As filed with the Securities and Exchange Commission on February 18, 1998
Registration No. 333-42903
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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MNI NEWCO, INC.
(Exact name of registrant as specified in its charter)
Delaware 2711 522080478
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
2100 "Q" Street, Sacramento, California 95816, (916) 321-1846
(Address, including ZIP Code, and telephone number, including area code, of
registrant's principal executive offices)
-------------------
Karole Morgan-Prager
General Counsel and Corporate Secretary
McClatchy Newspapers, Inc.
2100 "Q" Street
Sacramento, CA 95816
(916) 321-1828
(Name, address, including ZIP Code, and telephone number, including area
code, of agent for service)
Copies to:
Nathaniel M. Cartmell III Arthur Fleischer, Jr. William R. Busch, Jr.
Katharine A. Martin Jeffrey Bagner Laura S. Carlson
Pillsbury Madison & Sutro LLP Fried, Frank, Harris, Faegre & Benson LLP
2550 Hanover Street Shriver & Jacobson 2200 Norwest Center
Palo Alto, CA 94304 One New York Plaza 90 S. 7th Street
(650) 233-4500 New York, NY 10004 Minneapolis, MN 55402
(212) 859-8000 (612) 336-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective and certain other conditions under the Agreement and Plan of Merger
and Reorganization (described in the Joint Proxy Statement/Prospectus included
herein) are satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
-------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
-------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
=============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE(2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, par value $0.01 per share 20,182,049 $27.4063 $553,115,289.51 $163,169.02(3)
- -----------------------------------------------------------------------------------------------------------------------------
Class B Common Stock, par value $0.01 per share 28,675,912 $27.4063 $785,900,647.05 $231,840.70(3)
=============================================================================================================================
<FN>
(1) Based upon the approximate maximum number of shares of Class A Common
Stock and Class B Common Stock of the Registrant to be issued in
connection with the transactions described herein. This Registration
Statement also relates to an indeterminable number of shares of the
Registrant's Class A Common Stock issuable upon conversion of the
Registrant's Class B Common Stock.
(2) Estimated solely for the purpose of determining the amount of the
registration fee in accordance with Rule 457(f) under the Securities
Act of 1933, as amended. The proposed maximum aggregate offering price
of the Class A Common Stock and Class B Common Stock is based upon the
product of (i) $27.4063 (the average of the high and low prices of
McClatchy Newspapers, Inc. ("McClatchy") Class A Common Stock on
February 17, 1998 as reported on the New York Stock Exchange (the
"NYSE") Composite Transactions Tape) multiplied by (ii) 48,857,961 (the
sum of (A) the approximate total number of shares of McClatchy Class A
Common Stock outstanding on such date, (B) the approximate total number
of shares of McClatchy Class B Common Stock outstanding on such date
and (C) the maximum number of shares of the Registrant's Class A Common
Stock issuable to holders of shares of Cowles Media Company ("Cowles")
Voting Common Stock, Cowles Non-voting Common Stock and Cowles
Converted Stock Units (as defined herein) pursuant to the transactions
described herein). The proposed maximum offering price per share for
both Class A Common Stock and Class B Common Stock is based upon the
proposed maximum aggregate offering price divided by the amount to be
registered.
(3) A filing fee of $280,897.00 was previously paid by McClatchy pursuant
to section 14(g) of the Securities Exchange Act of 1934, as amended, in
connection with the filing of the preliminary Joint Proxy
Statement/Prospectus on December 15, 1997. Pursuant to Rule 457(b)
under the Securities Act of 1933, as amended, such fee is being
credited against the registration fee, and accordingly, only
$114,113 of the total filing fee is being paid by the Registrant
herewith in connection with this registration statement.
</FN>
</TABLE>
--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
MCCLATCHY NEWSPAPERS, INC.
2100 "Q" Street
Sacramento, California 95816
(916) 321-1846
To the Stockholders of McClatchy Newspapers, Inc.:
You are cordially invited to attend a Special Meeting of the
stockholders of McClatchy Newspapers, Inc. ("McClatchy") to be held at the
Sacramento Convention Center Activity Building, 13th and K Streets, Room 202,
Sacramento, California, on March 19, 1998, at 9:00 a.m., local time.
At the Special Meeting, you will be asked to consider and vote on a
proposal to approve and adopt a Reorganization Agreement between McClatchy and
Cowles Media Company ("Cowles"), pursuant to which (i) a new holding company to
be renamed The McClatchy Company will be established, (ii) each outstanding
share of McClatchy Class A Common Stock and McClatchy Class B Common Stock will
be converted into shares of Class A Common Stock and Class B Common Stock,
respectively, of the new holding company, having substantially identical rights
to the existing shares (subject to the right of holders of McClatchy Class B
Common Stock to exercise appraisal rights), and (iii) each outstanding share of
Cowles common stock will be converted into cash or shares of Class A Common
Stock of the new holding company. DETAILED INFORMATION CONCERNING THE
REORGANIZATION AGREEMENT, THE MCCLATCHY MERGER AND THE COWLES MERGER IS SET
FORTH IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS, WHICH YOU ARE URGED
TO READ CAREFULLY. A COPY OF THE REORGANIZATION AGREEMENT IS ATTACHED AS ANNEX A
TO THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS.
The approval and adoption of the Reorganization requires the
affirmative vote of a majority in voting interest of the outstanding shares of
McClatchy Class A Common Stock and McClatchy Class B Common Stock held by
stockholders of record on January 26, 1998 (the "Record Date"). Holders of
shares representing approximately 70% of the total voting power of McClatchy
Common Stock have agreed to vote their shares in favor of the Reorganization.
Although these stockholders have sufficient voting power to approve and adopt
the Reorganization Agreement, your Board of Directors nevertheless believes that
your representation at the Special Meeting is important and urges you to vote
your shares of McClatchy Common Stock.
The stockholders of Cowles are also being asked to approve and adopt
the Reorganization Agreement. Holders of shares representing approximately 56%
of the total voting power of Cowles have agreed to vote to approve and adopt the
Reorganization Agreement.
Subject to the satisfaction of certain conditions, holders of McClatchy
Class B Common Stock will be entitled to the appraisal rights provided under
Delaware law in connection with the McClatchy Merger as described in the
accompanying Joint Proxy Statement/Prospectus.
Your Board of Directors, after careful consideration, has unanimously
approved the Reorganization Agreement and the transactions contemplated thereby
and has determined that the Reorganization is fair to and in the best interests
of McClatchy and its stockholders and recommends that you vote FOR approval and
adoption of the Reorganization Agreement and the transactions contemplated
thereby.
IT IS VERY IMPORTANT THAT YOUR SHARES OF McCLATCHY COMMON STOCK BE
REPRESENTED AT THE SPECIAL MEETING, WHETHER OR NOT YOU PLAN TO ATTEND
PERSONALLY. THEREFORE, YOU SHOULD COMPLETE AND SIGN THE ENCLOSED PROXY AND
RETURN IT AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL
ENSURE THAT YOUR SHARES ARE REPRESENTED AND VOTED AT THE SPECIAL MEETING.
HOLDERS OF McCLATCHY COMMON STOCK SHOULD NOT SEND ANY McCLATCHY COMMON
STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
THE NOTICE OF SPECIAL MEETING OF STOCKHOLDERS AND THE JOINT PROXY
STATEMENT/PROSPECTUS DESCRIBING THESE IMPORTANT MATTERS ARE ATTACHED. If you
require assistance in completing your proxy or have questions about voting
procedures or the Joint Proxy Statement/Prospectus, please contact Karole
Morgan-Prager, McClatchy's General Counsel and Corporate Secretary, at (916)
321-1828 or Georgeson & Company Inc., McClatchy's proxy solicitor, at (800)
223-2064 or (212) 440-9800.
February 17, 1998
Sincerely,
/s/ Gary Pruitt /s/ Erwin Potts
Gary B. Pruitt Erwin Potts
President and Chief Executive Officer Chairman of the Board
<PAGE>
MCCLATCHY NEWSPAPERS, INC.
2100 "Q" Street
Sacramento, California 95816
(916) 321-1846
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 19, 1998
To the Stockholders of McClatchy Newspapers, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the stockholders of
McClatchy Newspapers, Inc., a Delaware corporation ("McClatchy"), will begin at
9:00 a.m., local time, at the Sacramento Convention Center Activity Building,
13th and K Streets, Room 202, Sacramento, California, on March 19, 1998, for the
following purposes:
To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger and Reorganization, dated as of November 13, 1997 and amended
and restated as of February 13, 1998 (the "Reorganization Agreement") between
(among others) McClatchy and Cowles Media Company, a Delaware corporation
("Cowles"), and the transactions contemplated thereby (the "Reorganization"). In
connection with the Reorganization, (i) MNI Newco, Inc., a Delaware corporation
and newly formed holding company ("New McClatchy"), will be renamed "The
McClatchy Company," (ii) McClatchy will be merged (the "McClatchy Merger") with
a wholly owned subsidiary of New McClatchy and each outstanding share of
McClatchy Class A Common Stock and Class B Common Stock will be converted into
shares of New McClatchy Class A Common Stock and Class B Common Stock (subject
to the right of holders of McClatchy Class B Common Stock to exercise appraisal
rights), and (iii) Cowles will be merged with another wholly owned subsidiary of
New McClatchy and, subject to certain exceptions, each outstanding share of
Cowles common stock will be converted into $90.50 in cash, shares of New
McClatchy Class A Common Stock (based upon an exchange ratio set forth in the
Reorganization Agreement) or a combination of cash and New McClatchy Class A
Common Stock. As a result of the Reorganization, McClatchy and Cowles will
become wholly owned subsidiaries of New McClatchy. Further information on the
Reorganization Agreement and the Reorganization is set forth in the accompanying
Joint Proxy Statement/Prospectus, which is incorporated herein by reference.
The approval and adoption of the Reorganization Agreement and the
transactions contemplated thereby requires the affirmative vote of a majority in
voting interest of the outstanding shares of McClatchy Class A Common Stock and
McClatchy Class B Common Stock held by stockholders of record on January 26,
1998.
In connection with the McClatchy Merger, appraisal rights will be
available to holders of McClatchy Class B Common Stock who meet and comply with
applicable provisions of Delaware law, which are attached as Annex F to the
accompanying Joint Proxy Statement/Prospectus. Please see the section entitled
"STOCKHOLDERS' APPRAISAL RIGHTS" in the accompanying Joint Proxy
Statement/Prospectus for a discussion of procedures to be followed in asserting
appraisal rights in connection with the McClatchy Merger.
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
/s/ Karole Morgan-Prager
Sacramento, California Karole Morgan-Prager
February 17, 1998 Corporate Secretary
<PAGE>
COWLES MEDIA COMPANY
329 Portland Avenue
Minneapolis, MN 55415
(612) 673-7100
To the Stockholders of Cowles Media Company:
You are cordially invited to attend a Special Meeting of the
stockholders of Cowles Media Company to be held at the Lutheran Brotherhood
Building, 625 Fourth Avenue South, Minneapolis, Minnesota, on March 19, 1998 at
9:00 a.m. local time.
At the Special Meeting, you will be asked to vote on a proposal to
approve a Reorganization Agreement with McClatchy Newspapers, Inc., under which
Cowles will be merged with a subsidiary of a new holding company ("New
McClatchy") and will become a wholly owned subsidiary of New McClatchy. In the
merger, each share of Cowles common stock will be converted (based on elections
by stockholders) into the right to receive (i) $90.50 in cash; (ii) between
2.68820 and 3.01667 shares of New McClatchy Class A Common Stock (depending on
the market price of McClatchy Class A Common Stock shortly before the closing of
the merger); or (iii) a combination of cash and New McClatchy Class A Common
Stock. Because the McClatchy Class A Common Stock issued in the merger must be
at least 15% (but not more than 25%) of the total consideration received by
stockholders in the merger, stockholders may receive prorated amounts of cash
and New McClatchy Class A Common Stock that are different from their elections.
DETAILED INFORMATION CONCERNING THE REORGANIZATION AGREEMENT, THE MERGER,
ELECTIONS BY STOCKHOLDERS AND PRORATED AMOUNTS IS SET FORTH IN THE ACCOMPANYING
JOINT PROXY STATEMENT/PROSPECTUS, WHICH YOU ARE URGED TO READ CAREFULLY.
Approval of the Reorganization Agreement requires the affirmative vote
of a majority of the outstanding shares of Cowles voting common stock held by
stockholders of record on February 16, 1998. (Only holders of Cowles voting
common stock are entitled to vote at the Special Meeting.) Holders of
approximately 56% of the outstanding shares of Cowles voting common stock have
agreed to vote FOR the Reorganization Agreement. Although these holders have
sufficient voting power to approve the Reorganization Agreement, your Board of
Directors believes that your representation at the Special Meeting is important.
After careful consideration, your Board of Directors has approved the
Reorganization Agreement, and has determined that it is fair to and in the best
interests of Cowles and its stockholders and recommends that you vote FOR
approval of the Reorganization Agreement. The Board's actions regarding the
Reorganization Agreement were taken at a meeting attended by eight of the nine
directors. All directors present voted in favor of the Reorganization Agreement.
Stockholders of McClatchy are also being asked to approve the
Reorganization Agreement. Holders of shares representing approximately 70% of
the total voting power of McClatchy have agreed to vote to approve and adopt the
Reorganization Agreement.
THE NOTICE OF SPECIAL MEETING OF STOCKHOLDERS AND THE JOINT PROXY
STATEMENT/PROSPECTUS DESCRIBING THESE IMPORTANT MATTERS ARE ATTACHED. If you
require assistance in completing your proxy or have questions about voting
procedures, electing to receive cash or shares of New McClatchy Class A Common
Stock or the Joint Proxy Statement/Prospectus, please contact William R. Busch,
Jr., General Counsel and Secretary, at (612) 673-7002, Georgeson & Company Inc.,
our proxy solicitor, at (800) 223-2064 or (212) 440-9800, or Sherburne &
Coughlin, Ltd., our transfer agent, at (612) 338-3255. WE URGE EACH HOLDER OF
SHARES OF COWLES VOTING COMMON STOCK TO COMPLETE AND SIGN THE ENCLOSED PROXY AND
RETURN IT AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID PROXY ENVELOPE.
We appreciate your support and confidence over the years.
February 17, 1998
Sincerely,
/s/ David C. Cox
David C. Cox
President and Chief Executive Officer
/s/ John Cowles III
John Cowles III
Chairman of the Board
<PAGE>
COWLES MEDIA COMPANY
329 Portland Avenue
Minneapolis, MN 55415
(612) 673-7100
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 19, 1998
To the Stockholders of Cowles Media Company:
NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders of Cowles
Media Company, a Delaware corporation ("Cowles"), will be held at 9:00 a.m.,
local time, at the Lutheran Brotherhood Building, 625 Fourth Avenue South,
Minneapolis, Minnesota, on March 19, 1998, for the following purposes:
To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger and Reorganization, dated as of November 13, 1997 and amended
and restated as of February 13, 1998 (the "Reorganization Agreement") between
(among others) Cowles and McClatchy Newspapers, Inc., a Delaware corporation
("McClatchy"), and the transactions contemplated thereby (the "Reorganization").
The Reorganization includes a merger (the "Cowles Merger") by which Cowles will
be merged with a wholly owned subsidiary of a newly formed holding company ("New
McClatchy") and will become a wholly owned subsidiary of New McClatchy. Subject
to appraisal rights discussed below and certain other exceptions, each share of
common stock of Cowles ("Cowles Common Stock") outstanding at the time of the
Cowles Merger will be converted into the right to receive, based on elections
made on the Form of Election accompanying this notice, (i) $90.50 in cash; or
(ii) between 2.68820 and 3.01667 shares of New McClatchy Class A Common Stock
(depending on the market price of McClatchy Class A Common Stock during a
specified period prior to the Cowles Merger); or (iii) a combination of cash and
New McClatchy Class A Common Stock.
