
"REQUIRED LENDERS" shall mean, at any time, Lenders having Loans
(excluding Swingline Loans), L/C Exposure, Swingline Exposure and unused
Revolving Credit and Term Loan Commitments representing more than 50% of the sum
of all Loans outstanding (excluding Swingline Loans), L/C Exposure, Swingline
Exposure and unused Revolving Credit and Term Loan Commitments at such time.
"RESPONSIBLE OFFICER" of any corporation shall mean any executive
officer or Financial Officer of such corporation and any other officer or
similar official thereof responsible for the administration of the obligations
of such corporation in respect of this Agreement.
"RESTRICTED SUBSIDIARY" shall mean each Subsidiary whether now owned or
hereafter created or acquired other than those Subsidiaries designated as
Unrestricted Subsidiaries in accordance with Section 5.14.
"REVOLVING CREDIT BORROWING" shall mean a Borrowing
comprised of Revolving Loans.
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27
"REVOLVING CREDIT COMMITMENT" shall mean, with respect to each Lender,
the commitment of such Lender to make Revolving Loans hereunder as set forth on
Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender
assumed its Revolving Credit Commitment, as applicable, as the same may be (a)
reduced from time to time pursuant to Section 2.09 or 2.13 and (b) reduced or
increased from time to time pursuant to assignments by or to such Lender
pursuant to Section 9.04.
"REVOLVING CREDIT EXPOSURE" shall mean, with respect to any Lender at
any time, the aggregate principal amount at such time of all outstanding
Revolving Loans of such Lender, PLUS the aggregate amount at such time of such
Lender's L/C Exposure, PLUS the aggregate amount at such time of such Lender's
Swingline Exposure.
"REVOLVING CREDIT LENDER" shall mean a Lender with a Revolving Credit
Commitment.
"REVOLVING CREDIT MATURITY DATE" shall mean the date that is seven
years from the Closing Date.
"REVOLVING LOANS" shall mean the revolving loans made
by the Lenders to the Borrower pursuant to clause (b) of
Section 2.01. Each Revolving Loan shall be a Eurodollar
Revolving Loan or an ABR Revolving Loan.
"SECURED PARTIES" shall have the meaning assigned to such term in the
Security Agreement.
"SECURITY AGREEMENT" shall mean the Security Agreement, substantially
in the form of Exhibit H, between the Borrower, the Subsidiaries party thereto
and the Collateral Agent for the benefit of the Secured Parties.
"SECURITY DOCUMENTS" shall mean the Security Agreement, the Pledge
Agreement and each of the security agreements, mortgages and other instruments
and documents executed and delivered pursuant to any of the foregoing or
pursuant to Section 5.12.
"S&P" means Standard & Poor's.
"STATUTORY RESERVES" shall mean a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board and any other banking authority, domestic or foreign,
to which the
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28
Administrative Agent or any Lender (including any branch, Affiliate, or other
fronting office making or holding a Loan) is subject with respect to the
Adjusted LIBO Rate, for Eurocurrency Liabilities (as defined in Regulation D of
the Board). Such reserve percentages shall include those imposed pursuant to
such Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency
Liabilities and to be subject to such reserve requirements without benefit of or
credit for proration, exemptions or offsets that may be available from time to
time to any Lender under such Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"STRATEGIC INVESTMENT" means acquisitions of less than a majority of
the outstanding equity securities of any entity (other than an Unrestricted
Subsidiary) engaged in a Related Business.
"SUBSIDIARY" shall mean, with respect to any Person (herein referred to
as the "PARENT"), any corporation, partnership, association or other business
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or more
than 50% of the general partnership interests are, at the time any determination
is being made, owned, controlled or held, or (b) that is, at the time any
determination is made, otherwise Controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"SUBSIDIARY" shall mean any subsidiary of the Borrower.
"SUBORDINATED DEBT" shall mean any unsecured Indebtedness of the
Borrower (a) no part of the principal of which is stated to be payable or is
required to be paid (whether by way of mandatory sinking fund, mandatory
redemption, mandatory prepayment or otherwise) prior to the Tranche B Maturity
Date, and the payment of the principal of and interest on which and other
obligations of the Borrower in respect thereof are subordinated to the prior
payment in full of the principal of and interest (including post-petition
interest) on the Loans and all other Obligations on terms and conditions
acceptable to the Required Lenders and (b) otherwise containing terms, covenants
and conditions satisfactory in form and substance to the Required Lenders, as
evidenced by their prior written approval thereof.
"SWINGLINE COMMITMENT" shall mean the commitment of the
Swingline Lender to make loans pursuant to Section 2.22, as
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29
the same may be reduced from time to time pursuant to
Section 2.09.
"SWINGLINE EXPOSURE" shall mean at any time the aggregate principal
amount at such time of all outstanding Swingline Loans. The Swingline Exposure
of any Revolving Credit Lender at any time shall equal its Pro Rata Percentage
of the aggregate Swingline Exposure at such time.
"SWINGLINE LOAN" shall mean any loan made by the Swingline Lender
pursuant to Section 2.22.
"TAXES" shall have the meaning assigned to such term in
Section 2.20(a).
"TERM BORROWING" shall mean a Borrowing comprised of Tranche A Term
Loans or Tranche B Term Loans.
"TERM LOAN COMMITMENTS" shall mean the Tranche A Commitments and the
Tranche B Commitments.
"TERM LOAN REPAYMENT DATES" shall mean the Tranche A
Term Loan Repayment Dates and the Tranche B Term Loan
Repayment Dates.
"TERM LOANS" shall mean the Tranche A Term Loans and the Tranche B Term
Loans.
"Total Consolidated EBITDA" means, for any period, Consolidated Net
Income determined without excluding income or losses of Unrestricted
Subsidiaries plus, to the extent deducted in computing such Consolidated Net
Income, the sum of (a) income or franchise tax expense for such period, (b)
interest expense, (c) depreciation and amortization expense and (d) any non-cash
charges or non-cash losses, minus, to the extent added in computing such
Consolidated Net Income, (i) any non-cash gains or other non-cash items and (ii)
any income tax credits, all as determined on a consolidated basis with respect
to the Borrower and its Restricted and Unrestricted Subsidiaries in accordance
with GAAP.
"TOTAL DEBT" shall mean, at any time, all Indebtedness of the Borrower
and its Restricted Subsidiaries as determined on a consolidated basis in
accordance with GAAP.
"TOTAL REVOLVING CREDIT COMMITMENT" shall mean, at any time, the
aggregate amount of the Revolving Credit Commitments, as in effect at such time.
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30
"TRANCHE A COMMITMENT" shall mean, with respect to each Lender, the
commitment of such Lender to make Tranche A Term Loans hereunder as set forth on
Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender
assumed its Term Loan Commitment, as applicable, as the same may be (a) reduced
from time to time pursuant to Section 2.09 and (b) reduced or increased from
time to time pursuant to assignments by or to such Lender pursuant to Section
9.04.
"TRANCHE A MATURITY DATE" shall mean [March 21, 2005].
"TRANCHE A TERM BORROWING" shall mean a Borrowing comprised of Tranche
A Term Loans.
"TRANCHE A TERM LOAN REPAYMENT DATE" shall have the meaning assigned to
such term in Section 2.11(a)(i).
"TRANCHE A TERM LOANS" shall mean the term loans made by the Lenders to
the Borrower pursuant to clause (a) of Section 2.01. Each Tranche A Term Loan
shall be either a Eurodollar Term Loan or an ABR Term Loan.
"TRANCHE B COMMITMENT" shall mean, with respect to each Lender, the
commitment of such Lender to make Tranche B Term Loans hereunder as set forth on
Schedule 2.01 (as such schedule may be revised on the Closing Date in accordance
with the preamble to this Credit Agreement), or in the Assignment and Acceptance
pursuant to which such Lender assumed its Term Loan Commitment, as applicable,
as the same may be (a) reduced from time to time pursuant to Section 2.09 and
(b) reduced or increased from time to time pursuant to assignments by or to such
Lender pursuant to Section 9.04.
"TRANCHE B MATURITY DATE" shall mean [September 19,
2007].
"TRANCHE B TERM BORROWING" shall mean a Borrowing comprised of Tranche
B Term Loans.
"TRANCHE B TERM LOAN REPAYMENT DATE" shall have the meaning assigned to
such term in Section 2.11(a)(ii).
"TRANCHE B TERM LOANS" shall mean the term loans made by the Lenders to
the Borrower pursuant to clause (b) of Section 2.01. Each Tranche B Term Loan
shall be either a Eurodollar Term Loan or an ABR Term Loan.
"TRANSACTION COSTS" shall mean the fees and expenses to
be paid by the Borrower, Cowles and McClatchy in connection
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31
with the Acquisition in an aggregate amount not to exceed
$37,000,000.
"TRANSACTIONS" shall have the meaning assigned to such
term in Section 3.02.
"TRANSFEREE" shall have the meaning assigned to such
term in Section 2.20(a).
"TYPE", when used in respect of any Loan or Borrowing, shall refer to
whether such Borrowing is a Eurodollar Borrowing or an ABR Borrowing.
"UNRESTRICTED SUBSIDIARY" shall mean each Subsidiary listed on Schedule
1.01(e) hereto and any other Subsidiary, whether now owned or hereafter created
or acquired, that is designated as an Unrestricted Subsidiary in accordance with
Section 5.14.
"WHOLLY OWNED SUBSIDIARY" of any Person shall mean a subsidiary of such
Person of which securities (except for directors' qualifying shares) or other
ownership interests representing 100% of the equity or 100% of the ordinary
voting power or 100% of the general partnership interests are, at the time any
determination is being made, owned, controlled or held by such Person or one or
more wholly owned subsidiaries of such Person or by such Person and one or more
wholly owned subsidiaries of such Person.
"WITHDRAWAL LIABILITY" shall mean liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. TERMS GENERALLY. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require. Except as otherwise
expressly provided herein, (a) any reference in this Agreement to any Loan
Document shall mean such document as amended, restated, supplemented or
otherwise modified from time to time and (b) all terms of an accounting or
financial nature shall be construed in accordance with GAAP, as in effect from
time to time; PROVIDED, HOWEVER, that for purposes of determining
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32
compliance with the covenants contained in Article VI, all accounting terms
herein shall be interpreted and all accounting determinations hereunder shall be
made in accordance with GAAP as in effect on the date of this Agreement and
applied on a basis consistent with the application used in the financial
statements referred to in Section 3.05(a).
ARTICLE II
THE CREDITS
SECTION 2.01. COMMITMENTS. Subject to the terms and conditions and
relying upon the representations and warranties herein set forth, each Lender
agrees, severally and not jointly, (a) to make a Tranche A Term Loan to the
Borrower on the Closing Date in a principal amount not to exceed its Tranche A
Term Commitment, (b) to make a Tranche B Term Loan to the Borrower on the
Closing Date in a principal amount not to exceed its Tranche B Term Commitment
and (c) to make Revolving Loans to the Borrower, at any time and from time to
time on or after the Closing Date, and until the earlier of the Revolving Credit
Maturity Date and the termination of the Revolving Credit Commitment of such
Lender in accordance with the terms hereof, in an aggregate principal amount at
any time outstanding that will not result in (i) such Lender's Revolving Credit
Exposure exceeding (ii) such Lender's Revolving Credit Commitment. Within the
limits set forth in clause (c) of the preceding sentence and subject to the
terms, conditions and limitations set forth herein, the Borrower may borrow, pay
or prepay and reborrow Revolving Loans. Amounts paid or prepaid in respect of
Term Loans may not be reborrowed.
SECTION 2.02. LOANS. (a) Each Revolving Loan (other than Swingline
Loans) shall be made as part of a Borrowing consisting of Loans made by the
Lenders ratably in accordance with their applicable Revolving Credit
Commitments; PROVIDED, HOWEVER, that the failure of any Lender to make any Loan
shall not in itself relieve any other Lender of its obligation to lend hereunder
(it being understood, however, that no Lender shall be responsible for the
failure of any other Lender to make any Loan required to be made by such other
Lender). Except for Loans deemed made pursuant to Section 2.02(f), the Loans
comprising any Borrowing shall be made in an aggregate principal amount that is
(i) an integral multiple of $1,000,000 and not less than $5,000,000 or (ii)
equal to the remaining available balance of the applicable Commitments.
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33
(b) Subject to Sections 2.08 and 2.15, each Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request
pursuant to Section 2.03. Each Lender may at its option make any Eurodollar Loan
by causing any domestic or foreign branch or Affiliate of such Lender to make
such Loan; PROVIDED that any exercise of such option shall not affect the
obligation of the Borrower to repay such Loan in accordance with the terms of
this Agreement. Borrowings of more than one Type may be outstanding at the same
time; PROVIDED, HOWEVER, that the Borrower shall not be entitled to request any
Borrowing that, if made, would result in more than twelve Eurodollar Borrowings
outstanding hereunder at any time. For purposes of the foregoing, Borrowings
having different Interest Periods, regardless of whether they commence on the
same date, shall be considered separate Borrowings.
(c) Except with respect to Loans made pursuant to Section 2.02(f), each
Lender shall make each Loan to be made by it hereunder on the proposed date
thereof by wire transfer of immediately available funds to such account in San
Francisco as the Administrative Agent may designate not later than 10:00 a.m.,
San Francisco time, and the Administrative Agent shall promptly credit the
amounts so received to an account in the name of the Borrower, maintained with
the Administrative Agent and designated by the Borrower in the applicable
Borrowing Request or, if a Borrowing shall not occur on such date because any
condition precedent herein specified shall not have been met, return the amounts
so received to the respective Lenders.
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's portion of such Borrowing,
the Administrative Agent may assume that such Lender has made such portion
available to the Administrative Agent on the date of such Borrowing in
accordance with paragraph (c) above and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If the Administrative Agent shall have so made funds
available then, to the extent that such Lender shall not have made such portion
available to the Administrative Agent, such Lender and the Borrower severally
agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Administrative Agent at (i) in the case of the Borrower, the
interest rate applicable at the time to the Loans comprising such
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34
Borrowing and (ii) in the case of such Lender, a rate determined by the
Administrative Agent to represent its cost of overnight or short-term funds
(which determination shall be conclusive absent manifest error). If such Lender
shall repay to the Administrative Agent such corresponding amount, such amount
shall constitute such Lender's Loan as part of such Borrowing for purposes of
this Agreement.
(e) Notwithstanding any other provision of this Agreement, the Borrower
shall not be entitled to request any Borrowing if the Interest Period requested
with respect thereto would end after the Revolving Credit Maturity Date.
(f) If the applicable Issuing Bank shall not have received from the
Borrower the payment required to be made by Section 2.23(e) within the time
specified in such Section, such Issuing Bank will promptly notify the
Administrative Agent of the L/C Disbursement and the Administrative Agent will
promptly notify each Revolving Credit Lender of such L/C Disbursement and its
Pro Rata Percentage thereof. Each Revolving Credit Lender shall pay by wire
transfer of immediately available funds to the Administrative Agent not later
than 12:00 (noon), San Francisco time, on such date (or, if such Revolving
Credit Lender shall have received such notice later than 10:00 a.m., San
Francisco time, on any day, not later than 8:00 a.m., San Francisco time, on the
immediately following Business Day), an amount equal to such Lender's Pro Rata
Percentage of such L/C Disbursement (it being understood that such amount shall
be deemed to constitute an ABR Revolving Loan of such Lender and such payment
shall be deemed to have reduced the L/C Exposure), and the Administrative Agent
will promptly pay to the applicable Issuing Bank amounts so received by it from
the Revolving Credit Lenders. The Administrative Agent will promptly pay to the
applicable Issuing Bank any amounts received by it from the Borrower pursuant to
Section 2.23(e) prior to the time that any Revolving Credit Lender makes any
payment pursuant to this paragraph (f); any such amounts received by the
Administrative Agent thereafter will be promptly remitted by the Administrative
Agent to the Revolving Credit Lenders that shall have made such payments and to
the applicable Issuing Bank, as their interests may appear. If any Revolving
Credit Lender shall not have made its Pro Rata Percentage of such L/C
Disbursement available to the Administrative Agent as provided above, such
Lender and the Borrower severally agree to pay interest on such amount, for each
day from and including the date such amount is required to be paid in accordance
with this paragraph to but excluding the date such amount is paid, to the
Administrative Agent for the account of the applicable
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35
Issuing Bank at (i) in the case of the Borrower, a rate per annum equal to the
interest rate applicable to Revolving Loans pursuant to Section 2.06(a), and
(ii) in the case of such Lender, for the first such day, the Federal Funds
Effective Rate, and for each day thereafter, the Alternate Base Rate.
SECTION 2.03. BORROWING PROCEDURE. In order to request a Borrowing
(other than a Swingline Loan or a deemed Borrowing pursuant to Section 2.02(f),
as to which this Section 2.03 shall not apply), the Borrower shall deliver or
telecopy to the Administrative Agent a duly completed Borrowing Request (a) in
the case of a Eurodollar Borrowing, not later than 9:00 a.m., San Francisco
time, three Business Days before a proposed Borrowing, and (b) in the case of an
ABR Borrowing, not later than 9:00 a.m., San Francisco time, one Business Day
before a proposed Borrowing. Each Borrowing Request shall be irrevocable, shall
be signed by or on behalf of the Borrower and shall specify the following
information: (i) whether the Borrowing then being requested is to be a Term
Borrowing or a Revolving Credit Borrowing, and whether such Borrowing is to be a
Eurodollar Borrowing or an ABR Borrowing; (ii) the date of such Borrowing (which
shall be a Business Day), (iii) the number and location of the account to which
funds are to be disbursed (which shall be an account that complies with the
requirements of Section 2.02(c)); (iv) the amount of such Borrowing; and (v) if
such Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect
thereto; PROVIDED, HOWEVER, that, notwithstanding any contrary specification in
any Borrowing Request, each requested Borrowing shall comply with the
requirements set forth in Section 2.02. If no election as to the Type of
Borrowing is specified in any such notice, then the requested Borrowing shall be
an ABR Borrowing. If no Interest Period with respect to any Eurodollar Borrowing
is specified in any such notice, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration. The Administrative Agent
shall promptly advise the applicable Lenders of any notice given pursuant to
this Section 2.03 (and the contents thereof), and of each Lender's portion of
the requested Borrowing.
SECTION 2.04. EVIDENCE OF DEBT; REPAYMENT OF LOANS. (a) The Borrower
hereby unconditionally promises to pay to the Administrative Agent for the
account of each Lender (or to the Swingline Lender for the account of the
Swingline Lender in the case of Swingline Loans that have not been participated
pursuant to Section 2.22(e)) the then unpaid principal amount of each Swingline
Loan, on the Swingline Maturity Date applicable to such Loan or, if earlier, on
the
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36
Revolving Credit Maturity Date, the principal amount of each Term Loan of such
Lender as provided in Section 2.11 and the then unpaid principal amount of each
Revolving Loan on the Revolving Credit Maturity Date.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrower to such Lender
resulting from each Loan made by such Lender from time to time, including the
amounts of principal and interest payable and paid such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain accounts in which it will
record (i) the amount of each Loan made hereunder, the Type thereof and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the Borrower to each Lender
hereunder and (iii) the amount of any sum received by the Administrative Agent
hereunder from the Borrower or any Guarantor and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraphs
(b) and (c) above shall be prima facie evidence of the existence and amounts of
the obligations therein recorded; PROVIDED, HOWEVER, that the failure of any
Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligations of the Borrower to repay
the Loans in accordance with their terms.
(e) Notwithstanding any other provision of this Agreement, in the event
any Lender shall request and receive a promissory note payable to such Lender
and its registered assigns, the interests represented by such note shall at all
times (including after any assignment of all or part of such interests pursuant
to Section 9.04) be represented by one or more promissory notes payable to the
payee named therein or its registered assigns.
SECTION 2.05. FEES. (a) The Borrower agrees to pay to each Lender,
through the Administrative Agent, on the last Business Day of March, June,
September and December in each year and on each date on which any Commitment of
such Lender shall expire or be terminated as provided herein (other than as a
result of an assignment), a commitment fee (a "COMMITMENT FEE") equal to the
Applicable Percentage on the daily unused amount of the Commitments of such
Lender (other than the Swingline Commitment) for each day during the preceding
quarter (or other period commencing with the date hereof or ending with the
Revolving Credit Maturity
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37
Date or the date on which the Commitments of such Lender shall expire or be
terminated). All Commitment Fees shall be computed on the basis of the actual
number of days elapsed in a year of 360 days. The Commitment Fee due to each
Lender shall commence to accrue on the date hereof and shall cease to accrue on
the date on which the Commitment of such Lender shall expire or be terminated as
provided herein. For purposes of calculating Commitment Fees only, no portion of
the Revolving Credit Commitments (other than the Revolving Credit Commitments of
the Swingline Lender) shall be deemed utilized as a result of outstanding
Swingline Loans.
(b) The Borrower agrees to pay to the Administrative Agent, for its own
account, the administrative fees set forth in the Fee Letters at the times and
in the amounts specified therein (the "ADMINISTRATIVE AGENT FEES").
(c) The Borrower agrees to pay (i) to each Revolving Credit Lender,
through the Administrative Agent, on the last Business Day of March, June,
September and December of each year and on the date on which the Revolving
Credit Commitment of such Lender shall be terminated (other than as a result of
an assignment) as provided herein, a fee (an "L/C PARTICIPATION FEE") calculated
on such Lender's Pro Rata Percentage of the actual daily aggregate L/C Exposure
(excluding the portion thereof attributable to unreimbursed L/C Disbursements)
during the preceding quarter (or shorter period commencing with the date hereof
or ending with the Revolving Credit Maturity Date or the date on which all
Letters of Credit have been canceled or have expired and the Revolving Credit
Commitments of all Lenders shall have been terminated) at a rate equal to the
Applicable Percentage and (ii) to the applicable Issuing Bank with respect to
each Letter of Credit the standard fronting, issuance and drawing fees specified
from time to time by such Issuing Bank (the "ISSUING BANK FEES"). All L/C
Participation Fees and Issuing Bank Fees shall be computed on the basis of the
actual number of days elapsed in a year of 360 days.
All Fees shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders, except that the Issuing Bank Fees shall be paid directly to
the applicable Issuing Bank. Once paid, none of the Fees shall be refundable
under any circumstances.
SECTION 2.06. INTEREST ON LOANS. (a) Subject to the
provisions of Section 2.07, the Loans comprising each
ABR Borrowing shall bear interest (computed on the basis of
the actual number of days elapsed over a year of 365 or
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38
366 days, as the case may be, when the Alternate Base Rate is determined by
reference to the Reference Rate and over a year of 360 days at all other times)
at a rate per annum equal to the Alternate Base Rate plus the Applicable
Percentage in effect from time to time.
(b) Subject to the provisions of Section 2.07, the Loans comprising
each Eurodollar Borrowing and Swingline Loans shall bear interest (computed on
the basis of the actual number of days elapsed over a year of 360 days) at a
rate per annum equal to the Adjusted LIBO Rate for the Interest Period in effect
for such Borrowing plus the Applicable Percentage in effect from time to time.
Interest on each Loan shall be payable on the Interest Payment Dates
applicable to such Loan except as otherwise provided in this Agreement and, in
the case of Revolving Loans, upon termination of the Revolving Commitments;
provided that (i) interest accrued pursuant to Section 2.07 shall be payable on
demand, (ii) in the event of any repayment or prepayment of any Loan (other than
a prepayment of an ABR Revolving Loan prior to the Revolving Credit Maturity
Date), accrued interest on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment and (iii) in the event of
any conversion of any Eurodollar Loan prior to the end of the current Interest
Period therefor, accrued interest on such Loan shall be payable on the effective
date of such conversion. The applicable Alternate Base Rate or Adjusted LIBO
Rate for each Interest Period or day within an Interest Period, as the case may
be, shall be determined by the Administrative Agent, and such determination
shall be conclusive absent manifest error.
SECTION 2.07. DEFAULT INTEREST. If the Borrower shall default in the
payment of the principal of or interest on any Loan or any other amount becoming
due hereunder, by acceleration or otherwise, or under any other Loan Document,
the Borrower shall on demand from time to time pay interest, to the extent
permitted by law, on such defaulted amount to but excluding the date of actual
payment (after as well as before judgment) (a) in the case of overdue principal,
at the rate otherwise applicable to such Loan pursuant to Section 2.06 plus
2.00% per annum and (b) in all other cases, at a rate per annum (computed on the
basis of the actual number of days elapsed over a year of 365 or 366 days, as
the case may be, when determined by reference to the Reference Rate and over a
year of 360 days at all other times) equal to the sum of the Alternate Base Rate
plus 2.00%.
<PAGE>
39
SECTION 2.08. ALTERNATE RATE OF INTEREST. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Borrowing the Administrative Agent shall have
determined that dollar deposits in the principal amounts of the Loans comprising
such Borrowing are not generally available in the London interbank market, or if
the Administrative Agent is advised by the Required Lenders that the Adjusted
LIBO Rate will not adequately and fairly reflect the cost to such Lenders (or
Lender) of making or maintaining their Eurodollar Loans (or its Eurodollar Loan)
during such Interest Period, or that reasonable means do not exist for
ascertaining the Adjusted LIBO Rate, the Administrative Agent shall, as soon as
practicable thereafter, give written or telecopy notice of such determination to
the Borrower and the Lenders. In the event of any such determination, until the
Administrative Agent shall have advised the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, any request by the
Borrower for a Eurodollar Borrowing pursuant to Section 2.03 or 2.10 shall be
deemed to be a request for an ABR Borrowing. Each determination by the
Administrative Agent hereunder shall be conclusive absent manifest error.
SECTION 2.09. TERMINATION AND REDUCTION OF COMMITMENTS. (a) The Term
Loan Commitments shall automatically terminate at 3:00 p.m., San Francisco time,
on the Closing Date. The Revolving Credit Commitments, the Swingline Commitment
and the L/C Commitments shall automatically terminate on the Revolving Credit
Maturity Date. Notwithstanding the foregoing, if the initial Credit Event shall
not have occurred by the earlier of (i) the consummation of the Acquisition and
(ii) 1:00 p.m., San Francisco time, on April 10, 1998, all the Commitments shall
automatically terminate at such time.
(b) Upon at least three Business Days' prior irrevocable written or
telecopy notice to the Administrative Agent, the Borrower may at any time in
whole permanently terminate, or from time to time in part permanently reduce,
the Revolving Credit Commitments; PROVIDED, HOWEVER, that (i) each partial
reduction of the Revolving Credit Commitments shall be in an integral multiple
of $1,000,000 and in a minimum amount of $5,000,000 and (ii) the Total Revolving
Credit Commitment shall not be reduced to an amount that is less than the
Aggregate Revolving Credit Exposure at the time.
(c) Each reduction in the Revolving Credit Commitments
hereunder shall be made ratably among the Lenders in
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40
accordance with their respective applicable Commitments. The Borrower shall pay
to the Administrative Agent for the account of the applicable Lenders, on the
date of each termination or reduction, the Commitment Fees on the amount of the
Commitments so terminated or reduced accrued to but excluding the date of such
termination or reduction.
SECTION 2.10. CONVERSION AND CONTINUATION OF BORROWINGS. The Borrower
shall have the right at any time upon prior irrevocable notice to the
Administrative Agent (a) not later than 9:00 a.m., San Francisco time, one
Business Day prior to conversion, to convert any Eurodollar Borrowing into an
ABR Borrowing, (b) not later than 9:00 a.m., San Francisco time, three Business
Days prior to conversion or continuation, to convert any ABR Borrowing into a
Eurodollar Borrowing or to continue any Eurodollar Borrowing as a Eurodollar
Borrowing for an additional Interest Period, and (c) not later than 9:00 a.m.,
San Francisco time, three Business Days prior to conversion, to convert the
Interest Period with respect to any Eurodollar Borrowing to another permissible
Interest Period, subject in each case to the following:
each conversion or continuation shall be made pro rata among
the Lenders in accordance with the respective principal amounts of the
Loans comprising the converted or continued Borrowing;
if less than all the outstanding principal amount of any
Borrowing shall be converted or continued, then each resulting
Borrowing shall satisfy the limitations specified in Sections 2.02(a)
and 2.02(b) regarding the principal amount and maximum number of
Borrowings of the relevant Type;
each conversion shall be effected by each Lender and the
Administrative Agent by recording for the account of such Lender the
new Loan of such Lender resulting from such conversion and reducing the
Loan (or portion thereof) of such Lender being converted by an
equivalent principal amount; accrued interest on any Eurodollar Loan
(or portion thereof) being converted shall be paid by the Borrower at
the time of conversion;
if any Eurodollar Borrowing is converted at a time other than
the end of the Interest Period applicable thereto, the Borrower shall
pay, upon demand, any amounts due to the Lenders pursuant to Section
2.16;
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41
any portion of a Borrowing maturing or required
to be repaid in less than one month may not be
converted into or continued as a Eurodollar Borrowing;
any portion of a Eurodollar Borrowing that cannot be
converted into or continued as a Eurodollar Borrowing by reason of the
immediately preceding clause shall be automatically converted at the
end of the Interest Period in effect for such Borrowing into an ABR
Borrowing;
no Interest Period that would end later than a Term Loan
Repayment Date occurring on or after the first day of such Interest
Period may be selected for any Eurodollar Term Borrowing if, after
giving effect to such selection, the aggregate outstanding amount of
(A) the Eurodollar Term Borrowings with Interest Periods ending on or
prior to such Term Loan Repayment Date and (B) the ABR Term Borrowings
would not be at least equal to the principal amount of Term Borrowings
to be paid on such Term Loan Repayment Date; and
upon notice to the Borrower from the Administrative Agent
given at the request of the Required Lenders, after the occurrence and
during the continuance of a Default or Event of Default, no outstanding
Loan may be converted into, or continued as, a Eurodollar Loan.
Each notice pursuant to this Section 2.10 shall be irrevocable and
shall refer to this Agreement and specify (i) the identity and amount of the
Borrowing that the Borrower requests be converted or continued, (ii) whether
such Borrowing is to be converted to or continued as a Eurodollar Borrowing or
an ABR Borrowing, (iii) if such notice requests a conversion, the date of such
conversion (which shall be a Business Day) and (iv) if such Borrowing is to be
converted to or continued as a Eurodollar Borrowing, the Interest Period with
respect thereto. If no Interest Period is specified in any such notice with
respect to any conversion to or continuation as a Eurodollar Borrowing, the
Borrower shall be deemed to have selected an Interest Period of one month's
duration. The Administrative Agent shall promptly advise the Lenders of any
notice given pursuant to this Section 2.10 and of each Lender's portion of any
converted or continued Borrowing. If the Borrower shall not have given notice in
accordance with this Section 2.10 to continue any Borrowing into a subsequent
Interest Period (and shall not otherwise have given notice in accordance with
this Section 2.10 to convert such Borrowing), such Borrowing shall, at the end
of the Interest
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42
Period applicable thereto (unless repaid pursuant to the terms hereof),
automatically be continued as an ABR Borrowing.
SECTION 2.11. REPAYMENT OF TERM BORROWINGS. (a)(i) The Borrower shall
repay Tranche A Term Loans in 28 consecutive installments, payable on March 31,
June 30, September 30 and December 31 of each year beginning with June 30, 1998,
or if any such date is not a Business Day, on the next succeeding Business Day
(each such date being a "TRANCHE A TERM LOAN REPAYMENT DATE"), in the amounts
(as adjusted from time to time pursuant to Sections 2.12 and 2.13(f)) set forth
below for each installment, together in each case with accrued and unpaid
interest on the principal amount to be paid to but excluding the date of such
payment:
Installments Amount
------------ ------
1-4 $ 4,593,750
5-8 9,187,500
9-12 18,375,000
13-16 22,968,750
17-20 27,562,500
21-24 45,937,500
25-28 55,125,000
(ii) The Borrower shall repay Tranche B Term Loans in 19 consecutive
semi-annual installments, payable on March 31 and September 30 of each year
beginning with September 30, 1998 or, if any such date is not a Business Day, on
the next succeeding Business Day (each such date being a "TRANCHE B TERM LOAN
REPAYMENT DATE"), in an aggregate principal amount (as adjusted from time to
time pursuant to Sections 2.12 and 2.13(f)) equal to the product of (i) the
percentage set forth below for each installment and (ii) the aggregate amount of
Tranche B Term Loans outstanding on the Closing
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43
Date, together in each case with accrued and unpaid interest on the principal
amount to be paid to but excluding the date of such payment:
Installments Percentage
------------ ----------
1-14 0.50%
15-16 7.00%
17 14.00%
18 30.00%
19 35.00%
(b) To the extent not previously paid, all Tranche A Term Loans and
Tranche B Term Loans shall be due and payable on the Tranche A Maturity Date and
Tranche B Maturity Date, respectively, together with accrued and unpaid interest
on the principal amount to be paid to but excluding the date of payment.
All repayments pursuant to this Section 2.11 shall be subject to
Section 2.16, but shall otherwise be without premium or penalty.
SECTION 2.12. PREPAYMENT. (a) The Borrower shall have the right at any
time and from time to time to prepay any Borrowing, in whole or in part, without
premium or penalty upon at least three Business Days' prior written or telecopy
notice (or telephone notice promptly confirmed by written or telecopy notice) to
the Administrative Agent before 9:00 a.m., San Francisco time; PROVIDED,
HOWEVER, that each partial prepayment shall be in an amount that is an integral
multiple of $1,000,000 and not less than $5,000,000.
(b) Optional prepayments of Term Loans shall be allocated pro rata
between the then-outstanding Tranche A Term Loans and Tranche B Term Loans and
applied, in the first instance, to the next four remaining scheduled
installments of principal due in respect of the Tranche A Term Loans and Tranche
B Term Loans under Sections 2.11(a)(i) and (ii), respectively, and then pro rata
against the remaining scheduled installments of principal due in respect of the
Tranche A Term Loans and Tranche B Term Loans under Sections 2.11(a)(i) and
(ii), respectively.
(c) Each notice of prepayment shall specify the prepayment date and the
principal amount of each Borrowing (or portion thereof) to be prepaid, shall be
irrevocable and
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44
shall commit the Borrower to prepay such Borrowing by the amount stated therein
on the date stated therein. All prepayments under this Section 2.12 shall be
subject to Section 2.16 but shall otherwise be without premium or penalty. All
prepayments under this Section 2.12 (other than prepayments of ABR Revolving
Loans) shall be accompanied by accrued interest on the principal amount being
prepaid to the date of payment.
SECTION 2.13. MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS. (a) In
the event of any termination of all the Revolving Credit Commitments, the
Borrower shall repay or prepay all its outstanding Revolving Credit Borrowings
and all outstanding Swingline Loans on the date of such termination. In the
event of any partial reduction of the Revolving Credit Commitments, then (i) at
or prior to the effective date of such reduction, the Administrative Agent shall
notify the Borrower and the Revolving Credit Lenders of the Aggregate Revolving
Credit Exposure after giving effect thereto and (ii) if the Aggregate Revolving
Credit Exposure would exceed the Total Revolving Credit Commitment after giving
effect to such reduction or termination, then the Borrower shall, on the date of
such reduction or termination, repay or prepay Revolving Credit Borrowings or
Swingline Loans (or a combination thereof) in an amount sufficient to eliminate
such excess.
(b) Not later than the third Business Day following the completion of
any Asset Sale, the Borrower shall apply 100% of the Net Cash Proceeds received
with respect thereto to prepay outstanding Loans in accordance with Section
2.13(f); PROVIDED, HOWEVER, that if the aggregate Net Cash Proceeds received
with respect to Asset Sales in any fiscal year do not exceed $5,000,000, payment
may be made no later than December 31 of such year.
(c) In the event and on each occasion that an Equity Issuance occurs,
the Borrower shall, substantially simultaneously with (and in any event not
later than the third Business Day next following) the occurrence of such Equity
Issuance, apply 50% of the Net Cash Proceeds therefrom to prepay outstanding
Loans in accordance with Section 2.13(f).
(d) No later than the earlier of (i) 90 days after the end of each
fiscal year of the Borrower, commencing with the fiscal year ending on December
31, 1998, and (ii) the date on which the financial statements with respect to
such period are delivered pursuant to Section 5.04(a), the Borrower shall prepay
outstanding Loans in accordance with Section 2.13(f) in an aggregate principal
amount equal to
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45
50% of (i) the amount by which Excess Cash Flow exceeds $25,000,000 for the
fiscal year then ended; PROVIDED, HOWEVER, that if the Leverage Ratio on the
date of such payment and on the last day of such fiscal year is less than 3.0 to
1.0, no prepayment with respect to Excess Cash flow will be required.
(e) In the event that there shall occur any casualty or condemnation
and, pursuant to Section 5.11, the Net Cash Proceeds therefrom are required to
be used to prepay the Term Loans, then the Borrower shall apply an amount equal
to 100% of such Net Cash Proceeds to prepay outstanding Loans in accordance with
Section 2.13(f).
(f) Mandatory prepayments shall (i) first be allocated pro rata between
the then outstanding Tranche A Term Loans and Tranche B Term Loans, and applied
pro rata against the then remaining scheduled installments of principal due in
respect of Tranche A Term Loans and Tranche B Term Loans under Sections
2.11(a)(i) and (ii), respectively and (ii) then, once the Term Loans have been
repaid in full, applied to reduce the Revolving Commitments and repay Revolving
Credit Borrowings and Swingline Loans on a pro rata basis.
(g) The Borrower shall deliver to the Administrative Agent, at the time
of each prepayment required under this Section 2.13, (i) a certificate signed by
a Financial Officer of the Borrower setting forth in reasonable detail the
calculation of the amount of such prepayment and (ii) to the extent practicable,
at least three days prior written notice of such prepayment. Each notice of
prepayment shall specify the prepayment date, the Type of each Loan being
prepaid and the principal amount of each Loan (or portion thereof) to be
prepaid. All prepayments of Borrowings under this Section 2.13 shall be subject
to Section 2.16, but shall otherwise be without premium or penalty.
(h) Amounts to be applied pursuant to this Section 2.13 to the
prepayment of Term Loans and Revolving Loans shall be applied, as applicable,
first to reduce outstanding ABR Loans. Any amounts remaining after each such
application shall, at the option of the Borrower, be applied to prepay
Eurodollar Loans immediately and/or shall be deposited in the Prepayment Account
(as defined below). The Administrative Agent shall apply any cash deposited in
the Prepayment Account (i) allocable to Term Loans to prepay Eurodollar Term
Loans and (ii) allocable to Revolving Loans to prepay Eurodollar Revolving
Loans, in each case on the last day of their respective Interest Periods (or, at
the direction of the Borrower, on any earlier date) until all
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46
outstanding Term Loans or Revolving Loans, as the case may be, have been prepaid
or until all the allocable cash on deposit with respect to such Loans has been
exhausted. For purposes of this Agreement, the term "PREPAYMENT ACCOUNT" shall
mean an account established by the Borrower with the Administrative Agent and
over which the Administrative Agent shall have exclusive dominion and control,
including the exclusive right of withdrawal for application in accordance with
this paragraph (h). The Administrative Agent will, at the request of the
Borrower, invest amounts on deposit in the Prepayment Account in Permitted
Investments that mature prior to the last day of the applicable Interest Periods
of the Eurodollar Term Borrowings or Eurodollar Revolving Borrowings to be
prepaid, as the case may be; PROVIDED, HOWEVER, that (i) the Administrative
Agent shall not be required to make any investment that, in its sole judgment,
would require or cause the Administrative Agent to be in, or would result in
any, violation of any law, statute, rule or regulation and (ii) the
Administrative Agent shall have no obligation to invest amounts on deposit in
the Prepayment Account if a Default or Event of Default shall have occurred and
be continuing. The Borrower shall indemnify the Administrative Agent for any
losses relating to the investments so that the amount available to prepay
Eurodollar Borrowings on the last day of the applicable Interest Period is not
less than the amount that would have been available had no investments been made
pursuant thereto. Other than any interest earned on such investments, the
Prepayment Account shall not bear interest. Interest or profits, if any, on such
investments shall be deposited in the Prepayment Account and reinvested and
disbursed as specified above. If the maturity of the Loans has been accelerated
pursuant to Article VII, the Administrative Agent may, in its sole discretion,
apply all amounts on deposit in the Prepayment Account to satisfy any of the
Obligations. The Borrower hereby grants to the Administrative Agent, for its
benefit and the benefit of the Issuing Banks, the Swingline Lender and the
Lenders, a security interest in the Prepayment Account to secure the
Obligations.
SECTION 2.14. RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES. (a)
Notwithstanding any other provision of this Agreement, if after the date of this
Agreement any change in applicable law or regulation or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) shall change the basis of taxation of payments to any Lender or any Issuing
Bank of the principal of or interest on any Eurodollar Loan made by such Lender
or any Fees or other
<PAGE>
47
amounts payable hereunder (other than changes in respect of taxes imposed on the
overall net income of such Lender or Issuing Bank by the jurisdiction in which
such Lender or Issuing Bank has its principal office or by any political
subdivision or taxing authority therein), or shall impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of or credit extended by any Lender or such
Issuing Bank (except any such reserve requirement which is reflected in the
Adjusted LIBO Rate) or shall impose on such Lender or such Issuing Bank or the
London interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender or any Letter of Credit or participation
therein, and the result of any of the foregoing shall be to increase the cost to
such Lender or such Issuing Bank of making or maintaining any Eurodollar Loan or
increase the cost to any Lender of issuing or maintaining any Letter of Credit
or purchasing or maintaining a participation therein or to reduce the amount of
any sum received or receivable by such Lender or such Issuing Bank hereunder
(whether of principal, interest or otherwise) by an amount deemed by such Lender
or such Issuing Bank to be material, then the Borrower will pay to such Lender
or such Issuing Bank, as the case may be, upon demand such Additional Amount or
amounts as will compensate such Lender or Issuing Bank, as the case may be, for
such additional costs incurred or reduction suffered.
(b) If any Lender or Issuing Bank shall have determined that the
adoption after the date hereof of any law, rule, regulation, agreement or
guideline regarding capital adequacy, or any change after the date hereof in any
such law, rule, regulation, agreement or guideline (whether such law, rule,
regulation, agreement or guideline has been adopted) or in the interpretation or
administration thereof by any Governmental Authority charged with the
interpretation or administration thereof, or compliance by any Lender (or any
lending office of such Lender) or any Issuing Bank or any Lender's or Issuing
Bank's holding company with any request or directive regarding capital adequacy
(whether or not having the force of law) of any Governmental Authority has or
would have the effect of reducing the rate of return on such Lender's or Issuing
Bank's capital or on the capital of such Lender's or Issuing Bank's holding
company, if any, as a consequence of this Agreement or the Loans made or
participations in Letters of Credit purchased by such Lender pursuant hereto or
the Letters of Credit issued by such Issuing Bank pursuant hereto to a level
below that which such Lender or Issuing Bank or such Lender's or Issuing Bank's
holding company could have achieved but for such applicability, adoption,
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48
change or compliance (taking into consideration such Lender's or Issuing Bank's
policies and the policies of such Lender's or Issuing Bank's holding company
with respect to capital adequacy) by an amount deemed by such Lender or Issuing
Bank to be material, then from time to time the Borrower shall pay to such
Lender or Issuing Bank, as the case may be, such Additional Amount or amounts as
will compensate such Lender or Issuing Bank or such Lender's or Issuing Bank's
holding company for any such reduction suffered; PROVIDED, HOWEVER, that the
Borrower will only be obligated to pay such Additional Amounts if other
similarly situated borrowers of such Lender are also required to pay such
Additional Amounts.
(c) A certificate of a Lender or Issuing Bank setting forth the amount
or amounts necessary to compensate such Lender or Issuing Bank or its holding
company, as applicable, as specified in paragraph (a) or (b) above shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay such Lender or Issuing Bank the amount shown as due on any
such certificate delivered by it within 10 days after its receipt of the same.
(d) Failure or delay on the part of any Lender or any Issuing Bank to
demand compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital shall not constitute a waiver of
such Lender's or Issuing Bank's right to demand such compensation. The
protection of this Section shall be available to each Lender and Issuing Bank
regardless of any possible contention of the invalidity or inapplicability of
the law, rule, regulation, agreement, guideline or other change or condition
that shall have occurred or been imposed.
SECTION 2.15. CHANGE IN LEGALITY. (a) Notwithstanding any other
provision of this Agreement, if, after the date hereof, any change in any law or
regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Lender to make or maintain any Eurodollar Loan or to give effect to its
obligations as contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrower and to the Administrative Agent:
(i) such Lender may declare that Eurodollar Loans will not
thereafter (for the duration of such unlawfulness) be made by such
Lender hereunder (or be continued for additional Interest Periods and
ABR Loans
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49
will not thereafter (for such duration) be converted into Eurodollar
Loans), whereupon any request for a Eurodollar Borrowing (or to convert
an ABR Borrowing to a Eurodollar Borrowing or to continue a Eurodollar
Borrowing for an additional Interest Period) shall, as to such Lender
only, be deemed a request for an ABR Loan (or a request to continue an
ABR Loan as such for an additional Interest Period or to convert a
Eurodollar Loan into an ABR Loan, as the case may be), unless such
declaration shall be subsequently withdrawn; and
(ii) such Lender may require that all outstanding Eurodollar
Loans made by it be converted to ABR Loans, in which event all such
Eurodollar Loans shall be automatically converted to ABR Loans as of
the effective date of such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or (ii) above, all
payments and prepayments of principal that would otherwise have been applied to
repay the Eurodollar Loans that would have been made by such Lender or the
converted Eurodollar Loans of such Lender shall instead be applied to repay the
ABR Loans made by such Lender in lieu of, or resulting from the conversion of,
such Eurodollar Loans.
(b) For purposes of this Section 2.15, a notice to the Borrower by any
Lender shall be effective as to each Eurodollar Loan made by such Lender, if
lawful, on the last day of the Interest Period currently applicable to such
Eurodollar Loan; in all other cases such notice shall be effective on the date
of receipt by the Borrower.
SECTION 2.16. INDEMNITY. The Borrower shall indemnify each Lender
against any loss or expense that such Lender may sustain or incur as a
consequence of (a) any event, other than a default by such Lender in the
performance of its obligations hereunder, which results in (i) such Lender
receiving or being deemed to receive any amount on account of the principal of
any Eurodollar Loan prior to the end of the Interest Period in effect therefor,
(ii) the conversion of any Eurodollar Loan to an ABR Loan, or the conversion of
the Interest Period with respect to any Eurodollar Loan, in each case other than
on the last day of the Interest Period in effect therefor, or (iii) any
Eurodollar Loan to be made by such Lender (including any Eurodollar Loan to be
made pursuant to a conversion or continuation under Section 2.10) not being made
after notice of such Loan shall have been given by the Borrower hereunder (any
of the events referred
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50
to in this clause (a) being called a "BREAKAGE EVENT") or (b) any default in the
making of any payment or prepayment required to be made hereunder. In the case
of any Breakage Event, such loss shall include an amount equal to the excess, as
reasonably determined by such Lender, of (i) its cost of obtaining funds for the
Eurodollar Loan that is the subject of such Breakage Event for the period from
the date of such Breakage Event to the last day of the Interest Period in effect
(or that would have been in effect) for such Loan over (ii) the amount of
interest likely to be realized by such Lender in redeploying the funds released
or not utilized by reason of such Breakage Event for such period. A certificate
of any Lender setting forth any amount or amounts which such Lender is entitled
to receive pursuant to this Section 2.16 shall be delivered to the Borrower and
shall be conclusive absent manifest error.
SECTION 2.17. PRO RATA TREATMENT. Except as provided below in this
Section 2.17 or in Section 2.22 with respect to Swingline Loans and as required
under Section 2.15, each Borrowing, each payment or prepayment of principal of
any Borrowing, each payment of interest on the Loans, each payment of the
Commitment Fees, L/C Participation Fees, each reduction of the Term Loan
Commitments or the Revolving Credit Commitments and each conversion of any
Borrowing to or continuation of any Borrowing as a Borrowing of any Type shall
be allocated pro rata among the Lenders in accordance with their respective
applicable Commitments (or, if such Commitments shall have expired or been
terminated, in accordance with the respective principal amounts of their
outstanding Loans). For purposes of determining the available Revolving Credit
Commitments of the Lenders at any time, each outstanding Swingline Loan shall be
deemed to have utilized the Revolving Credit Commitments of the Lenders
(including those Lenders which shall not have made Swingline Loans) pro rata in
accordance with such respective Revolving Credit Commitments. Each Lender agrees
that in computing such Lender's portion of any Borrowing to be made hereunder,
the Administrative Agent may, in its discretion, round each Lender's percentage
of such Borrowing to the next higher or lower whole dollar amount.
SECTION 2.18. SHARING OF SETOFFS. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim against
the Borrower or any other Loan Party, or pursuant to a secured claim under
Section 506 of Title 11 of the United States Code or other security or interest
arising from, or in lieu of, such secured claim, received by such Lender under
any applicable bankruptcy, insolvency or other similar law or otherwise, or by
any other means, obtain payment (voluntary or
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51
involuntary) in respect of any Loan or Loans or L/C Disbursement as a result of
which the unpaid principal portion of its Tranche A Term Loans, Tranche B Term
Loans and Revolving Loans and participations in L/C Disbursements shall be
proportionately less than the unpaid principal portion of the Tranche A Term
Loans, Tranche B Term Loans and Revolving Loans and participations in L/C
Disbursements of any other Lender, it shall be deemed simultaneously to have
purchased from such other Lender at face value, and shall promptly pay to such
other Lender the purchase price for, a participation in the Tranche A Term
Loans, Tranche B Term Loans and Revolving Loans and L/C Exposure, as the case
may be of such other Lender, so that the aggregate unpaid principal amount of
the Tranche A Term Loans, Tranche B Term Loans and Revolving Loans and L/C
Exposure and participations in Tranche A Term Loans, Tranche B Term Loans and
Revolving Loans and L/C Exposure held by each Lender shall be in the same
proportion to the aggregate unpaid principal amount of all Tranche A Term Loans,
Tranche B Term Loans and Revolving Loans and L/C Exposure then outstanding as
the principal amount of its Tranche A Term Loans, Tranche B Term Loans and
Revolving Loans and L/C Exposure prior to such exercise of banker's lien, setoff
or counterclaim or other event was to the principal amount of all Tranche A Term
Loans, Tranche B Term Loans and Revolving Loans and L/C Exposure outstanding
prior to such exercise of banker's lien, setoff or counterclaim or other event;
PROVIDED, HOWEVER, that if any such purchase or purchases or adjustments shall
be made pursuant to this Section 2.18 and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustment restored without interest. The Borrower expressly consents to the
foregoing arrangements and agrees that any Lender holding a participation in a
Term Loan or Revolving Loan or L/C Disbursement deemed to have been so purchased
may exercise any and all rights of banker's lien, setoff or counterclaim with
respect to any and all moneys owing by the Borrower to such Lender by reason
thereof as fully as if such Lender had made a Loan directly to the Borrower in
the amount of such participation.
SECTION 2.19. PAYMENTS. (a) The Borrower shall make each payment
(including principal of or interest on any Borrowing or any L/C Disbursement or
any Fees or other amounts) hereunder and under any other Loan Document not later
than 10:00 a.m., San Francisco time, on the date when due in immediately
available dollars, without setoff, defense or counterclaim. Each such payment
(other than (i) Issuing Bank Fees, which shall be paid directly to the
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52
applicable Issuing Bank, and (ii) principal of and interest on Swingline Loans,
which shall be paid directly to the Swingline Lender except as otherwise
provided in Section 2.22(e)) shall be made to the Administrative Agent at its
offices at 1850 Gateway Boulevard, Concord, California 94520.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
interest or Fees, if applicable.
SECTION 2.20. TAXES. (a) Any and all payments by or on behalf of the
Borrower or any Loan Party hereunder and under any other Loan Document shall be
made, in accordance with Section 2.19, free and clear of and without deduction
for any and all current or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, EXCLUDING (i) income
taxes imposed on the net income of the Administrative Agent, any Lender or any
Issuing Bank (or any transferee or assignee thereof, including a participation
holder (any such entity a "TRANSFEREE")) and (ii) franchise taxes imposed on the
net income of the Administrative Agent, any Lender or any Issuing Bank (or
Transferee), in each case by the jurisdiction under the laws of which the
Administrative Agent, such Lender or such Issuing Bank (or Transferee) is
organized or any political subdivision thereof (all such nonexcluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities, collectively
or individually, being called "TAXES"). If the Borrower or any Loan Party shall
be required to deduct any Taxes from or in respect of any sum payable hereunder
or under any other Loan Document to the Administrative Agent, any Lender or any
Issuing Bank (or any Transferee), (i) the sum payable shall be increased by the
amount (an "ADDITIONAL AMOUNT") necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 2.20) the Administrative Agent, such Lender or such Issuing Bank
(or Transferee), as the case may be, shall receive an amount equal to the sum it
would have received had no such deductions been made, (ii) the Borrower or such
Loan Party shall make such deductions and (iii) the Borrower or such Loan Party
shall pay the full amount deducted to the relevant Governmental Authority in
accordance with applicable law.
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53
(b) In addition, the Borrower agrees to pay to the relevant
Governmental Authority in accordance with applicable law any current or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies (including, without limitation, mortgage recording taxes and
similar fees) that arise from any payment made hereunder or under any other Loan
Document or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or any other Loan Document ("OTHER TAXES").
(c) The Borrower will indemnify the Administrative Agent, each Lender
and each Issuing Bank (or Transferee) for the full amount of Taxes and Other
Taxes paid by the Administrative Agent, such Lender or such Issuing Bank (or
Transferee), as the case may be, and any liability (including penalties,
interest and expenses (including reasonable attorney's fees and expenses))
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted by the relevant Governmental Authority.
A certificate as to the amount of such payment or liability prepared by the
Administrative Agent, a Lender or an Issuing Bank (or Transferee), or the
Administrative Agent on its behalf, absent manifest error, shall be final,
conclusive and binding for all purposes. Such indemnification shall be made
within 30 days after the date the Administrative Agent, any Lender or any
Issuing Bank (or Transferee), as the case may be, makes written demand therefor.
(d) As soon as practicable after the date of any payment of Taxes or
Other Taxes by the Borrower or any other Loan Party to the relevant Governmental
Authority, the Borrower or such other Loan Party will deliver to the
Administrative Agent, at its address referred to in Section 9.01, the original
or a certified copy of a receipt issued by such Governmental Authority
evidencing payment thereof.