The value of the McClatchy Class A Common Stock issued in the Cowles
Merger must be at least 15%, but not more than 25%, of the total consideration
received by Cowles stockholders in the Cowles Merger. Therefore, Cowles
stockholders may receive prorated amounts of cash and New McClatchy Class A
Common Stock that are different from the amounts elected by such stockholders in
their respective Forms of Election.
As a result of the Reorganization, each of Cowles and McClatchy will
become a wholly owned subsidiary of New McClatchy. The accompanying Joint Proxy
Statement/Prospectus, which is incorporated herein by reference, includes
additional information regarding the Reorganization Agreement, the
Reorganization, the Cowles Merger, the cash and stock elections to be made by
Cowles stockholders pursuant to the Form of Election, and the possible proration
of amounts of cash and New McClatchy Class A Stock to be received in the Cowles
Merger.
Approval and adoption of the Reorganization Agreement and the
transactions contemplated thereby requires the affirmative vote of a majority of
the outstanding shares of Cowles Common Stock having voting rights ("Cowles
Voting Common Stock") held by stockholders of record on February 16, 1998. Only
holders of Cowles Voting Common Stock are entitled to vote at the Special
Meeting.
In connection with the Cowles Merger, appraisal rights will be
available to holders of Cowles Common Stock who meet and comply with all
applicable provisions of Delaware law, copies of which are attached as Annex F
to the accompanying Joint Proxy Statement/Prospectus. Please see the section
entitled "STOCKHOLDERS' APPRAISAL RIGHTS" in the Joint Proxy
Statement/Prospectus for a discussion of procedures to be followed to exercise
appraisal rights in connection with the Cowles Merger.
IF YOU HOLD COWLES VOTING COMMON STOCK, PLEASE SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID PROXY
ENVELOPE. PLEASE SEND IN ALL OF YOUR COWLES STOCK CERTIFICATES--BOTH VOTING AND
NON-VOTING--WITH YOUR FORM OF ELECTION IN THE ENCLOSED ELECTION ENVELOPE.
/s/ W. R. Busch
Minneapolis, Minnesota William R. Busch, Jr.
February 17, 1998 Secretary
<PAGE>
JOINT PROXY STATEMENT
FOR SPECIAL MEETINGS
OF THE STOCKHOLDERS OF
MCCLATCHY NEWSPAPERS, INC.
AND
COWLES MEDIA COMPANY
TO BE HELD MARCH 19, 1998
- - - - - - - - - - - - - - - - - - - - - - - - -
PROSPECTUS OF MNI NEWCO, INC.
This Joint Proxy Statement/Prospectus is being furnished to the holders
of the outstanding shares of common stock of McClatchy Newspapers, Inc., a
Delaware corporation ("McClatchy"), in connection with the solicitation of
proxies by the Board of Directors of McClatchy (the "McClatchy Board") for use
at the special meeting of stockholders of McClatchy to be held on March 19, 1998
(the "McClatchy Special Meeting"), and to holders of the outstanding shares of
common stock of Cowles Media Company, a Delaware corporation ("Cowles"), in
connection with the solicitation of proxies by the Board of Directors of Cowles
(the "Cowles Board") for use at the special meeting of stockholders of Cowles to
be held on March 19, 1998 (the "Cowles Special Meeting," and together with the
McClatchy Special Meeting, the "Special Meetings").
The McClatchy Special Meeting has been called to consider and vote upon
a proposal (the "McClatchy Proposal") to approve the Agreement and Plan of
Merger and Reorganization, dated as of November 13, 1997 and amended and
restated as of February 13, 1998, by and among McClatchy, Cowles, New McClatchy
(as defined herein), MNI Merger Sub (as defined herein) and CMC Merger Sub (as
defined herein) (the "Reorganization Agreement") and the transactions
contemplated thereby (the "Reorganization"). In connection with the
Reorganization, (i) MNI Newco, Inc., a Delaware corporation and newly formed
holding company ("New McClatchy"), will be renamed "The McClatchy Company;" (ii)
McClatchy will be merged (the "McClatchy Merger") with MNI Mergerco, Inc., a
Delaware corporation and wholly owned subsidiary of New McClatchy ("MNI Merger
Sub") and each outstanding share of McClatchy Class A common stock, par value
$0.01 per share (the "McClatchy Class A Common Stock"), and Class B common
stock, par value $0.01 per share (the "McClatchy Class B Common Stock," and
together with the McClatchy Class A Common Stock, the "McClatchy Common Stock")
will be converted, respectively, into shares of New McClatchy Class A common
stock, par value $0.01 per share (the "New McClatchy Class A Common Stock") and
New McClatchy Class B common stock, par value $0.01 per share (the "New
McClatchy Class B Common Stock," and together with the New McClatchy Class A
Common Stock, the "New McClatchy Common Stock") (subject to the right of holders
of McClatchy Class B Common Stock to exercise appraisal rights); and (iii)
Cowles will be merged with CMC Mergerco, Inc., a Delaware corporation and wholly
owned subsidiary of New McClatchy ("CMC Merger Sub") and, subject to the right
of holders of Cowles Common Stock to exercise appraisal rights, each outstanding
share of Cowles common stock will be converted into $90.50 in cash, shares of
New McClatchy Class A Common Stock (based upon an exchange ratio described
herein and set forth in the Reorganization Agreement) or a combination of cash
and New McClatchy Class A Common Stock.
The Cowles Special Meeting has been called to consider and vote on a
proposal (the "Cowles Proposal") to approve and adopt the Reorganization
Agreement and the transactions contemplated thereby, including, among other
things, that CMC Merger Sub will merge with and into Cowles (the "Cowles
Merger," and together with the McClatchy Merger, the "Mergers") and Cowles will
continue as the surviving corporation (sometimes referred to herein as the
"Cowles Surviving Corporation").
SEE "RISK FACTORS" BEGINNING ON PAGE 23 HEREOF FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF COWLES COMMON STOCK IN
CONNECTION WITH AN ELECTION TO RECEIVE NEW McCLATCHY COMMON STOCK OR BY HOLDERS
OF McCLATCHY COMMON STOCK IN CONNECTION WITH THEIR VOTING ON THE McCLATCHY
PROPOSAL.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY
STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is February 19, 1998.
<PAGE>
As a result of the Reorganization, each of McClatchy and Cowles will
become a separate wholly owned subsidiary of New McClatchy. A copy of the
Reorganization Agreement is attached as Annex A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. The description of
the material portions of the Reorganization Agreement set forth herein is
subject to, and is qualified in its entirety by reference to, the text of the
Reorganization Agreement.
This Joint Proxy Statement/Prospectus also serves as a prospectus of
New McClatchy with respect to the shares of New McClatchy Class A Common Stock
and the shares of New McClatchy Class B Common Stock to be issued in the
Reorganization.
Pursuant to the McClatchy Merger, each share of McClatchy Class A
Common Stock and McClatchy Class B Common Stock issued and outstanding
immediately prior to the effective time of the Mergers (the "Effective Time")
(other than (i) shares of McClatchy Common Stock owned by McClatchy, Cowles, any
subsidiary of McClatchy or any subsidiary of Cowles (the "McClatchy Excluded
Shares"), which shares will be canceled, and (ii) McClatchy Dissenting Shares
(as defined herein)) will be converted into one share of New McClatchy Class A
Common Stock and one share of New McClatchy Class B Common Stock, respectively
(subject to the right of holders of McClatchy Class B Common Stock to exercise
appraisal rights). See "THE REORGANIZATION AGREEMENT--Conversion of McClatchy
Common Stock."
Pursuant to the Cowles Merger, (A) each share of Cowles voting common
stock, no par value (the "Cowles Voting Common Stock"), (B) each share of Cowles
non-voting common stock, no par value (the "Cowles Non-voting Common Stock," and
together with the Cowles Voting Common Stock, the "Cowles Common Stock"), and
(C) each Cowles Converted Stock Unit (as defined herein), issued and outstanding
immediately prior to the Effective Time (other than (i) shares of Cowles Common
Stock owned by Cowles, McClatchy, any subsidiary of Cowles or any subsidiary of
McClatchy (the "Cowles Excluded Shares"), which shares will be canceled, and
(ii) Cowles Dissenting Shares (as defined herein)) will be converted, subject to
the terms and conditions described herein and in the Reorganization Agreement,
at the election of the holder thereof, into cash in the amount of $90.50 per
share (the "Cash Election Price" and also referred to as the "Cash
Consideration" in the opinion of Cowles' financial advisor), that number of
shares of New McClatchy Class A Common Stock as equals the Exchange Ratio (as
defined herein) (the "Stock Election Price" and also referred to as the "Stock
Consideration" in the opinion of Cowles' financial advisor) or a combination of
cash and shares of New McClatchy Class A Common Stock; provided, however, that a
minimum of 6,410,518 shares (the "Minimum Shares Issuable") of New McClatchy
Class A Common Stock and up to a maximum of 10,684,197 shares (the "Maximum
Shares Issuable") of New McClatchy Class A Common Stock shall be issued to
holders of Cowles Common Stock and Cowles Converted Stock Units (based on the
number of shares of Cowles Common Stock and Cowles Converted Stock Units
outstanding at the Cowles Record Date (as defined herein), assuming an Exchange
Ratio of 3.01667 and that there are no Cowles Dissenting Shares). In certain
circumstances, elections by holders of Cowles Common Stock and Cowles Converted
Stock Units may be prorated. For a detailed description of the proration
procedures, see "THE REORGANIZATION AGREEMENT--Cowles Merger Consideration."
The approval of the McClatchy Proposal requires the affirmative vote of
a majority in voting interest of the outstanding shares of McClatchy Common
Stock held by stockholders of record on January 26, 1998 (the "McClatchy Record
Date"). Pursuant to a stockholders voting agreement, dated as of November 13,
1997 and amended and restated on November 23, 1997 (the "McClatchy Stockholders
Voting Agreement"), by and among Cowles and certain holders of McClatchy Class B
Common Stock, as set forth on Schedule A thereto (the "McClatchy Stockholders"),
the McClatchy Stockholders have agreed, among other things, to vote shares
representing approximately 70% of the total voting power of McClatchy Common
Stock in favor of the McClatchy Proposal. Although the aforementioned
stockholders have sufficient voting power to approve and adopt the McClatchy
Proposal, the McClatchy Board of Directors nevertheless believes that
representation of all shares of McClatchy Common Stock at the McClatchy Special
Meeting is important and urges all stockholders to vote their shares of
McClatchy Common Stock. A copy of the McClatchy Stockholders Voting Agreement is
attached as Annex B to this Joint Proxy Statement/Prospectus and is incorporated
herein by reference.
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The approval of the Cowles Proposal requires the affirmative vote of a
majority of the outstanding shares of Cowles Voting Common Stock held by
stockholders of record on February 16, 1998 (the "Cowles Record Date"). Pursuant
to a stockholders voting agreement, dated as of November 13, 1997 (the "Cowles
Stockholders Voting Agreement"), by and among McClatchy and certain holders of
Cowles Common Stock, as set forth on Schedule A thereto (the "Cowles
Stockholders"), the Cowles Stockholders have agreed, among other things, to vote
their shares in favor of the Cowles Proposal. Although the aforementioned
stockholders have sufficient voting power to approve and adopt the Cowles
Proposal, the Cowles Board of Directors nevertheless believes that
representation of all shares of Cowles Voting Common Stock at the Cowles Special
Meeting is important and urges all stockholders to vote their shares of Cowles
Voting Common Stock. A copy of the Cowles Stockholders Voting Agreement is
attached as Annex C to this Joint Proxy Statement/Prospectus and is incorporated
herein by reference.
In connection with the Mergers, appraisal rights may be available in
respect of shares of McClatchy Class B Common Stock, Cowles Voting Common Stock
and Cowles Non-voting Common Stock issued and outstanding immediately prior to
the Effective Time held by a stockholder who has complied with the requirements
of section 262 ("Section 262") of the Delaware General Corporation Law (the
"DGCL"), a copy of which is included as Annex F to this Joint Proxy
Statement/Prospectus. Reference is made to the section entitled "STOCKHOLDERS'
APPRAISAL RIGHTS" in this Joint Proxy Statement/Prospectus for a discussion of
the procedures to be followed in asserting appraisal rights under Section 262.
The McClatchy Class A Common Stock is listed for trading on the New
York Stock Exchange (the "NYSE") under the symbol "MNI." On February 13, 1998,
the closing price of the McClatchy Class A Common Stock was $27.8125 per share.
Based on such price, each holder of Cowles Common Stock electing to receive New
McClatchy Class A Common Stock would receive 3.01667 shares of such stock. See
"THE REORGANIZATION AGREEMENT--Cowles Merger Consideration." On November 13,
1997, the last trading day before public announcement of the execution of the
Reorganization Agreement, the closing price of McClatchy Class A Common Stock on
the NYSE Composite Transactions Tape was $32.625 per share. Assuming the Mergers
are approved by the stockholders of McClatchy and Cowles, McClatchy will have
the McClatchy Class A Common Stock delisted from the NYSE. New McClatchy has
made application to have the New McClatchy Class A Common Stock listed on the
NYSE under the symbol "MNI," subject to official notice of issuance.
This Joint Proxy Statement/Prospectus and accompanying proxy are first
being mailed to the stockholders of McClatchy and the stockholders of Cowles on
or about February 19, 1998.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. STOCKHOLDERS OF McCLATCHY AND COWLES ARE STRONGLY URGED
TO READ AND CONSIDER CAREFULLY THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS
ENTIRETY.
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION, OTHER THAN ANY INFORMATION OR REPRESENTATION CONTAINED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS, IN CONNECTION WITH THE MERGERS AND THE
SOLICITATION MADE BY THIS JOINT PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE ANY SECURITIES, IN ANY
JURISDICTION IN WHICH A SOLICITATION OR OFFERING MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER WILL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF McCLATCHY OR
COWLES SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
McClatchy (but not Cowles) is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by McClatchy with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1034, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the web site (http://www.sec.gov) maintained by the
Commission; or at its regional offices located at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Such reports, proxy statements and other information
are also available for inspection at the offices of the NYSE, 20 Broad Street,
New York, New York 10005. As described herein, the McClatchy Class A Common
Stock will be deregistered under the Exchange Act following the Reorganization
and McClatchy will no longer file reports, proxy statements or other information
with the Commission. McClatchy does not plan to provide any reports or
information to its public stockholders other than pursuant to the right to
inspect the books and records of McClatchy as required by Delaware law. Instead,
such information would be provided, to the extent required, in filings made by
New McClatchy as a successor registrant to McClatchy.
New McClatchy has filed with the Commission a registration statement
on Form S-4 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to shares of New McClatchy Common Stock that are
proposed to be issued in connection with the Reorganization to holders of
McClatchy Common Stock and to certain holders of Cowles Common Stock. This Joint
Proxy Statement/Prospectus does not contain all of the information set forth in
the Registration Statement filed by New McClatchy with the Commission, certain
portions of which are omitted in accordance with the rules and regulations of
the Commission. Such additional information is available for inspection and
copying at the offices of the Commission. Statements contained in this Joint
Proxy Statement/Prospectus or in any document incorporated into this Joint Proxy
Statement/Prospectus by reference as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference. After the
consummation of the Reorganization, New McClatchy will be subject to the
informational requirements of the Exchange Act. New McClatchy has applied to
have the shares of New McClatchy Class A Common Stock listed for trading on the
NYSE, subject to official notice of issuance.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by McClatchy with the
Commission under the Exchange Act are incorporated herein by reference: (a)
McClatchy's Annual Report on Form 10-K for the year ended December 31, 1996; (b)
biographical information for 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"; and
information contained under the headings "Compensation," "Executive
Compensation," "Stock Option Awards," "Option Exercises and Holdings," "Pension
Plans," "Employment Agreement" and "Stock Ownership" from McClatchy's Proxy
Statement for its 1997 Annual Meeting of Stockholders dated March 31, 1997; (c)
McClatchy's Quarterly Reports on Form 10-Q for the periods ended March 31, 1997,
June 30, 1997 and September 30, 1997; (d) McClatchy's Current Report on Form 8-K
dated November 13, 1997; (e) McClatchy's Current Report on Form 8-K dated
January 9, 1998; and (f) McClatchy's Current Report on Form 8-K dated January
29, 1998.