(e) Each Lender and Issuing Bank (or Transferee) that is organized
under the laws of a jurisdiction other than the United States, any State thereof
or the District of Columbia (a "NON-U.S. LENDER") shall deliver to the Borrower
and the Administrative Agent two copies of either United States Internal Revenue
Service Form 1001, or any subsequent version thereof or successors thereto or
Form 4224, or any subsequent version thereof or successors thereto, or, in the
case of a Non-U.S. Lender or Issuing Bank claiming exemption from U.S. Federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", a Form W-8, or any subsequent versions thereof
or
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54
successors thereto (and, if such Non-U.S. Lender or Issuing Bank delivers a Form
W-8, a certificate representing that such Non-U.S. Lender or Issuing Bank is not
a bank for purposes of Section 881(c) of the Code, is not a 10-percent
shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the
Borrower and is not a controlled foreign corporation related to the Borrower
(within the meaning of Section 864(d)(4) of the Code)), properly completed and
duly executed by such Non-U.S. Lender or Issuing Bank claiming complete
exemption from, or reduced rate of, U.S. Federal withholding tax on payments by
the Borrower under this Agreement and the other Loan Documents. Such forms shall
be delivered by each Non-U.S. Lender or Issuing Bank on or before the date it
becomes a party to this Agreement (or, in the case of a Transferee that is a
participation holder, on or before the date such participation holder becomes a
Transferee hereunder) and on or before the date, if any, such Non-U.S. Lender or
Issuing Bank changes its applicable lending office by designating a different
lending office (a "NEW LENDING OFFICE"). In addition, each Non-U.S. Lender or
Issuing Bank shall deliver such forms promptly upon the obsolescence or
invalidity of any form previously delivered by such Non-U.S. Lender or Issuing
Bank. Notwithstanding any other provision of this Section 2.20(e), a Non-U.S.
Lender or Issuing Bank shall not be required to deliver any form pursuant to
this Section 2.20(e) that such Non-U.S. Lender or Issuing Bank is not legally
able to deliver. If the IRS or any other Governmental Authority asserts a claim
that the Administrative Agent did not properly withhold tax from amounts paid to
or for the account of any Lender (because the appropriate form was not delivered
or was not properly executed, or because such Lender failed to notify the
Administrative Agent of a change in circumstances relating to such Lender which
rendered the exemption from, or reduction of, withholding tax ineffective) such
Lender shall indemnify the Administrative Agent fully for all amounts paid,
directly or indirectly, by the Administrative Agent as tax or otherwise,
including penalties and interest, and including any taxes imposed by any
jurisdiction on the amounts payable to the Administrative Agent under this
Section, together with all costs and expenses (including attorneys' fees and
expenses). The obligation of the Lender under this subsection shall survive the
payment of all Obligations and the resignation or replacement of the
Administrative Agent.
(f) The Borrower shall not be required to indemnify any Non-U.S. Lender
or Issuing Bank or to pay any Additional Amounts to any Non-U.S. Lender or
Issuing Bank, in respect of United States Federal withholding tax pursuant to
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55
paragraph (a) or (c) above to the extent that (i) the obligation to withhold
amounts with respect to United States Federal withholding tax existed on the
date such Non-U.S. Lender or Issuing Bank became a party to this Agreement (or,
in the case of a Transferee that is a participation holder, on the date such
participation holder became a Transferee hereunder) or, with respect to payments
to a New Lending Office, the date such Non-U.S. Lender or Issuing Bank
designated such New Lending Office with respect to a Loan or a Letter of Credit;
PROVIDED, HOWEVER, that this paragraph (f) shall not apply (x) to any Transferee
or New Lending Office that becomes a Transferee or New Lending Office as a
result of an assignment, participation, transfer or designation made at the
request of the Borrower and (y) to the extent the indemnity payment or
Additional Amounts any Transferee, or any Lender or Issuing Bank (or
Transferee), acting through a New Lending Office, would be entitled to receive
(without regard to this paragraph (f)) do not exceed the indemnity payment or
Additional Amounts that the Person making the assignment, participation or
transfer to such Transferee, or Lender or Issuing Bank (or Transferee) making
the designation of such New Lending Office, would have been entitled to receive
in the absence of such assignment, participation, transfer or designation or
(ii) the obligation to pay such Additional Amounts would not have arisen but for
a failure by such Non-U.S. Lender or Issuing Bank to comply with the provisions
of paragraph (f) above.
(g) Nothing contained in this Section 2.20 shall require any Lender or
Issuing Bank (or any Transferee) or the Administrative Agent to make available
any of its tax returns (or any other information that it deems to be
confidential or proprietary).
SECTION 2.21. ASSIGNMENT OF COMMITMENTS UNDER CERTAIN CIRCUMSTANCES;
DUTY TO MITIGATE. (a) In the event (i) any Lender or Issuing Bank delivers a
certificate requesting compensation pursuant to Section 2.14(a), (ii) any Lender
or Issuing Bank delivers a notice described in Section 2.15 or (iii) the
Borrower is required to pay any Additional Amount to any Lender or Issuing Bank
or any Governmental Authority on account of any Lender or Issuing Bank pursuant
to Section 2.20, the Borrower may, at its sole expense and effort (including
with respect to the processing and recordation fee referred to in Section
9.04(b)), upon notice to such Lender or Issuing Bank and the Administrative
Agent, require such Lender or Issuing Bank to transfer and assign, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all of its interests, rights and obligations under this Agreement
to an
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56
assignee that shall assume such assigned obligations (which assignee may be
another Lender, if a Lender accepts such assignment); PROVIDED that (x) such
assignment shall not conflict with any law, rule or regulation or order of any
court or other Governmental Authority having jurisdiction, (y) the Borrower
shall have received the prior written consent of the Administrative Agent (and,
if a Revolving Credit Commitment is being assigned, of the Issuing Banks and the
Swingline Lender), which consent shall not unreasonably be withheld, and (z) the
Borrower or such assignee shall have paid to the affected Lender or Issuing Bank
in immediately available funds an amount equal to the sum of the principal of
and interest accrued to the date of such payment on the outstanding Loans or L/C
Disbursements of such Lender or Issuing Bank, respectively, plus all Fees and
other amounts accrued for the account of such Lender or Issuing Bank hereunder
(including any amounts under Section 2.14 and Section 2.16); PROVIDED FURTHER
that, if prior to any such transfer and assignment the circumstances or event
that resulted in such Lender's or Issuing Bank's claim for compensation under
Section 2.14(a) or notice under Section 2.15 or the amounts paid pursuant to
Section 2.20, as the case may be, cease to cause such Lender or Issuing Bank to
suffer increased costs or reductions in amounts received or receivable or
reduction in return on capital, or cease to have the consequences specified in
Section 2.15, or cease to result in amounts being payable under Section 2.20, as
the case may be (including as a result of any action taken by such Lender or
Issuing Bank pursuant to paragraph (b) below), or if such Lender or Issuing Bank
shall waive its right to claim further compensation under Section 2.14 in
respect of such circumstances or event or shall withdraw its notice under
Section 2.15 or shall waive its right to further payments under Section 2.20 in
respect of such circumstances or event, as the case may be, then such Lender or
Issuing Bank shall not thereafter be required to make any such transfer and
assignment hereunder.
(b) If (i) any Lender or Issuing Bank shall request compensation under
Section 2.14, (ii) any Lender or Issuing Bank delivers a notice described in
Section 2.15 or (iii) the Borrower is required to pay any Additional Amount to
any Lender or Issuing Bank or any Governmental Authority on account of any
Lender or Issuing Bank, pursuant to Section 2.20, then such Lender or Issuing
Bank shall use reasonable efforts (which shall not require such Lender or
Issuing Bank to incur an unreimbursed loss or unreimbursed cost or expense or
otherwise take any action inconsistent with its internal policies or legal or
regulatory restrictions or suffer any disadvantage or burden deemed by it to be
significant) (x) to file any certificate or
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document reasonably requested in writing by the Borrower or (y) to assign its
rights and delegate and transfer its obligations hereunder to another of its
offices, branches or affiliates, if such filing or assignment would reduce its
claims for compensation under Section 2.14 or enable it to withdraw its notice
pursuant to Section 2.15 or would reduce amounts payable pursuant to Section
2.20, as the case may be, in the future. The Borrower hereby agrees to pay all
reasonable costs and expenses incurred by any Lender or Issuing Bank in
connection with any such filing or assignment, delegation and transfer.
SECTION 2.22. SWINGLINE LOANS. (a) SWINGLINE COMMITMENT. Subject to the
terms and conditions and relying upon the representations and warranties herein
set forth, the Swingline Lender agrees to make loans to the Borrower at any time
and from time to time on and after the Closing Date and until the earlier of the
Revolving Credit Maturity Date and the termination of the Revolving Credit
Commitments in accordance with the terms hereof, in an aggregate principal
amount at any time outstanding that will not result in (i) the aggregate
principal amount of all Swingline Loans exceeding $30,000,000 in the aggregate
or (ii) the Aggregate Revolving Credit Exposure, after giving effect to any
Swingline Loan, exceeding the Total Revolving Credit Commitment. Each Swingline
Loan shall be in a principal amount that is not less than $1,000,000 and in an
integral multiple of $50,000. The Swingline Commitment may be terminated or
reduced from time to time as provided herein. Within the foregoing limits, the
Borrower may borrow, pay or prepay and reborrow Swingline Loans hereunder,
subject to the terms, conditions and limitations set forth herein.
(b) SWINGLINE LOANS. The Borrower shall notify the Swingline Lender by
telecopy, or by telephone (confirmed by telecopy), not later than 10:00 a.m.,
San Francisco time, on the day of a proposed Swingline Loan. Such notice shall
be delivered on a Business Day, shall be irrevocable and shall refer to this
Agreement and shall specify the requested date (which shall be a Business Day)
and amount of such Swingline Loan and the requested maturity date (each such
date, a "Swingline Maturity Date") of such Swingline Loan (which maturity date
shall be no later than the thirtieth day after the requested date of such
Swingline Loan). The Swingline Lender will promptly advise the Administrative
Agent of any notice received from the Borrower pursuant to this paragraph (b)
and shall obtain telephone verifications from the Administrative Agent tha such
requested borrowing will not result in (i) the aggregate of all Swingline Loans
exceeding $30,000,000 in the aggregate or (ii) the Aggregate Revolving Credit
Exposure exceeding the Total Revolving Credit
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Commitment. The Swingline Lender shall make each Swingline Loan available to the
Borrower by means of a credit to the general deposit account of the Borrower
with the Swingline Lender by 2:00 p.m. on the date such Swingline Loan is so
requested.
(c) PREPAYMENT. The Borrower shall have the right at any time and from
time to time to prepay any Swingline Loan, in whole or in part, without premium
or penalty (except as otherwise provided herein) upon giving written or telecopy
notice (or telephone notice promptly confirmed by written, or telecopy notice)
to the Swingline Lender before 8:00 a.m., San Francisco time on the date of
prepayment at the Swingline Lender's address for notices specified on Schedule
2.01. All principal payments of Swingline Loans shall be accompanied by accrued
interest on the principal amount being repaid to the date of payment. The
Swingline Lender shall promptly notify the Administrative Agent of all
prepayments of Swingline Loans.
(d) INTEREST. Each Swingline Loan shall bear interest at a rate equal
to the cost of funds of the Swingline Lender plus the Applicable Percentage with
respect to Revolving Credit Eurodollar Loans on such date.
(e) PARTICIPATIONS. The Swingline Lender may on any Business Day, by
written notice given to the Administrative Agent not later than 10:00 a.m., San
Francisco time, require the Revolving Credit Lenders to acquire participations
in all outstanding Swingline Loans. Such notice shall specify the aggregate
amount of Swingline Loans in which Revolving Credit Lenders will participate.
The Administrative Agent will, promptly upon receipt of such notice, give notice
to each Revolving Credit Lender, specifying in such notice such Lender's Pro
Rata Percentage of such Swingline Loan or Loans. In furtherance of the
foregoing, each Revolving Credit Lender hereby absolutely and unconditionally
agrees, upon receipt of notice as provided above, to pay to the Administrative
Agent, for the account of the Swingline Lender, such Revolving Credit Lender's
Pro Rata Percentage of such Swingline Loan or Loans. Each Lender acknowledges
and agrees that its obligation to acquire participations in Swingline Loans
pursuant to this paragraph is absolute and unconditional and shall not be
affected by any circumstance whatsoever, including the occurrence and
continuance of a Default or an Event of Default, and that each such payment
shall be made without any offset, abatement, withholding or reduction
whatsoever. Notwithstanding the foregoing, no Lender shall be obligated to
participate in any Swingline Loan to the extent that such participation would
cause such Lender's Revolving Credit Exposure to exceed such Lender's
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Revolving Commitment. Each Lender shall comply with its obligation under this
paragraph by wire transfer of immediately available funds, in the same manner as
provided in Section 2.02(f) with respect to Loans made by such Lender (and
Section 2.02(f) shall apply, MUTATIS MUTANDIS, to the payment obligations of the
Lenders) and the Administrative Agent shall promptly pay to the Swingline Lender
the amounts so received by it from the Lenders. The Administrative Agent shall
notify the Borrower of any participations in any Swingline Loan acquired
pursuant to this paragraph and thereafter payments in respect of such Swingline
Loan shall be made to the Administrative Agent and not to the Swingline Lender.
Any amounts received by the Swingline Lender from the Borrower (or other party
on behalf of the Borrower) in respect of a Swingline Loan after receipt by the
Swingline Lender of the proceeds of a sale of participations therein shall be
promptly remitted to the Administrative Agent; any such amounts received by the
Administrative Agent shall be promptly remitted by the Administrative Agent to
the Lenders that shall have made their payments pursuant to this paragraph and
to the Swingline Lender, as their interests may appear. The purchase of
participations in a Swingline Loan pursuant to this paragraph shall not relieve
the Borrower (or other party liable for obligations of the Borrower) of any
default in the payment thereof.
SECTION 2.23. LETTERS OF CREDIT. (a) GENERAL. The Borrower may request
the issuance of a Letter of Credit for its own account, in a form reasonably
acceptable to the Administrative Agent and the applicable Issuing Bank, at any
time and from time to time while the Revolving Credit Commitments remain in
effect. This Section shall not be construed to impose an obligation upon any
Issuing Bank to issue any Letter of Credit that is inconsistent with the terms
and conditions of this Agreement.
(b) NOTICE OF ISSUANCE, AMENDMENT, RENEWAL, EXTENSION; CERTAIN
CONDITIONS. In order to request the issuance of a Letter of Credit (or to amend,
renew or extend an existing Letter of Credit), the Borrower shall hand deliver
or telecopy to the applicable Issuing Bank and the Administrative Agent (at
least three days in advance of the requested date of issuance, amendment,
renewal or extension or such shorter time period agreed upon by the Issuing Bank
and the Borrower) a notice requesting the issuance of a Letter of Credit, or
identifying the Letter of Credit to be amended, renewed or extended, the date of
issuance, amendment, renewal or extension, the date on which such Letter of
Credit is to expire (which shall comply with paragraph (c) below), the amount of
such Letter of Credit, the name and address of the beneficiary thereof and such
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other information as shall be necessary to prepare such Letter of Credit.
Following receipt of such notice and prior to the issuance of the requested
Letter of Credit or the applicable amendment, renewal or extension, the
Administrative Agent shall notify the Borrower and the applicable Issuing Bank
of the amount of the Aggregate Revolving Credit Exposure after giving effect to
(i) the issuance, amendment, renewal or extension of such Letter of Credit, (ii)
the issuance or expiration of any other Letter of Credit that is to be issued or
will expire prior to the requested date of issuance of such Letter of Credit and
(iii) the borrowing or repayment of any Revolving Credit Loans or Swingline
Loans that (based upon notices delivered to the Administrative Agent by the
Borrower) are to be borrowed or repaid prior to the requested date of issuance
of such Letter of Credit. A Letter of Credit shall be issued, amended, renewed
or extended only if, and upon issuance, amendment, renewal or extension of each
Letter of Credit the Borrower shall be deemed to represent and warrant that,
after giving effect to such issuance, amendment, renewal or extension (A) the
L/C Exposure shall not exceed $50,000,000 and (B) the Aggregate Revolving Credit
Exposure shall not exceed the Total Revolving Credit Commitment.
(c) EXPIRATION DATE. Each Letter of Credit shall expire at the close of
business on the earlier of the date one year after the date of the issuance of
such Letter of Credit and the date that is five Business Days prior to the
Revolving Credit Maturity Date, unless such Letter of Credit
expires by its terms on an earlier date.
(d) PARTICIPATIONS. By the issuance of a Letter of Credit and without
any further action on the part of the applicable Issuing Bank or the Lenders,
the applicable Issuing Bank hereby grants to each Revolving Credit Lender, and
each such Lender hereby acquires from the applicable Issuing Bank, a
participation in such Letter of Credit equal to such Lender's Pro Rata
Percentage of the aggregate amount available to be drawn under such Letter of
Credit, effective upon the issuance of such Letter of Credit. In consideration
and in furtherance of the foregoing, each Revolving Credit Lender hereby
absolutely and unconditionally agrees to pay to the Administrative Agent, for
the account of the applicable Issuing Bank, such Lender's Pro Rata Percentage of
each L/C Disbursement made by such Issuing Bank and not reimbursed by the
Borrower (or, if applicable, another party pursuant to its obligations under any
other Loan Document) forthwith on the date due as provided in Section 2.02(f).
Each Revolving Credit Lender acknowledges and agrees that its obligation to
acquire participations pursuant to this paragraph in respect of
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Letters of Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including the occurrence and continuance of a Default
or an Event of Default, and that each such payment shall be made without any
offset, abatement, withholding or reduction whatsoever.
(e) REIMBURSEMENT. If an Issuing Bank shall make any L/C Disbursement
in respect of a Letter of Credit, the Borrower shall pay to the Administrative
Agent an amount equal to such L/C Disbursement not later than two hours after
the Borrower shall have received notice from such Issuing Bank that payment of
such draft will be made, or, if the Borrower shall have received such notice
later than 12:00 (noon), San Francisco time, on any Business Day, not later than
10:00 a.m., San Francisco time, on the immediately following Business Day.
(f) OBLIGATIONS ABSOLUTE. The Borrower's obligations to reimburse L/C
Disbursements as provided in paragraph (e) above shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement, under any and all circumstances whatsoever,
and irrespective of:
(i) any lack of validity or enforceability of any
Letter of Credit or any Loan Document, or any term or
provision therein;
(ii) any amendment or waiver of or any consent to
departure from all or any of the provisions of any
Letter of Credit or any Loan Document;
(iii) the existence of any claim, setoff, defense or other
right that the Borrower, any other party guaranteeing, or otherwise
obligated with, the Borrower, any Subsidiary or other Affiliate thereof
or any other Person may at any time have against the beneficiary under
any Letter of Credit, any Issuing Bank, the Administrative Agent or any
Lender or any other Person, whether in connection with this Agreement,
any other Loan Document or any other related or unrelated agreement or
transaction;
(iv) any draft or other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any
respect;
(v) payment by the applicable Issuing Bank under a
Letter of Credit against presentation of a draft or
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other document that does not comply with the terms of
such Letter of Credit; and
(vi) any other act or omission to act or delay of any kind of
any Issuing Bank, the Lenders, the Administrative Agent or any other
Person or any other event or circumstance whatsoever, whether or not
similar to any of the foregoing, that might, but for the provisions of
this Section, constitute a legal or equitable discharge of the
Borrower's obligations hereunder.
Without limiting the generality of the foregoing, it is expressly
understood and agreed that the absolute and unconditional obligation of the
Borrower hereunder to reimburse L/C Disbursements will not be excused by the
gross negligence or wilful misconduct of any Issuing Bank. However, the
foregoing shall not be construed to excuse any Issuing Bank from liability to
the Borrower to the extent of any direct damages (as opposed to consequential
damages, claims in respect of which are hereby waived by the Borrower to the
extent permitted by applicable law) suffered by the Borrower that are caused by
such Issuing Bank's gross negligence or wilful misconduct in determining whether
drafts and other documents presented under a Letter of Credit comply with the
terms thereof; it is understood that each Issuing Bank may accept documents that
appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary and, in
making any payment under any Letter of Credit (i) an Issuing Bank's exclusive
reliance on the documents presented to it under such Letter of Credit as to any
and all matters set forth therein, including reliance on the amount of any draft
presented under such Letter of Credit, whether or not the amount due to the
beneficiary thereunder equals the amount of such draft and whether or not any
document presented pursuant to such Letter of Credit proves to be insufficient
in any respect, if such document on its face appears to be in order, and whether
or not any other statement or any other document presented pursuant to such
Letter of Credit proves to be forged or invalid or any statement therein proves
to be inaccurate or untrue in any respect whatsoever and (ii) any noncompliance
in any immaterial respect of the documents presented under such Letter of Credit
with the terms thereof shall, in each case, be deemed not to constitute wilful
misconduct or gross negligence of an Issuing Bank.
(g) DISBURSEMENT PROCEDURES. The applicable Issuing Bank shall,
promptly following its receipt thereof, examine all documents purporting to
represent a demand for payment
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under a Letter of Credit. Such Issuing Bank shall as promptly as possible give
telephonic notification, confirmed by telecopy, to the Administrative Agent and
the Borrower of such demand for payment and whether such Issuing Bank has made
or will make an L/C Disbursement thereunder; PROVIDED that any failure to give
or delay in giving such notice shall not relieve the Borrower of its obligation
to reimburse the Issuing Bank and the Revolving Credit Lenders with respect to
any such L/C Disbursement. The Administrative Agent shall promptly give each
Revolving Credit Lender notice thereof.
(h) INTERIM INTEREST. If an Issuing Bank shall make any L/C
Disbursement in respect of a Letter of Credit, then, unless the Borrower shall
reimburse such L/C Disbursement in full on such date, the unpaid amount thereof
shall bear interest for the account of such Issuing Bank, for each day from and
including the date of such L/C Disbursement, to but excluding the earlier of the
date of payment by the Borrower or the date on which interest shall commence to
accrue thereon as provided in Section 2.02(f), at the rate per annum that would
apply to such amount if such amount were an ABR Loan.
(i) RESIGNATION OR REMOVAL OF AN ISSUING BANK. An Issuing Bank may
resign at any time by giving 180 days' prior written notice to the
Administrative Agent, the Lenders and the Borrower, and may be removed at any
time by the Borrower by notice to the Issuing Bank, the Administrative Agent and
the Lenders. Subject to the next succeeding paragraph, upon the acceptance of
any appointment as an Issuing Bank hereunder by a Lender that shall agree to
serve as successor Issuing Bank, such successor shall succeed to and become
vested with all the interests, rights and obligations of the retiring Issuing
Bank and the retiring Issuing Bank shall be discharged from its obligations to
issue additional Letters of Credit hereunder. At the time such removal or
resignation shall become effective, the Borrower shall pay all accrued and
unpaid fees pursuant to Section 2.05(c)(ii). The acceptance of any appointment
as an Issuing Bank hereunder by a successor Lender shall be evidenced by an
agreement entered into by such successor, in a form satisfactory to the Borrower
and the Administrative Agent, and, from and after the effective date of such
agreement, (i) such successor Lender shall have all the rights and obligations
of the previous Issuing Bank under this Agreement and the other Loan Documents
and (ii) references herein and in the other Loan Documents to the term "Issuing
Bank" shall be deemed to refer to such successor or to any previous Issuing
Bank, or to such successor and all previous Issuing Banks, as the context
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shall require. After the resignation or removal of an Issuing Bank hereunder,
the retiring Issuing Bank shall remain a party hereto and shall continue to have
all the rights and obligations of an Issuing Bank under this Agreement and the
other Loan Documents with respect to Letters of Credit issued by it prior to
such resignation or removal, but shall not be required to issue additional
Letters of Credit.
(j) CASH COLLATERALIZATION. If any Event of Default shall occur and be
continuing, the Borrower shall, on the Business Day it receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Revolving Credit Lenders holding participations in
outstanding Letters of Credit representing greater than 50% of the aggregate
undrawn amount of all outstanding Letters of Credit) thereof and of the amount
to be deposited, deposit in an account with the Collateral Agent, for the
benefit of the Revolving Credit Lenders, an amount in cash equal to the L/C
Exposure as of such date. Such deposit shall be held by the Collateral Agent as
collateral for the payment and performance of the Obligations. The Collateral
Agent shall have exclusive dominion and control, including the exclusive right
of withdrawal, over such account. Other than any interest earned on the
investment of such deposits in Permitted Investments, which investments shall be
made at the option and sole discretion of the Collateral Agent, such deposits
shall not bear interest. Interest or profits, if any, on such investments shall
accumulate in such account. Moneys in such account shall (i) automatically be
applied by the Administrative Agent to reimburse the Issuing Banks for L/C
Disbursements for which they have not been reimbursed, (ii) be held for the
satisfaction of the reimbursement obligations of the Borrower for the L/C
Exposure at such time and (iii) if the maturity of the Loans has been
accelerated (but subject to the consent of Revolving Credit Lenders holding
participations in outstanding Letters of Credit representing greater than 50% of
the aggregate undrawn amount of all outstanding Letters of Credit), be applied
to satisfy the Obligations. If the Borrower is required to provide an amount of
cash collateral hereunder as a result of the occurrence of an Event of Default,
such amount (to the extent not applied as aforesaid) shall be returned to the
Borrower within three Business Days after all Events of Default have been cured
or waived.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the
Administrative Agent, the Collateral Agent, the Issuing Bank and each of the
Lenders that:
SECTION 3.01. ORGANIZATION; POWERS. Each of the Borrower and each of
the Subsidiaries (a) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, (b) has
all requisite power and authority to own its property and assets and to carry on
its business as now conducted and as proposed to be conducted, (c) is qualified
to do business in, and is in good standing in, every jurisdiction where such
qualification is required, except where the failure so to qualify could not
reasonably be expected to result in a Material Adverse Effect, and (d) has the
corporate power and authority to execute, deliver and perform its obligations
under each of the Loan Documents and each other agreement or instrument
contemplated hereby to which it is or will be a party and, in the case of the
Borrower, to borrow hereunder.
SECTION 3.02. AUTHORIZATION. The execution, delivery and performance by
each Loan Party of each of the Loan Documents and the borrowings hereunder
(collectively, the "FINANCING TRANSACTIONS" and, together with the Acquisition,
and the other transactions contemplated hereby the "Transactions") (a) have been
duly authorized by all requisite corporate and, if required, stockholder action
and (b) will not (i) violate (A) any provision of law, statute, rule or
regulation, or of the certificate or articles of incorporation or other
constitutive documents or by-laws of the Borrower or any Subsidiary, (B) any
order applicable to the Borrower or any Subsidiary of any Governmental Authority
or (C) any provision of any indenture or other material agreement or instrument
to which the Borrower or any Subsidiary is a party or by which any of them or
any of their property is or may be bound, (ii) be in conflict with, result in a
breach of or constitute (alone or with notice or lapse of time or both) a
default under, or give rise to any right to accelerate or to require the
prepayment, repurchase or redemption of any obligation under any such indenture,
agreement or other instrument or (iii) result in the creation or imposition of
any Lien upon or with respect to any property or assets now owned or hereafter
acquired by the Borrower or any Subsidiary (other than any Lien created
hereunder or under the Security Documents).
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SECTION 3.03. ENFORCEABILITY. This Agreement has been duly executed and
delivered by the Borrower and constitutes, and each other Loan Document when
executed and delivered by each Loan Party thereto will constitute, a legal,
valid and binding obligation of such Loan Party enforceable against such Loan
Party in accordance with its terms.
SECTION 3.04. GOVERNMENTAL APPROVALS. No action, consent or approval
of, registration or filing by the Borrower, McClatchy, Cowles or any of their
respective Subsidiaries with or any other action by any Governmental Authority
is or will be required in connection with the Transactions, except for (a) the
filing of Uniform Commercial Code financing statements and filings with the
United States Patent and Trademark Office and the United States Copyright
Office, (b) the filing of certificates of merger with the Secretary of State of
the State of Delaware on the Closing Date and (c) such as have been made or
obtained and are in full force and effect.
SECTION 3.05. FINANCIAL STATEMENTS. (a) McClatchy has heretofore
furnished to the Lenders (i) its consolidated balance sheets and statements of
income and changes in financial condition (A) as of and for the fiscal year
ended December 31, 1996, audited by and accompanied by the opinion of Deloitte &
Touche LLP, independent public accountants, and (B) as of and for the fiscal
quarter and the portion of the fiscal year ended September 30, 1997, certified
by its chief financial officer and (ii) the consolidated balance sheets and
statements of income and changes in financial condition of Cowles (A) as of and
for the fiscal year ended March 31, 1997, audited by and accompanied by an audit
opinion of KPMG Peat Marwick, independent public accountants, and (B) as of and
for the fiscal quarter and the portion of the fiscal year ended September 30,
1997, certified by the chief financial officer of Cowles. Such financial
statements present fairly the financial condition and results of operations and
cash flows of McClatchy and its consolidated Subsidiaries and Cowles and its
consolidated Subsidiaries, respectively, as of such dates and for such periods.