All reports and definitive proxy or information statements filed by
McClatchy or New McClatchy pursuant to sections 13(a), 13(c), 14 and 15(d) of
the Exchange Act subsequent to the date of this Joint Proxy Statement/Prospectus
and prior to the Effective Time will be deemed to be incorporated by reference
into this Joint Proxy Statement/Prospectus from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated herein by reference will be deemed to be modified or superseded for
purposes of this Joint Proxy Statement/Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated herein by reference modifies or supersedes such
statement. Any such statement so modified or superseded will not be deemed,
except as so modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
All information contained or incorporated by reference in this Joint
Proxy Statement/Prospectus relating to McClatchy has been supplied by McClatchy
or New McClatchy and all such information relating to Cowles has been supplied
by Cowles.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE
DOCUMENTS WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. A COPY OF ANY
AND ALL DOCUMENTS INCORPORATED THEREIN BY REFERENCE (EXCLUDING EXHIBITS, UNLESS
SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED THEREIN BY REFERENCE) WILL BE
PROVIDED WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
A JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON ORAL OR WRITTEN REQUEST OF
ANY SUCH PERSON BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE
BUSINESS DAY AFTER RECEIPT OF SUCH REQUEST. WITH RESPECT TO DOCUMENTS OF
MCCLATCHY OR NEW MCCLATCHY INCORPORATED HEREIN BY REFERENCE, REQUESTS SHOULD BE
DIRECTED TO MCCLATCHY NEWSPAPERS, INC., ATTN: INVESTOR RELATIONS MANAGER, P.O.
BOX 15779, SACRAMENTO, CALIFORNIA 95852 (TELEPHONE (916) 321- 1846). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE SPECIAL MEETINGS TO
WHICH THIS JOINT PROXY STATEMENT PROSPECTUS RELATES, ANY SUCH REQUEST SHOULD BE
MADE BY MARCH 12, 1998.
FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus includes "forward-looking
statements" within the meaning of various provisions of the Securities Act and
the Exchange Act. All statements included in this Joint Proxy
Statement/Prospectus that address activities, events or developments that New
McClatchy, McClatchy or Cowles expect or anticipate will or may occur in the
future, including such things as future capital expenditures (including the
amount and nature thereof), business strategy and measures to implement
strategy, competitive strengths, goals, expansion and growth of New McClatchy's
and its subsidiaries' business and operations, plans, references to future
success and other such matters are forward-looking statements. These statements
are based on certain assumptions and analyses made in light of experience and
perception of historical trends, current conditions and expected future
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developments as well as other factors it believes are appropriate in the
circumstances. However, whether actual results and developments will conform to
New McClatchy's expectations and predictions is subject to a number of risks and
uncertainties, including the significant considerations and risks discussed in
this Joint Proxy Statement/Prospectus; general economic, market or business
conditions; the opportunities (or lack thereof) that may be presented to and
pursued by New McClatchy and its subsidiaries; competitive actions by other
companies; changes in laws or regulations; increases in newsprint prices and/or
printing and distribution costs over anticipated levels; competition from other
forms of media in New McClatchy's principal markets; increased consolidation
among major retailers in New McClatchy's newspaper markets or other events
depressing the level of advertising; an economic downturn in the economies of
California's Central Valley, Washington State, Alaska, the Carolinas or
Minnesota; changes in the ability of New McClatchy to negotiate and obtain
favorable terms under collective bargaining arrangements with its employees;
other occurrences leading to decreased circulation and diminished revenues from
both display and classified advertising; and other factors, many of which are
beyond the control of New McClatchy and its subsidiaries. See "Risk Factors."
Consequently, all of the forward-looking statements made in this Joint Proxy
Statement/Prospectus are qualified by these cautionary statements and there can
be no assurance that the actual results or developments anticipated by New
McClatchy will be realized or, even if substantially realized, that they will
have the expected consequences to or effects on New McClatchy and its
subsidiaries or their business or operations.
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TABLE OF CONTENTS
-----------------
PAGE
----
AVAILABLE INFORMATION........................................................ 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................. 5
FORWARD-LOOKING STATEMENTS................................................... 5
SUMMARY ................................................................... 10
The Companies...................................................... 10
McClatchy Special Meeting.......................................... 10
Cowles Special Meeting............................................. 11
The Reorganization Agreement....................................... 12
The Reorganization................................................. 16
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF McCLATCHY................. 19
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF COWLES.................... 20
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA AND PER
SHARE DATA......................................................... 21
RISK FACTORS................................................................ 23
BUSINESS OF COWLES.......................................................... 24
Introduction....................................................... 24
Operating Strategy................................................. 25
Products and Services.............................................. 25
CEM................................................................ 26
CBM................................................................ 27
CCP................................................................ 27
BUSINESS OF NEW McCLATCHY FOLLOWING THE REORGANIZATION...................... 27
THE SPECIAL MEETINGS........................................................ 27
General .......................................................... 27
Matters to be Considered........................................... 27
Record Dates; Vote Required; Voting at the Meetings................ 28
Recommendations of the Board of Directors.......................... 30
THE REORGANIZATION.......................................................... 30
Background of the Cowles Merger.................................... 30
Recommendation of the Cowles Board and Reasons for the
Cowles Merger...................................................... 32
Recommendation of the McClatchy Board; McClatchy's
Reasons for the Reorganization..................................... 33
Opinion of McClatchy's Financial Advisor........................... 34
Opinion of Cowles' Financial Advisor............................... 38
Certain Financial Forecasts........................................ 40
Federal Income Tax Matters......................................... 41
Accounting Treatment............................................... 44
Effect on Stock Options and Employee Benefit Matters............... 44
Interests of Certain Persons in the Mergers........................ 45
Regulatory Approvals............................................... 46
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Exchange Act Reporting............................................. 47
Reorganization Financings.......................................... 47
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION................ 47
DIVIDENDS AND PRICES OF COMMON STOCK........................................ 59
McClatchy.......................................................... 59
Cowles .......................................................... 60
DESCRIPTION OF NEW McCLATCHY CAPITAL STOCK.................................. 61
Authorized Capital Stock........................................... 61
Antitakeover Effects of Provisions of the Certificate of
Incorporation and Delaware Law..................................... 61
McClatchy Stock Options............................................ 62
THE REORGANIZATION AGREEMENT................................................ 62
The Mergers........................................................ 62
Conversion of McClatchy Common Stock............................... 62
Cowles Merger Consideration........................................ 63
Cowles Stock Options............................................... 64
Procedures for Exchange of Stock Certificates...................... 65
Fractional Shares.................................................. 66
Representations and Warranties..................................... 66
Certain Pre-Closing Covenants...................................... 67
No Solicitation of Transactions.................................... 68
Board Recommendations.............................................. 68
Listing of New McClatchy Class A Common Stock on the NYSE.......... 69
Board of Directors and Officers of New McClatchy Following
the Mergers........................................................ 69
Registration Rights Agreement...................................... 69
Access to Information.............................................. 70
Public Announcements............................................... 70
Indemnification and Insurance...................................... 70
Reasonable Best Efforts............................................ 71
Conditions to the Consummation of the Reorganization............... 71
Termination........................................................ 72
Amendment; Extension; Waiver....................................... 73
Fees and Expenses.................................................. 73
CERTAIN PROVISIONS OF THE COWLES STOCKHOLDERS VOTING AGREEMENT.............. 73
CERTAIN PROVISIONS OF THE McCLATCHY STOCKHOLDERS VOTING AGREEMENT........... 75
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
COWLES............................................................. 76
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION OF COWLES...................................... 79
Recent Events...................................................... 79
Six Months Ended September 27, 1997 and September 28, 1996......... 79
Fiscal Years 1997, 1996 and 1995................................... 81
COMPARISON OF STOCKHOLDERS' RIGHTS.......................................... 83
Comparison of Stockholders' Rights With Respect to
New McClatchy and McClatchy........................................ 83
Comparison of Stockholders' Rights With Respect to
New McClatchy Class A Common Stock and Cowles Common Stock......... 84
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STOCKHOLDERS' APPRAISAL RIGHTS.............................................. 86
EXPERTS ................................................................... 89
LEGAL MATTERS............................................................... 89
OTHER INFORMATION AND STOCKHOLDER PROPOSALS................................. 89
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF COWLES MEDIA COMPANY......... F-1
ANNEXES
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A - Reorganization Agreement
B - McClatchy Stockholders Voting Agreement, as amended and restated
C - Cowles Stockholders Voting Agreement
D - Opinion of Salomon Brothers Inc
E - Opinion of Goldman, Sachs & Co.
F - Section 262 of the Delaware General Corporation Law
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS JOINT PROXY STATEMENT/PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY
IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED
ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS, IN THE ATTACHED ANNEXES
HERETO AND IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS OF
MCCLATCHY AND COWLES ARE URGED TO READ CAREFULLY THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE ATTACHED ANNEXES IN THEIR ENTIRETY.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
HOLDERS OF COWLES COMMON STOCK IN CONNECTION WITH THEIR CONSIDERATION OF AN
ELECTION TO RECEIVE NEW McCLATCHY CLASS A COMMON STOCK IN THE COWLES MERGER OR
BY HOLDERS OF McCLATCHY COMMON STOCK IN CONNECTION WITH THEIR VOTING ON THE
McCLATCHY PROPOSAL, SEE "RISK FACTORS."
THE COMPANIES
MCCLATCHY. McClatchy and its subsidiaries currently publish 10 daily
and 13 non-daily newspapers located in western coastal states (including
California, Washington and Alaska) and North and South Carolina. As of December
31, 1996, McClatchy had daily circulation of 972,600 and Sunday circulation of
1,175,100. McClatchy's newspapers include, among others, THE SACRAMENTO BEE, THE
NEWS AND OBSERVER (Raleigh, North Carolina), THE FRESNO (California) BEE, THE
NEWS TRIBUNE (Tacoma, Washington) and the ANCHORAGE DAILY NEWS. McClatchy also
owns and operates other media-related businesses, including Nando.net, a
national online publishing operation and The Newspaper Network, a national
newspaper marketing company. The mailing address of McClatchy's principal
executive offices is 2100 "Q" Street, Sacramento, California 95816; its
telephone number is (916) 321-1846.
COWLES. Cowles is a newspaper, magazine, book and information services
company headquartered in Minneapolis, Minnesota. Cowles' operating units
currently include STAR TRIBUNE, publisher of a daily newspaper and ancillary
products serving the cities of Minneapolis and Saint Paul; Cowles Enthusiast
Media, Inc. ("CEM"), publishers of special interest consumer magazines and
related products; Cowles Business Media, Inc. ("CBM"), publisher of
business-to-business magazines, online research products and conferences for the
media and marketing services industries; and Cowles Creative Publishing, Inc.
("CCP," and collectively with CEM and CBM, the "Non-newspaper Subs"), a
specialty publisher, distributor and direct marketer of books and products for
the home arts, home improvement and outdoor markets. In January 1998, Cowles and
McClatchy executed agreements to sell the stock of the Non-newspaper Subs at or
as soon as practicable after the Effective Time. The mailing address of Cowles'
principal executive offices is 329 Portland Avenue, Minneapolis, Minnesota
55415; its telephone number is (612) 673-7100. See "BUSINESS OF COWLES."
NEW MCCLATCHY. New McClatchy, a Delaware corporation, is a wholly owned
subsidiary of McClatchy incorporated in November 1997 that has not conducted any
substantial business activities to date. As a result of the Reorganization,
McClatchy and Cowles will become wholly owned subsidiaries of New McClatchy.
Accordingly, the business of New McClatchy will be the business currently
conducted by McClatchy and Cowles; provided, however, that Cowles and McClatchy
have executed agreements to dispose of the stock of the Non-newspaper Subs at or
as soon as practicable after the Effective Time. The mailing address of New
McClatchy's principal executive offices will be 2100 "Q" Street, Sacramento,
California 95816; its telephone number is (916) 321-1846. See "BUSINESS OF NEW
McCLATCHY FOLLOWING THE REORGANIZATION."
MCCLATCHY SPECIAL MEETING
DATE, TIME AND PLACE. The McClatchy Special Meeting will begin at 9:00
a.m., local time, at the Sacramento Convention Center Activity Building, 13th
and K Streets, Room 202, Sacramento, California, on March 19, 1998. The purpose
of the McClatchy Special Meeting is to vote upon the McClatchy Proposal.
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MCCLATCHY RECORD DATE. Only stockholders of record at the close of
business on the McClatchy Record Date are entitled to notice of, and to vote at,
the McClatchy Special Meeting. At the close of business on the McClatchy Record
Date, there were 9,447,852 shares of Class A Common Stock and 28,675,912 shares
of Class B Common Stock outstanding and entitled to vote at the McClatchy
Special Meeting.
REQUIRED VOTE. The approval and adoption of the McClatchy Proposal
requires the affirmative vote of a majority in voting interest of the
outstanding shares of McClatchy Common Stock entitled to vote at the McClatchy
Special Meeting. Pursuant to the McClatchy Stockholders Voting Agreement, the
McClatchy Stockholders have agreed, among other things, to vote shares
representing approximately 70% of the total voting power of McClatchy Common
Stock in favor of the McClatchy Proposal. Although the McClatchy Stockholders
have sufficient voting power to approve the McClatchy Proposal, the McClatchy
Board nevertheless believes that the representation of all stockholders of
McClatchy at the McClatchy Special Meeting is important and urges all
stockholders to vote their shares of McClatchy Common Stock. See "THE SPECIAL
MEETINGS--Record Dates; Vote Required; Voting at the Meetings" and "CERTAIN
PROVISIONS OF THE McCLATCHY STOCKHOLDERS VOTING AGREEMENT."
REVOCABILITY OF PROXIES. McClatchy stockholders may revoke their proxy
at any time prior to its exercise (a) by attending the McClatchy Special Meeting
and voting in person (although attendance at the McClatchy Special Meeting will
not in and of itself constitute revocation of a proxy), (b) by giving notice of
revocation of the proxy at the McClatchy Special Meeting or (c) by delivering
(i) a written notice of revocation of the proxy or (ii) a duly executed proxy
relating to the matters to be considered at the McClatchy Special Meeting,
bearing a date later than the proxy previously executed. All written notices of
revocation and other communications with respect to revocation of proxies should
be addressed as follows: McClatchy Newspapers, Inc., 2100 "Q" Street,
Sacramento, California 95816, Attention: Corporate Secretary, and must be
received before the taking of the votes at the McClatchy Special Meeting. See
"THE SPECIAL MEETINGS--Record Dates; Vote Required; Voting at the
Meetings--Voting and Revocation of Proxies."
RECOMMENDATION OF THE MCCLATCHY BOARD. The McClatchy Board, after
careful consideration, has unanimously approved the Reorganization Agreement and
the transactions contemplated thereby and determined that the Reorganization is
fair to and in the best interest of McClatchy and its stockholders and
recommends that McClatchy stockholders vote FOR approval and adoption of the
McClatchy Proposal.
APPRAISAL RIGHTS. Holders of McClatchy Class A Common Stock are not
entitled to appraisal rights. Subject to the satisfaction of certain conditions,
holders of McClatchy Class B Common Stock will be entitled to the appraisal
rights provided under Delaware law in connection with the McClatchy Merger. See
"STOCKHOLDERS' APPRAISAL RIGHTS."
HOLDERS OF McCLATCHY COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES
REPRESENTING McCLATCHY COMMON STOCK WITH THE ENCLOSED PROXY CARD.
COWLES SPECIAL MEETING
DATE, TIME AND PLACE. The Cowles Special Meeting will begin at 9:00
a.m., local time, at the Lutheran Brotherhood Building, 625 Fourth Avenue South,
Minneapolis, Minnesota, on March 19, 1998. The purpose of the Cowles Special
Meeting is to vote upon the Cowles Proposal.
COWLES RECORD DATE. Only holders of record of shares of Cowles Voting
Common Stock at the close of business on the Cowles Record Date are entitled to
notice of, and to vote at, the Cowles Special Meeting. At the close of business
on the Cowles Record Date, there were 3,837,059 shares of Cowles Voting Common
Stock entitled to vote at the Cowles Special Meeting.
REQUIRED VOTE. The approval and adoption of the Cowles Proposal
requires the affirmative vote of a majority of the outstanding shares of Cowles
Voting Common Stock entitled to vote at the Cowles Special Meeting.
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Pursuant to the Cowles Stockholders Voting Agreement, the Cowles Stockholders
have agreed, among other things, to vote shares representing approximately 56%
of the total voting power of Cowles Voting Common Stock in favor of the Cowles
Proposal. Although the Cowles Stockholders have sufficient voting power to
approve the Cowles Proposal, the Cowles Board nevertheless believes that the
representation of all stockholders of Cowles at the Cowles Special Meeting is
important and urges all stockholders to vote their shares of Cowles Voting
Common Stock. See "THE SPECIAL MEETINGS--Record Dates; Vote Required; Voting at
the Meetings" and "CERTAIN PROVISIONS OF THE COWLES STOCKHOLDERS VOTING
AGREEMENT."
REVOCABILITY OF PROXIES. A proxy of a Cowles stockholder may be revoked
at any time prior to its exercise (a) by attending the Cowles Special Meeting
and voting in person (although attendance at the Cowles Special Meeting will not
in and of itself constitute revocation of a proxy), (b) by giving notice of
revocation of the proxy at the Cowles Special Meeting or (c) by delivering (i) a
written notice of revocation of the proxy or (ii) a duly executed proxy relating
to the matters to be considered at the Cowles Special Meeting, bearing a date
later than the proxy previously executed. All written notices of revocation and
other communications with respect to revocation of proxies should be addressed
as follows: Cowles Media Company, 329 Portland Avenue, Minneapolis, Minnesota
55415, Attention: Secretary, and must be received before the taking of the vote
at the Cowles Special Meeting.
RECOMMENDATION OF THE COWLES BOARD. The Cowles Board, after careful
consideration, has approved the Reorganization Agreement and the transactions
contemplated thereby, including the Cowles Merger, and has determined that the
Cowles Merger is fair to and in the best interests of Cowles and its
stockholders and recommends that Cowles stockholders vote FOR approval and
adoption of the Cowles Proposal. The Cowles Board's actions regarding the
Reorganization Agreement were taken at a meeting attended by eight of the nine
directors of Cowles. All directors present voted in favor of the Reorganization
Agreement.
APPRAISAL RIGHTS. Subject to the satisfaction of certain conditions,
holders of Cowles Common Stock will be entitled to the appraisal rights provided
under Delaware law in connection with the Cowles Merger. See "STOCKHOLDERS'
APPRAISAL RIGHTS."
HOLDERS OF COWLES COMMON STOCK SHOULD SEND IN THEIR STOCK
CERTIFICATES--BOTH VOTING AND NON-VOTING--WITH THEIR FORMS OF ELECTION.
For additional information relating to the Special Meetings, see "THE
SPECIAL MEETINGS."
THE REORGANIZATION AGREEMENT
GENERAL. The Reorganization Agreement provides, among other things,
for: (a) the merger of MNI Merger Sub with and into McClatchy, which will result
in McClatchy, as the surviving corporation of the McClatchy Merger, becoming a
wholly owned subsidiary of New McClatchy, and (b) the merger of CMC Merger Sub
with and into Cowles, which will result in Cowles, as the surviving corporation
of the Cowles Merger, becoming a wholly owned subsidiary of New McClatchy.
CONVERSION OF MCCLATCHY COMMON STOCK. Upon consummation of the
McClatchy Merger, each outstanding share of McClatchy Class A Common Stock and
McClatchy Class B Common Stock will be converted into a corresponding share of
New McClatchy Class A Common Stock or New McClatchy Class B Common Stock. Each
share of McClatchy Common Stock which is held in the treasury of McClatchy, or
owned by any subsidiary of McClatchy, Cowles or any subsidiary of Cowles
("McClatchy Excluded Shares") will be canceled and cease to exist. See "THE
REORGANIZATION AGREEMENT--Conversion of McClatchy Common Stock." For a
description of the New McClatchy Common Stock, see "DESCRIPTION OF NEW McCLATCHY
CAPITAL STOCK." For a summary of the principal differences between the rights of
holders of New McClatchy Common Stock and McClatchy Common Stock, see
"COMPARISON OF STOCKHOLDERS' RIGHTS--Comparison of Stockholders' Rights with
Respect to New McClatchy and McClatchy."
-12-
<PAGE>
CONSIDERATION TO BE RECEIVED BY COWLES STOCKHOLDERS. Upon consummation
of the Cowles Merger, each outstanding share of Cowles Common Stock and each
outstanding Cowles Converted Stock Unit will be converted into the right to
receive the Cash Election Price, the Stock Election Price or a combination
thereof. Each Cowles stockholder of record on the Cowles Record Date will have
the opportunity to indicate, on a form of election accompanying this Joint Proxy
Statement/Prospectus (the "Form of Election"), whether such holder wishes to
make a Stock Election or a Cash Election (as such terms are defined herein) for
each share of Cowles Common Stock held by such holder. (Each holder of a Cowles
Converted Stock Unit will also have the opportunity to make a Stock Election or
a Cash Election for such Cowles Converted Stock Unit). The allocation of cash
and/or shares of New McClatchy Class A Common Stock that a stockholder of Cowles
or a holder of a Cowles Converted Stock Unit may receive will depend on (i) the
stated preferences of the Cowles stockholders and holders of Cowles Converted
Stock Units on the Forms of Election and (ii) the proration procedures to be
applied if the number of Stock Electing Shares exceeds the Maximum Stock Number
or the number of Cash Electing Shares exceeds the Maximum Cash Number (as such
terms are defined herein). A "Cowles Converted Stock Unit" is a restricted
performance stock unit granted under an employee benefit plan or arrangement of
Cowles. See "THE REORGANIZATION AGREEMENT--Cowles Merger Consideration."
Stockholders of Cowles (and holders of Cowles Converted Stock Units)
who make an effective "Stock Election" will receive (subject to the proration
procedures described below), for each share of Cowles Common Stock (or Cowles
Converted Stock Unit) for which such election is made, that number of shares of
New McClatchy Class A Common Stock as equals the Exchange Ratio (as defined
herein) (the "Stock Election Price"). The "Exchange Ratio" is equal to $90.50
divided by the McClatchy Stock Price (as defined herein), rounded to the nearest
1/100,000; provided, however, that if the foregoing would cause the Exchange
Ratio to be less than 2.68820, then the Exchange Ratio shall be 2.68820 and if
the foregoing would cause the Exchange Ratio to be greater than 3.01667, then
the Exchange Ratio shall be 3.01667. The "McClatchy Stock Price" is equal to the
average of the Volume Weighted Average Trading Price (as defined herein) of
McClatchy Class A Common Stock on the NYSE, as reported on the NYSE Composite
Transactions Tape for the 15 trading days randomly selected by lot out of the 25
trading days ending on the second trading day immediately preceding the Closing
Date (as defined herein). "Volume Weighted Average Trading Price" means, for any
given trading day, an amount equal to (A) the sum of each of the products of (x)
each sales price at which McClatchy Class A Common Stock was traded during such
trading day on the NYSE and (y) the number of shares of McClatchy Class A Common
Stock traded at such price during such trading day, divided by (B) the total
number of shares of McClatchy Class A Common Stock so traded on such trading
day. The "Closing Date" is the date on which the closing of the transactions
contemplated by the Reorganization Agreement takes place (which is anticipated
to be the day of the Special Meetings). For an illustration of the interaction
of the McClatchy Stock Price and the Exchange Ratio, see the chart below.
McClatchy Exchange
Stock Price Ratio
------------------ -----------------------
$30.00 or less 3.01667
$30.01 to $33.66 3.01666 to 2.668821
$33.67 or higher 2.68820
Stockholders of Cowles (and holders of Cowles Converted Stock Units)
who make an effective "Cash Election" will receive (subject to the proration
procedures described below) for each share of Cowles Common Stock (or Cowles
Converted Stock Unit) for which such election is made, $90.50 in cash. If a
holder of Cowles Common Stock (or Cowles Converted Stock Units) does not make a
Cash Election or a Stock Election, or properly revokes an effective, properly
completed Form of Election without timely submitting a revised, properly
completed Form of Election (collectively, a "Non-electing Share"), such Cowles
Stockholder may receive only one form of Cowles Merger Consideration, or may be
prorated. See "THE REORGANIZATION AGREEMENT--Cowles Merger Consideration."
-13-
<PAGE>
Stockholders of Cowles (and holders of Cowles Converted Stock Units)
who elect to receive either the Stock Election Price or the Cash Election Price
may not receive in full their stated preference for New McClatchy Class A Common
Stock or cash, as the case may be, depending on the potential application of
proration to all Elections. Set forth below are three examples that illustrate
how the proration of shares of New McClatchy Class A Common Stock and cash,
based on Elections of Cowles stockholders (and holders of Cowles Converted Stock
Units), will be calculated.
EXAMPLE A--10% of the stockholders of Cowles (and holders of Cowles
Converted Stock Units) elect to receive shares of New McClatchy Class A
Common Stock; 88% of the stockholders of Cowles (and holders of Cowles
Converted Stock Units) elect to receive cash; and 2% of the
stockholders of Cowles (and holders of Cowles Converted Stock Units) do
not make an Election.
RESULT: Under Example A, each person electing to receive
shares of New McClatchy Class A Common Stock will receive such
shares to the full extent of the Election, each person failing
to make an Election will receive shares of New McClatchy Class
A Common Stock, and each person electing to receive cash will
receive, for each share of Cowles Common Stock (or Cowles
Converted Stock Unit) for which such Cash Election is made,
that number of shares of New McClatchy Class A Common Stock as
equals 3/88 multiplied by the Exchange Ratio and cash in the
ratio of 85/88 multiplied by the Cash Election Price for each
such share (or Unit). Assuming the Exchange Ratio is 3.01667,
under Example A, a stockholder making a Cash Election in
respect of 1,000 shares of Cowles Common Stock would receive
approximately 102 shares of New McClatchy Class A Common Stock
(3/88 multiplied by 1,000 multiplied by the Exchange Ratio)
and approximately $87,414 in cash (85/88 multiplied by 1,000
multiplied by the Cash Election Price of $90.50).
EXAMPLE B--20% of the stockholders of Cowles (and holders of Cowles
Converted Stock Units) elect to receive shares of New McClatchy Class A
Common Stock; 70% of the stockholders of Cowles (and holders of Cowles
Converted Stock Units) elect to receive cash; and 10% of the
stockholders of Cowles (and holders of Cowles Converted Stock Units) do
not make an Election.
RESULT: Under Example B, each person electing to receive
shares of New McClatchy Class A Common Stock will receive such
shares to the full extent of the Election, each person
electing to receive cash will receive cash to the full extent
of the Election and each person failing to make an Election
will receive cash. Assuming the Exchange Ratio is 3.01667,
under Example B, a stockholder holding 1,000 shares of Cowles
Common Stock making a Cash Election in respect of 500 of such
shares and a Stock Election in respect of the remaining 500 of
such shares would receive approximately 1,508 shares of New
McClatchy Class A Common Stock (500 multiplied by the Exchange
Ratio) and approximately $45,250 in cash (500 multiplied by
the Cash Election Price of $90.50).
EXAMPLE C--30% of the stockholders of Cowles (and holders of Cowles
Converted Stock Units) elect to receive shares of New McClatchy Class A
Common Stock; 65% of the stockholders of Cowles (and holders of Cowles
Converted Stock Units) elect to receive cash; and 5% of the
stockholders of Cowles (and holders of Cowles Converted Stock Units) do
not make an Election.
RESULT: Under Example C, each person electing to receive cash
will receive cash to the full extent of the Election, each
person failing to make an Election will receive cash, and each
person electing to receive shares of New McClatchy Class A
Common Stock will receive, for each share of Cowles Common
Stock (or Cowles Converted Stock Unit) for which such Stock
Election is made, that number of shares of New McClatchy Class
A Common Stock as equals 25/30 multiplied by the Exchange
Ratio and cash in the ratio
-14-
<PAGE>
of 5/30 multiplied by the Cash Election Price for each such
share (or Unit). Assuming the Exchange Ratio is 3.01667, under
Example C, a stockholder making a Stock Election in respect of
1,000 shares of Cowles Common Stock would receive
approximately 2,513 shares of New McClatchy Class A Common
Stock (25/30 multiplied by 1,000 multiplied by the Exchange
Ratio) and approximately $15,083 in cash (5/30 multiplied by
1,000 multiplied by the Cash Election Price of $90.50).
Each stockholder of Cowles (and holder of Cowles Converted Stock Units)
is urged to make an Election to increase the likelihood of receiving the desired
mix of cash and shares of New McClatchy Class A Common Stock. Any Cowles
stockholder who exercises appraisal rights but withdraws such demand, or fails
to comply with the requirements for the exercise of such rights set forth in
Section 262 of the DGCL, after the Effective Time, will be deemed not to have
made an Election. See "THE REORGANIZATION AGREEMENT--Cowles Merger
Consideration."
No fractional share of New McClatchy Class A Common Stock will be
issued pursuant to the Cowles Merger or to holders of Cowles Converted Stock
Units. In lieu of the issuance of any fraction of a share, cash equal to the
product of such fraction and the McClatchy Stock Price will be paid.
A Form of Election is being mailed with this Joint Proxy
Statement/Prospectus to each person who was a holder of outstanding Cowles
Common Stock as of the Cowles Record Date. Each such holder shall have the right
to submit a Form of Election specifying the number of shares of Cowles Common
Stock that such person desires to have converted, subject to the proration
procedures described herein, into the Stock Election Price pursuant to a Stock
Election and the number of shares of Cowles Common Stock that such person
desires to have converted, subject to the proration procedures described herein,
into the Cash Election Price pursuant to an effective or deemed Cash Election.
See "THE REORGANIZATION AGREEMENT--Cowles Merger Consideration--Election
Procedures." For federal income tax considerations in choosing an election, see
"THE REORGANIZATION--Federal Income Tax Matters."
CONDITIONS TO THE REORGANIZATION. The obligations of McClatchy and
Cowles to consummate the Reorganization are subject to the fulfillment of
various conditions, including, among others: (i) the effectiveness of the
Registration Statement and the absence of any stop order suspending the
effectiveness thereof and no proceeding for that purpose having been initiated
by the Commission; (ii) approval of the McClatchy Proposal by the stockholders
of McClatchy and approval of the Cowles Proposal by the stockholders of Cowles;
(iii) expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"); (iv) listing of the New McClatchy Class A Common Stock on the NYSE,
subject only to official notice of issuance; and (v) no temporary or permanent
injunction or other order issued by any court prohibiting the Reorganization
having been issued. See "THE REORGANIZATION AGREEMENT--Conditions to the
Consummation of the Reorganization."
CERTAIN FEDERAL INCOME TAX MATTERS. It is a condition to the
consummation of the McClatchy Merger that McClatchy receive an opinion from
Pillsbury Madison & Sutro LLP, counsel to McClatchy (or if such firm is
unwilling or unable to render such opinion, an opinion of special counsel to
Cowles), based upon customary representation letters, that the McClatchy Merger
will be treated as a reorganization described in section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and/or a transaction described in
section 351 of the Code. In accordance with this opinion, no gain or loss will
be recognized by a holder of McClatchy Common Stock who exchanges such stock for
New McClatchy Common Stock pursuant to the McClatchy Merger. See "THE
REORGANIZATION--Federal Income Tax Matters."