Such balance sheets and the notes thereto disclose all material liabilities,
direct or contingent, of McClatchy and its consolidated Subsidiaries and Cowles
and its consolidated Subsidiaries, respectively, as of the dates thereof. Such
financial statements were prepared in accordance with GAAP applied on a
consistent basis.
(b) The Borrower has heretofore delivered to the Lenders its unaudited
pro forma consolidated balance sheet as of January 31, 1998 and will deliver to
the Lenders on
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the Closing Date its unaudited pro forma consolidated balance sheet as of
February 28, 1998, each prepared giving effect to the Acquisition as if it had
occurred on such date and its unaudited pro forma statements of income for the
fiscal year ended December 31, 1997, prepared giving effect to the Acquisition
as if it had occurred at the beginning of such periods. Such pro forma balance
sheet and pro forma statements of income have been prepared in good faith by the
Borrower, based on the assumptions used to prepare the pro forma financial
information contained in the Confidential Information Memorandum (which
assumptions are believed by the Borrower on the date hereof and on the Closing
Date to be reasonable), is based on the best information available to the
Borrower as of the date of delivery thereof, accurately reflects all adjustments
required to be made to give effect to the Acquisition and presents fairly on a
pro forma basis the estimated consolidated financial position of the Borrower
and its consolidated Subsidiaries as of such date, assuming that the Acquisition
had actually occurred at such dates.
SECTION 3.06. NO MATERIAL ADVERSE CHANGE. There has been no material
adverse change in the business, assets, operations, prospects, condition,
financial or otherwise, or material agreements of the Borrower and the
Subsidiaries, taken as a whole, since the date of this Agreement, McClatchy and
its subsidiaries, taken as a whole, since December 31, 1996 or of Cowles and its
subsidiaries, taken as a whole, since March 31, 1997.
SECTION 3.07. TITLE TO PROPERTIES; POSSESSION UNDER LEASES. (a) Each of
the Borrower and the Subsidiaries has good and marketable title to, or valid
leasehold interests in, all its material properties and assets, except for minor
defects in title that do not interfere with its ability to conduct its business
as currently conducted or to utilize such properties and assets for their
intended purposes. All such material properties and assets are free and clear of
Liens, other than Liens expressly permitted by Section 6.02.
(b) Each of the Borrower and the Subsidiaries has complied with all
obligations under all material leases to which it is a party and all such leases
are in full force and effect. Each of the Borrower and the Subsidiaries enjoys
peaceful and undisturbed possession under all such material leases.
(c) Except as set forth on Schedule 3.07(c), the Borrower has not
received any notice of, nor has any knowledge of, any pending or contemplated
condemnation
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proceeding affecting any material property or any sale or disposition thereof in
lieu of condemnation.
(d) Except as set forth on Schedule 3.07(d), neither the Borrower nor
any of the Subsidiaries is obligated under any right of first refusal, option or
other contractual right to sell, assign or otherwise dispose of any material
property or any interest therein.
SECTION 3.08. SUBSIDIARIES. (a) Schedule 3.08(a) sets forth as of the
Closing Date after giving effect to the Acquisition a list of all Subsidiaries
and the percentage ownership interest of the Borrower therein. The shares of
capital stock or other ownership interests so indicated on Schedule 3.08 are
fully paid and non-assessable and are owned by the Borrower, directly or
indirectly, free and clear of all Liens.
(b) As of the Closing Date, except as set forth on Schedule 3.08(b),
there are no outstanding subscriptions, options, warrants, calls, rights
(including preemptive rights) or other agreements or commitments (including
pursuant to management or employee stock plans or similar plans) of any nature
relating to any Capital Stock of the Borrower and its Subsidiaries.
SECTION 3.09. LITIGATION; COMPLIANCE WITH LAWS. (a) Except as set forth
on Schedule 3.09, there are not any actions, suits or proceedings at law or in
equity or by or before any Governmental Authority now pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower or any
Subsidiary or any business, property or rights of any such Person (i) that
involve any Loan Document or the Transactions or (ii) as to which there is a
reasonable possibility of an adverse determination and that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect.
(b) None of the Borrower or any of the Subsidiaries or any of their
respective material properties or assets is in violation of, nor will the
continued operation of their material properties and assets as currently
conducted violate, any law, rule or regulation (including any zoning, building,
Environmental Law, ordinance, code or approval or any building permits) or any
restrictions of record or agreements affecting the Properties, or is in default
with respect to any judgment, writ, injunction, decree or order of any
Governmental Authority, where such violation or default could reasonably be
expected to result in a Material Adverse Effect.
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SECTION 3.10. AGREEMENTS. (a) Neither the Borrower nor any of the
Subsidiaries is a party to any agreement or instrument or subject to any
corporate restriction that has resulted or could reasonably be expected to
result in a Material Adverse Effect.
(b) Neither the Borrower nor any of the Subsidiaries is in default in
any manner under any provision of any indenture or other agreement or instrument
evidencing Indebtedness, or any other material agreement or instrument to which
it is a party or by which it or any of its properties or assets are or may be
bound, where such default could reasonably be expected to result in a Material
Adverse Effect.
SECTION 3.11. FEDERAL RESERVE REGULATIONS. (a) Neither the Borrower nor
any of the Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of buying or
carrying Margin Stock.
(b) No part of the proceeds of any Loan or any Letter of Credit will be
used, whether directly or indirectly, and whether immediately, incidentally or
ultimately, for any purpose that entails a violation of, or that is inconsistent
with, the provisions of the Regulations of the Board, including Regulation G, U
or X.
SECTION 3.12. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY
ACT. Neither the Borrower nor any Subsidiary is (a) an "investment company" as
defined in, or subject to regulation under, the Investment Company Act of 1940
or (b) a "holding company" as defined in, or subject to regulation under, the
Public Utility Holding Company Act of 1935.
SECTION 3.13. USE OF PROCEEDS. The Borrower will use the proceeds of
the Loans and will request the issuance of Letters of Credit only for the
purposes specified in the preamble to this Agreement.
SECTION 3.14. TAX RETURNS. Each of the Borrower and the Subsidiaries
has filed or caused to be filed all material Federal, state, local and foreign
tax returns or materials required to have been filed by it and has paid or
caused to be paid all taxes due and payable by it and all assessments received
by it, except taxes that are being contested in good faith by appropriate
proceedings and for which the Borrower or such Subsidiary, as applicable, shall
have set aside on its books adequate reserves.
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SECTION 3.15. NO MATERIAL MISSTATEMENTS. None of (a) the Confidential
Information Memorandum or (b) any other information, report, financial
statement, exhibit or schedule furnished by or on behalf of the Borrower to the
Administrative Agent or any Lender in connection with the negotiation of any
Loan Document or included therein or delivered pursuant thereto contained,
contains or will contain any material misstatement of fact or omitted, omits or
will omit to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were, are or will be made,
not misleading; PROVIDED that to the extent any such information, report,
financial statement, exhibit or schedule was based upon or constitutes a
forecast or projection, the Borrower represents only that it acted in good faith
and utilized reasonable assumptions and due care in the preparation of such
information, report, financial statement, exhibit or schedule.
SECTION 3.16. EMPLOYEE BENEFIT PLANS. Each of the Borrower and its
ERISA Affiliates is in compliance in all material respects with the applicable
provisions of ERISA and the Code and the regulations and published
interpretations thereunder. No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events,
could reasonably be expected to result in a material adverse effect on the
Borrower or any of its ERISA Affiliates. The present value of all benefit
liabilities under each Plan (based on those assumptions used to fund such Plan)
did not, as of the last annual valuation date applicable thereto, exceed by more
than $10,000,000 the fair market value of the assets of such Plan, and the
present value of all benefit liabilities of all underfunded Plans (based on
those assumptions used to fund each such Plan) did not, as of the last annual
valuation dates applicable thereto, exceed by more than $10,000,000 the fair
market value of the assets of all such underfunded Plans.
SECTION 3.17. ENVIRONMENTAL MATTERS. Except as set forth in Schedule
3.17:
(a) The properties owned or operated by the Borrower and the
Subsidiaries (the "PROPERTIES") do not contain any Hazardous Materials in
amounts or concentrations which (i) constitute, or constituted a violation of,
(ii) require Remedial Action under, or (iii) could give rise to liability under,
Environmental Laws, which violations, Remedial Actions and liabilities, in the
aggregate, could result in a Material Adverse Effect;
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(b) The Properties and all operations of the Borrower and the
Subsidiaries are in compliance with all Environmental Laws and all necessary
Environmental Permits have been obtained and are in effect, except to the extent
that such non-compliance or failure to obtain any necessary permits, in the
aggregate, could not result in a Material Adverse Effect;
(c) There have been no Releases or to the Borrower's knowledge
threatened Releases at, from, under or proximate to the Properties or otherwise
in connection with the operations of the Borrower or the Subsidiaries, which
Releases or threatened Releases, in the aggregate, could result in a Material
Adverse Effect;
(d) Neither the Borrower nor any of the Subsidiaries has received any
notice of an Environmental Claim in connection with the Properties or the
operations of the Borrower or the Subsidiaries or with regard to any Person
whose liabilities for environmental matters the Borrower or the Subsidiaries has
retained or assumed, in whole or in part, contractually, by operation of law or
otherwise, which, in the aggregate, could result in a Material Adverse Effect,
nor do the Borrower or the Subsidiaries have reason to believe that any such
notice will be received or is being threatened; and
(e) Hazardous Materials have not been transported from the Properties,
nor have Hazardous Materials been generated, treated, stored or disposed of at,
on or under any of the Properties in a manner that could give rise to liability
under any Environmental Law, nor have the Borrower or the Subsidiaries retained
or assumed any liability, contractually, by operation of law or otherwise, with
respect to the generation, treatment, storage or disposal of Hazardous
Materials, which transportation, generation, treatment, storage or disposal, or
retained or assumed liabilities, in the aggregate, could result in a Material
Adverse Effect.
SECTION 3.18. INSURANCE. Schedule 3.18 sets forth a true, complete and
correct description of all insurance maintained by the Borrower, McClatchy or
Cowles or by the Borrower, McClatchy or Cowles on behalf of their respective
subsidiaries as of the date hereof and the Closing Date. As of each such date,
such insurance is in full force and effect and all premiums have been duly paid.
The Borrower and its Subsidiaries have insurance in such amounts and covering
such risks and liabilities as are in accordance with normal industry practice.
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SECTION 3.19. SECURITY DOCUMENTS. (a) The Pledge Agreement is effective
to create in favor of the Collateral Agent, for the ratable benefit of the
Secured Parties, a legal, valid and enforceable security interest in the
Collateral (as defined in the Pledge Agreement) and, when the Collateral is
delivered to the Collateral Agent, the Pledge Agreement shall constitute a fully
perfected first priority Lien on, and security interest in, all right, title and
interest of the pledgors thereunder in such Collateral, in each case prior and
superior in right to any other Person.
(b) The Security Agreement is effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid
and enforceable security interest in the Collateral (as defined in the Security
Agreement) and, when financing statements in appropriate form are filed in the
offices specified on Schedule 6 to the Perfection Certificate, the Security
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the grantors thereunder in such Collateral
(other than the Intellectual Property, as defined in the Security Agreement), in
each case prior and superior in right to any other Person, other than with
respect to Liens expressly permitted by Section 6.02.
(c) When the Security Agreement is filed in the United States Patent
and Trademark Office and the United States Copyright Office, the Security
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the grantors thereunder in the Intellectual
Property (as defined in the Security Agreement), in each case prior and superior
in right to any other Person (it being understood that subsequent recordings in
the United States Patent and Trademark Office and the United States Copyright
Office may be necessary to perfect a lien on registered trademarks, trademark
applications and copyrights acquired by the grantors after the date hereof).
SECTION 3.20. LOCATION OF REAL PROPERTY AND LEASED PREMISES. (a)
Schedule 3.20(a) lists completely and correctly as of the Closing Date all real
property owned by the Borrower and the Subsidiaries and the addresses thereof.
The Borrower and the Subsidiaries own in fee all the real property set forth on
Schedule 3.20(a).
(b) Schedule 3.20(b) lists completely and correctly as of the Closing
Date all material real property leased by the Borrower and the Restricted
Subsidiaries (other than The Newspaper Network) and the addresses thereof. The
Borrower
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and the Restricted Subsidiaries have valid leases in all the real
property set forth on Schedule 3.20(b).
SECTION 3.21. LABOR MATTERS. (a) As of the date hereof and the Closing
Date, there are no strikes, lockouts or slowdowns against the Borrower or any
Subsidiary pending or, to the knowledge of the Borrower, threatened. The hours
worked by and payments made to employees of the Borrower and the Subsidiaries
have not been in material violation of the Fair Labor Standards Act or any other
applicable Federal, state, local or foreign law dealing with such matters. All
material payments due from the Borrower or any Subsidiary, or for which any
claim may be made against the Borrower or any Subsidiary, on account of wages
and employee health and welfare insurance and other benefits, have been paid or
accrued as a liability on the books of the Borrower or such Subsidiary.
(b) No collective bargaining agreement to which the Borrower or any
Subsidiary is bound will give rise to any right of termination or right of
renegotiation as a result of the consummation of the Transactions except as
disclosed on Schedule 3.21(b).
SECTION 3.22. SOLVENCY. Immediately after the consummation of the
Transactions to occur on the Closing Date and immediately following the making
of each Loan made on the Closing Date and after giving effect to the application
of the proceeds of such Loans, (i) the fair value of the assets of each Loan
Party, at a fair valuation, will exceed its debts and liabilities, subordinated,
contingent or otherwise; (ii) the present fair saleable value of the property of
each Loan Party will be greater than the amount that will be required to pay the
probable liability of its debts and other liabilities, subordinated, contingent
or otherwise, as such debts and other liabilities become absolute and matured;
(iii) each Loan Party will be able to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured; and (iv) each Loan Party will not have unreasonably small
capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted following the Closing
Date.
SECTION 3.23. COPYRIGHTS, TRADEMARKS, ETC. Except as set forth on
Schedule 3.23, the Borrower and its Subsidiaries own, or are licensed to use,
all copyrights, trademarks, trade names, patents, technology, know-how and
processes, service marks and rights with respect to the foregoing (collectively,
"INTELLECTUAL PROPERTY") that are
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(a) necessary for the conduct of their respective businesses as currently
conducted and (b) material to the business, assets, operations, properties,
prospects or condition (financial or otherwise) of the Borrower and its
Subsidiaries taken as a whole. To the Borrower's knowledge, the use of such
Intellectual Property by the Borrower and its Subsidiaries and the use of any
other Intellectual Property currently used by the Borrower and its Subsidiaries
in their respective businesses does not infringe on the rights of any Person
and, except as set forth on Schedule 3.23, may be transferred in connection with
any sale of assets or equity interests of the related business of the Borrower
and its Subsidiaries.
SECTION 3.24. YEAR 2000 COMPLIANCE. The Borrower does not believe the
"year 2000 issue" (that is, the risk that computer applications may not be able
to properly perform date sensitive functions after December 31, 1999) will
result in a material adverse change in the Borrower's business condition
(financial or otherwise), operations, properties or prospects, or ability to
repay the obligations.
ARTICLE IV
CONDITIONS OF LENDING
The obligations of the Lenders to make Loans and of the Issuing Banks
to issue Letters of Credit hereunder are subject to the satisfaction of the
following conditions:
SECTION 4.01. ALL CREDIT EVENTS. On the date of each Borrowing,
including each Borrowing of a Swingline Loan and on the date of each issuance of
a Letter of Credit (each such event being called a "CREDIT EVENT"):
(a) The Administrative Agent shall have received a notice in the form
of Exhibit I attached hereto of such Borrowing as required by Section 2.03 (or
such notice shall have been deemed given in accordance with Section 2.03) or, in
the case of the issuance of a Letter of Credit, the applicable Issuing Bank and
the Administrative Agent shall have received a notice requesting the issuance of
such Letter of Credit as required by Section 2.23(b) or, in the case of the
Borrowing of a Swingline Loan, the Swingline Lender and the Administrative Agent
shall have received a notice requesting such Swingline Loan as required by
Section 2.22(b).
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(b) Except in the case of a Borrowing that does not increase the
aggregate principal amount of Loans outstanding of any Lender, the
representations and warranties set forth in Article III hereof shall be true and
correct in all material respects on and as of the date of such Credit Event with
the same effect as though made on and as of such date, except to the extent such
representations and warranties expressly relate to an earlier date.
(c) The Borrower and each other Loan Party shall be in compliance with
all the terms and provisions set forth herein and in each other Loan Document on
its part to be observed or performed, and at the time of and immediately after
such Credit Event, no Event of Default or Default shall have occurred and be
continuing.
Each Credit Event shall be deemed to constitute a representation and
warranty by the Borrower on the date of such Credit Event as to the matters
specified in paragraphs (b) (except as aforesaid) and (c) of this Section 4.01.
SECTION 4.02. FIRST CREDIT EVENT. On the Closing Date:
(a) The Administrative Agent shall have received, on behalf of
itself and the Lenders, and the Issuing Banks, a favorable written
opinion of (i) Pillsbury Madison & Sutro LLP, counsel for the Borrower
and McClatchy, substantially to the effect set forth in Exhibit H-1,
and (ii) each local counsel listed on Schedule 4.02(a), substantially
to the effect set forth in Exhibit H-2, in each case (A) dated the
Closing Date, (B) addressed to the Issuing Banks, the Administrative
Agent and the Lenders.
(b) The Administrative Agent shall have received (i) a copy of
the certificate or articles of incorporation, including all amendments
thereto, of each Loan Party, certified as of a recent date by the
Secretary of State of the state of its organization, and a certificate
as to the good standing of each Loan Party as of a recent date, from
such Secretary of State; (ii) a certificate of the Secretary or
Assistant Secretary of each Loan Party dated the Closing Date and
certifying (A) that attached thereto is a true and complete copy of the
by-laws of such Loan Party as in effect on the Closing Date and at all
times since a date prior to the date of the resolutions described in
clause (B) below, (B) that attached thereto is a true and complete copy
of resolutions duly adopted by the Board of Directors of such Loan
Party authorizing the
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execution, delivery and performance of the Loan Documents to which such
Person is a party and, in the case of the Borrower, the borrowings
hereunder, and that such resolutions have not been modified, rescinded
or amended and are in full force and effect, (C) that the certificate
or articles of incorporation of such Loan Party have not been amended
since the date of the last amendment thereto shown on the certificate
of good standing furnished pursuant to clause (i) above, and (D) as to
the incumbency and specimen signature of each officer executing any
Loan Document or any other document delivered in connection herewith on
behalf of such Loan Party; (iii) a certificate of another officer as to
the incumbency and specimen signature of the Secretary or Assistant
Secretary executing the certificate pursuant to (ii) above; and (iv)
such other documents as the Lenders, the Issuing Banks or Cravath,
Swaine & Moore, counsel for the Syndication Agent, may reasonably
request.
(c) The Administrative Agent shall have received a
certificate, dated the Closing Date and signed by a Financial Officer
of the Borrower, confirming compliance with the conditions precedent
set forth in paragraphs (b) and (c) of Section 4.01.
(d) The Administrative Agent shall have received all Fees and
other amounts due and payable on or prior to the Closing Date,
including, to the extent invoiced, reimbursement or payment of all
reasonable out-of-pocket expenses required to be reimbursed or paid by
the Borrower hereunder or under any other Loan Document.
(e) The Pledge Agreement shall have been duly executed by the
parties thereto and delivered to the Collateral Agent and shall be in
full force and effect, and all the outstanding capital stock of the
Subsidiaries and the other securities required to be delivered
thereunder shall have been duly and validly pledged thereunder to the
Collateral Agent for the ratable benefit of the Secured Parties and
certificates representing such shares and other securities, accompanied
by instruments of transfer and stock or other relevant powers endorsed
in blank, shall be in the actual possession of the Collateral Agent;
PROVIDED that to the extent to do so would cause adverse tax
consequences to the Borrower, (i) neither the Borrower nor any Domestic
Subsidiary shall be required to pledge more than 65% of the capital
stock of any Foreign Subsidiary and (ii) no Foreign Subsidiary shall be
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required to pledge the capital stock of any of its Foreign
Subsidiaries.
(f) The Security Agreement shall have been duly executed by
the parties thereto and shall have been delivered to the Collateral
Agent and shall be in full force and effect on such date and each
document (including each Uniform Commercial Code financing statement)
required by law or reasonably requested by the Administrative Agent to
be filed, registered or recorded in order to create in favor of the
Collateral Agent for the benefit of the Secured Parties a valid, legal
and perfected first-priority security interest in and lien on the
Collateral (subject to any Lien expressly permitted by Section 6.02)
described in such agreement shall have been delivered to the Collateral
Agent.
(g) The Collateral Agent shall have received the results of a
search of the Uniform Commercial Code (or equivalent filings) filings
made with respect to the Loan Parties in the states (or other
jurisdictions) in which the chief executive office of each such Person
is located, any offices of such Persons in which records have been kept
relating to Accounts and the other jurisdictions in which Uniform
Commercial Code filings (or equivalent filings) are to be made pursuant
to the preceding paragraph, together with copies of the financing
statements (or similar documents) disclosed by such search, and
accompanied by evidence satisfactory to the Collateral Agent that the
Liens indicated in any such financing statement (or similar document)
would be permitted under Section 6.02 or have been released.
(h) The Collateral Agent shall have received a Perfection
Certificate with respect to the Loan Parties dated the Closing Date and
duly executed by a Responsible Officer of the Borrower.
(i) The Guarantee Agreement shall have been duly executed by
the parties thereto, shall have been delivered to the Collateral Agent
and shall be in full force and effect.
(j) The Indemnity, Subrogation and Contribution Agreement
shall have been duly executed by the parties thereto, shall have been
delivered to the Collateral Agent and shall be in full force and
effect.
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(k) The Administrative Agent shall have received a copy of, or
a certificate as to coverage under, the insurance policies required by
Section 5.02 and the applicable provisions of the Security Documents,
each of which shall be endorsed or otherwise amended to include a
"standard" or "New York" lender's loss payable endorsement and to name
the Collateral Agent as additional insured, in form and substance
satisfactory to the Administrative Agent.
(l) The Administrative Agent shall have received from the
Borrower conformed copies, certified and true and complete, of the
Merger Agreement, duly authorized, executed and delivered by each party
thereto, and such Merger Agreement shall constitute a legal, valid and
binding obligation of each such party, enforceable against each such
party in accordance with its terms, subject to the effects of
bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or
at law).
(m) The Lenders shall be satisfied with (i) the
capitalization, corporate structure and equity ownership of the
Borrower and its Subsidiaries and (ii) all legal, tax and accounting
matters related to the formation, capitalization and operations of the
Borrower (it being understood that, based on information provided by
the Borrower to the Syndication Agent prior to November 10, 1997, the
Syndication Agent was so satisfied and that, if subsequent to such date
there is no change materially adverse to the interests of the Lenders
with respect to such matters and the Lenders do not become aware of any
information not previously disclosed with respect to such matters that
is materially adverse to their interests, the Lenders will be so
satisfied on the Closing Date).
(n) All consents and approvals required to be obtained from
any Governmental Authority or other Person in connection with the
Transactions shall have been obtained, and all applicable waiting
periods and appeal periods shall have expired, in each case without the
imposition of any burdensome conditions and there shall be no
governmental or judicial action, actual or threatened, that could
reasonably be expected to restrain, prevent or impose burdensome
conditions on the Transactions. The Transactions shall have been, or
substantially simultaneously with the initial funding of Loans on the
Closing Date shall be, consummated in
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accordance with the Merger Agreement and applicable law, without any
amendment to or waiver of any material terms or conditions of the
Merger Agreement not approved by the Required Lenders. The
Administrative Agent shall have received copies of the Merger Agreement
and all certificates, opinions and other documents delivered
thereunder, certified by a Financial Officer as complete and correct
and the Merger Agreement shall contain no material changes adverse to
the interests of the Lenders compared to the final form of such
documents delivered to the Syndication Agent prior to November 10,
1997.
(o) The Lenders shall have received pro forma consolidating
and consolidated balance sheets of the Borrower as of February 28,
1998, reflecting all pro forma adjustments as if the Transactions had
been consummated on such date, and such pro forma consolidated balance
sheet shall be consistent in all material respects with the forecasts
and other information (including the schedule of sources and use of
funds) previously provided to the Lenders. After giving effect to the
Transactions, neither the Borrower nor any of its Restricted
Subsidiaries shall have outstanding any shares of preferred stock or
any Indebtedness, other than Indebtedness (i) incurred under the Loan
Documents or (ii) otherwise permitted by Section 6.01.
(p) The Administrative Agent shall have received from the
Borrower (i) the financial statements referred to in Section 3.05 and
(ii) such other information as the Lenders shall reasonably have
requested.
(q) There shall have been no material adverse change in the
business, assets, operations, properties, condition (financial or
otherwise), results of operations or prospects of the Borrower and the
Subsidiaries, taken as a whole since the date of this Agreement,
McClatchy and its subsidiaries, taken as a whole, since December 31,
1996 or of Cowles and its subsidiaries, taken as a whole, since March
31, 1997.
(r) The Refinanced Indebtedness shall have been terminated and
repaid, or shall be terminated and repaid simultaneously with the
initial funding of Loans hereunder, in full, and all Liens in respect
thereof shall have been, or will contemporaneously with the initial
funding of Loans hereunder be, released.
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(s) The Transaction Costs shall not exceed $37,000,000.
(t) On the Closing Date, the Lenders shall be reasonably
satisfied in all respects with the tax position and the contingent tax
and other liabilities of the Borrower, McClatchy and Cowles and the
other Subsidiaries (it being understood that, based on information
provided by the Borrower to the Syndication Agent prior to November 10,
1997, the Syndication Agent was so satisfied and that, if subsequent to
such date there is no change materially adverse to the interests of the
Lenders with respect to such matters and the Lenders do not become
aware of any information not previously disclosed with respect to such
matters that is materially adverse to their interests, the Lenders will
be so satisfied on the Closing Date).
(u) On the Closing Date, the Lenders shall be reasonably
satisfied with the sufficiency of amounts available under the Revolving
Facility to meet the ongoing working capital requirements of the
Borrower and its Subsidiaries following consummation of the
Transactions (it being understood that, based on information provided
by McClatchy to the Syndication Agent prior to November 10, 1997, the
Syndication Agent was so satisfied and that, if subsequent to such date
there is no change materially adverse to the interests of the Lenders
with respect to such matters and the Lenders do not become aware of any
information not previously disclosed with respect to such matters that
is materially adverse to their interests, the Lenders will be so
satisfied on the Closing Date.)
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ARTICLE V
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with each Lender that so long as this
Agreement shall remain in effect and until the Commitments have been terminated
and the principal of and interest on each Loan, all Fees and all other expenses
or amounts payable under any Loan Document shall have been paid in full and all
Letters of Credit have been canceled or have expired and all amounts drawn
thereunder have been reimbursed in full, unless the Required Lenders shall
otherwise consent in writing, the Borrower will, and will cause each of the
Subsidiaries to:
SECTION 5.01. EXISTENCE; BUSINESSES AND PROPERTIES. (a) Do or cause to
be done all things necessary to preserve, renew and keep in full force and
effect its legal existence, except as otherwise expressly permitted under
Section 6.05.