TERMINATION OF THE REORGANIZATION AGREEMENT. The Reorganization
Agreement may be terminated by either McClatchy or Cowles at any time prior to
the Effective Time, whether before or after approval of the Mergers by the
stockholders of McClatchy or Cowles, if, among other reasons, the Mergers have
not been consummated on or before May 31, 1998. See "THE REORGANIZATION
AGREEMENT--Termination."
-15-
<PAGE>
THE REORGANIZATION
OWNERSHIP OF NEW MCCLATCHY AFTER THE REORGANIZATION. Immediately
following the Reorganization, assuming that the Exchange Ratio is 3.01667 and
that the Maximum Shares Issuable are issued to Cowles stockholders (and holders
of Cowles Converted Stock Units) in the Cowles Merger, (i) the former holders of
McClatchy Class A Common Stock on the McClatchy Record Date will collectively
hold approximately 46.9% of the issued and outstanding shares of New McClatchy
Class A Common Stock and (ii) the former holders of Cowles Common Stock (and
holders of Cowles Converted Stock Units) on the Cowles Record Date will
collectively hold approximately 53.1% of the issued and outstanding shares of
New McClatchy Class A Common Stock (59.6% and 40.4% if the Minimum Shares
Issuable are issued to Cowles stockholders (and holders of Cowles Converted
Stock Units) in the Cowles Merger). Immediately following the Reorganization,
the former holders of McClatchy Class B Common Stock will collectively hold 100%
of the issued and outstanding shares of New McClatchy Class B Common Stock.
RECOMMENDATION OF MCCLATCHY BOARD; MCCLATCHY'S REASONS FOR THE
REORGANIZATION. The McClatchy Board has determined that the Reorganization is
fair to and in the best interests of the holders of McClatchy Common Stock and
recommends that holders of McClatchy Common Stock vote in favor of the McClatchy
Proposal. The decision of the McClatchy Board to enter into the Reorganization
Agreement and to recommend that stockholders vote in favor of the McClatchy
Proposal is based upon its evaluation of a number of factors including, among
others, the oral opinion (subsequently confirmed in a written opinion dated as
of November 13, 1997) of Salomon Brothers Inc ("Salomon Brothers"), McClatchy's
financial advisor in connection with the Reorganization, that based upon and
subject to the matters set forth in its written opinion, as of such date, the
consideration to be paid to the holders of Cowles Common Stock in the Cowles
Merger was fair from a financial point of view to the stockholders of McClatchy.
See "THE REORGANIZATION--Recommendation of the McClatchy Board; McClatchy's
Reasons for the Reorganization" and "--Opinion of McClatchy's Financial
Advisor."
RECOMMENDATION OF COWLES BOARD; COWLES' REASONS FOR THE REORGANIZATION.
The Cowles Board has determined that the Reorganization is fair to and in the
best interests of the holders of Cowles Common Stock and recommends that holders
of Cowles Voting Common Stock vote in favor of the Cowles Proposal. The decision
of the Cowles Board to enter into the Reorganization Agreement and to recommend
that stockholders vote in favor of the Cowles Proposal is based upon its
evaluation of a number of factors including, among others, the November 13, 1997
opinion of Goldman, Sachs & Co. ("Goldman Sachs"), Cowles' financial advisor in
connection with the Reorganization, that, as of such date, the Cash
Consideration and the Stock Consideration to be received by the holders of
Cowles Common Stock in the Cowles Merger pursuant to the Reorganization
Agreement, taken as a unitary transaction, is fair from a financial point of
view. See "THE REORGANIZATION--Recommendation of the Cowles Board and Reasons
for the Cowles Merger" and "--Opinion of Cowles' Financial Advisor."
INTEREST OF CERTAIN PERSONS IN THE REORGANIZATION; MANAGEMENT AND
DIRECTORS OF NEW MCCLATCHY AFTER THE REORGANIZATION. Pursuant to the
Reorganization Agreement, McClatchy will designate the directors and officers of
New McClatchy. It is anticipated that all of the current directors of McClatchy,
as well as Elizabeth Ballantine, currently a director of Cowles, will become
directors of New McClatchy. The executive officers of McClatchy will become
executive officers of New McClatchy. Shares of McClatchy Common Stock held by
officers and directors of McClatchy will be converted into the right to receive
the same consideration as shares of McClatchy Common Stock held by other
stockholders. Options held by officers and directors of McClatchy will be
treated in the same manner as any stock options held by other McClatchy option
holders. As a result of the Reorganization, certain officers and directors of
Cowles will receive benefits under the Cowles 1995 Stock Incentive Plan, the
Cowles Executive Income Continuation Policy and the Cowles Supplemental
Executive Retirement Plan, which benefits include the following amounts for the
persons named: John Cowles III, $108,000; David C. Cox, $4,226,196; James J.
Viera, $1,584,223; Joel R. Kramer, $2,222,793; Pamela J. Sveinson, $745,365; and
Franklin J. Parisi, $657,241. See "THE REORGANIZATION--Interests of Certain
Persons in the Mergers" and "--Effect on Stock Options and Employee Benefit
Matters."
-16-
<PAGE>
As a condition to Cowles' obligation to effect the Cowles Merger, New
McClatchy will execute a Registration Rights Agreement (the "Registration Rights
Agreement") with the Cowles Stockholders, which will provide that New McClatchy
will, subject to certain conditions, register the resale of all or any portion
of New McClatchy Class A Common Stock owned by the Cowles Stockholders. See "THE
REORGANIZATION AGREEMENT--Registration Rights Agreement."
Pursuant to the Reorganization Agreement, New McClatchy will indemnify
all present directors and officers of Cowles and will, subject to certain
limitations, maintain for six years directors' and officers' insurance and an
indemnification policy containing comparable terms and conditions to any such
policy which may be in effect prior to the Effective Time. See "THE
REORGANIZATION AGREEMENT--Indemnification and Insurance."
REGULATORY APPROVAL. The Reorganization is subject to the requirements
of the HSR Act, and the rules and regulations thereunder, which provide that
certain transactions may not be consummated until required information and
materials are furnished to the Antitrust Division of the Department of Justice
(the "Antitrust Division") and the Federal Trade Commission (the "FTC") and the
requisite waiting period has expired or is terminated. All such requisite
waiting periods either expired or were terminated prior to the date hereof. See
"THE REORGANIZATION--Regulatory Approvals--Antitrust."
ACCOUNTING TREATMENT. The Cowles Merger will be accounted for under the
"purchase" method of accounting. The McClatchy Merger will be treated as a
reorganization with no change in the recorded amount of McClatchy's assets and
liabilities. See "THE REORGANIZATION--Accounting Treatment."
OPINIONS OF FINANCIAL ADVISORS. On November 6, 1997 Salomon Brothers
rendered to the McClatchy Board its oral opinion (subsequently confirmed in
writing in an opinion dated as of November 13, 1997) to the effect that, based
upon and subject to the matters set forth in its written opinion, as of such
date, the consideration to be paid to the holders of Cowles Common Stock in the
Cowles Merger was fair to the holders of McClatchy Common Stock from a financial
point of view. The full text of the written opinion of Salomon Brothers, which
sets forth assumptions made, factors considered and limitations on the review
undertaken by Salomon Brothers, is included as Appendix D to this Joint Proxy
Statement/Prospectus. McClatchy stockholders are urged to read such opinion
carefully in its entirety. See "THE REORGANIZATION--Opinion of McClatchy's
Financial Advisor."
Goldman Sachs delivered its written opinion to the Cowles Board that,
as of November 13, 1997, the Cash Consideration and the Stock Consideration to
be received by the holders of Cowles Common Stock in the Cowles Merger, taken as
a unitary transaction, was fair to such holders from a financial point of view.
The full text of the written opinion of Goldman Sachs, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is included as Appendix E to this Joint Proxy
Statement/Prospectus. Cowles Stockholders are urged to read such opinion in its
entirety. See "THE REORGANIZATION--Opinion of Cowles' Financial Advisor."
FEDERAL INCOME TAX CONSIDERATIONS IN CHOOSING AN ELECTION. A
stockholder of Cowles who receives solely New McClatchy Class A Common Stock in
the Cowles Merger generally will recognize no gain or loss for federal income
tax purposes. A stockholder of Cowles who receives solely cash in the Cowles
Merger generally will recognize capital gain or loss equal to the difference
between the amount of cash received and the stockholder's basis in the Cowles
Common Stock surrendered. A stockholder of Cowles who receives both New
McClatchy Class A Common Stock and cash in the Cowles Merger (by making a Stock
Election for some shares and a Cash Election for the holder's remaining shares,
or by reason of the application of the proration procedures) will recognize gain
equal to the lesser of (i) the excess of the amount of cash received plus the
fair market value of the New McClatchy Class A Common Stock received, over the
stockholder's basis in the Cowles Common Stock surrendered, or (ii) the amount
of cash received. See "THE REORGANIZATION--Federal Income Tax Matters" for a
more detailed description of the above matters and information with respect to
the applicability of the foregoing to certain taxpayers subject to special
treatment. The actual federal income tax consequences to each Cowles stockholder
of making a Cash Election, Stock Election or no Election will not be
ascertainable at the time the Election is made because
-17-
<PAGE>
stockholders of Cowles will not know at such time if, or to what extent, the
proration procedures described above will apply.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE McCLATCHY MERGER OR THE COWLES
MERGER MAY VARY DEPENDING ON THE PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER,
IT IS RECOMMENDED THAT HOLDERS OF McCLATCHY COMMON STOCK OR COWLES COMMON STOCK
CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND ANY STATE, LOCAL AND
FOREIGN) TAX CONSEQUENCES OF THE McCLATCHY MERGER OR THE COWLES MERGER IN THEIR
PARTICULAR CIRCUMSTANCES.
TREATMENT OF MCCLATCHY STOCK OPTIONS. At the Effective Time, each
McClatchy Stock Option (as defined herein), without any action on the part of
any holder thereof, shall become a New McClatchy Stock Option (as defined
herein). See "DESCRIPTION OF NEW McCLATCHY CAPITAL STOCK--McClatchy Stock
Options."
TREATMENT OF COWLES STOCK OPTIONS. For each Cowles Stock Option (as
defined herein) vested before (or as a consequence of) the Cowles Merger, if the
holder thereof shall have elected (by the Election Record Date, as defined
herein) to receive a cash payment in exchange therefor, then such Cowles Stock
Option shall be canceled and exchanged for a payment from New McClatchy (payable
in cash at Closing (as defined herein), subject to any applicable withholding
taxes) equal to the excess of the Cash Election Price over the exercise price of
such Cowles Stock Option. Any Cowles Stock Option that is not canceled pursuant
to the previous sentence shall become (at the Effective Time) an option to
acquire (on the same terms and conditions as were applicable under such Cowles
Stock Option) the number of shares of New McClatchy Class A Stock as equals the
Exchange Ratio, at an exercise price per share of New McClatchy Class A Stock
equal to the exercise price of such Cowles Stock Option divided by the Exchange
Ratio (which exercise price shall be rounded to the nearest one cent). See "THE
REORGANIZATION AGREEMENT--Cowles Stock Options."
-18-
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF MCCLATCHY
The selected consolidated financial data as of December 31, 1996 and
1995 and for each of the years in the three years ended December 31, 1996 have
been derived from, and should be read in conjunction with, the audited
consolidated financial statements of McClatchy and related notes thereto
incorporated herein by reference. These consolidated financial statements have
been audited by Deloitte & Touche LLP, independent auditors, whose report
thereon is also incorporated herein by reference. The selected consolidated
financial data as of and for the years ended December 31, 1994, 1993 and 1992
are derived from audited consolidated financial statements of McClatchy not
incorporated herein by reference. The selected consolidated financial data for
the nine months ended September 30, 1997 and 1996, and as of September 30, 1997
and 1996 have been derived from, and should be read in conjunction with, the
unaudited consolidated financial statements of McClatchy and related notes
thereto incorporated herein by reference. The results for the nine months ended
September 30, 1997 are not necessarily indicative of results to be expected for
a full fiscal year. See "AVAILABLE INFORMATION," "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE," and "FORWARD-LOOKING STATEMENTS."
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------------------------------------- ---------------------
1996(1) 1995(2) 1994(3) 1993 1992(4) 1997(5) 1996
---------- --------- ---------- --------- ---------- --------- ----------
(In thousands, except per share data) (unaudited)
CONSOLIDATED INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues - net........................... $ 624,233 $ 540,879 $ 471,418 $ 449,115 $ 440,247 $ 472,501 $ 458,765
Operating expenses:
Depreciation and amortization........... 52,954 44,000 38,140 35,583 33,560 40,167 39,502
Other expenses......................... 486,044 434,505 361,410 348,428 344,764 350,076 364,332
---------- --------- ---------- --------- ---------- --------- ----------
Total................................ 538,998 478,505 399,550 384,011 378,324 390,243 403,834
---------- --------- ---------- --------- ---------- --------- ----------
Operating income......................... 85,235 62,374 71,868 65,104 61,923 82,258 54,931
Other nonoperating expenses (income)..... 7,320 3,359 2,303 6,188 7,665 (518) 7,093
---------- --------- ---------- --------- ---------- --------- ----------
Income before income tax provision and
accounting changes...................... 77,915 59,015 69,565 58,916 54,258 82,776 47,838
Income tax provision..................... 33,422 25,397 22,920 27,118 24,087 34,302 20,805
---------- --------- ---------- --------- ---------- --------- ----------
Income before effect of accounting changes 44,493 33,618 46,645 31,798 30,171 48,474 27,033
Effect of accounting changes............. -- -- -- -- (341) -- --
---------- --------- ---------- --------- ---------- --------- ----------
Net income............................... $ 44,493 $ 33,618 $ 46,645 $ 31,798 $ 29,830 $ 48,474 $ 27,033
========== ========= ========== ========= ========== ========= ==========
Earnings per common share(6):
Income before effect of accounting change$ 1.18 $ 0.90 $ 1.26 $ 0.88 $ 0.84 $ 1.27 $ 0.72
Effect of accounting changes............ -- -- -- -- (0.01) -- --
---------- --------- ---------- --------- ---------- --------- ----------
Net income.............................. $ 1.18 $ 0.90 $ 1.26 $ 0.88 $ 0.83 $ 1.27 $ 0.72
========== ========= ========== ========= ========== ========= ==========
Dividends per common share............... $ 0.323 $ 0.304 $ 0.264 $ 0.216 $ 0.172 $ 0.285 $ $0.228
========== ========= ========== ========= ========== ========= ==========
CONSOLIDATED BALANCE SHEET DATA:
Total assets............................ $ 875,666 $ 892,958 $ 586,637 $ 525,163 $ 491,151 $ 855,250 $ 869,736
Long-term bank debt..................... 190,000 243,000 -- -- 10,164 119,000 209,000
Stockholders' equity.................... 503,114 465,694 442,220 383,523 358,299 547,260 486,868
- -----------------
<FN>
(1) Results for 1996 include a pre-tax gain of $2.8 million on the sale of a
newspaper and other business operations.
(2) Results for 1995 include a $2.7 million pre-tax charge related to early
retirement programs.
(3) Results for 1994 include a $6.0 million favorable adjustment (included in
the income tax provision) related to the resolution of income tax audits.
(4) Results for 1992 include a $2.6 million pre-tax charge related to an early
retirement program.
(5) Results for the nine months ended September 30, 1997 include pre-tax gains
totaling $7.3 million on the sale of newspapers and other assets.
(6) All per share amounts have been adjusted for a five-for-four stock split
paid on January 2, 1997.
</FN>
</TABLE>
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<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF COWLES
The selected consolidated financial data as of March 29, 1997 and March
30, 1996 and for each of the years in the three years ended March 29, 1997 have
been derived from, and should be read in conjunction with, the audited
consolidated financial statements of Cowles and related notes thereto appearing
elsewhere herein. These consolidated financial statements have been audited by
KPMG Peat Marwick LLP, independent auditors, whose report thereon also appears
elsewhere herein. The selected consolidated financial data as of and for the
years ended April 1, 1995, April 2, 1994 and April 3, 1993 are derived from
audited consolidated financial statements of Cowles not included herein. The
selected consolidated financial data for the six months ended September 27, 1997
and September 28, 1996, and as of September 27, 1997 and September 28, 1996 have
been derived from, and should be read in conjunction with, the unaudited
consolidated financial statements of Cowles and related notes thereto appearing
elsewhere herein. The results for the six months ended September 27, 1997 are
not necessarily indicative of results to be expected for a full fiscal year. See
Consolidated Financial Statements of Cowles and notes thereto and
"FORWARD-LOOKING STATEMENTS."
<TABLE>
<CAPTION>
Year Ended Six Months Ended
-------------------------------------------------------- ----------------------
March 29, March 30, April 1, April 2, April 3, Sept. 27, Sept. 28,
1997 1996 1995 1994 1993(1) 1997 1996
----------- ---------- ----------- ---------- ---------- ---------- -----------
(In thousands, except per share data) (unaudited)
CONSOLIDATED INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues - net........................... $ 517,069 $ 492,635 $ 449,738 $ 358,196 $ 334,591 $ 260,419 $ 252,593
Operating expenses:
Depreciation and amortization.......... 22,193 24,395 21,691 18,856 19,079 11,475 11,023
Other expenses......................... 440,511 423,082 385,353 299,025 280,006 209,640 218,937
----------- ---------- ----------- ---------- ---------- ---------- -----------
Total................................ 462,704 447,477 407,044 317,881 299,085 221,115 229,960
----------- ---------- ----------- ---------- ---------- ---------- -----------
Operating income......................... 54,365 45,158 42,694 40,315 35,506 39,304 22,633
Other nonoperating expenses.............. 1,045 3,593 3,031 7,143 6,787 2,659 32
----------- ---------- ----------- ---------- ---------- ---------- -----------
Income before income tax provision
and accounting changes.................. 53,320 41,565 39,663 33,172 28,719 36,645 22,601
Income tax provision..................... 23,828 17,138 17,164 13,744 12,344 15,027 9,251
----------- ---------- ----------- ---------- ---------- ---------- -----------
Income before effect of accounting changes 29,492 24,427 22,499 19,428 16,375 21,618 13,350
Effect of accounting changes............. -- -- -- -- (1,336) -- --
----------- ---------- ----------- ---------- ---------- ---------- -----------
Net income............................... $ 29,492 $ 24,427 $ 22,499 $ 19,428 $ 15,039 $ 21,618 $ 13,350
=========== ========== =========== ========== ========== ========== ===========
Earnings per common share:
Income before effect of accounting change$ 2.13 $ 1.76 $ 1.61 $ 1.40 $ 1.18 $ 1.53 $ 0.96
Effect of accounting changes............ -- -- -- -- (.09) -- --
----------- ---------- ----------- ---------- ---------- ---------- -----------
Net income.............................. $ 2.13 $ 1.76 $ 1.61 $ 1.40 $ 1.09 $ 1.53 $ 0.96
=========== ========== =========== ========== ========== ========== ===========
Dividends per common share............... $ 0.64 $ 0.60 $ 0.56 $ 0.52 $ 0.49 $ 0.34 $ 0.32
=========== ========== =========== ========== =========== ========== ===========
CONSOLIDATED BALANCE SHEET DATA:
Total assets............................ $ 326,790 $ 316,166 $ 314,221 $ 279,169 $ 249,537 $ 341,999 $ 322,973
Long-term debt.......................... 84,976 85,979 90,031 91,034 83,840 83,194 85,833
Stockholders' equity.................... 79,820 63,055 48,510 30,483 14,652 99,962 70,713
- -----------------
<FN>
(1) 1993 consisted of 53 weeks compared to 52 weeks for all other years
presented.
</FN>
</TABLE>
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<PAGE>
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL DATA AND PER SHARE DATA
The combined statements of operations table below presents unaudited
pro forma condensed combined financial information for McClatchy for the year
ended December 31, 1996 and Cowles for the year ended March 29, 1997 and for the
nine months ended September 30, 1997 for McClatchy and the 39 weeks ended
September 27, 1997 for Cowles as if the Cowles Merger was consummated on the
first day of fiscal 1996. Additionally, the balance sheet data below is based on
the combined unaudited September 30, 1997 and September 27, 1997 balance sheets
of McClatchy and Cowles, respectively, as if the Cowles Merger was consummated
on September 30, 1997. The per share financial information table presents
certain historical, pro forma condensed combined and pro forma equivalent per
share financial information for McClatchy Common Stock and Cowles Common Stock,
assuming the Cowles Merger had been effective during all periods presented. The
pro forma amounts below reflect the reorganization of McClatchy pursuant to the
McClatchy Merger (with no resulting change in the recorded amounts of
McClatchy's assets and liabilities) and give effect to the purchase method of
accounting for the Cowles Merger. A preliminary determination and allocation of
the total purchase price and the underlying assumptions are described under
"UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION." As noted under
"UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION" and the notes
thereto, the consideration to be received by Cowles stockholders in the Cowles
Merger, based on elections of such stockholders, will consist of cash and a
maximum of 25% of shares of New McClatchy Class A Common Stock and a minimum of
15% of shares of New McClatchy Class A Common Stock. Both a 25% stock election
alternative and a 15% stock election alternative are provided below. Both
alternatives assume the sales of the Non-newspaper Subs at or as soon as
practicable after the Effective Time and, accordingly, give effect during the
periods and as of the date presented to such sales, and the application of the
proceeds therefrom, in the same manner as the Cowles Merger. This information
should be read in conjunction with and is qualified in its entirety by the
consolidated financial statements and accompanying notes of McClatchy
incorporated herein by reference, the Cowles' Consolidated Financial Statements
and accompanying notes included elsewhere herein and the pro forma condensed
combined financial statements and accompanying discussion and notes set forth
under "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION." The pro
forma condensed combined amounts below are presented for informational purposes
and are not necessarily indicative of the financial position or the results of
operations of McClatchy and Cowles as a combined company that would have
actually occurred had the Cowles Merger and the sales of the Non-newspaper Subs
been consummated as of the date or for the periods presented. The pro forma
amounts are also not necessarily indicative of the future financial position or
future results of operations of New McClatchy.
<TABLE>
<CAPTION>
25% Stock Election 15% Stock Election
--------------------------------- ---------------------------------
Nine Months Ended Year Ended Nine Months Ended Year Ended
September 30, December 31, September 30, December 31,
1997(1) 1996(2) 1997(1) 1996(2)
Pro Forma Pro Forma Pro Forma Pro Forma
----------------- ------------ ----------------- ------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Revenues - net................................... $742,930 $974,296 $742,930 $974,296
Operating Income................................ 98,554 100,174 98,498 100,099
Income before income taxes....................... 50,025 29,717 42,687 19,932
Income from continuing operations................ 25,146 7,920 20,793 2,116
Earnings per share on income from
continuing operations........................ 0.52 0.16 0.47 0.05
Weighted average common stock and
common equivalent shares..................... 48,787 48,496 44,514 44,223
</TABLE>
<TABLE>
<CAPTION>
As of As of
September 30, September 30,
1997(1) 1997(1)
Pro Forma Pro Forma
------------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets..................................... $2,306,439 $2,309,439
Long-term debt................................... 1,033,451 1,164,661
Stockholders' equity............................. 867,786 739,576
- ----------
<FN>
(1) As of and for the nine months ended September 30, 1997 for McClatchy and
for the 39 weeks ended September 27, 1997 for Cowles.
(2) As of and for the year ended December 31, 1996 for McClatchy and as of and
for the year ended March 29, 1997 for Cowles.
</FN>
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1997 December 31, 1996
------------------ -----------------
NEW MCCLATCHY COMMON STOCK
<S> <C> <C>
Earnings per share on income from continuing operations:
Historical............................................................... $1.27 $1.18
Pro forma @ 25% stock election(1)........................................ 0.52 0.16
Pro forma @ 15% stock election(1)........................................ 0.47 0.05
Book value per common share:
Historical............................................................... $ 14.37 $ 13.32
Pro forma @ 25% stock election(2)........................................ 17.79 N/A
Pro forma @ 15% stock election(2)........................................ 16.62 N/A
Dividends per common share:
Historical............................................................... $ 0.285 $ 0.323
Pro forma at 25% stock election.......................................... 0.362 0.433
Pro forma at 15% stock election.......................................... 0.397 0.475
39 Weeks Ended Fiscal Year Ended
September 27, 1997 March 29, 1997
------------------ -----------------
COWLES COMMON STOCK
Earnings per share on income from continuing operations:
Historical............................................................... $ 2.03 $ 2.13
Pro forma equivalent combined @ 25% stock election(3).................... 1.57 0.48
Pro forma equivalent combined @ 15% stock election(3).................... 1.42 0.15
Book value per common share:
Historical............................................................... $ 7 .21 $ 5.83
Pro forma equivalent combined @ 25% stock election(3).................... 53.67 N/A
Pro forma equivalent combined @ 15% stock election(3).................... 50 .14 N/A
Dividends per common share:
Historical............................................................... $ 0.50 $ 0.64
Pro forma equivalent combined @ 25% stock election(3).................... 1.09 1.31
Pro forma equivalent combined @ 15% stock election(3).................... 1.20 1.43
- ----------
<FN>
(1) The pro forma condensed combined per share data combines the financial
information of McClatchy for the fiscal year ended December 31, 1996
and the nine months ended September 30, 1997 with the financial
information of Cowles for the fiscal year ended March 29, 1997 and the
39 weeks ended September 27, 1997, respectively. See "UNAUDITED PRO
FORMA CONDENSED COMBINED FINANCIAL INFORMATION."
(2) Amount is calculated by dividing total pro forma common stockholders'
equity by the sum of total outstanding shares of McClatchy Common
Stock plus the incremental shares of New McClatchy Common Stock to be
issued in the Reorganization.
(3) Amounts are determined by multiplying McClatchy's pro forma amounts by
3.01667, which would be the Exchange Ratio assuming the McClatchy
Class A Common Stock price is $30.00 or less per share.
</FN>
</TABLE>
-22-
<PAGE>
RISK FACTORS
Holders of Cowles Common Stock should carefully consider the following
factors in connection with their consideration of an election to receive New
McClatchy Class A Common Stock in the Cowles Merger and holders of McClatchy
Common Stock should carefully consider the following factors in connection with
their voting on the McClatchy Proposal.
This Joint Proxy Statement/Prospectus contains forward-looking
statements that involve risks and uncertainties. New McClatchy's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Joint Proxy Statement/Prospectus.
See "FORWARD-LOOKING STATEMENTS."
SUBSTANTIAL LEVERAGE; NEGATIVE NET TANGIBLE ASSETS; LIQUIDITY. In
connection with consummating the Reorganization, New McClatchy will become the
borrower under the financings arranged by Salomon Smith Barney to (i) fund
payment of the cash consideration and fees and expenses incurred in connection
with the Reorganization (the "Reorganization Financings"), estimated at
approximately $1,022.0 million (assuming Cowles stockholders elect to receive up
to 25% of the merger consideration in New McClatchy Class A Common Stock) or
$1,152.9 million (assuming a 15% stock election), and (ii) refinance $91.0
million of assumed debt from the Cowles Merger and $94.0 million of pre-existing
McClatchy debt. When the sale of the Non-newspaper Subs is completed, which
McClatchy and Cowles expect to accomplish at or as soon as practicable after the
Effective Time, New McClatchy will reduce its borrowings by approximately $170.0
million. Although the definitive terms of the Reorganization Financings have not
been finalized as of the date of this Joint Proxy Statement/Prospectus,
McClatchy and New McClatchy expect that such terms, in addition to the financial
terms discussed below, will include certain operating and financial
restrictions, such as limits on New McClatchy's ability to incur indebtedness,
create liens, sell assets, engage in mergers or consolidations, make investments
and pay dividends. The proposed financial terms of the Reorganization Financings
are as follows. A syndicate of banks has committed to provide the debt portion
of the Reorganization Financings in three tranches. The term loan facility will
consist of two tranches: Tranche A, of $735 million, will bear interest at the
London Interbank Offered Rate ("LIBOR") plus 125 basis points and 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.
In addition, a revolving credit facility of up to $200 million will bear
interest at LIBOR plus 125 basis points, will be partially available for New
McCLatchy's working capital needs and will be payable in seven years. To the
extent that New McClatchy reduces outstanding debt relative to its EBITDA (as
defined herein), the interest rate spread over LIBOR on the debt will decline.
The debt is secured by certain assets of New McClatchy, and all of the debt is
pre-payable without penalty. Although New McClatchy has no present plan in place
for early repayment of this debt, New McClatchy intends to accelerate payments
on this debt as cash generation allows. An additional $170 million of debt will
be added to Tranche B in the event that the sales of the Non-newspaper Subs do
not close at the Effective Time.
As of September 30, 1997, after giving pro forma effect to the
Reorganization and the Reorganization Financings and the application of the net
proceeds therefrom (giving effect to the disposition of the Non-newspaper Subs),
New McClatchy would have had (i) $1,033.5 million in long-term debt (assuming a
25% stock election) or $1,165.7 million in long-term debt (assuming a 15% stock
election) and (ii) because $1,138.2 million (assuming a 25% stock election) or
$1,141.2 million (assuming a 15% stock election) of the purchase price of the
Cowles Merger is expected to be allocated to additional intangible assets, net
tangible assets of $(783.6) million (assuming a 25% stock election) or $(914.8)
million (assuming a 15% stock election). Such level of consolidated indebtedness
is substantially greater than McClatchy's pre-Reorganization long-term
indebtedness of $119.0 million. Such high leverage may have important
consequences for New McClatchy including the following: (a) New McClatchy's
ability to obtain additional financing for future acquisitions (if any), working
capital, capital expenditures or other purposes may be impaired or any such
financing may not be on terms favorable to New McClatchy; (b) a substantial
portion of New McClatchy's cash flow available from operations after satisfying
certain liabilities arising in the ordinary course of business will be dedicated
to the payment of principal and interest on its indebtedness, thereby reducing
funds that would otherwise be available to New McClatchy, including for future
business opportunities; (c) a substantial decrease in net operating cash flows
or a substantial increase in expenses of New McClatchy could make it difficult
for New McClatchy to meet its debt service requirements or force it to modify
its operations; and
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<PAGE>
(d) high leverage may make New McClatchy more vulnerable to a downturn in its
business or the economy generally. See "THE REORGANIZATION--Reorganization
Financings."
After the Reorganization is consummated, New McClatchy's principal
sources of liquidity are expected to be cash flow from operations and borrowings
under the revolving credit facility. The term loan facility will be drawn in
full upon consummation of the Reorganization. It is anticipated that New
McClatchy's principal uses of liquidity will be to provide working capital, to
meet debt service requirements and other liabilities arising in the ordinary
course and to finance New McClatchy's strategic plans. See "THE
REORGANIZATION--Reorganization Financings."
EARNINGS DILUTION AS A RESULT OF THE REORGANIZATION. The amortization
of the identifiable intangibles and goodwill associated with the Reorganization,
the issuance of shares of New McClatchy Class A Common Stock in the Cowles
Merger (assuming Cowles stockholders elect to receive as merger consideration
New McClatchy Class A Common Stock to the full extent possible) and increased
interest expense as a result of the incurrence of additional long-term debt will
have a negative effect on New McClatchy's net income for the next several years.