(b) Do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses, permits,
franchises, authorizations, patents, copyrights, trademarks and trade names
material to the conduct of its business; maintain and operate such business in
substantially the manner in which it is presently conducted and operated; comply
in all material respects with all applicable laws, rules, regulations (including
any zoning, building, Environmental Law, ordinance, code or approval or any
building permits or any restrictions of record or agreements affecting the real
property owned or leased by the Borrower or a Subsidiary) and decrees and orders
of any Governmental Authority, whether now in effect or hereafter enacted; and
at all times maintain and preserve all property material to the conduct of such
business and keep such property in good repair, working order and condition and
from time to time make, or cause to be made, all needful and proper repairs,
renewals, additions, improvements and replacements thereto necessary in order
that the business carried on in connection therewith may be properly conducted
at all times.
SECTION 5.02. INSURANCE. (a) Keep its insurable properties adequately
insured at all times by financially sound and reputable insurers; maintain such
other insurance, to such extent and against such risks, including fire and other
risks insured against by extended coverage, as is customary with companies in
the same or similar businesses operating in the same or similar locations,
including public liability insurance against claims for personal injury or
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death or property damage occurring upon, in, about or in connection with the use
of any properties owned, occupied or controlled by it; and maintain such other
insurance as may be required by law.
(b) Cause all such policies to be endorsed or otherwise amended to
include a "standard" lender's loss payable endorsement, in form and substance
satisfactory to the Administrative Agent and the Collateral Agent, which
endorsement shall provide that, from and after the Closing Date, if the
insurance carrier shall have received written notice from the Administrative
Agent or the Collateral Agent of the occurrence of an Event of Default, the
insurance carrier shall pay all proceeds otherwise payable to the Borrower or
the Loan Parties under such policies directly to the Collateral Agent; cause all
such policies to provide that neither the Borrower, the Administrative Agent,
the Collateral Agent nor any other party shall be a coinsurer thereunder and to
contain a "Replacement Cost Endorsement", without any deduction for
depreciation, and such other provisions as the Administrative Agent or the
Collateral Agent may reasonably require from time to time to protect their
interests; deliver original or certified copies of all such policies to the
Collateral Agent; cause each such policy to provide that it shall not be
canceled, modified or not renewed (i) by reason of nonpayment of premium upon
not less than 10 days' prior written notice thereof by the insurer to the
Administrative Agent and the Collateral Agent (giving the Administrative Agent
and the Collateral Agent the right to cure defaults in the payment of premiums)
or (ii) for any other reason upon not less than 30 days' prior written notice
thereof by the insurer to the Administrative Agent and the Collateral Agent;
deliver to the Administrative Agent and the Collateral Agent, prior to the
cancelation, modification or nonrenewal of any such policy of insurance, a copy
of a renewal or replacement policy (or other evidence of renewal of a policy
previously delivered to the Administrative Agent and the Collateral Agent)
together with evidence satisfactory to the Administrative Agent and the
Collateral Agent of payment of the premium therefor.
(c) Notify the Administrative Agent and the Collateral Agent promptly
whenever any separate insurance concurrent in form or contributing in the event
of loss with that required to be maintained under this Section 5.02 is taken out
by the Borrower; and promptly deliver to the Administrative Agent and the
Collateral Agent a duplicate original copy of such policy or policies.
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(d) In connection with the covenants set forth in this Section 5.02, it
is understood and agreed that:
(i) none of the Administrative Agent, the Lenders, the Issuing
Banks or their respective agents or employees shall be liable for any
loss or damage insured by the insurance policies required to be
maintained under this Section 5.02, it being understood that (A) the
Borrower and the other Loan Parties shall look solely to their
insurance companies or any other parties other than the aforesaid
parties for the recovery of such loss or damage and (B) such insurance
companies shall have no rights of subrogation against the
Administrative Agent, the Collateral Agent, the Lenders, the Issuing
Banks or their agents or employees. If, however, the insurance policies
do not provide waiver of subrogation rights against such parties, as
required above, then the Borrower hereby agrees, to the extent
permitted by law, to waive its right of recovery, if any, against the
Administrative Agent, the Collateral Agent, the Lenders, the Issuing
Banks and their agents and employees; and
(ii) the designation of any form, type or amount of insurance
coverage by the Administrative Agent, the Collateral Agent or the
Required Lenders under this Section 5.02 shall in no event be deemed a
representation, warranty or advice by the Administrative Agent, the
Collateral Agent or the Lenders that such insurance is adequate for the
purposes of the business of the Borrower and the Subsidiaries or the
protection of their properties and the Administrative Agent, the
Collateral Agent and the Required Lenders shall have the right from
time to time to require the Borrower and the other Loan Parties to keep
other insurance in such form and amount as the Administrative Agent,
the Collateral Agent or the Required Lenders may reasonably request,
provided that such insurance shall be obtainable on commercially
reasonable terms.
SECTION 5.03. OBLIGATIONS AND TAXES. Pay its Indebtedness and other
obligations promptly and in accordance with their terms and pay and discharge
promptly when due all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or in respect of its property,
before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise that, if unpaid, might
give rise to a Lien upon such properties or any part thereof; PROVIDED, HOWEVER,
that such payment and discharge
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shall not be required with respect to any such tax, assessment, charge, levy or
claim so long as the validity or amount thereof shall be contested in good faith
by appropriate proceedings and the Borrower shall have set aside on its books
adequate reserves with respect thereto in accordance with GAAP and such contest
operates to suspend collection of the contested obligation, tax, assessment or
charge and enforcement of a Lien and, in the case of any Property, there is no
risk of forfeiture of such Property.
SECTION 5.04. FINANCIAL STATEMENTS, REPORTS, ETC. In the case of the
Borrower, furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year, its
consolidated and consolidating balance sheets and related statements of
operations, stockholders' equity and cash flows showing the financial
condition of the Borrower and its consolidated Subsidiaries as of the
close of such fiscal year and the results of its operations and the
operations of such Subsidiaries during such year, all audited by
Deloitte & Touche LLP or other independent public accountants of
recognized national standing acceptable to the Required Lenders and
accompanied by an opinion of such accountants (which shall not be
qualified in any material respect) to the effect that such consolidated
financial statements fairly present the financial condition and results
of operations of the Borrower and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied;
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, its consolidated and consolidating
balance sheets and related statements of operations, stockholders'
equity and cash flows showing the financial condition of the Borrower
and its consolidated Subsidiaries as of the close of such fiscal
quarter and the results of its operations and the operations of such
Subsidiaries during such fiscal quarter and the then elapsed portion of
the fiscal year, all certified by one of its Financial Officers as
fairly presenting the financial condition and results of operations of
the Borrower and its consolidated Subsidiaries on a consolidated basis
in accordance with GAAP consistently applied, subject to normal
year-end audit adjustments;
(c) concurrently with any delivery of financial
statements under paragraph (a) or (b) above, a
certificate of the accounting firm or Financial Officer
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opining on or certifying such statements (which certificate, when
furnished by an accounting firm, may be limited to accounting matters
and disclaim responsibility for legal interpretations) (i) certifying
that no Event of Default or Default has occurred or, if such an Event
of Default or Default has occurred, specifying the nature and extent
thereof and any corrective action taken or proposed to be taken with
respect thereto and (ii) setting forth computations in reasonable
detail satisfactory to the Administrative Agent demonstrating
compliance with the covenants contained in Section 6.11;
(d) on an annual basis, projections as to the performance of
the Borrower, presented in a manner consistent with the projections in
the Confidential Information Memorandum on a quarterly basis with
respect to the first projected year and on an annual basis for the
period from the date of the most recent balance sheet included in the
financial statements delivered pursuant to paragraph (a) above through
the last day of the fiscal year in which the Tranche B Maturity Date
occurs, such projections to be accompanied by a certificate of a
Responsible Officer of the Borrower to the effect that such projections
have been prepared using assumptions believed in good faith by the
management of the Borrower to be reasonable as of the date of such
certificate (which shall be subsequent to the date of the most recent
balance sheet included in such financial statements.)
(e) promptly after the same become publicly available, copies
of all periodic and other reports, proxy statements and other materials
filed by the Borrower or any Subsidiary with the Securities and
Exchange Commission, or any Governmental Authority succeeding to any or
all of the functions of said Commission, or with any national
securities exchange, or distributed to its shareholders, as the case
may be; and
(f) promptly, from time to time, such other information
regarding the operations, business affairs and financial condition of
the Borrower or any Subsidiary, or compliance with the terms of any
Loan Document, as the Administrative Agent or any Lender may reasonably
request.
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SECTION 5.05. LITIGATION AND OTHER NOTICES. Furnish to the
Administrative Agent, each Issuing Bank and each Lender prompt written notice of
the following:
(a) any Event of Default or Default, specifying the nature and
extent thereof and the corrective action (if any) taken or proposed to
be taken with respect thereto;
(b) the filing or commencement of, or any threat or notice of
intention of any Person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any
Governmental Authority, against the Borrower or any Affiliate thereof
that could reasonably be expected to result in a Material Adverse
Effect; and
(c) any development that has resulted in, or could reasonably
be expected to result in, a Material Adverse Effect.
SECTION 5.06. EMPLOYEE BENEFITS. (a) Comply in all material respects
with the applicable provisions of ERISA and the Code and (b) furnish to the
Administrative Agent (i) as soon as possible after, and in any event within 10
days after any Responsible Officer of the Borrower or any ERISA Affiliate knows
or has reason to know that, any ERISA Event has occurred that, alone or together
with any other ERISA Event could reasonably be expected to result in liability
of the Borrower in an aggregate amount exceeding $10,000,000 or requiring
payments exceeding $10,000,000 in any year, a statement of a Financial Officer
of the Borrower setting forth details as to such ERISA Event and the action, if
any, that the Borrower proposes to take with respect thereto.
SECTION 5.07. MAINTAINING RECORDS; ACCESS TO PROPERTIES AND
INSPECTIONS. Keep proper books of record and account in which full, true and
correct entries are made of all dealings and transactions in relation to its
business and activities to the extent necessary (i) to comply with all
requirements of law and (ii) to permit the financial statements of the Borrower
and its Subsidiaries to be prepared in conformity with GAAP. Each Loan Party
will, and will cause each of its Subsidiaries to, permit any representatives
designated by the Administrative Agent or any Lender to visit and inspect the
financial records and the properties of the Borrower or any Subsidiary at
reasonable times and as often as reasonably requested and to make extracts from
and copies of such financial records, and permit any representatives designated
by the Administrative
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Agent or any Lender to discuss the affairs, finances and condition of the
Borrower or any Subsidiary with the officers thereof and independent accountants
therefor.
SECTION 5.08. USE OF PROCEEDS. Use the proceeds of the Loans and
request the issuance of Letters of Credit only for the purposes set forth in the
preamble to this Agreement.
SECTION 5.09. COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply, and cause all
lessees and other Persons occupying its Properties to comply, in all material
respects with all Environmental Laws and Environmental Permits applicable to its
operations and Properties; obtain and renew all material Environmental Permits
necessary for its operations and Properties; and conduct any Remedial Action in
accordance with Environmental Laws; PROVIDED, HOWEVER, that neither the Borrower
nor any of the Subsidiaries shall be required to undertake any Remedial Action
to the extent that its obligation to do so is being contested in good faith and
by proper proceedings and appropriate reserves are being maintained with respect
to such circumstances.
SECTION 5.10. PREPARATION OF ENVIRONMENTAL REPORTS. If a Default caused
by reason of a breach of Section 3.17 or 5.09 shall have occurred and be
continuing, at the request of the Required Lenders through the Administrative
Agent, provide to the Lenders within 45 days after such request, at the expense
of the Borrower, an environmental site assessment report for the Properties
which are the subject of such default prepared by an environmental consulting
firm acceptable to the Administrative Agent and indicating the presence or
absence of Hazardous Materials and the estimated cost of any compliance or
Remedial Action in connection with such Properties.
SECTION 5.11. CASUALTY AND CONDEMNATION. (a) The Borrower will furnish
to the Administrative Agent and the Lenders prompt written notice of any
casualty or other insured damage to any portion of any Collateral or the
commencement of any action or proceeding for the taking of any Collateral or any
part thereof or interest therein under power of eminent domain or by
condemnation or similar proceeding.
(b) If any event described in paragraph (a) of this Section results in
Net Cash Proceeds (whether in the form of insurance proceeds, condemnation award
or otherwise) (x) if an Event of Default exists or would result therefrom, the
Administrative Agent shall be authorized to collect such Net Cash Proceeds and
such Net Cash Proceeds shall be applied to
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prepay Loans as provided in Section 2.13(f) and (y) if an Event of Default does
not exist and would not result therefrom, the Borrower or any Restricted
Subsidiary shall utilize such Net Cash Proceeds to pay the costs of repairing,
restoring or replacing the affected property in accordance with the terms of the
applicable Security Document.
(c) If any Net Cash Proceeds have not been utilized as required by
Section 5.11(b) on the date that is one year after the occurrence of the event
resulting in such Net Cash Proceeds, then such Net Cash Proceeds shall be
applied to prepay Loans as provided in Section 2.13(f).
SECTION 5.12. FURTHER ASSURANCES. Execute any and all further
documents, financing statements, agreements and instruments, and take all
further action (including filing Uniform Commercial Code and other financing
statements) that may be required under applicable law, or that the Required
Lenders, the Administrative Agent or the Collateral Agent may reasonably
request, in order to effectuate the transactions contemplated by the Loan
Documents and in order to grant, preserve, protect and perfect the validity and
first priority of the security interests created or intended to be created by
the Security Documents. The Borrower will cause any subsequently acquired or
organized Domestic Subsidiary to execute a Guarantee Agreement, Indemnity
Subrogation and Contribution Agreement and each applicable Security Document in
favor of the Collateral Agent. In addition, from time to time, the Borrower
will, at its cost and expense, promptly secure the Obligations by pledging or
creating, or causing to be pledged or created, perfected security interests with
respect to such of its assets and properties as the Administrative Agent or the
Required Lenders shall designate (it being understood that it is the intent of
the parties that the Obligations shall be secured by, among other things,
substantially all the assets of the Borrower (including assets acquired
subsequent to the Closing Date)). Such security interests and Liens will be
created under the Security Documents and other security agreements and other
instruments and documents in form and substance satisfactory to the Collateral
Agent, and the Borrower shall deliver or cause to be delivered to the Lenders
all such instruments and documents (including legal opinions and lien searches)
as the Collateral Agent shall reasonably request to evidence compliance with
this Section. The Borrower agrees to provide such evidence as the Collateral
Agent shall reasonably request as to the perfection and priority status of each
such security interest and Lien.
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SECTION 5.13. INTEREST RATE PROTECTION. As promptly as practicable, and
in any event within 180 days after the Closing Date, the Borrower will enter
into, and thereafter until the earlier of (x) the date that is two years after
the Closing Date and (y) the date on which either S&P or Moody's shall have
assigned ratings of BBB- or Baa3, respectively, or better to the Index Debt,
will maintain in effect, one or more interest rate protection agreements on such
terms and with such parties as shall be reasonably satisfactory to the Arranger,
the effect of which shall be to fix or limit the interest cost to the Borrower
with respect to at least $300 million of the outstanding Indebtedness of the
Borrower.
SECTION 5.14. DESIGNATION OF UNRESTRICTED SUBSIDIARIES. The Borrower
will be permitted to designate a Subsidiary as an Unrestricted Subsidiary by the
delivery to the Administrative Agent by a Responsible Officer of a written
notice certifying that all conditions set forth in this Section 5.14 are
satisfied as of the effective date of such designation which certification shall
set forth the effective date of such designation and shall set forth the
computations and information as may be required to demonstrate that the Borrower
is in compliance with this Section 5.14 PROVIDED that (a) no Default or Event of
Default shall exist immediately before or after the effective date of any such
designation and the Borrower shall be in Pro Forma Compliance after giving
effect to such designation; and (b) the Borrower shall not designate any
Restricted Subsidiary as an Unrestricted Subsidiary if as a result of such
designation the Attributable Amount would exceed 5% of Total Consolidated EBITDA
for the four consecutive fiscal quarter period ended on the date of the
financial statements most recently delivered pursuant to Section 5.04.
Notwithstanding anything contained in the foregoing to the contrary, any
calculation of Pro Forma Compliance shall exclude the effect of any entity or
business for the period during which such entity or business was not a
Subsidiary of the Borrower, McClatchy or Cowles. Promptly after receiving any
written notice from the Borrower regarding the designation thereby of an
Unrestricted Subsidiary, the Administrative Agent will provide notice thereof to
the Lenders. Once designated as an Unrestricted Subsidiary, an Unrestricted
Subsidiary may not be redesignated as a Restricted Subsidiary.
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ARTICLE VI
NEGATIVE COVENANTS
The Borrower covenants and agrees with each Lender that, so long as
this Agreement shall remain in effect and until the Commitments have been
terminated and the principal of and interest on each Loan, all Fees and all
other expenses or amounts payable under any Loan Document have been paid in full
and all Letters of Credit have been canceled or have expired and all amounts
drawn thereunder have been reimbursed in full, unless the Required Lenders shall
otherwise consent in writing, the Borrower will not, and will not cause or
permit any of its Restricted Subsidiaries to:
SECTION 6.01. INDEBTEDNESS. Incur, create, assume or permit to exist
any Indebtedness, except:
(I) the Borrower, McClatchy and Cowles may incur, create, assume or
permit to exist
(a) Indebtedness (other than the Refinanced Indebtedness) for
borrowed money and Guarantees existing on the date hereof and set forth
in Schedule 6.01(a), and extensions, renewals or replacements of any
such Indebtedness that do not increase the outstanding principal amount
thereof or result in an earlier maturity date or decreased weighted
average life thereof;
(b) Indebtedness created hereunder and under the
other Loan Documents;
(c) Indebtedness of the Borrower to any Subsidiary and of
McClatchy or Cowles to the Borrower or any other Subsidiary; PROVIDED
that Indebtedness of any Subsidiary that is not a Loan Party shall be
subject to Section 6.04;
(d) Guarantees by the Borrower of Indebtedness of any Wholly
Owned Subsidiary and by McClatchy or Cowles of Indebtedness of the
Borrower or any other Wholly Owned Subsidiary; PROVIDED that Guarantees
by the Borrower or McClatchy or Cowles of Indebtedness of any
Unrestricted Subsidiary shall be subject to Section 6.04; and
(e) Indebtedness of the Borrower or McClatchy or
Cowles incurred to finance the acquisition,
construction or improvement of any fixed or capital
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91
assets, including Capital Lease Obligations and any Indebtedness
assumed in connection with the acquisition of any such assets or
secured by a Lien on any such assets prior to the acquisition thereof,
and extensions, renewals and replacements of any such Indebtedness that
do not increase the outstanding principal amount thereof or result in
an earlier maturity date or decreased weighted average life thereof;
PROVIDED that such Indebtedness is incurred prior to or within 90 days
after such acquisition or the completion of such construction or
improvement and shall not exceed $50,000,000 at any time outstanding;
(f) Subordinated Debt in an aggregate principal
amount not to exceed $100,000,000 at any time
outstanding;
(g) other secured Indebtedness of the Borrower, McClatchy and
Cowles; PROVIDED that the aggregate principal amount of such
Indebtedness shall not exceed $50,000,000 at any time outstanding;
(h) appeal bonds in an aggregate principal amount
not to exceed $10,000,000 at any time outstanding;
(i) unsecured Indebtedness issued to a litigant in connection
with the settlement of any litigation described on Schedule 6.01(j) in
an aggregate principal amount not to exceed $10,000,000 at any time
outstanding;
(j) other unsecured Indebtedness of the Borrower McClatchy or
Cowles; PROVIDED that the aggregate principal amount of such
Indebtedness together with Indebtedness permitted by clause (g) shall
not exceed $100,000,000 at any time outstanding; and
(k) Hedging Agreements permitted by Section 6.09; and
(II) Restricted Subsidiaries other than McClatchy and Cowles
may incur, create, assume or permit to exist
(a) Indebtedness created hereunder and under the
Loan Documents;
(b) Indebtedness to any Restricted Subsidiary and of any
Wholly Owned Restricted Subsidiary to the Borrower or any other
Restricted Subsidiary; PROVIDED that Indebtedness of any Restricted
Subsidiary that is not a Loan Party shall be subject to Section 6.04;
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(c) Guarantees of Indebtedness of any Wholly Owned Restricted
Subsidiary of the Borrower; PROVIDED that Guarantees of Indebtedness of
any Restricted Subsidiary that is not a Loan Party shall be subject to
Section 6.04;
(d) Liens in favor of the PBGC permitted by
Section 6.02(k);
(e) Indebtedness of any Person that becomes a Subsidiary after
the date hereof; PROVIDED that (A) such Indebtedness exists at the time
such Person becomes a Subsidiary and is not created in contemplation of
or in connection with such Person becoming a Subsidiary and (B) the
Indebtedness of such Subsidiary does not exceed 10% of the value of the
total assets of such Subsidiary; and
(f) other Indebtedness in an aggregate principal
amount not to exceed $5,000,000 at any time
outstanding.
SECTION 6.02. LIENS. Create, incur, assume or permit to exist any Lien
on any property or assets (including stock or other securities of any Person,
including any Subsidiary) now owned or hereafter acquired by it or on any income
or revenues or rights in respect of any thereof, except:
(a) Liens on property or assets of the Borrower and its
Subsidiaries existing on the date hereof and set forth in Schedule
6.02; PROVIDED that such Liens shall secure only those obligations
which they secure on the date hereof;
(b) any Lien created under the Loan Documents;
(c) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary; PROVIDED that
(i) such Lien is not created in contemplation of or in connection with
such acquisition and (ii) such Lien does not apply to any other
property or assets of the Borrower or any Subsidiary and (iii) such
Lien does not (A) materially interfere with the use, occupancy and
operation of such property, (B) materially reduce the fair market value
of such property but for such Lien or (C) result in any material
increase in the cost of operating, occupying or owning or leasing such
property;
(d) Liens for taxes not yet due or which are being
contested in compliance with Section 5.03;
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93
(e) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business and securing obligations that are not due and payable or which
are being contested in compliance with Section 5.03;
(f) pledges and deposits made in the ordinary course of
business in compliance with workmen's compensation, unemployment
insurance and other social security laws or regulations;
(g) deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases (other than Capital
Lease Obligations), statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(h) zoning restrictions, easements, rights-of-way,
restrictions on use of real property and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate,
are not substantial in amount and do not materially detract from the
value of the property subject thereto or interfere with the ordinary
conduct of the business of the Borrower or any of its Subsidiaries;
(i) purchase money security interests in real property,
improvements thereto or equipment hereafter acquired (or, in the case
of improvements, constructed) by the Borrower or any Subsidiary;
PROVIDED that (i) such security interests secure Indebtedness permitted
by Section 6.01, (ii) such security interests are incurred, and the
Indebtedness secured thereby is created, within 90 days after such
acquisition (or construction), (iii) the Indebtedness secured thereby
does not exceed 90% of the lesser of the cost or the fair market value
of such real property, improvements or equipment at the time of such
acquisition (or construction) and (iv) such security interests do not
apply to any other property or assets of the Borrower or any
Subsidiary;
(j) Liens securing Indebtedness permitted by Section 6.01(g);
PROVIDED that such Liens apply to property and assets of the Borrower,
McClatchy and Cowles that have an aggregate fair market value no
greater than $50,000,000; and
(k) Liens in favor of the PBGC to secure pension
obligations; PROVIDED that such Liens apply to property
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and assets of the Borrower and its Restricted Subsidiaries that have an
aggregate fair market value no greater than $15,000,000.
SECTION 6.03. SALE AND LEASE-BACK TRANSACTIONS. Enter into any
arrangement, directly or indirectly, with any Person whereby it shall sell or
transfer any property, real or personal, used or useful in its business, whether
now owned or hereafter acquired, and thereafter rent or lease such property or
other property which it intends to use for substantially the same purpose or
purposes as the property being sold or transferred.
SECTION 6.04. INVESTMENTS, LOANS AND ADVANCES. Purchase, hold or
acquire any capital stock, evidences of indebtedness or other securities of,
make or permit to exist any loans or advances to, or make or permit to exist any
investment or any other interest in, any other Person, or purchase or otherwise
acquire (in one transaction or a series of transactions) any assets of any other
Person constituting a business unit, except:
(a) Permitted Investments;
(b) investments by the Borrower and its Restricted
Subsidiaries (i) existing on the date hereof in the capital stock of
the Subsidiaries and (ii) at any time in the capital stock of any
wholly owned Restricted Subsidiary that is a Loan Party; PROVIDED that
any such shares of capital stock shall be pledged pursuant to the
Pledge Agreement.
(c) loans or advances made by the Borrower to any wholly owned
Restricted Subsidiary and made by any Subsidiary to the Borrower or any
other wholly owned Restricted Subsidiary; PROVIDED that (i) any such
loans and advances shall be evidenced by a promissory note pledged
pursuant to the Pledge Agreement and (ii) no such loans or advances may
be made to Subsidiaries that are not Loan Parties;
(d) investments (other than those existing on the date hereof)
in the capital stock of or loans and advances to, any Unrestricted
Subsidiary up to an aggregate amount not to exceed 5% of the total
assets of the Borrower and its Restricted Subsidiaries, taken as a
whole; PROVIDED that any such shares of capital stock shall be pledged
pursuant to the Pledge Agreement and any such loans or advances shall
be evidenced by a promissory note pledged pursuant to the Pledge
Agreement.
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95
(e) Guarantees constituting Indebtedness permitted
by Section 6.01;
(f) the Borrower and its Restricted Subsidiaries may make any
Permitted Acquisition or Strategic Investment; PROVIDED that the
Borrower shall have delivered to the Administrative Agent a certificate
certifying that at the time and immediately after giving effect to such
Permitted Acquisition or Strategic Investment, (i) no Event of Default
or Default shall have occurred and be continuing, (ii) the Borrower
shall be in compliance on a pro forma basis with the covenants set
forth in Section 6.11, in each case as of the last day of the most
recent fiscal quarter adjusted to give effect (as if such event had
occurred on the first day of the four fiscal quarter period ended on
such last day) to such Permitted Acquisition, and the adjustments and
calculations set forth in such certificate shall be based on
assumptions and otherwise in form and substance reasonably satisfactory
to the Administrative Agent and (iii) the aggregate amount of
consideration paid (including fees and expenses and indebtedness of
acquired entities assumed) in connection with (x) all such Permitted
Acquisitions shall not exceed $100,000,000 in aggregate and (y) all
such Strategic Investments shall not exceed $50,000,000 in aggregate.
SECTION 6.05. MERGERS, CONSOLIDATIONS, SALES OF ASSETS AND
ACQUISITIONS. Merge into or consolidate with any other Person, or permit any
other Person to merge into or consolidate with it, or sell, transfer, lease or
otherwise dispose of (in one transaction or in a series of transactions) all or
any substantial part of its assets (whether now owned or hereafter acquired) or
any capital stock of any Subsidiary, or purchase, lease or otherwise acquire (in
one transaction or a series of transactions) all or any substantial part of the
assets of any other Person (other than as permitted by Section 6.04(f)), except
that (a) the Borrower and any Subsidiary may purchase and sell inventory in the
ordinary course of business and (b) if at the time thereof and immediately after
giving effect thereto no Event of Default or Default shall have occurred and be
continuing (i) any wholly owned Restricted Subsidiary may merge into the
Borrower in a transaction in which the Borrower is the surviving corporation,
(ii) any wholly owned Restricted Subsidiary (other than McClatchy or Cowles) may
merge into or consolidate with any other wholly owned Restricted Subsidiary
(other than McClatchy or Cowles) in a transaction in which the surviving entity
is a wholly owned Restricted Subsidiary and no Person other than the Borrower
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or a wholly owned Restricted Subsidiary receives any consideration and (iii) any
wholly owned Restricted Subsidiary may merge into or consolidate with McClatchy
or Cowles in a transaction in which McClatchy or Cowles is the surviving entity
and no Person other than the Borrower or a wholly owned Restricted Subsidiary
receives any consideration.