Assuming that the Reorganization and the sale of the Non-newspaper Subs had
occurred on January 1, 1996, pro forma income from continuing operations for the
fiscal year ended December 31, 1996 would have been approximately $7.9 million
(assuming a 25% stock election) and $2.1 million (assuming a 15% stock
election), as compared to approximately $44.5 million of income from continuing
operations for McClatchy for the same period on a historical basis, and pro
forma interest expense for the same fiscal year would have been approximately
$83.0 million (assuming a 25% stock election) and $92.6 million (assuming a 15%
stock election), as compared to approximately $13.3 million for McClatchy for
the same period on a historical basis. There can be no assurance that this
reduction in earnings and net income from continuing operations will not have a
negative impact on the market price for New McClatchy Class A Common Stock. See
"SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA AND PER SHARE
DATA."
INTEGRATION. The Reorganization may place substantial demands on the
management and financial resources of New McClatchy. There can be no assurance
that the combined companies will realize the full cost savings that New
McClatchy expects to realize as a result of the Reorganization and the
consolidation of certain of the operations of the combined companies, or that
such savings will be realized at the points in time currently anticipated.
Furthermore, there can be no assurance that any cost savings which are realized
will not be offset by increases in other expenses or operating losses.
BUSINESS OF COWLES
INTRODUCTION
Cowles is a newspaper, magazine, book and information services company
headquartered in Minneapolis, Minnesota. Cowles consists of four operating
units:
STAR TRIBUNE is a leading information provider in the Twin Cities of
Minneapolis and Saint Paul, Minnesota, through its core product, the STAR
TRIBUNE newspaper, and other print and digital products and services. CEM is a
publisher of special interest consumer magazines and related books and products
in the areas of history, recreation, healthy lifestyles and collectibles. CBM is
a publisher of specialized business-to-business magazines, conferences and
information services directed to the marketing and media industries. CCP is a
publisher, distributor and direct marketer of specialty books and products for
the home arts, home improvement and outdoor markets.
Cowles was founded in 1935 by John Cowles Sr. with the acquisition of
the MINNESOTA DAILY STAR, which eventually became the MINNEAPOLIS STAR. The
MINNEAPOLIS STAR and the MINNEAPOLIS TRIBUNE, which was purchased in 1941, were
consolidated in 1982 into the MINNEAPOLIS STAR & TRIBUNE, which was renamed the
STAR TRIBUNE in 1987 in recognition of its wider Twin Cities presence.
-24-
<PAGE>
OPERATING STRATEGY
Cowles' goal has been to create long-term value from information in
traditional and emerging media. In 1987, the renaming of the STAR TRIBUNE
coincided with Cowles' strategy to become the leading newspaper for the entire
Twin Cities market.
The Twin Cities area is the 15th largest market in the United States in
terms of population and number of households and the STAR TRIBUNE reaches most
Twin Cities households through its newspaper and other products. The STAR
TRIBUNE also serves more than 30,000 businesses in the Twin Cities, who use the
STAR TRIBUNE for marketing support through display and classified advertising,
targeted advertising supplements, digital services, direct-marketing and other
marketing services.
In recent years, Cowles has launched several new information products
to leverage the STAR TRIBUNE brand and address specific information needs of
customers, including STAR TRIBUNE Source Books, Weekly Market Review, Buyers
Edge, Rent Right, Drive Time, Workavenue.com and Real Estate Extra Online.
Startribune.com (on the World Wide Web) is recognized as one of the Twin Cities'
most popular web sites. Cowles' strategy includes introducing new products that
meet the needs of highly targeted audiences which have long-term profit
potential.
Cowles has also pursued a strategy to acquire and develop consumer
magazines and related books and business-to-business magazines and related media
that offer growth and positioning in specialized market segments. To accomplish
those objectives, Cowles has completed approximately 40 acquisitions
(principally magazine businesses) since 1986. In 1994, Cowles acquired the book
business which now constitutes CCP. Cowles and McClatchy have executed
agreements to dispose of the stock of the Non-newspaper Subs at or as soon as
practicable after the Effective Time. See "BUSINESS OF NEW McCLATCHY FOLLOWING
THE REORGANIZATION."
PRODUCTS AND SERVICES
As reported by the Audit Bureau of Circulations, an independent audit
agency, the STAR TRIBUNE is the leading daily and Sunday newspaper in the Twin
Cities area in terms of circulation, with average daily and Sunday circulation
in 1997 of approximately 387,000 and 668,000, respectively (compared with daily
and Sunday circulation during comparable periods of 203,000 and 267,000,
respectively, for the ST. PAUL PIONEER PRESS). The Twin Cities area includes 11
counties in Minnesota and two counties in Wisconsin, which generally surround
the Minneapolis-Saint Paul metropolitan area.
Cowles' strategy has been to rely on high-quality news and opinion in
the STAR TRIBUNE's pages and on outstanding service to advertisers to sustain
and increase its position in a growing market. This strategy focuses on
advertising and circulation quality and profitability, rather than focusing
primarily on circulation growth. Through a combination of higher reader prices
and reduced discounting, circulation revenue has grown at a 5.4% annual
compounded rate over the past five years. Cowles has placed particular emphasis
on Sunday circulation, which has been more profitable. Advertising revenue for
the STAR TRIBUNE has grown at an 8.4% annual compounded rate over the past five
years, compared with 5.6% for the newspaper industry.
EDITORIAL. Attributes of the STAR TRIBUNE include journalistic
integrity and quality of its news, sports, features coverage, opinion pages and
production. The newspaper publishes national and international news, largely
from wire services. The STAR TRIBUNE maintains a Washington, D.C. news bureau
and frequently sends reporters and photographers on assignments around the
world. The newspaper has the largest news staff in the upper Midwest and is
committed to investigative and enterprise journalism. In recent years the
newspaper and its news staff have received journalistic awards, including the
Pulitzer Prize and the Robert F. Kennedy Journalism Award.
The newspaper's three editions, the Minneapolis, Saint Paul and State
editions, are published seven days a week. The Monday through Saturday editions
generally include the following major sections: World & National news,
Metro/State news, Variety, Business, Sports and Classified Advertising. Special
sections are offered on certain days, including Taste, Motoring, Homes and
Weekly Market Review. The Sunday edition includes Travel, Entertain-
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<PAGE>
ment, Comics and an internally produced TV Week. Color is used in virtually all
editorial sections, and extensive use is made of photographs, charts, maps and
drawings.
CIRCULATION AND READERSHIP. In 1987, Cowles launched a "metro strategy"
for the STAR TRIBUNE to become the "Newspaper of the Twin Cities." Since then,
the STAR TRIBUNE has expanded its market reach throughout the Twin Cities. As a
result, Sunday metro circulation has grown 20%, compared with an industry-wide
decrease of 1.1%. Cowles' strategy has been to stabilize circulation volume and
maintain market penetration by targeting its marketing effort toward stronger
demographic areas. During fiscal 1996, STAR TRIBUNE began offering a "half-week"
home delivery option to increase circulation near the weekend, when advertisers
prefer to run display and pre-print advertising for sales and promotions. Data
from the Audit Bureau of Circulations reflecting gross circulation of the STAR
TRIBUNE as a percentage of total combined gross circulation of the STAR TRIBUNE
and the ST. PAUL PIONEER PRESS shows the STAR TRIBUNE's daily percentage in the
mid-60% range. The STAR TRIBUNE's Sunday percentage consistently exceeds 70%.
ADVERTISING. The STAR TRIBUNE and its alternative delivery products
cover nearly the entire Twin Cities area and compete for advertising dollars by
focusing on advertisers' needs and serving those needs through the newspaper and
additional products and services. For example, the STAR TRIBUNE also produces
Real Estate Extra, a stand-alone picture classified publication featuring
residential real estate, which is distributed through brokers and in racks.
The STAR TRIBUNE has capitalized on its metro-wide circulation
leadership to attract advertising from retailers at the four largest shopping
areas of the Twin Cities, the Mall of America, Rosedale, Ridgedale and
Southdale, plus new business with retail advertisers entering the Twin Cities
market, such as Nordstrom, Federated and Circuit City.
Of the STAR TRIBUNE's total advertising revenue in fiscal 1997, display
advertising accounted for approximately 53% and classified advertising
(principally employment, automobile and real estate) accounted for approximately
45%. The trend over the past five years has been a decrease in the percentage of
display advertising (which represented 64% of the total in fiscal 1993), due
partly to growth in employment classified advertising and a decline in display
advertising by some retailers. In fiscal 1997, the STAR TRIBUNE's 10 largest
advertising accounts represented 14% of total advertising revenue, its 50
largest advertising accounts represented 33% of the total and its 100 largest
accounts represented 43% of the total.
PRODUCTION AND TECHNOLOGY. The STAR TRIBUNE is produced at Heritage
Center, a state-of-the-art newspaper production facility located in Minneapolis,
which was completed in 1987. The facilities include automated and customized
systems and duplicated computer networks, as well as 425,000 square feet of
space and five press lines. All platemaking, printing, newsprint handling,
mailroom and fleet services are conducted at Heritage Center. Editorial and
advertising materials are produced at the STAR TRIBUNE's news and administrative
offices in Minneapolis, from which final page content is laser-scanned and
transmitted to Heritage Center for production.
EMPLOYEES. STAR TRIBUNE has approximately 2,700 employees (not
including newspaper carriers, who are independent contractors), of which about
one-fourth are part-time. Of the total, approximately 50% are represented by one
of the nine unions having contracts with STAR TRIBUNE. STAR TRIBUNE considers
its relations with employees to be good.
NEWSPRINT. The STAR TRIBUNE and related products consume approximately
85,000 to 90,000 metric tons of newsprint annually. Newsprint is supplied by
several sources under long-term contracts.
CEM
CEM publishes 28 special-interest consumer magazines, with a total
circulation of approximately 3 million. Many of these magazines are the primary
advertising and sales vehicles for reaching their respective specialized
markets. Examples include such market-leading titles as FLY FISHERMAN, CIVIL WAR
TIMES ILLUSTRATED, DOLL READER and HORSE & RIDER. The magazines are
characterized by high subscription renewal rates, significant percentages of
revenue from stable subscription sources and high gross margins.
-26-
<PAGE>
CBM
CBM provides business-to-business information products (including
magazines, newsletters, reports, conferences, trade shows and online services)
directed to business markets such as marketing, publishing and media. Its
publications include AMERICAN DEMOGRAPHICS, DIRECT, PROMO, CATALOG AGE, FOLIO:,
CIRCULATION MANAGEMENT and CABLE WORLD.
CCP
CCP publishes high-quality "how-to" books and continuity series. The
books are sold under the Cowles brand and through licensing arrangements with
well-known brands such as Black & Decker and Singer. Sales channels include
direct marketing, retail, special sales and international outlets.
BUSINESS OF NEW MCCLATCHY FOLLOWING THE REORGANIZATION
Following the Reorganization, New McClatchy will operate as a holding
company and its business will consist of the businesses currently conducted by
McClatchy and Cowles. A holding company structure will allow McClatchy's
California newspapers, currently divisions of McClatchy, to operate more
efficiently. In addition, following the Reorganization, New McClatchy will have
more operating flexibility because none of its newspaper operations will be
divisions of New McClatchy; currently only non-California newspapers are
operated by McClatchy subsidiaries. It is anticipated that all of the current
directors of McClatchy, as well as Elizabeth Ballantine, currently a director of
Cowles, will become directors of New McClatchy. The executive officers of
McClatchy will become executive officers of New McClatchy. In January 1998,
McClatchy and Cowles executed agreements to sell the stock of the Non-newspaper
Subs at or as soon as practicable after the Effective Time. McClatchy and Cowles
intend to sell CBM and CEM to PRIMEDIA, Inc. and intend to sell CCP to a
management group led by CCP's president. The combined transactions are valued at
approximately $208 million, including the assumption of existing debt and other
liabilities. The sale of the Non-newspaper Subs is expected to close at or as
soon as practicable after the Effective Time, pending HSR approval and other
customary conditions, although there can be no assurance that these transactions
will close at such time. See Note 3 to "UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION."
THE SPECIAL MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the holders
of the outstanding shares of McClatchy Common Stock in connection with the
solicitation of proxies by the McClatchy Board for use at the McClatchy Special
Meeting to be held on March 19, 1998 or any adjournment or postponement thereof,
and to holders of the outstanding shares of Cowles Voting Common Stock in
connection with the solicitation of proxies by the Cowles Board for use at the
Cowles Special Meeting to be held on March 19, 1998 or any adjournment or
postponement thereof.
This Joint Proxy Statement/Prospectus and accompanying form of proxy
are being mailed to the stockholders of McClatchy and the stockholders of Cowles
on or about February 19, 1998.
MATTERS TO BE CONSIDERED
THE MCCLATCHY SPECIAL MEETING. The McClatchy Special Meeting will begin
at 9:00 a.m., local time, at the Sacramento Convention Center Activity Building,
13th and K Streets, Room 202, Sacramento, California, on March 19, 1998. At the
McClatchy Special Meeting, the stockholders of McClatchy will be asked to
consider and vote upon the McClatchy Proposal.
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THE COWLES SPECIAL MEETING. The Cowles Special Meeting will begin at
9:00 a.m., local time, at the Lutheran Brotherhood Building, 625 Fourth Avenue
South, Minneapolis, Minnesota, on March 19, 1998. At the Cowles Special Meeting,
the stockholders of Cowles will be asked to consider and vote upon the Cowles
Proposal.
RECORD DATES; VOTE REQUIRED; VOTING AT THE MEETINGS
MCCLATCHY. The McClatchy Board has fixed January 26, 1998, as the
McClatchy Record Date for determination of the McClatchy stockholders entitled
to notice of and to vote at the McClatchy Special Meeting. Accordingly, only
stockholders of record at the close of business on January 26, 1998 are entitled
to notice of, and to vote at, the McClatchy Special Meeting. At the close of
business on the McClatchy Record Date, there were 9,447,852 shares of Class A
Common Stock and 28,675,912 shares of Class B Common Stock outstanding and
entitled to vote at the McClatchy Special Meeting. Each share of McClatchy Class
B Common Stock is entitled to one vote and each share of Class A Common Stock is
entitled to one-tenth (1/10th) of one vote.
Pursuant to McClatchy's Certificate of Incorporation, as amended and
restated (the "McClatchy Certificate"), McClatchy's By-laws and applicable laws,
the affirmative vote of a majority in voting interest of the outstanding shares
of McClatchy Common Stock entitled to vote at the McClatchy Special Meeting is
required, provided a quorum is present. Pursuant to the McClatchy Stockholders
Voting Agreement, the McClatchy Stockholders have agreed, among other things, to
vote shares representing approximately 70% of the total voting power of
McClatchy Common Stock in favor of the McClatchy Proposal; thus approval of the
McClatchy Proposal is assured. See "CERTAIN PROVISIONS OF THE McCLATCHY
STOCKHOLDERS VOTING AGREEMENT."
COWLES. The Cowles Board has fixed February 16, 1998 as the Cowles
Record Date for determination of the Cowles stockholders entitled to notice of
and to vote at the Cowles Special Meeting. Accordingly, only holders of Cowles
Voting Common Stock of record at the close of business on February 16, 1998 are
entitled to notice of, and to vote at, the Cowles Special Meeting. At the close
of business on the Cowles Record Date, there were 3,837,059 shares of Cowles
Voting Common Stock entitled to vote at the Cowles Special Meeting. Each share
of Cowles Voting Common Stock is entitled to one vote.
Pursuant to Cowles Restated Certificate of Incorporation (the "Cowles
Certificate"), Cowles' By-laws and applicable law, the affirmative vote of a
majority of the outstanding shares of Cowles Voting Common Stock entitled to
vote at the Cowles Special Meeting is required, provided a quorum is present.
Pursuant to the Cowles Stockholders Voting Agreement, the Cowles Stockholders
have agreed, among other things, to vote their shares of Cowles Voting Common
Stock, representing approximately 56% of all shares entitled to vote at the
Cowles Special Meeting, in favor of the Cowles Proposal. Therefore, approval of
the Cowles Proposal is assured.