SECTION 6.06. DIVIDENDS AND DISTRIBUTIONS; RESTRICTIONS ON ABILITY OF
BORROWER AND RESTRICTED SUBSIDIARIES TO PAY DIVIDENDS. (a) Declare or pay,
directly or indirectly, any dividend or make any other distribution (by
reduction of capital or otherwise), whether in cash, property, securities or a
combination thereof, with respect to any shares of its capital stock or directly
or indirectly redeem, purchase, retire or otherwise acquire for value (or permit
any Restricted Subsidiary to purchase or acquire) any shares of any class of its
capital stock or set aside any amount for any such purpose; PROVIDED, HOWEVER,
that (i) McClatchy and Cowles may declare and pay dividends or make other
distributions to the Borrower, (ii) any other Subsidiary may declare and pay
dividends or make other distributions to the Borrower or any wholly owned
Restricted Subsidiary of the Borrower and, if no Default or Event of Default
exists or would result therefrom, (iii) the Borrower may declare and pay a
dividend on its common stock in an amount per share per annum not to exceed the
Permitted Dividend Amount. So long as no Default or Event of Default exists or
would result therefrom, the Borrower may declare or pay dividends in excess of
the Permitted Dividend Amount if, after giving pro forma effect to the payment
of such dividend by treating such dividend as a deduction to EBITDA, the
Leverage Ratio for the most recent period of four consecutive fiscal quarters
for which financial statements have been delivered pursuant to Section 5.04
would be less than 2.5 to 1.
(b) Permit its Restricted Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any encumbrance
or restriction on the ability of any such Subsidiary to (i) pay any dividends or
make any other distributions on its capital stock or any other interest or (ii)
make or repay any loans or advances to the Borrower or the parent of such
Restricted Subsidiary.
(c) Make or agree to pay or make, directly or indirectly, any payment
or other distribution (whether in cash securities or other property) of or in
respect of principal of or interest on any Indebtedness, or any payment or other
distribution (whether in cash, securities or other property), including any
sinking fund or similar deposit, on
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account of the purchase, redemption, retirement, acquisition, cancellation or
termination of any Indebtedness, except:
(i) payment of Indebtedness created under the Loan
Documents;
(ii) payment of regularly scheduled interest and
principal payments as and when due in respect of any
Indebtedness of the Borrower and its Restricted
Subsidiaries; and
(iv) payment of secured Indebtedness of the Borrower and its
Restricted Subsidiaries that becomes due as a result of the voluntary
sale or transfer of the property or assets securing such Indebtedness.
SECTION 6.07. TRANSACTIONS WITH AFFILIATES. Sell or transfer any
property or assets to, or purchase or acquire any property or assets from, or
otherwise engage in any other transactions with, any of its Affiliates (other
than any Restricted Subsidiary), except (i) the Borrower or any Subsidiary may
engage in any of the foregoing transactions in the ordinary course of business
at prices and on terms and conditions not less favorable to the Borrower or such
Subsidiary than could be obtained on an arm's-length basis from unrelated third
parties and (ii) pursuant to the contracts listed on Schedule 6.07; PROVIDED,
HOWEVER, that donations that are approved by a written resolution of the Board
of Directors of the Borrower may be made to the Cowles Foundation.
SECTION 6.08. BUSINESS OF BORROWER AND RESTRICTED SUBSIDIARIES. Engage
at any time in any business or business activity other than the business
currently conducted by it and any Related Business.
SECTION 6.09. HEDGING AGREEMENTS. Enter into any Hedging Agreement,
other than (a) Hedging Agreements required by Section 5.13 and (b) Hedging
Agreements entered into in the ordinary course of business to hedge or mitigate
risks to which the Borrower or any Subsidiary is exposed in the conduct of its
business or the management of its liabilities.
SECTION 6.10. AMENDMENT OF MATERIAL DOCUMENTS. Amend, modify or waive
any of its rights under (a) any agreement relating to material Indebtedness or
(b) its certificate of incorporation, by-laws or other organizational documents
in a manner that could be adverse in any significant respect to the interests of
the Lenders.
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SECTION 6.11. FINANCIAL COVENANTS. (a) Total Debt to Consolidated
EBITDA. Permit the ratio of (i) Total Debt outstanding on the last day of any
fiscal quarter during any "Test Period" set forth below to (ii) Annualized
EBITDA for such fiscal quarter to exceed the ratio set forth below:
Test Period Ratio
----------- -----
From June 30, 1998 through
September 30, 1998 5.75 to 1
From December 31, 1998 through
September 30, 1999 5.50 to 1
From December 31, 1999 through
September 30, 2000 5.00 to 1
From December 31, 2000 through
September 30, 2001 4.50 to 1
From December 31, 2001 through
September 30, 2002 4.00 to 1
From December 31, 2002 and 3.50 to 1
thereafter
(b) Interest Coverage Ratio. Permit the Interest Coverage Ratio for any
fiscal quarter ending during any "Test Period" set forth below to be less than
the ratio set forth opposite such Test Period:
Test Period Ratio
----------- -----
From June 30, 1998 through
September 30, 1998 2.00 to 1
From December 31, 1998 through
September 30, 1999 2.25 to 1
From December 31, 1999 through
September 30, 2000 2.50 to 1
From December 31, 2000 and 3.00 to 1
thereafter
(c) Fixed Charges Ratio. Permit the Fixed Charges Ratio for any fiscal
quarter ending during any "Test Period" set forth below to be less than the
ratio set forth opposite such Test Period.
Test Period Ratio
----------- -----
From June 30, 1998 and thereafter 1.10 to 1
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(d) Capital Expenditures. Permit Capital Expenditures for any fiscal
year of the Borrower set forth below to exceed the sum set forth opposite such
fiscal year:
Fiscal Year Amount
----------- ------
1998 $ 60,000,000
1999 $ 75,000,000
2000 and $100,000,000
thereafter
; PROVIDED, HOWEVER, that an amount equal to the lesser of (x) the amount set
forth opposite such fiscal year minus actual Capital Expenditures for such
fiscal year and (y) the amount set forth opposite such fiscal year divided by
two, may be carried over into the immediately following fiscal year.
SECTION 6.12. TRANSFERS OF ASSETS TO RESTRICTED SUBSIDIARIES.
Permit assets material to McClatchy or Cowles to be transferred, directly or
indirectly, to any Restricted Subsidiary that is not at the time of such
transfer a Guarantor.
ARTICLE VII
EVENTS OF DEFAULT
In case of the happening of any of the following events ("EVENTS OF
DEFAULT"):
(a) any representation or warranty made or deemed made in or in
connection with any Loan Document or the borrowings or issuances of
Letters of Credit hereunder, or any representation, warranty, statement
or information contained in any report, certificate, financial
statement or other instrument furnished in connection with or pursuant
to any Loan Document, shall prove to have been false or misleading in
any material respect when so made, deemed made or furnished;
(b) default shall be made in the payment of any principal of any
Loan or the reimbursement with respect to any L/C Disbursement when and
as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or by acceleration
thereof or otherwise;
(c) default shall be made in the payment of any interest on any
Loan or any Fee or L/C Disbursement or any other amount (other than an
amount referred to in
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(b) above) due under any Loan Document, when and as the same shall
become due and payable, and such default shall continue unremedied for
a period of three Business Days;
(d) default shall be made in the due observance or performance by
the Borrower or any Subsidiary of any covenant, condition or agreement
contained in Section 5.01(a), 5.05 or 5.08 or in Article VI;
(e) default shall be made in the due observance or performance by
the Borrower or any Subsidiary of any covenant, condition or agreement
contained in any Loan Document (other than those specified in (b), (c)
or (d) above) and such default shall continue unremedied for a period
of 15 days after notice thereof from the Administrative Agent or any
Lender to the Borrower;
(f) the Borrower or any Restricted Subsidiary shall (i) fail to
pay any principal or interest, regardless of amount, due in respect of
any Indebtedness in a principal amount in excess of $10,000,000, when
and as the same shall become due and payable, or (ii) fail to observe
or perform any other term, covenant, condition or agreement contained
in any agreement or instrument evidencing or governing any such
Indebtedness if the effect of any failure referred to in this clause
(ii) is to cause, or to permit the holder or holders of such
Indebtedness or a trustee on its or their behalf (with or without the
giving of notice, the lapse of time or both) to cause, such
Indebtedness to become due prior to its stated maturity;
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking
(i) relief in respect of the Borrower or any Restricted Subsidiary, or
of a substantial part of the property or assets of the Borrower or a
Restricted Subsidiary, under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other Federal, state or
foreign bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Restricted
Subsidiary or for a substantial part of the property or assets of the
Borrower or a Restricted Subsidiary or (iii) the winding-up or
liquidation of the Borrower or any Restricted Subsidiary; and such
proceeding or petition shall continue undismissed for 60 days or an
order or
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decree approving or ordering any of the foregoing shall
be entered;
(h) the Borrower or any Restricted Subsidiary shall (i)
voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other Federal, state or foreign bankruptcy,
insolvency, receivership or similar law, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner,
any proceeding or the filing of any petition described in (g) above,
(iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the
Borrower or any Restricted Subsidiary or for a substantial part of the
property or assets of the Borrower or any Restricted Subsidiary, (iv)
file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for
the benefit of creditors, (vi) become unable, admit in writing its
inability or fail generally to pay its debts as they become due or
(vii) take any action for the purpose of effecting any of the
foregoing;
(i) one or more judgments for the payment of money in an aggregate
amount in excess of $10,000,000 shall be rendered against the Borrower,
any Restricted Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be
legally taken by a judgment creditor to levy upon assets or properties
of the Borrower or any Restricted Subsidiary to enforce any such
judgment;
(j) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other such ERISA Events,
could reasonably be expected to result in liability of the Borrower and
its ERISA Affiliates in an aggregate amount exceeding $10,000,000 or
requires payments exceeding $10,000,000 in any year;
(k) any security interest purported to be created by any Security
Document shall cease to be, or shall be asserted by the Borrower or any
other Loan Party not to be, a valid, perfected, first priority (except
as otherwise expressly provided in this Agreement or such Security
Document) security interest in the securities, assets or properties
covered thereby, except
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(i) pursuant to Section 9.17, (ii) to the extent that any such loss of
perfection or priority results from the failure of the Collateral Agent
to maintain possession of certificates representing securities pledged
under the Pledge Agreement and (iii) to the extent that such loss is
covered by a lender's title insurance policy and the related insurer
promptly after such loss shall have acknowledged in writing that such
loss is covered by such title insurance policy;
(l) any Guarantee shall cease to be, or shall be asserted by the
Borrower or any other Loan Party not to be in full force and effect,
except for Guarantees released pursuant to Section 9.17.; or
(m) there shall have occurred a Change in Control;
then, and in every such event (other than an event with respect to the Borrower
described in paragraph (g) or (h) above), and at any time thereafter during the
continuance of such event, the Administrative Agent may, and at the request of
the Required Lenders shall, by notice to the Borrower, take either or both of
the following actions, at the same or different times: (i) terminate forthwith
the Commitments and (ii) declare the Loans then outstanding to be forthwith due
and payable in whole or in part, whereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and any
unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder
and under any other Loan Document, shall become forthwith due and payable,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived by the Borrower, anything contained herein or
in any other Loan Document to the contrary notwithstanding; and in any event
with respect to the Borrower described in paragraph (g) or (h) above, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and any unpaid accrued Fees
and all other liabilities of the Borrower accrued hereunder and under any other
Loan Document, shall automatically become due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived by the Borrower, anything contained herein or in any other Loan
Document to the contrary notwithstanding.
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ARTICLE VIII
THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT
SECTION 8.01. APPOINTMENT AND AUTHORIZATION. In order to expedite the
transactions contemplated by this Agreement, Bank of America National Trust and
Savings Association ("BOFA") is hereby appointed to act as Administrative Agent
and Collateral Agent on behalf of the Lenders and the Issuing Banks (for
purposes of this Article VIII, the Administrative Agent and the Collateral Agent
are referred to collectively as the "AGENT"). Each of the Lenders and each
assignee of any such Lender and each Issuing Bank, hereby irrevocably (subject
to Section 8.09) appoints, designates and authorizes the Agent to take such
action on its behalf under the provisions of this Agreement and each other Loan
Document and to exercise such powers and perform such duties as are expressly
delegated to it by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Notwithstanding
any provision to the contrary contained elsewhere in this Agreement or in any
other Loan Document, the Agent shall not have any duties or responsibilities,
except those expressly set forth in this Agreement, nor shall the Agent have or
be deemed to have any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Loan Document or otherwise exist
against the Agent. Without limiting the generality of the foregoing sentence,
the use of the term "agent" in this Agreement with reference to the Agent is not
intended to connote any fiduciary or other implied (or express) obligations
arising under agency doctrine of any applicable law. Instead, such term is used
merely as a matter of market custom, and is intended to create or reflect only
an administrative relationship between independent contracting parties.
SECTION 8.02. DELEGATION OF DUTIES. The Agent may execute any of its
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.
SECTION 8.03. LIABILITY OF AGENT. None of the Agent- Related Persons
shall (i) be liable for any action taken or omitted to be taken by any of them
under or in connection with this Agreement or any other Loan Document or the
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transactions contemplated hereby (except for its own gross negligence or wilful
misconduct), or (ii) be responsible in any manner to any of the Lenders for any
recital, statement, representation or warranty made by the Borrower or any
Subsidiary or Affiliate of the Borrower, or any officer thereof, contained in
this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document, or
for the value of or title to any Collateral, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document, or for any failure of the Borrower or any other party to any Loan
Document (other than the Agent) to perform its obligations hereunder or
thereunder. No AgentRelated Person shall be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower or any
of the Borrower's Subsidiaries or Affiliates.
SECTION 8.04. RELIANCE BY AGENT. (a) The Agent shall be entitled to
rely, and shall be fully protected in relying, upon any writing, resolution,
notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or
telephone message, statement or other document or conversation believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person or Persons, and upon advice and statements of legal counsel (including
counsel to the Borrower), independent accountants and other experts selected by
the Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders or all of the
Lenders, if required by Section 9.08 as it deems appropriate and, if it so
requests, it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance with a request or consent of the Required
Lenders or all of the Lenders, if required by Section 9.08 and such request and
any action taken or failure to act pursuant thereto shall be binding upon all of
the Lenders.
(b) For purposes of determining compliance with the conditions
specified in Section 4.02 each Lender that has executed this Agreement shall be
deemed to have consented
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to, approved or accepted or to be satisfied with, each document or other matter
either sent by the Agent to such Lender for consent, approval, acceptance or
satisfaction, or required thereunder to be consented to or approved by or
acceptable or satisfactory to the Lender.
SECTION 8.05. NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to the Agent for the account of the Lenders, unless the Agent shall
have received written notice from a Lender or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". The Agent will notify the Lenders of its
receipt of any such notice. The Agent shall take such action with respect to
such Default or Event of Default as may be requested by the Required Lenders or
all of the Lenders, if required by Section 9.08 in accordance with Article VIII;
provided, however, that unless and until the Agent has received any such
request, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable or in the best interest of the Lenders.
SECTION 8.06. CREDIT DECISION. Each Lender acknowledges that none of
the Agent-Related Persons has made any representation or warranty to it, and
that no act by the Agent hereinafter taken, including any review of the affairs
of the Borrower and its Subsidiaries, shall be deemed to constitute any
representation or warranty by any AgentRelated Person to any Lender. Each Lender
represents to the Agent that it has, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Borrower and its Subsidiaries, the value of and title to
any Collateral, and all applicable Lender regulatory laws relating to the
transactions contemplated hereby, and made its own decision to enter into this
Agreement and to extend credit to the Borrower hereunder. Each Lender also
represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects,
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operations, property, financial and other condition and creditworthiness of the
Borrower. Except for notices, reports and other documents expressly herein
required to be furnished to the Lenders by the Agent, the Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the business, prospects, operations, property, financial
and other condition or creditworthiness of the Borrower which may come into the
possession of any of the Agent-Related Persons.
SECTION 8.07. INDEMNIFICATION OF AGENT. Whether or not the transactions
contemplated hereby are consummated, each of the Lenders shall indemnify upon
demand the Agent-Related Persons (to the extent not reimbursed by or on behalf
of the Borrower and without limiting the obligation of the Borrower to do
so),pro rata from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, charges, expenses and
disbursements (including reasonable attorney costs) of any kind or nature
whatsoever which may at any time (including at any time following repayment of
the Loans, the termination of the Letters of Credit and the termination,
resignation or replacement of the Agent or replacement of any Lender) be imposed
on, incurred by or asserted against any such Person in any way relating to or
arising out of this Agreement or any document contemplated by or referred to
herein, or the transactions contemplated hereby, or any action taken or omitted
by any such Person under or in connection with any of the foregoing, including
with respect to any investigation, litigation or proceeding (including any
insolvency proceeding or appellate proceeding) related to or arising out of this
Agreement or the Loans or Letters of Credit or the use of the proceeds thereof,
whether or not any indemnified person is a party thereto; provided, however,
that no Lender shall be liable for the payment to the Agent-Related Persons of
any portion of such Indemnified Liabilities resulting from such Person's gross
negligence or wilful misconduct. Without limitation of the foregoing, each
Lender shall reimburse the Agent upon demand for its ratable share of any
reasonable costs or out-of-pocket expenses (including reasonable attorney costs)
incurred by the Agent in connection with the preparation, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Agent is not
reimbursed for such expenses by or on behalf of the Borrower. The undertaking in
this Section shall survive the payment of all
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Obligations hereunder and the resignation or replacement of the Agent.
SECTION 8.08. AGENT IN INDIVIDUAL CAPACITY. BofA and its Affiliates may
make loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Borrower and its
Subsidiaries and Affiliates as though BofA were not the Agent hereunder and
without notice to or consent of the Lenders. The Lenders acknowledge that,
pursuant to such activities, BofA or its Affiliates may receive information
regarding the Borrower or its Affiliates (including information that may be
subject to confidentiality obligations in favor of the Borrower or such
Subsidiary) and acknowledge that the Agent shall be under no obligation to
provide such information to them. With respect to its Loans, BofA shall have the
same rights and powers under this Agreement as any other Lender and may exercise
the same as though it were not the Agent, and the terms "Lender" and "Lenders"
include BofA in its individual capacity.
SECTION 8.09. SUCCESSOR AGENT. The Agent may, and at the request of the
Required Lenders shall, resign as Agent upon 30 days' notice to the Lenders. If
the Agent resigns under this Agreement, the Required Lenders shall appoint from
among the Lenders a successor agent for the Lenders. If no successor agent is
appointed prior to the effective date of the resignation of the Agent, the Agent
may appoint, after consulting with the Lenders and the Borrower, a successor
agent from among the Lenders. Upon the acceptance of its appointment as
successor agent hereunder, such successor agent shall succeed to all the rights,
powers and duties of the retiring Agent and the term "Agent" shall mean such
successor agent and the retiring Agent's appointment, powers and duties as Agent
shall be terminated. After any retiring Agent's resignation hereunder as Agent,
the provisions of this Article VIII and Sections 9.05 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Agent under
this Agreement. If no successor agent has accepted appointment as Agent by the
date which is 30 days following a retiring Agent's notice of resignation, the
retiring Agent's resignation shall nevertheless thereupon become effective and
the Lenders shall perform all of the duties of the Agent hereunder until such
time, if any, as the Required Lenders appoint a successor agent as provided for
above.
SECTION 8.10. COLLATERAL MATTERS. (a) The Agent is authorized on behalf
of all the Lenders, without the
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necessity of any notice to or further consent from the Lenders, from time to
time to take any action with respect to any Collateral or the Security Documents
which may be necessary to perfect and maintain perfected the security interest
in and Liens upon the Collateral granted pursuant to the Collateral Documents.
(b) The Lenders irrevocably authorize the Agent, at its option and
in its discretion, to release any Lien granted to or held by the Agent upon any
Collateral (i) upon termination of the Commitments and payment in full of all
Loans and all other Obligations known to the Agent and payable under this
Agreement or any other Loan Document; (ii) constituting property sold or to be
sold or disposed of as part of or in connection with any disposition permitted
hereunder; (iii) constituting property in which the Borrower or any Subsidiary
owned no interest at the time the Lien was granted or at any time thereafter;
(iv) constituting property leased to the Borrower or any Subsidiary under a
lease which has expired or been terminated in a transaction permitted under this
Agreement or is about to expire and which has not been, and is not intended by
the Borrower or such Subsidiary to be, renewed or extended; (v) consisting of an
instrument evidencing Indebtedness or other debt instrument, if the indebtedness
evidenced thereby has been paid in full; or (vi) if approved, authorized or
ratified in writing by the Required Lenders or all the Lenders, as the case may
be, as provided in subsection 9.08(b). Upon request by the Agent at any time,
the Lenders will confirm in writing the Agent's authority to release particular
types or items of Collateral pursuant to this subsection 8.10(b); provided that
the absence of any such confirmation for whatever reason shall not affect the
Agent's rights under this Section 8.10.
(c) Each Lender agrees with and in favor of each other (which
agreement shall not be for the benefit of the Borrower or any Subsidiary) that
the Borrower's obligations to such Lender under this Agreement and the other
Loan Documents are not and shall not be secured by any real property collateral
now or hereafter acquired by such Lender.
SECTION 8.11. SYNDICATION AGENT; ARRANGER. None of the Lenders
identified on the facing page or signature pages of this Agreement as a
"syndication agent" or "arranger" shall have any right, power, obligation,
liability, responsibility or duty under this Agreement other than those
expressly set forth in this Agreement or applicable to all Lenders as such.
Without limiting the foregoing, none of the Lenders so identified as a
"syndication agent" or
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"arranger" shall have or be deemed to have any fiduciary relationship with any
Lender. Each Lender acknowledges that it has not relied, and will not rely, on
any of the Lenders so identified in deciding to enter into this Agreement or in
taking or not taking action hereunder.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. NOTICES. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or overnight courier
service, mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at 2100 "Q" Street,
Sacramento, California 95816, Attention of General
Counsel (Telecopy No. (916) 326-5586);
(b) if to the Administrative Agent, (i) for
borrowing notices and notices of conversion or
continuation: Bank of America National Trust and
Savings Association, 1850 Gateway Boulevard, Concord,
California 94520, Attention: Aaron Tamburello
(Telephone No. (510) 675-8446 and Telecopy No. (510)
675-8500 and (ii) for all other notices: Bank of
America National Trust & Savings Association, 1455
Market Street, Dept. 10831, San Francisco, CA 94103,
Attention: Leandro Balidoy (Telephone No. (415) 436-
4008 and Telecopy No. (415) 436-3425); and
(c) if to a Lender, to it at its address (or telecopy number) set
forth on Schedule 2.01 or in the Assignment and Acceptance pursuant to
which such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on the
date of receipt if delivered by hand or overnight courier service or sent by
telecopy or on the date five Business Days after dispatch by certified or
registered mail if mailed, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 9.01 or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section 9.01.
SECTION 9.02. SURVIVAL OF AGREEMENT. All covenants, agreements,
representations and warranties made by the
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Borrower herein and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement or any other Loan
Document shall be considered to have been relied upon by the Lenders and the
Issuing Banks and shall survive the making by the Lenders of the Loans and the
issuance of Letters of Credit by the Issuing Banks, regardless of any
investigation made by the Lenders or the Issuing Banks or on their behalf, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any Fee or any other amount payable under this
Agreement or any other Loan Document is outstanding and unpaid or any Letter of
Credit is outstanding and so long as the Commitments have not been terminated.
The provisions of Sections 2.14, 2.16, 2.20 and 9.05 shall remain operative and
in full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the expiration of the Commitments, the expiration
of any Letter of Credit, the invalidity or unenforceability of any term or
provision of this Agreement or any other Loan Document, or any investigation
made by or on behalf of the Administrative Agent, the Collateral Agent, any
Lender or any Issuing Bank.
SECTION 9.03. BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by the Borrower and the Administrative Agent
and when the Administrative Agent shall have received counterparts hereof which,
when taken together, bear the signatures of each of the other parties hereto,
and thereafter shall be binding upon and inure to the benefit of the parties
hereto and their respective permitted successors and assigns.
SECTION 9.04. SUCCESSORS AND ASSIGNS. (a) Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the permitted successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of the Borrower, the Administrative
Agent, the Issuing Banks or the Lenders that are contained in this Agreement
shall bind and inure to the benefit of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion of
its interests, rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); PROVIDED,
HOWEVER, that (i) except in the case of an assignment to a Lender, an Affiliate
of such Lender or, with respect to an assignment of a Term Loan, an Approved
Fund, (w) the Administrative Agent (and, in the case of any assignment of a
Revolving Credit Commitment, the Issuing Banks and the
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Swingline Lender) must give its prior written consent to such assignment (which
consent shall not be unreasonably withheld or delayed), (x) the Arranger must
give its consent to such assignment (which consent shall not be unreasonably
withheld or delayed), (y) the Borrower must give its consent to such assignment
(which consent shall not be unreasonably withheld or delayed) and (z) the amount
of the Commitment of the assigning Lender subject to each such assignment
(determined as of the date the Assignment and Acceptance with respect to such
assignment is delivered to the Administrative Agent) shall not be less than
$5,000,000 (or, if less, the entire remaining amount of such Lender's
Commitment), or such lesser amount as the Administrative Agent, the Arranger and
the Borrower shall agree, (ii) the parties to each such assignment shall execute
and deliver to the Administrative Agent an Assignment and Acceptance, together
with a processing and recordation fee of $3,500 and (iii) the assignee, if it
shall not be a Lender, shall deliver to the Administrative Agent an
Administrative Questionnaire. Upon acceptance and recording pursuant to
paragraph (e) of this Section 9.04, from and after the effective date specified
in each Assignment and Acceptance, which effective date shall be at least five
Business Days after the execution thereof unless otherwise agreed, (A) the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement and (B) the assigning Lender thereunder shall, to
the extent of the interest assigned by such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of Sections
2.14, 2.16, 2.20 and 9.05, as well as to any Fees accrued for its account and
not yet paid).
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) such assigning Lender warrants that it is the legal and beneficial owner of
the interest being assigned thereby free and clear of any adverse claim and that
its Term Loan Commitment and Revolving Credit Commitment, and the outstanding
balances of its Term Loans and Revolving Loans, in each case without giving
effect to assignments thereof which have not become effective, are as set forth
in such Assignment and Acceptance, (ii) except as set forth in (i) above, such
assigning Lender makes no representation or
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warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement, or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement, any other Loan Document or any other instrument or
document furnished pursuant hereto, or the financial condition of the Borrower
or any Subsidiary or the performance or observance by the Borrower or any
Subsidiary of any of its obligations under this Agreement, any other Loan
Document or any other instrument or document furnished pursuant hereto; (iii)
such assignee represents and warrants that it is legally authorized to enter
into such Assignment and Acceptance; (iv) such assignee confirms that it has
received a copy of this Agreement, together with copies of the most recent
financial statements referred to in Section 3.05(a) or delivered pursuant to
Section 5.04 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (v) such assignee will independently and without
reliance upon the Administrative Agent, the Collateral Agent, such assigning
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (vi) such assignee appoints
and authorizes the Administrative Agent and the Collateral Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
as are delegated to the Administrative Agent and the Collateral Agent,
respectively, by the terms hereof, together with such powers as are reasonably
incidental thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all the obligations which by the terms of this
Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain a copy of each Assignment and Acceptance delivered
to it and a register for the recordation of the names and addresses of the
Lenders, and the Commitment of, and principal amount of the Loans owing to, each
Lender pursuant to the terms hereof from time to time (the "REGISTER"). The
entries in the Register shall be conclusive and the Borrower, the Administrative
Agent, the Issuing Banks, the Collateral Agent and the Lenders may treat each
Person whose name is recorded in the Register pursuant to the terms hereof as a
Lender hereunder for all purposes of this Agreement, notwithstanding notice to
the contrary. The Register shall be available for inspection by the Borrower,
the Collateral Agent and any Lender, at any reasonable time and from time to
time upon reasonable prior notice.
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(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, an Administrative Questionnaire
completed in respect of the assignee (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) above and, if required, the written consent of the Swingline Lender, the
Issuing Banks and the Administrative Agent, and the consent of the Arranger and
the Borrower, to such assignment, the Administrative Agent shall (i) accept such
Assignment and Acceptance, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the Swingline Lender, the
Issuing Banks and the Lenders. No assignment shall be effective unless it has
been recorded in the Register as provided in this paragraph (e).
(f) Each Lender may without the consent of the Borrower, the Swingline
Lender, the Issuing Banks, the Arranger or the Administrative Agent sell
participations to one or more banks or other entities in all or a portion of its
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans owing to it); PROVIDED, HOWEVER, that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) the participating banks or other entities shall be
entitled to the benefit of the cost protection provisions contained in Sections
2.14, 2.16 and 2.20 to the same extent as if they were Lenders and (iv) the
Borrower, the Administrative Agent, the Issuing Banks and the Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement, and such Lender shall
retain the sole right to enforce the obligations of the Borrower relating to the
Loans or L/C Disbursements and to approve any amendment, modification or waiver
of any provision of this Agreement (other than amendments, modifications or
waivers requiring the consent of all the Lenders pursuant to Section 9.08(b)).
(g) Any Lender or participant may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
9.04, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrower furnished to such Lender by
or on behalf of the Borrower; PROVIDED that, prior to any such disclosure of
information designated by the Borrower as confidential, each such assignee or
participant or proposed assignee or participant shall execute an agreement
whereby such assignee or participant shall agree (subject to customary
exceptions) to preserve the
<PAGE>
114
confidentiality of such confidential information on terms no less restrictive
than those applicable to the Lenders pursuant to Section 9.16.
(h) Any Lender may at any time, without the consent of the
Administrative Agent, the Arranger or the Borrower, assign all or any portion of
its rights under this Agreement to a Federal Reserve Bank to secure extensions
of credit by such Federal Reserve Bank to such Lender and any Lender that is a
fund that invests in bank loans may, without the consent of the Administrative
Agent, the Arranger or Borrower, pledge all or any portion of its interest,
rights and obligations under this Agreement (including its Loans) to any trustee
or any other representative of holders of obligations owed or securities issued
by such fund as security for such obligations or securities; PROVIDED that no
such assignment shall release a Lender from any of its obligations hereunder or
substitute any such Federal Reserve Bank, trustee or other representative for
such Lender as a party hereto. In order to facilitate such an assignment to a
Federal Reserve Bank or trustee, the Borrower shall, at the request of the
assigning or pledging Lender, duly execute and deliver to the assigning or
pledging Lender a promissory note or notes evidencing the Loans made to the
Borrower by the assigning or pledging Lender hereunder.
(i) The Borrower shall not assign or delegate any of its rights or
duties hereunder without the prior written consent of the Administrative Agent,
the Issuing Banks and each Lender, and any attempted assignment without such
consent shall be null and void.
(j) In the event that S&P, Moody's, and Thompson's BankWatch (or
InsuranceWatch Ratings Service, in the case of Lenders that are insurance
companies (or Best's Insurance Reports, if such insurance company is not rated
by Insurance Watch Ratings Service)) shall, after the date that any Lender
becomes a Revolving Credit Lender, downgrade the long-term certificate deposit
ratings of such Lender, and the resulting ratings shall be below BBB-, Baa3 and
C (or BB, in the case of a Lender that is an insurance company (or B, in the
case of an insurance company not rated by Insurance Watch Ratings Service)),
then any Issuing Bank and the Swingline Lender shall have the right, but not the
obligation, at its own expense, upon notice to such Lender and the
Administrative Agent, to replace (or to request the Borrower to use its
reasonable efforts to replace) such Lender with an assignee (in accordance with
and subject to the restrictions contained in paragraph (b) above), and such
Lender hereby agrees to transfer and assign without recourse (in accordance with
and subject to the restrictions
<PAGE>
115
contained in paragraph (b) above) all its interests, rights and obligations in
respect of its Revolving Credit Commitment to such assignee; PROVIDED, HOWEVER,
that (i) no such assignment shall conflict with any law, rule and regulation or
order of any Governmental Authority and (ii) the Issuing Bank, Swingline Lender
or such assignee, as the case may be, shall pay to such Lender in immediately
available funds on the date of such assignment the principal of and interest
accrued to the date of payment on the Loans made by such Lender hereunder and
all other amounts accrued for such Lender's account or owed to it hereunder.
SECTION 9.05. EXPENSES; INDEMNITY. (a) The Borrower agrees to pay all
reasonable out-of-pocket expenses incurred by the Administrative Agent, the
Collateral Agent, the Issuing Banks and the Swingline Lender in connection with
the syndication of the credit facilities provided for herein and the preparation
and administration of this Agreement and the other Loan Documents or in
connection with any amendments, modifications or waivers of the provisions
hereof or thereof (whether or not the transactions hereby or thereby
contemplated shall be consummated) or incurred by the Administrative Agent, the
Collateral Agent or any Lender in connection with the enforcement or protection
of its rights in connection with this Agreement and the other Loan Documents or
in connection with the Loans made or Letters of Credit issued hereunder,
including the reasonable fees, charges and disbursements of Cravath, Swaine &
Moore, counsel for the Administrative Agent and the Collateral Agent, and, in
connection with any such enforcement or protection, the reasonable fees, charges
and disbursements of any other counsel for the Administrative Agent, the
Collateral Agent or any Lender.
(b) The Borrower agrees to indemnify the Administrative Agent, the
Collateral Agent, each Lender and each Issuing Bank, each Affiliate of any of
the foregoing Persons and each of their respective directors, officers,
employees and agents (each such Person being called an "INDEMNITEE") against,
and to hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable counsel fees, charges and
disbursements, incurred by or asserted against any Indemnitee arising out of, in
any way connected with, or as a result of (i) the execution or delivery of this
Agreement or any other Loan Document or any agreement or instrument contemplated
hereby or thereby, the performance by the parties hereto or thereto of their
respective obligations thereunder or the consummation of the Transactions and
the other transactions contemplated hereby or thereby, (ii) the use of the
proceeds of the Loans or issuance of Letters of
<PAGE>
116
Credit, (iii) any claim, litigation, investigation or proceeding relating to any
of the foregoing, whether or not any Indemnitee is a party thereto, or (iv) any
actual or alleged presence or Release of Hazardous Materials on any property
owned or operated by the Borrower or any of the Subsidiaries, or any
Environmental Claim related in any way to the Borrower or the Subsidiaries;
PROVIDED that such indemnity shall not, as to any Indemnitee, be available to
the extent that such losses, claims, damages, liabilities or related expenses
are determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or wilful misconduct of such
Indemnitee.
(c) The provisions of this Section 9.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the expiration of the Commitments, the expiration
of any Letter of Credit, the invalidity or unenforceability of any term or
provision of this Agreement or any other Loan Document, or any investigation
made by or on behalf of the Administrative Agent, the Collateral Agent, any
Lender or any Issuing Bank. All amounts due under this Section 9.05 shall be
payable on written demand therefor.
SECTION 9.06. RIGHT OF SETOFF. If an Event of Default shall have
occurred and be continuing, each Lender is hereby authorized at any time and
from time to time, except to the extent prohibited by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender to or
for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement and
other Loan Documents held by such Lender, irrespective of whether or not such
Lender shall have made any demand under this Agreement or such other Loan
Document and although such obligations may be unmatured. The rights of each
Lender under this Section 9.06 are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
SECTION 9.07. APPLICABLE LAW. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (OTHER THAN LETTERS OF CREDIT AND AS EXPRESSLY SET FORTH IN OTHER LOAN
DOCUMENTS) SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF
CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM CUSTOMS AND
<PAGE>
117
PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF
COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO MATTERS NOT
GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF NEW YORK.
SECTION 9.08. WAIVERS; AMENDMENT. (a) No failure or delay of the
Administrative Agent, the Collateral Agent, any Lender or any Issuing Bank in
exercising any power or right hereunder or under any other Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of the
Administrative Agent, the Collateral Agent, the Issuing Banks and the Lenders
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any provision of this Agreement or any other Loan Document or consent to any
departure by the Borrower or any other Loan Party therefrom shall in any event
be effective unless the same shall be permitted by paragraph (b) below, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given. No notice or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in similar
or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders; PROVIDED, HOWEVER, that
no such agreement shall (i) decrease the principal amount of, or extend the
maturity of or any scheduled principal payment date or date for the payment of
any interest on any Loan or any date for reimbursement of an L/C Disbursement,
or waive or excuse any such payment or any part thereof, or decrease the rate of
interest on any Loan or L/C Disbursement, without the prior written consent of
each Lender affected thereby, (ii) change or extend the Commitment or decrease
or extend the date for payment of the Commitment Fees of any Lender without the
prior written consent of such Lender, (iii) amend or modify the provisions of
Section 2.16 or 9.04(i), the provisions of this Section, the definition of the
term "Required Lenders" or release any Guarantor or all or any substantial part
of the Collateral (except as provided in Section 9.17), without the prior
written consent of each Lender or (iv) change the allocation between Tranche A
Term Loans and Tranche B Term Loans of any prepayment pursuant to Section 2.12
or 2.13 without the prior written consent of (A) Lenders holding a majority of
<PAGE>
118
the aggregate outstanding principal amount of the Tranche A Term Loans and (B)
Lenders holding a majority of the aggregate outstanding principal amount of the
Tranche B Term Loans; PROVIDED FURTHER that no such agreement shall amend,
modify or otherwise affect the rights or duties of the Administrative Agent, the
Collateral Agent, any Issuing Bank or the Swingline Lender hereunder or under
any other Loan Document without the prior written consent of the Administrative
Agent, the Collateral Agent, such Issuing Bank or the Swingline Lender.
SECTION 9.09. INTEREST RATE LIMITATION. Notwithstanding anything herein
to the contrary, if at any time the interest rate applicable to any Loan or
participation in any L/C Disbursement, together with all fees, charges and other
amounts which are treated as interest on such Loan or participation in such L/C
Disbursement under applicable law (collectively the "CHARGES"), shall exceed the
maximum lawful rate (the "MAXIMUM RATE") which may be contracted for, charged,
taken, received or reserved by the Lender holding such Loan or participation in
accordance with applicable law, the rate of interest payable in respect of such
Loan or participation hereunder, together with all Charges payable in respect
thereof, shall be limited to the Maximum Rate and, to the extent lawful, the
interest and Charges that would have been payable in respect of such Loan or
participation but were not payable as a result of the operation of this Section
9.09 shall be cumulated and the interest and Charges payable to such Lender in
respect of other Loans or participations or periods shall be increased (but not
above the Maximum Rate therefor) until such cumulated amount, together with
interest thereon at the Federal Funds Effective Rate to the date of repayment,
shall have been received by such Lender.
SECTION 9.10. ENTIRE AGREEMENT. This Agreement, the Fee Letters and the
other Loan Documents constitute the entire contract between the parties relative
to the subject matter hereof. Any other previous agreement among the parties
with respect to the subject matter hereof is superseded by this Agreement and
the other Loan Documents. Nothing in this Agreement or in the other Loan
Documents, expressed or implied, is intended to confer upon any party other than
the parties hereto and thereto any rights, remedies, obligations or liabilities
under or by reason of this Agreement or the other Loan Documents.
SECTION 9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF
<PAGE>
119
ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11.
SECTION 9.12. SEVERABILITY. In the event any one or more of the
provisions contained in this Agreement or in any other Loan Document should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein and therein
shall not in any way be affected or impaired thereby (it being understood that
the invalidity of a particular provision in a particular jurisdiction shall not
in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
SECTION 9.13. COUNTERPARTS. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original but all of which when taken together shall
constitute a single contract, and shall become effective as provided in Section
9.03. Delivery of an executed signature page to this Agreement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Agreement.
SECTION 9.14. HEADINGS. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
SECTION 9.15. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) The
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
<PAGE>
120
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Administrative Agent, the Collateral Agent or any Lender may otherwise have to
bring any action or proceeding relating to this Agreement or the other Loan
Documents against the Borrower or its properties in the courts of any
jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 9.16. CONFIDENTIALITY. The Administrative Agent, the Collateral
Agent, each Issuing Bank and each of the Lenders agrees to keep confidential
(and to use its best efforts to cause its respective agents and representatives
to keep confidential) the Information (as defined below) and all copies thereof,
extracts therefrom and analyses or other materials based thereon, except that
the Administrative Agent, the Collateral Agent, any Issuing Bank or any Lender
shall be permitted to disclose Information (a) to such of its respective
officers, directors, employees, agents, affiliates and representatives as need
to know such Information, (b) to the extent requested by any regulatory
authority or the NAIC, (c) to the extent otherwise required by applicable laws
and regulations or by any subpoena or similar legal process, (d) in connection
with any suit, action or proceeding relating to the enforcement of its rights
hereunder or under the other Loan Documents, (e) to the extent such Information
(i) becomes publicly available other than as a result of a breach of this
Section 9.16 or
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121
(ii) becomes available to the Administrative Agent, any Issuing Bank, any Lender
or the Collateral Agent on a nonconfidential basis from a source other than the
Borrower or (f) to any direct or indirect contractual counterparty in swap
agreements or such contractual counterparty's professional advisor (so long as
such contractual counterparty or professional advisor to such contractual
counterparty agrees to be bound by the provisions of this Section 9.16). In the
event that any Lender becomes legally compelled (by deposition, interrogatory,
request for documents, subpoena, civil investigative demand or similar process)
to disclose any of the Information, such Lender shall promptly notify (unless
legally prohibited) the Administrative Agent and the Administrative Agent shall
promptly notify the Borrower of such requirement so that the Borrower may seek a
protective order or other appropriate remedy. For the purposes of this Section,
"INFORMATION" shall mean all financial statements, certificates, reports,
agreements and information (including all analyses, compilations and studies
prepared by the Administrative Agent, the Collateral Agent, any Issuing Bank or
any Lender based on any of the foregoing) that are received from the Borrower
and related to the Borrower, any shareholder of the Borrower or any employee,
customer or supplier of the Borrower, other than any of the foregoing that were
available to the Administrative Agent, the Collateral Agent, any Issuing Bank or
any Lender on a nonconfidential basis prior to its disclosure thereto by the
Borrower, and which are in the case of Information provided after the date
hereof, clearly identified at the time of delivery as confidential. The
provisions of this Section 9.16 shall remain operative and in full force and
effect regardless of the expiration and term of this Agreement.
SECTION 9.17. RELEASE OF LIENS AND GUARANTEES. At any time that no
Default or Event of Default has occurred and is continuing, if either S&P or
Moody's shall have assigned ratings of BBB- or Baa3, respectively, or better to
the Index Debt, the Administrative Agent shall promptly (and the Lenders hereby
authorize the Administrative Agent to) upon the request of the Borrower take
such action and execute such documents as may be reasonably requested by the
Borrower and at the Borrower's expense to release (i) all the Liens created
under the Loan Documents and (ii) the Guarantees of each Restricted Subsidiary
(other than McClatchy and Cowles) provided that, prior to the release of the
Guarantee of any Restricted Subsidiary, assets material to McClatchy or Cowles
have not been transferred, directly or indirectly, to such Restricted
Subsidiary.
<PAGE>
122
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
MNI NEWCO, INC.,
By /s/ Gary Pruitt
------------------------------
Name: Gary Pruitt
Title: Treasurer
<PAGE>
123
SALOMON BROTHERS INC, as
Arranger and Syndication Agent,
By /s/ Mavis B. Taintor
-------------------------------
Name: Mavis B. Taintor
Title: Managing Director
<PAGE>
124
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent and
Collateral Agent,
By /s/ Christine Conti
-------------------------------
Name: Christine Conti
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a
Lender,
By /s/ John Grauten
--------------------------------
Name: John Grauten
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as the
Swingline Lender,
By /s/ John Grauten
---------------------------------
Name: John Grauten
Title: Vice President
<PAGE>
125
THE BANK OF MONTREAL,
By /s/ Karen Klapper
----------------------------------
Name: Karen Klapper
Title: Director
THE BANK OF NEW YORK,
By /s/ Gerry Granovsky
----------------------------------
Name: Gerry Granovsky
Title: Assistant Vice President
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By /s/Nicholas Campbell, Jr.
----------------------------------
Name: Nicholas Campbell, Jr.
Title: Vice President
DRESDNER BANK, AG, NEW YORK AND
GRAND CAYMAN BRANCHES,
By /s/ William E. Lambert
----------------------------------
Name: William E. Lambert
Title: Assistant Vice President
/s/ Brian Haughney
----------------------------------
Name: Brian Haughney
Title: Assistant Treasurer
FIRST UNION NATIONAL BANK,
By /s/ Michael P. Doherty
-----------------------------------
Name: Michael P. Doherty
Title: Sr. Vice President
<PAGE>
126
TORONTO DOMINION (TEXAS), INC.,
By /s/ Debbie A. Greene
-----------------------------------
Name: Debbie A. Greene
Title: Vice President
WACHOVIA BANK, N.A.,
By /s/ Charles s. Zimmerman
-----------------------------------
Name: Charles S. Zimmerman
Title: Vice President
ABN AMRO BANK N.V.,
By /s/ Diane D. Barkley
-----------------------------------
Name: Diane D. Barkley
Title: Group Vice President
By /s/ Robert Protass
-----------------------------------
Name: Robert Protass
Title: Assistant Vice President
BAYERISCHE VEREINSBANK, AG, NEW YORK
BRANCH,
By /s/ E. Ebner V. Eschenbach
-----------------------------------
Name: E. Ebner V. Eschenbach
Title: Vice President
By /s/ Sylvia K. Cheng
-----------------------------------
Name: Sylvia K. Cheng
Title: Vice President
THE DAI-ICHI KANGYO BANK, LIMITED
SAN FRANCISCO AGENCY,
By /s/ Takuo Yoshida
------------------------------------
Name: Takuo Yoshida
Title: General Manager & Agent
U.S. BANK NATIONAL ASSOCIATION,
By /s/ William J. Umscheid
------------------------------------
Name: William J. Umscheid
Title: Vice President
<PAGE>
127
FLEET NATIONAL BANK,
By /s/ Tanya M. Crossley
------------------------------------
Name: Tanya M. Crossley
Title: Vice President
THE FUJI BANK, LIMITED,
By /s/ Kaiichi Ogawa
------------------------------------
Name: Kaiichi Ogawa
Title: Vice President
KEY CORPORATE CAPITAL, INC.,
By /s/ Kenneth J. Keeler
------------------------------------
Name: Kenneth J. Keeler
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY,
By /s/ Koh Takemoto
------------------------------------
Name: Koh Takemoto
Title: General Manager
MELLON BANK, N.A.,
By /s/ Susan A. Dalton
------------------------------------
Name: Susan A. Dalton
Title: Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION,
By /s/ Beatrice Kossodo
------------------------------------
Name: Beatrice Kossodo
Title: Senior Vice President
THE BANK OF NOVA SCOTIA,
By /s/ Vincent Fitzgerald, Jr.
------------------------------------
Name: Vincent Fitzgerald, Jr.
Title: Authorized Signatory
<PAGE>
128
ROYAL BANK OF SCOTLAND, PLC,
By /s/ Karen L. Stefancic
------------------------------------
Name: Karen L. Stefancic
Title: Vice President
CREDIT AGRICOLE INDOSUEZ,
By /s/ Dean Balice
------------------------------------
Name: Dean Balice
Title: Senior Vice President
Branch Manager
BANCA COMMERCIALE ITALIANA, LOS
ANGELES FOREIGN BRANCH,
By /s/ Richard E. Iwanicki
------------------------------------
Name: Richard E. Iwanicki
Title: Vice President
BANK OF HAWAII,
By /s/ Robert L. Wilson
------------------------------------
Name: Robert L. Wilson
Title: Vice President
BANQUE NATIONALE DE PARIS,
By /s/ Debra Wright
------------------------------------
Name: Debra Wright
Title: Vice President
By /s/ Colleen S. Breit
------------------------------------
Name: Colleen S. Breit
Title: Asst. Vice President
BANQUE PARIBAS,
By /s/ Thomas G. Brandt
------------------------------------
Name: Thomas G. Brandt
Title: Director
By /s/ David J. Pastre
-------------------------------------
Name: David J. Pastre
Title: Vice President
<PAGE>
129
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE,
By /s/ Anthony Rock
--------------------------------------
Name: Anthony Rock
Title: Vice President
By /s/ Sean Mounier
--------------------------------------
Name: Sean Mounier
Title: First Vice President
NATIONAL CITY BANK OF PENNSYLVANIA,
By /s/ Vincent J. Delie, Jr.
--------------------------------------
Name: Vincent J. Delie, Jr.
Title: Vice President
PNC BANK, N.A.,
By /s/ Steffen W. Crowther
--------------------------------------
Name: Steffen W. Crowther
Title: Vice President
COOPERATIVE CENTRALE RAIFFEEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
By /s/ Douglas W. Zylstra
--------------------------------------
Name: Douglas W. Zylstra
Title: Vice President
By /s/ W. Jeffrey Vollack
--------------------------------------
Name: W. Jeffrey Vollack
Title: Senior Credit Officer
Senior Vice President
ROYAL BANK OF CANADA,
By /s/ Wayne P. Gray
--------------------------------------
Name: Wayne P. Gray
Title: Manager
<PAGE>
130
SUMMIT BANK,
By /s/ Henry G. Kush, Jr.
--------------------------------------
Name: Henry G. Kush, Jr.
Title: Vice President
SUNTRUST BANK, CENTRAL FLORIDA, N.A.,
By /s/ Janet P. Sammons
--------------------------------------
Name: Janet P. Sammons
Title: Vice President
MERITA BANK, LTD.,
By /s/ Clifford Abramsky
--------------------------------------
Name: Clifford Abramsky
Title: Vice President
By /s/ Frank Maffei
--------------------------------------
Name: Frank Maffei
Title: Vice President
NATEXIS BANQUE BFCE,
By /s/ G. Kevin Dooley
--------------------------------------
Name: G. Kevin Dooley
Title: Vice President
By /s/ William C. Maier
--------------------------------------
Name: William C. Maier
Title: VP-Group Manager
BHF - BANK AKTIENGESELLSCHAFT,
By /s/ Dan Dobrjyanskyj
--------------------------------------
Name: Dan Dobrjyanskyj
Title: Asst. Vice President
By /s/ Robert Novak
--------------------------------------
Name: Robert Novak
Title: Assistant Treasurer
<PAGE>
131
ERSTE BANK DER OESTERREICHISCHEN
SPARKASSEN AG, NEW YORK BRANCH,
By /s/ Anca Trifan
--------------------------------------
Name: Anca Trifan
Title: Vice President
By /s/ John S. Runnion
--------------------------------------
Name: John S. Runnion
Title: First Vice President
JACKSON NATIONAL LIFE INSURANCE
COMPANY By PPM AMERICA INC., AS
ATTORNEY IN FACT, ON BEHALF OF
JACKSON NATIONAL LIFE INSURANCE
COMPANY,
By /s/ Michael DiRe
--------------------------------------
Name: Michael DiRe
Title: Managing Director
<PAGE>
132
DEEPROCK & COMPANY, By EATON VANCE
MANAGEMENT AS INVESTMENT ADVISOR,
By /s/ Payson F. Swaffield
--------------------------------------
Name: Payson F. Swaffield
Title: Vice President
ARCHIMEDES FUNDING, L.L.C.,
By /s/ Kathleen A. Lenarcic
--------------------------------------
Name: Katherleen A. Lenarcic
Title: Vice President &
Portfolio Manager
ING HIGH INCOME PRINCIPAL
PRESERVATION FUND HOLDINGS, LDC,
By /s/ Kathleen A. Lenarcic
--------------------------------------
Name: Katherleen A. Lenarcic
Title: Vice President & Portfolio
Manager
KZH - ING - 2 CORPORATION,
By /s/ Virginia Conway
--------------------------------------
Name: Virginia Conway
Title: Authorized Agent
THE TRAVELERS INSURANCE COMPANY,
By /s/ John W. Petchler
--------------------------------------
Name: John W. Petchler
Title: Second Vice President
<PAGE>
133
GENERAL ELECTRIC CAPITAL CORPORATION,
By /s/ Roger M. Burns
--------------------------------------
Name: Roger M. Burns
Title: Duly Authorized Signatory
TRANSAMERICA LIFE INSURANCE AND
ANNUITY COMPANY,
By /s/ John M. Casparian
--------------------------------------
Name: John M. Casparian
Title: Investment Officer
METROPOLITAN LIFE INSURANCE COMPANY,
By /s/ James R. Dingler
--------------------------------------
Name: James R. Dingler
Title: Director
OCTAGON CREDIT INVESTORS LOAN
PORTFOLIO (A UNIT OF THE CHASE
MANHATTAN BANK),
By /s/ Andrew G. Gordon
--------------------------------------
Name: Andrew G. Gordon
Title: Managing Director
KZH - SOLEIL - 2 CORPORATION,
By /s/ Virginia Conway
--------------------------------------
Name: Virginia Conway
Title: Authorized Agent
<PAGE>
134
RELIASTAR LIFE INSURANCE COMPANY,
By /s/ James V. Wittich
--------------------------------------
Name: James V. Wittich
Title: Representative
RELIASTAR LIFE INSURANCE COMPANY OF
NEW YORK,
By /s/ James V. Wittich
--------------------------------------
Name: James V. Wittich
Title: Vice President, Investments
NORTHERN LIFE INSURANCE COMPANY,
By /s/ James V. Wittich
--------------------------------------
Name: James V. Wittich
Title: Assistant Treasurer
RELIASTAR UNITED SERVICES LIFE
INSURANCE COMPANY,
By /s/ James V. Wittich
--------------------------------------
Name: James V. Wittich
Title: Assistant Treasurer
SECURITY CONNECTICUT LIFE INSURANCE
COMPANY,
By /s/ James V. Wittich
--------------------------------------
Name: James V. Wittich
Title: Assistant Treasurer
<PAGE>
135
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY,
By /s/ Walter T. Dwyer
--------------------------------------
Name: Walter T. Dwyer
Title: Managing Director
KZH - CRESCENT - 2 CORPORATION,
By /s/ Virginia Conway
--------------------------------------
Name: Virginia Conway
Title: Authorized Agent
BANKERS LIFE & CASUALTY INSURANCE
COMPANY,
By /s/ Eric Johnson
--------------------------------------
Name: Eric Johnson
Title: Vice President
CYPRESSTREE INVESTMENT MANAGEMENT
COMPANY, INC. AS ATTORNEY-IN-FACT
AND ON BEHALF OF FIRST ALLMERICA
FINANCIAL LIFE INSURANCE COMPANY AS
PORTFOLIO MANAGER,
By /s/ Philip C. Robbins
--------------------------------------
Name: Philip C. Robbins
Title: Vice President
<PAGE>
136
BALANCED HIGH YIELD FUND I LTD. By:
BHF - BANK AKTIENGESELLSCHAFT,
ACTING THROUGH ITS NEW YORK BRANCH,
AS ATTORNEY-IN-FACT.
By /s/ Dan Dobrjanskyj
--------------------------------------
Name: Dan Dobrjanskyj
Title: Assistant Vice
President
By /s/ Robert Novak
--------------------------------------
Name: Robert Novak
Title: Assistant Treasurer
1997 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1. PURPOSE...................................................1
SECTION 2. DEFINITIONS...............................................1
(a) "BOARD OF DIRECTORS"......................................1
(b) "CODE"....................................................1
(c) "COMMITTEE"...............................................1
(d) "COMPANY".................................................1
(e) "EMPLOYEE"................................................1
(f) "EXERCISE PRICE"..........................................1
(g) "FAIR MARKET VALUE".......................................2
(h) "NONSTATUTORY OPTION".....................................2
(i) "OPTION"..................................................2
(j) "OPTIONEE"................................................2
(k) "PLAN"....................................................2
(l) "SERVICE".................................................2
(m) "SHARE"...................................................2
(n) "STOCK"...................................................2
(o) "STOCK OPTION AGREEMENT"..................................2
(p) "SUBSIDIARY"..............................................2
SECTION 3. ADMINISTRATION............................................3
(a) COMMITTEE MEMBERSHIP......................................3
(b) COMMITTEE PROCEDURES......................................3
(c) COMMITTEE RESPONSIBILITIES................................3
SECTION 4. ELIGIBILITY...............................................4
SECTION 5. STOCK SUBJECT TO PLAN.....................................5
(a) BASIC LIMITATION..........................................5
(b) ADDITIONAL SHARES.........................................5
SECTION 6. TERMS AND CONDITIONS OF OPTIONS...........................5
(a) STOCK OPTION AGREEMENT....................................5
(b) NUMBER OF SHARES..........................................5
(c) EXERCISE PRICE............................................5
(d) WITHHOLDING TAXES.........................................6
(e) EXERCISABILITY AND TERM...................................6
(f) NONTRANSFERABILITY........................................6
(g) EXERCISE OF OPTIONS ON TERMINATION OF SERVICE.............6
(h) NO RIGHTS AS A SHAREHOLDER................................7
(i) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS.........7
(j) RESTRICTIONS ON TRANSFER OF SHARES........................7
-i-
<PAGE>
SECTION 7. PAYMENT FOR SHARES.........................................7
(a) GENERAL RULE...............................................7
(b) SURRENDER OF STOCK.........................................7
(c) CASHLESS EXERCISE..........................................8
SECTION 8. ADJUSTMENT OF SHARES.......................................8
(a) GENERAL....................................................8
(b) REORGANIZATIONS............................................8
(c) RESERVATION OF RIGHTS......................................8
SECTION 9. LEGAL REQUIREMENTS.........................................9
SECTION 10. NO EMPLOYMENT RIGHTS.......................................9
SECTION 11. DURATION AND AMENDMENTS....................................9
(a) TERM OF THE PLAN...........................................9
(b) RIGHT TO AMEND OR TERMINATE THE PLAN.......................9
(c) EFFECT OF AMENDMENT OR TERMINATION....................... 10
SECTION 12. EXECUTION................................................ 10
-ii-
<PAGE>
1997 STOCK OPTION PLAN
SECTION 1. PURPOSE.
- -------------------
The purpose of the Plan is to offer selected employees an opportunity
to acquire a proprietary interest in the success of the Company, or to increase
such interest, to encourage such selected persons to remain in the employ of the
Company and to attract new employees with outstanding qualifications by
purchasing Shares of the Company's Class A Common Stock. The Plan provides for
the grant of Options to purchase Shares. Options granted under the Plan are
Nonstatutory Options. The Plan was adopted effective as of December 10, 1997.
SECTION 2. DEFINITIONS.
- -----------------------
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company, as constituted from time to time.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" shall mean the committee appointed by the Board of
Directors pursuant to Section 3(a).
(d) "COMPANY" shall mean McClatchy Newspapers, Inc., a Delaware
corporation.
(e) "EMPLOYEE" shall mean any individual who is a common-law employee
of the Company or of a Subsidiary, including officers and directors of the
Company who are also employees.
(f) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
-1-
<PAGE>
(g) "FAIR MARKET VALUE" shall mean the fair market value of a Share as
determined by Committee in good faith as follows:
(i) If the Share was trade on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite transactions report for
such date; and
(ii) If the foregoing provision is not applicable, then the
Fair Market Value shall be determined by the Committee on such basis
as it deems appropriate. (h) "NONSTATUTORY OPTION" shall mean an
employee stock option that is not qualified under section 422 of
the Code.
(i) "OPTION" shall mean Nonstatutory Option granted under the Plan and
entitling the holder to purchase Shares.
(j) "OPTIONEE" shall mean an individual who holds an Option.
(k) "PLAN" shall mean this McClatchy Newspapers, Inc. 1997 Stock
Option Plan.
(l) "SERVICE" shall mean service as an Employee. For purposes of this
Plan, "Service shall continue if an Employee becomes a consultant to the Company
or a Subsidiary.
(m) "SHARE" shall mean one share of Stock, as adjusted in accordance
with Section 8 (if applicable).
(n) "STOCK" shall mean the Class A Common Stock of the Company, and
such other stock as may be substituted therefor in accordance with the
adjustment provisions of the Plan.
(o) "STOCK OPTION AGREEMENT" shall mean the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to his or her Option.
(p) "SUBSIDIARY" shall mean any corporation, of which the Company
and/or one or more other Subsidiaries own not less than 50 percent of the total
combined voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on
-2-
<PAGE>
a date after the adoption of the Plan shall be considered a Subsidiary
commencing as of such date.
SECTION 3. ADMINISTRATION.
(a) COMMITTEE MEMBERSHIP. The Plan shall be administered by the
Committee which shall consist of not less than two directors appointed by the
Board of Directors each of whom shall satisfy the requirements of Rule 16b-3, as
amended of the Securities Exchange Act of 1933.
(b) COMMITTEE PROCEDURES. The Board of Directors shall designate one
of the members of the Committee as chairperson. The Committee may hold meetings
at such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by all Committee members, shall be valid acts of the
Committee.
(c) COMMITTEE RESPONSIBILITIES. Subject to the provisions of the Plan,
the Committee shall have full authority and discretion to take the following
actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms
relating to the Plan;
(iii) To authorize any person to execute, on behalf of the
Company, any instrument required to carry out the purposes of the
Plan;
(iv) To determine when Options are to be granted under the Plan;
(v) To select the Optionees;
(vi) To determine the number of Shares to be made subject to each
Option;
-3-
<PAGE>
(vii) To prescribe the terms and conditions of each Option,
including (without limitation) the Exercise Price and to specify the
provisions of the Stock Option Agreement relating to such Option;
(viii) To amend or terminate any outstanding Stock Option
Agreement;
(ix) To determine the disposition of an Option in the event of an
Optionee's divorce or dissolution of marriage;
(x) To correct any defect, supply any omission, or reconcile any
inconsistency in the Plan and any Option;
(xi) To prescribe the consideration for the grant of each Option
under the Plan and to determine the sufficiency of such consideration;
and
(xii) To take any other actions deemed necessary or advisable for
the administration of the Plan.
Subject to the requirements of applicable law, the Committee may designate
persons other than members of the Committee to carry out its responsibilities
and may prescribe such conditions and limitations as it may deem appropriate,
except that the Committee may not delegate its authority with regard to the
selection for participation of or the granting of Options or other rights under
the Plan to persons subject to Section 16 of the Exchange Act. All decisions,
interpretations and other actions of the Committee shall be final and binding on
all Offerees, all Optionees, and all persons deriving their rights from an
Optionee. No member of the Committee shall be liable for any action that he has
taken or has failed to take in good faith with respect to the Plan, any Option,
or any right to acquire Shares under the Plan.
SECTION 4. ELIGIBILITY.
- -----------------------
Only Employees shall be eligible for designation as Optionees by the
Committee.
-4-
<PAGE>
SECTION 5. STOCK SUBJECT TO PLAN.
- ---------------------------------
(a) BASIC LIMITATION. Shares offered under the Plan shall be
authorized but unissued Shares. The aggregate number of Shares which may be
issued under the Plan (upon exercise of Options) shall not exceed 750,000
Shares, subject to adjustment pursuant to Section 8. The number of Shares which
are subject to Options outstanding at any time under the Plan shall not exceed
the number of Shares which then remain available for issuance under the Plan.
The Company, during the term of the Plan, shall at all times reserve and keep
available sufficient Shares to satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option for
any reason expires or is canceled or otherwise terminated, the Shares allocable
to the unexercised portion of such Option shall again be available for the
purposes of the Plan.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
- -------------------------------------------
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions of
the Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Committee deems appropriate for
inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price which shall be determined by the Committee in its sole
discretion. The Exercise Price may be
-5-
<PAGE>
less than the Fair Market Value of a Share. The Exercise Price shall be payable
in a form described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the exercise of an Option,
the Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with such exercise. The Optionee shall also make
such arrangements as the Committee may require for the satisfaction of any
federal, state, local or foreign withholding tax obligations that may arise in
connection with the disposition of Shares acquired by exercising an Option.
(e) EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify
the date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option. The Committee
in its sole discretion shall determine when all or any part of an Option is to
become exercisable and when such Option is to expire.
(f) NONTRANSFERABILITY. Except as provided in the applicable Stock
Option Agreement, no Option shall be transferable by the Optionee other than by
will or by the laws of descent and distribution. An Option may be exercised
during the lifetime of the Optionee only by him or by his guardian or legal
representative. No Option or interest therein may be transferred, assigned,
pledged or hypothecated by the Optionee during his lifetime, whether by
operation of law or otherwise, or be made subject to execution, attachment or
similar process.
(g) EXERCISE OF OPTIONS ON TERMINATION OF SERVICE. Each Option shall
set forth the extent to which the Optionee shall have the right to exercise the
Option following termination of the Optionee's Service with the Company and its
Subsidiaries. Such provisions shall be determined in the sole discretion of the
Committee, need not be uniform among all Options issued pursuant to the Plan,
and may reflect distinctions based on the reasons for termination of employment.
-6-
<PAGE>
(h) NO RIGHTS AS A SHAREHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by an Option until the date of the issuance of a stock certificate for
such Shares.
(i) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Committee may modify, extend or assume outstanding
Options or may accept the cancellation of outstanding Options (whether granted
by the Company or another issuer) in return for the grant of new Options for the
same or a different number of Shares and at the same or a different Exercise
Price or for other consideration.
(j) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares issued upon
exercise of an Option shall be subject to such rights of repurchase, rights of
first refusal and other transfer restrictions as the Committee may determine.
Such restrictions shall be set forth in the applicable Stock Option Agreement
and shall apply in addition to any restrictions that may apply to holders of
Shares generally.
SECTION 7. PAYMENT FOR SHARES.
- ------------------------------
(a) GENERAL RULE. The entire Exercise Price of Shares issued under the
Plan shall be payable in lawful money of the United States of America at the
time when such Shares are purchased, except as provided in Subsections (b) and
(c) below.
(b) SURRENDER OF STOCK. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part with Shares which have already been
owned by the Optionee or the Optionee's representative for any time period
specified by the Committee and which are surrendered to the Company in good form
for transfer. Such Shares shall be valued at their Fair Market Value on the date
when the new Shares are purchased under the Plan.
-7-
<PAGE>
(c) CASHLESS EXERCISE. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part by delivery (on a form prescribed
by the Committee) of an irrevocable direction to a securities broker to sell
Shares and to deliver all or part of the sale proceeds to the Company in payment
of the aggregate Exercise Price.
SECTION 8. ADJUSTMENT OF SHARES.
- --------------------------------
(a) GENERAL. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Stock into a lesser
number of Shares, a recapitalization, a reclassification or a similar
occurrence, the Committee shall make appropriate adjustments in one or more of
(i) the number of Shares available for future grants under Section 5, (ii) the
number of Shares covered by each outstanding Option or (iii) the Exercise Price
under each outstanding Option.
(b) REORGANIZATIONS. In the event that the Company is a party to a
merger or reorganization, outstanding Options shall be subject to the agreement
of merger or reorganization.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 8, an
Optionee shall have no rights by reason of (i) any subdivision or consolidation
of shares of stock of any class, (ii) the payment of any dividend or (iii) any
other increase or decrease in the number of shares of stock of any class. Any
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Shares
subject to an Option. The grant of an Option pursuant to the Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its
-8-
<PAGE>
capital or business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
SECTION 9. LEGAL REQUIREMENTS.
- ------------------------------
Shares shall not be issued under the Plan unless the issuance and
delivery of such Shares complies with (or is exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange on which the
Company's securities may then be listed.
SECTION 10. NO EMPLOYMENT RIGHTS.
- ---------------------------------
No provision of the Plan, nor any Option granted under the Plan, shall
be construed to give any person any right to become, to be treated as, or to
remain an Employee. The Company and its Subsidiaries reserve the right to
terminate any person's Service at any time and for any reason.
SECTION 11. DURATION AND AMENDMENTS.
- ------------------------------------
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors. The Plan shall
terminate automatically ten (10) years after its initial effective date of the
Plan, and may be terminated on any earlier date pursuant to Subsection (b)
below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may
amend, suspend or terminate the Plan at any time and from time to time. Rights
and obligations under any Option granted before amendment of the Plan shall not
be materially altered, or impaired
-9-
<PAGE>
adversely, by such amendment, except with consent of the person to whom the
Option was granted. An amendment of the Plan shall be subject to the approval of
the Company's stockholders only to the extent required by applicable laws,
regulations or rules.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Option previously granted under the
Plan.
SECTION 12. EXECUTION.
- ----------------------
To record the adoption of the Plan by the Board of Directors, the
Company has caused its authorized officer to execute the same as of December 11,
1997.
McCLATCHY NEWSPAPERS, INC.
By /s/ KAROLE MORGAN-PRAGER
-------------------------------
As Its Secretary
---------------------------
-10-
THE MCCLATCHY COMPANY
1990 DIRECTORS' STOCK OPTION PLAN
(As Amended and Restated March 19, 1998)
SECTION 1. ESTABLISHMENT AND PURPOSE.
The Plan was established in 1990. It offers the Nonemployee Directors
of the Corporation an opportunity to acquire a proprietary interest in the
success of the Corporation, or to increase such interest, by purchasing Shares
of the Corporation's Class A Common Stock. To achieve this purpose, the Plan
provides for the grant of Nonstatutory Options to purchase such Shares.
SECTION 2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the
Corporation, as constituted from time to time.
(b) "CODE" shall mean the Internal Revenue Code of
1986, as amended.
(c) "COMMITTEE" shall mean the Compensation Committee
of the Board.
(d) "CORPORATION" shall mean the McClatchy Company, a
Delaware corporation.
(e) "EXERCISE PRICE" shall mean the amount for which
one Share may be purchased upon exercise of an Option, as
specified in the applicable Stock Option Agreement.
(f) "FAIR MARKET VALUE" shall mean the market price of
a Share, determined by the Board as follows:
(i) If the Share was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite-transactions report for such
date;
(ii) If the Share was traded over-the-counter on the date in
question and was classified as a national market issue, then the Fair
Market Value shall be equal to the last-transaction price quoted by the
NASDAQ system for such date;
(iii) If the Share was traded over-the-counter on the date in
question but was not classified as a national market issue, then the
Fair Market Value shall be equal to the mean between the last reported
representative bid and
-1-
<PAGE>
asked prices quoted by the NASDAQ system for such date; and
(iv) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Board in good faith on
such basis as it deems appropriate.
(g) "NONEMPLOYEE DIRECTOR" shall mean a member of the Board who is not
an employee (within the meaning of section 3401(c) of the Code and the
regulations thereunder) of the Corporation or of a subsidiary of the
Corporation.
(h) "NONSTATUTORY OPTION" shall mean a stock option not described in
section 422(b) of the Code.
(i) "OPTION" shall mean a Nonstatutory Option granted under the Plan
and entitling the holder to purchase Shares.
(j) "OPTIONEE" shall mean an individual who holds an Option.
(k) "PLAN" shall mean this McClatchy Company 1990 Directors' Stock
Option Plan, as it may be amended from time to time.
(l) "SERVICE" shall mean service as a member of the Board, whether or
not as a Nonemployee Director.
(m) "SHARE" shall mean one share of Stock, as adjusted in accordance
with Section 7 (if applicable).
(n) "STOCK" shall mean, prior to March 19, 1998, the Class A Common
Stock of McClatchy Newspapers, Inc. Effective March 19, 1998, "Stock" shall mean
the Class A Common Stock of the Corporation.
(o) "STOCK OPTION AGREEMENT" shall mean the agreement between the
Corporation and an Optionee which contains the terms, conditions and
restrictions pertaining to his or her Option.
(p) "TOTAL AND PERMANENT DISABILITY" shall mean that the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which has lasted, or can be expected
to last, for a continuous period of not less than six months or which can be
expected to result in death.
SECTION 3. ADMINISTRATION.
(a) PLAN ADMINISTRATOR. The Plan shall be admini- stered by the Board.
The Board may act on the recommendation of the Committee, which consists of one
or more members of the Board.
-2-
<PAGE>
(b) BOARD RESPONSIBILITIES. Subject to the provisions of the Plan, the
Board shall have full authority and discretion to take the following actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms
relating to the Plan;
(iii) To authorize any person to execute, on behalf of the
Corporation, any instrument required to carry out the purposes of the
Plan;
(iv) To grant Options in accordance with the terms of the Plan;
and
(v) To take any other actions deemed necessary or advisable for
the administration of the Plan.
All decisions, interpretations and other actions of the Board shall be final and
binding on all Optionees and all other persons deriving their rights from an
Optionee. No member of the Board shall be liable for any action that he or she
has taken or has failed to take in good faith with respect to the Plan or any
Option.
SECTION 4. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. Shares offered under the Plan shall be treasury
Shares or authorized but unissued Shares. The aggregate number of Shares that
may be issued under the Plan shall not exceed 187,500 Shares, subject to
adjustment pursuant to Section 7. The number of Shares that are subject to
Options at any time shall not exceed the number of Shares that then remain
available for issuance under the Plan. The Corporation, during the term of the
Plan, shall at all times reserve and keep available sufficient Shares to satisfy
the purposes of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option for any
reason expires or is canceled or otherwise terminated, the Shares allocable to
the unexercised portion of such Option shall again be available for the purposes
of the Plan.
SECTION 5. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option shall be evidenced
by a Stock Option Agreement between the Optionee and the Corporation. Such
Option shall be subject to all applicable terms and conditions of the Plan and
may be subject to any other terms and conditions that are not inconsis-
-3-
<PAGE>
tent with the Plan and that the Board deems appropriate for inclusion in a Stock
Option Agreement.
(b) ELIGIBILITY AND TIME OF GRANT. Only Nonemployee Directors shall be
eligible for the grant of Options. As of the conclusion of each regular annual
meeting of the Corporation's stockholders, each individual who then is a
Nonemployee Director shall receive an Option. (An individual whose service as a
Nonemployee Director ends at a regular annual meeting of the Corporation's
stockholders shall not receive an Option at such annual meeting.)
(c) NUMBER OF SHARES AND TAX STATUS. Each Option shall cover 2,500
Shares. Such number shall be subject to adjustment in accordance with Section 7.
All Options shall be Nonstatutory Options.
(d) EXERCISE PRICE. The Exercise Price under each Option shall be equal
to 100% of the Fair Market Value of the Shares subject to such Option on the
date when such Option is granted. The entire Exercise Price of Shares issued
under the Plan shall be payable in cash when such Shares are purchased, except
as follows:
(i) Payment may be made with Shares that have already been owned
by the Optionee for more than 12 months and that are surrendered to the
Corporation in good form for transfer. Such Shares shall be valued at
their Fair Market Value when the new Shares are purchased under the
Plan.
(ii) Payment may be made by delivery (on a form prescribed by the
Corporation) of an irrevocable direction to a securities broker
approved by the Corporation to sell Shares subject to the Option and to
deliver all or part of the sale proceeds to the Corporation in payment
of all or part of the Exercise Price and any withholding taxes.
(e) VESTING. Each Option shall become exercisable in four annual
installments in accordance with the following schedule:
<TABLE>
<CAPTION>
NUMBER OF SHARES FOR
DATE WHICH OPTION IS EXERCISABLE
<S> <C>
March 1 of first year after date of grant 625
March 1 of second year after date of grant 1,250
March 1 of third year after date of grant 1,875
March 1 of fourth year after date of grant 2,500
</TABLE>
In addition, each Option shall become exercisable in full in the event that the
Optionee's Service terminates not less than six months after such Option was
granted because of death, Total and Permanent Disability or retirement after
attaining age 65.
-4-
<PAGE>
(f) TERM OF OPTIONS. Subject to Subsections (g) and (h) below, each
Option shall expire on the 10th anniversary of the date when such Option was
granted.
(g) TERMINATION OF SERVICE (EXCEPT BY DEATH). If an Optionee's Service
terminates for any reason other than death, then his or her Option(s) shall
expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (f)
above;
(ii) The date 90 days after the termination of the Optionee's
Service, if the termination occurs by reason of retirement after the
Optionee attained age 65;
(iii) The date one year after the termination of the Optionee's
Service, if the termination occurs because of his or her Total and
Permanent Disability; or
(iv) The date 30 days after the termination of the Optionee's
Service, if the termination is not described in Paragraphs (ii) or
(iii) above.
Notwithstanding the above, the Board may grant alternative expiration periods in
any applicable Stock Option Agreement, so long as such alternative periods do
not exceed 10 years from the date of grant as set forth in Subsection (f) above.
The Optionee may exercise all or part of his or her Option(s) at any time before
the expiration of such Option(s) under the preceding sentence, but only to the
extent that such Option(s) had become exercisable before his or her Service
terminated or became exercisable as a result of the termination. The balance of
such Option(s) shall lapse when the Optionee's Service terminates. In the event
that the Optionee dies after the termination of his or her Service but before
the expiration of his or her Option(s), all or part of such Option(s) may be
exercised (prior to expiration) by the executors or administrators of the
Optionee's estate or by any person who has acquired such Option(s) directly from
him or her by bequest, inheritance or beneficiary designation under the Plan,
but only to the extent that such Option(s) had become exercisable before his or
her Service terminated or became exercisable as a result of the termination.
(h) DEATH OF OPTIONEE. If an Optionee dies while he or she is in
Service, then his or her Option(s) shall expire on the earlier of the following
dates:
(i) The expiration date determined pursuant to Subsection (f)
above; or
(ii) The date 12 months after his or her death.
-5-
<PAGE>
All or part of the Optionee's Option(s) may be exercised at any time before the
expiration of such Option(s) under the preceding sentence by the executors or
administrators of his or her estate or by any person who has acquired such
Option(s) directly from him or her by bequest, inheritance or beneficiary
designation under the Plan.
(i) NONTRANSFERABILITY. During an Optionee's lifetime, his or her
Option(s) shall be exercisable only by him or her and shall be nontransferable.
In the event of an Optionee's death, his or her Option(s) shall not be
transferable other than by bequest, inheritance or beneficiary designation under
the Plan.
SECTION 6. MISCELLANEOUS PROVISIONS.
(a) MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Within the
limitations of the Plan, the Board may modify, extend or renew outstanding
Options or may accept the cancellation of outstanding Options (to the extent not
previously exercised) for the granting of new Options in substitution therefor.
The foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, impair his or her rights or increase his or her
obligations under such Option.
(b) NO RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustment shall be made except as provided in
Section 7.
(c) RESTRICTIONS ON ISSUANCE OF SHARES. Shares shall not be issued
under the Plan unless the issuance and delivery of such Shares complies with (or
is exempt from) all applicable requirements of law, including (without
limitation) the Securities Act of 1933, as amended, the rules and regulations
promulgated thereunder, state securities laws and regulations, and the
regulations of any stock exchange on which the Corporation's securities may then
be listed.
(d) NO RETENTION RIGHTS. No provision of the Plan, nor any Option
granted under the Plan, shall be construed as giving any person the right to
become or to be treated as a Nonemployee Director or to remain a Nonemployee
Director.
SECTION 7. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of a dividend payable
in cash in an amount that has a material effect on the price of Shares, a
combination or consolidation of the outstanding Stock (by reclassification or
otherwise) into a lesser number of Shares, or a similar occurrence, the Board
shall make appropriate adjustments in one
-6-
<PAGE>
or more of (i) the number of Options available for future grants under Section
4, (ii) the number of Shares to be covered by each new Option under Section
5(c), (iii) the number of Shares covered by each outstanding Option or (iv) the
Exercise Price under each outstanding Option.
(b) REORGANIZATIONS. In the event that the Corporation is a party to a
merger or other reorganization, outstanding Options shall be subject to the
agreement of merger or reorganization. Such agreement may provide, without
limitation, for the assumption of outstanding Options by the surviving
corporation or its parent, for their continuation by the Corporation (if the
Corporation is a surviving corporation) or for settlement in cash.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 7, an
Optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class. Any issue by
the Corporation of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Shares
subject to an Option. The grant of an Option pursuant to the Plan shall not
affect in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
SECTION 8. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, became effective
on July 25, 1990. The Plan shall terminate automatically on July 24, 2000, and
may be terminated on any earlier date pursuant to Subsection (b) below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board may amend, suspend
or terminate the Plan at any time and for any reason.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Option previously granted under the
Plan.
-7-
<PAGE>
SECTION 9. EXECUTION.
To record the adoption of the Plan by the Board on March 19, 1998, the
Corporation has caused its authorized officer to execute the same.
THE McCLATCHY COMPANY
By /s/ Karole Morgan-Prager
-------------------------------------
As Its Corporate Secretary
---------------------------------
-8-
Subsidiaries of The McClatchy Company
McClatchy Newspapers, Inc., a Delaware corporation
The Star Tribune Company (formerly Cowles Media Company), a Delaware
corporation
The News and Observer Publishing Company, a North Carolina corporation
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-21704, No. 33-24096, No. 33-37300, No. 33-65104, No. 33-56717, and No.
333-42903 of McClatchy Newspapers, Inc. on Form S-8 and in Registration
Statement No. 333-46501 of MNI Newco, Inc. on Form S-4 of our report dated
February 20, 1998, appearing in this Annual Report on Form 10-K of The McClatchy
Company for the year ended December 31, 1997.
/s/ DELOITTE & TOUCHE LLP
Sacramento, California
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from SEC filing Form 10-K
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> $8,671
<SECURITIES> 0
<RECEIVABLES> 97,374
<ALLOWANCES> 2,162
<INVENTORY> 7,758
<CURRENT-ASSETS> 122,795
<PP&E> 571,422
<DEPRECIATION> 246,236
<TOTAL-ASSETS> 853,781
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 641,950
<TOTAL-REVENUES> 641,950
<CGS> 0
<TOTAL-COSTS> 526,195
<OTHER-EXPENSES> (9,203)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,698
<INCOME-PRETAX> 116,260
<INCOME-TAX> 47,461
<INCOME-CONTINUING> 68,799
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $68,799
<EPS-PRIMARY> $1.81
<EPS-DILUTED> $1.80
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from SEC filing Form 10-Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> $7,323
<SECURITIES> 0
<RECEIVABLES> 76,442
<ALLOWANCES> 2,264
<INVENTORY> 7,670
<CURRENT-ASSETS> 103,760
<PP&E> 568,460
<DEPRECIATION> 231,031
<TOTAL-ASSETS> 857,988
<CURRENT-LIABILITIES> 97,471
<BONDS> 0
0
0
<COMMON> 378
<OTHER-SE> 516,423
<TOTAL-LIABILITY-AND-EQUITY> 857,988
<SALES> 150,621
<TOTAL-REVENUES> 150,621
<CGS> 0
<TOTAL-COSTS> 127,831
<OTHER-EXPENSES> (6,297)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,668
<INCOME-PRETAX> 26,419
<INCOME-TAX> 11,062
<INCOME-CONTINUING> 15,357
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $15,537
<EPS-PRIMARY> $0.41
<EPS-DILUTED> $0.40
</TABLE>