As of the Cowles Record Date, directors and executive officers of
Cowles were beneficial owners of an aggregate of 2,233,965 shares of Voting
Common Stock (approximately 58.22% of the outstanding shares of Cowles Voting
Common Stock) and an aggregate of 1,201,525 shares of Non-voting Common Stock
(approximately 11.86% of the outstanding shares of Cowles Non-voting Common
Stock). The directors and executive officers of Cowles have indicated that they
intend to vote their shares of Cowles Voting Common Stock in favor of the Cowles
Proposal (and certain of such individuals who are directors have agreed to vote
their shares in favor of the Cowles Proposal pursuant to the Cowles Stockholders
Voting Agreement). See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF COWLES" and "THE REORGANIZATION--Interests of Certain Persons in
the Mergers."
VOTING AND REVOCATION OF PROXIES. All shares of McClatchy Common Stock
and Cowles Voting Common Stock that are entitled to vote and are represented by
a properly executed proxy properly signed and received at or prior to the
McClatchy Special Meeting (in the case of McClatchy stockholders) or at the
Cowles Special Meeting (in the case of Cowles stockholders), unless subsequently
properly revoked, will be voted in accordance with the instructions indicated
thereon. If a proxy is signed and returned without indicating any voting
instructions, shares represented by such proxy will be voted in accordance with
the recommendations of the McClatchy Board (in the case of proxies representing
shares of McClatchy Common Stock) or the Cowles Board (in the case of proxies
representing shares of Cowles Voting Common Stock).
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Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time prior to its exercise. Proxies may be revoked by
(i) attending the relevant Special Meeting and voting in person (although
attendance at the relevant Special Meeting will not in and of itself constitute
revocation of a proxy), (ii) by giving notice of revocation of the proxy at the
relevant Special Meeting or (iii) by delivering (A) a written notice of
revocation of the proxy or (B) a duly executed proxy relating to the matters to
be considered at the relevant Special Meeting, bearing a date later than the
proxy previously executed. In order to vote in person at either the McClatchy
Special Meeting or at the Cowles Special Meeting, McClatchy stockholders and
Cowles stockholders must attend the relevant Special Meeting and cast their
votes in accordance with the voting procedures established for such meeting. All
written notices of revocation and other communications with respect to
revocation of proxies must be received before the taking of the votes at the
relevant Special Meeting and should be addressed as follows:
(i) in the case of McClatchy stockholders, to McClatchy
Newspapers, Inc., 2100 "Q" Street, Sacramento, California 95816,
Attention: Corporate Secretary; and
(ii) in the case of Cowles stockholders, to Cowles Media Company,
329 Portland Avenue, Minneapolis, Minnesota 55415, Attention:
Secretary.
Pursuant to the McClatchy Certificate, McClatchy's By-laws and
applicable law, at least a majority of the outstanding voting power of the
McClatchy Common Stock entitled to be cast at the McClatchy Special Meeting is
necessary to constitute a quorum for the transaction of business. Proxies
relating to "street name" shares that are voted by brokers and abstentions will
be counted as shares present for purposes of determining whether a quorum is
present but broker non-votes and abstentions will not be counted as votes cast
in favor of the McClatchy Proposal. Because the McClatchy Proposal requires the
affirmative vote of a majority in voting interest of the outstanding shares of
McClatchy Common Stock entitled to vote, abstentions and broker non-votes will
have the same effect as a negative vote on the foregoing proposal.
Pursuant to the Cowles Certificate and applicable law, at least a
majority of the votes entitled to be cast at the Cowles Special Meeting is
necessary to constitute a quorum for the transaction of business. Proxies
relating to "street name" shares that are voted by brokers and abstentions will
be counted as shares present for purposes of determining whether a quorum is
present but broker non-votes and abstentions will not be counted as votes cast
in favor of the Cowles Proposal. Because the Cowles Proposal requires the
affirmative vote of a majority of the outstanding shares of Cowles Voting Common
Stock entitled to vote, abstentions and broker non-votes will have the same
effect as a negative vote on the foregoing proposal.
SOLICITATION OF PROXIES. McClatchy and Cowles will each bear its own
cost of the solicitation of proxies of its stockholders. The cost of printing
and mailing this Joint Proxy Statement/Prospectus will be shared equally by
McClatchy and Cowles. In addition to solicitation by mail, the directors,
officers and employees of McClatchy or Cowles may solicit proxies from their
respective stockholders by telephone, telegram or by personal interview. Such
directors, officers and employees will not be additionally compensated for any
such solicitation but may be reimbursed for reasonable out-of-pocket expenses in
connection therewith. Arrangements will also be made with brokerage houses and
other custodians, nominees and fiduciaries for the forwarding of solicitation
material to the beneficial owners of McClatchy Common Stock and Cowles Voting
Common Stock, and each of McClatchy and Cowles will reimburse such custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses in
connection therewith. Georgeson & Company Inc. will assist in the solicitation
of proxies by McClatchy and Cowles for a fee based on the number of telephone
calls received from McClatchy or Cowles stockholders. Sherburne & Coughlin, Ltd.
may also answer questions for Cowles stockholders, and will be paid an hourly
fee for its services based on its normal rates for services to Cowles.
McClatchy stockholders who have any questions or require additional
material should call Karole Morgan-Prager, McClatchy's General Counsel and
Corporate Secretary, at (916) 321-1828 or Georgeson & Company Inc., McClatchy's
proxy solicitor, at (800) 223-2064 or (212) 440-9800. Cowles stockholders who
have any questions or require additional material should call William R. Busch,
Jr., General Counsel and Secretary, at (612) 673-7002, Georgeson & Company Inc.,
Cowles' proxy solicitor, at (800) 223-2064 or (212) 440-9800, or Sherburne &
Coughlin, Ltd., Cowles' transfer agent, at (612) 338-3255.
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RECOMMENDATIONS OF THE BOARD OF DIRECTORS
MCCLATCHY. The Board of Directors of McClatchy, after careful
consideration, has unanimously approved the Reorganization Agreement and the
transactions contemplated thereby and has determined that the Reorganization is
fair to and in the best interests of McClatchy and its stockholders and
recommends that McClatchy stockholders vote FOR approval and adoption of the
McClatchy Proposal.
COWLES. The Board of Directors of Cowles, after careful consideration,
has approved the Reorganization Agreement and the transactions contemplated
thereby, including the Cowles Merger, and has determined that the Cowles Merger
is fair to and in the best interests of Cowles and its stockholders and
recommends that Cowles stockholders vote FOR approval and adoption of the Cowles
Proposal. The Cowles Board's actions regarding the Reorganization Agreement were
taken at a meeting attended by eight of the nine directors of Cowles. All
directors present voted in favor of the Reorganization Agreement.
THE REORGANIZATION
This section of the Joint Proxy Statement/Prospectus describes certain
aspects of the Mergers. The description does not purport to be complete and is
qualified by reference to the Reorganization Agreement, which is attached as
Annex A hereto and is incorporated by reference herein.
BACKGROUND OF THE COWLES MERGER
The proposed Cowles Merger is the result of a review by the Cowles
Board of strategic alternatives available to Cowles. This review included
consideration of factors affecting the newspaper business and other parts of the
media industry, plus an exploration of opportunities for continued growth
available to Cowles and opportunities for liquidity and enhanced value available
to Cowles stockholders. As discussed below, the Cowles Board has concluded that
the proposed Cowles Merger is in the best interest of Cowles and its
stockholders.
In July 1997, representatives of the Cowles Family Voting Trust (which
holds approximately 56% of all outstanding shares of Cowles Voting Common Stock)
requested that the Cowles Board explore strategic alternatives available to
Cowles and indicated support for a possible combination with, or acquisition by,
a third party having experience in managing large daily newspaper operations.
The Cowles Family Voting Trust expressed interest in considering a possible
transaction that would include a tax-deferred equity component and liquidity for
some of the proceeds.
Following receipt of the Cowles Family Voting Trust's request for an
exploration of strategic alternatives, Goldman Sachs, a full-service investment
banking and securities firm that has served as Cowles' principal financial
advisor for many years, made a presentation to the Cowles Board and senior
management of Cowles on July 29, 1997, that included a discussion of possible
processes for identifying and evaluating strategic alternatives and analyses of
historic and recent performance of the newspaper industry, emerging
technological changes in media markets and related opportunities and challenges
for newspapers, and competitive effects arising from development of large,
sophisticated news-gathering and distribution networks. Goldman Sachs also
discussed valuation considerations for newspaper companies in private and public
markets, and provided an overview of various other newspaper companies. On
August 12, 1997, Cowles formally engaged Goldman Sachs to act as its financial
advisor. The scope of Goldman Sachs' engagement included reviewing alternatives,
evaluating possible strategic transactions and rendering an opinion as to the
fairness from a financial point of view of the consideration to be received in a
possible transaction.
After meeting with representatives of the Cowles Family Voting Trust
who expressed their general goals and objectives with respect to a possible
strategic transaction, Cowles developed a list, with the assistance of Goldman
Sachs, of potential candidates considered qualified for preliminary contacts
regarding a possible strategic transaction. During August 1997, Goldman Sachs
contacted the potential candidates and obtained confidentiality agreements from
several of them. Following receipt of the confidentiality agreements, Goldman
Sachs provided to
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the candidates a confidential memorandum that included detailed information
about Cowles and each of its business units.
During the week of September 1, 1997, Cowles and Goldman Sachs became
aware of speculation within parts of the newspaper industry that Cowles was
considering various strategic alternatives. While it is Cowles' long-standing
general policy not to comment on rumors or speculation, Cowles management
preferred to have any public discussion about the process occur on an orderly
basis so as to avoid a situation where employees and stockholders of Cowles
would face uncertainty and other distractions because of potentially inaccurate
rumors and speculation. Accordingly, on September 4, 1997, Cowles announced
publicly that it had commenced an exploration of strategic alternatives at the
request of the Cowles Family Voting Trust.
Following the September 4, 1997 public announcement, McClatchy and
certain other companies also expressed interest in a possible strategic
transaction with Cowles. Thereafter, McClatchy and other interested companies
entered into confidentiality agreements with Cowles, obtained the confidential
memorandum and began conducting due diligence.
Of the candidates who signed confidentiality agreements, several,
including McClatchy, submitted non-binding proposals in late September and early
October for a possible transaction with Cowles within various price ranges. Most
of the candidates who submitted such proposals then reviewed additional
information about Cowles and its businesses, visited Cowles facilities and met
with Cowles management during October 1997.
On October 20, 1997, Goldman Sachs reviewed with the Cowles Board the
terms of the non-binding proposals received to date. The Cowles Board instructed
Goldman Sachs to engage in further discussions with the candidates that
submitted proposals in order to refine such proposals and make them more
definitive. Thereafter, Cowles provided additional due diligence information to
the candidates, and Goldman Sachs requested final proposals from the candidates,
including any comments on a proposed form of merger agreement previously
distributed by counsel to Cowles. During the week of November 3, 1997, the
candidates, including McClatchy, made separate presentations to senior
management of Cowles and representatives of the Cowles Board. In connection with
such presentations, Cowles and its legal and financial advisors conducted due
diligence with respect to the candidates. On November 10, 1997, the candidates,
including McClatchy, submitted definitive proposals.
McClatchy submitted two alternative proposals having the same per-share
offer price: one proposal contemplated an all-cash transaction and the other
contemplated 75% of the merger consideration being paid in cash and 25% being
paid in New McClatchy Class A Common Stock. In evaluating McClatchy's proposals,
Cowles expressed a concern that 25% of the consideration in New McClatchy Class
A Common Stock may require some Cowles stockholders to take more stock than they
might otherwise elect. Therefore, Cowles requested that McClatchy modify its
combination cash/stock proposal so as to include an election to receive up to
25% of the merger consideration in stock. On November 11, 1997, McClatchy
agreed, among other things, to modify the stock component of the merger
consideration so as to include an election to receive a minimum stock
consideration component of 15% (with a maximum stock consideration component of
25%) and to make certain other nonfinancial changes to its proposal. The Tribune
Company also submitted a proposal contemplating both cash and stock, each
providing approximately 50% of the total proposed consideration. The Tribune
Company proposal represented a per share price that was materially lower than
the per share price proposed by McClatchy.
A meeting of the Cowles Board was held in two sessions on November 12,
1997. At the first session, Cowles management and Goldman Sachs made a
presentation that included an updated review of the exploration process, a
comparison of final proposals, an analysis of the business operations, financial
capabilities and other attributes of the candidates submitting proposals and the
results of financial due diligence performed with respect to the candidates.
Cowles' legal counsel presented the results of legal due diligence with respect
to the candidates and described the terms of the proposed merger agreements
submitted by the candidates. Such session also included a discussion of the
proposals in the absence of those directors who are also trustees of the Cowles
Family Voting Trust. Between the two sessions, senior executives of Cowles and
representatives of Goldman Sachs attended part of a meeting of
certificateholders and trustees of the Cowles Family Voting Trust and described
the final proposals. At the second session of the meeting of the Cowles Board,
representatives of the Cowles Family Voting Trust
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reported that the trustees were prepared to vote the shares of Cowles Voting
Common Stock held by them in favor of the McClatchy proposal that included a
stock component of 15% to 25% of the total merger consideration. Following
additional discussions with Goldman Sachs and legal counsel to Cowles (including
discussions in the absence of those directors who are also trustees of the
Cowles Family Voting Trust), the Cowles Board concluded, for reasons stated
below under "--Recommendations of the Cowles Board and Reasons for the Cowles
Merger," that the McClatchy proposal was the superior alternative for Cowles and
its stockholders. The Cowles Board also concluded to accept and recommend the
version of the McClatchy proposal that included issuance of McClatchy Class A
Common Stock, given the expressed intent (but not a commitment) of
certificateholders of the Cowles Family Voting Trust to elect to receive at
least two-thirds of the minimum stock consideration component of 15%. At the
conclusion of the meeting, the Cowles Board voted to authorize the execution and
delivery of the Reorganization Agreement and to recommend the proposed Cowles
Merger to the holders of Cowles Voting Common Stock. On November 13, 1997,
Cowles and McClatchy executed the Reorganization Agreement.
RECOMMENDATION OF THE COWLES BOARD AND REASONS FOR THE COWLES MERGER
The Cowles Board has approved the Reorganization Agreement and
recommends the proposed Cowles Merger to the stockholders of Cowles. The Cowles
Board believes that the proposed Cowles Merger is fair to and in the best
interests of Cowles and its stockholders, and recommends that holders of Cowles
Voting Common Stock vote FOR the Cowles Proposal. The Cowles Board's actions
regarding the Reorganization Agreement were taken at a meeting attended by eight
of the nine directors of Cowles. All directors present voted in favor of the
Reorganization Agreement.
Prior to taking action on the proposed Cowles Merger, the Cowles Board
reviewed and carefully considered reports and other materials relevant to the
proposed Cowles Merger and received reports and presentations from Goldman
Sachs, senior officers of Cowles and legal counsel to Cowles, including a
detailed review of terms and conditions of the Reorganization Agreement and the
transactions contemplated thereby. The decision of the Cowles Board to approve
the Reorganization Agreement and recommend the proposed Cowles Merger was the
result of the exploration process described above. (See "--Background of the
Cowles Merger.")
In its evaluation of the Cowles Merger, the Cowles Board did not
quantify or otherwise attempt to assign relative weights to the specific factors
considered in reaching its determination. In determining whether to approve and
recommend the Reorganization Agreement and the Cowles Merger, the Cowles Board
considered the following factors:
ENHANCED STOCKHOLDER VALUE. The Cowles Board reviewed possible
strategic alternatives to enhance stockholder value and concluded that the
proposed Cowles Merger presents the most favorable opportunity to do so.
PUBLIC ANNOUNCEMENT AND PROCESS. Cowles publicly announced that it
would consider a strategic transaction. Execution of the Reorganization
Agreement occurred well after such announcement and after an exploration of
various strategic alternatives by Goldman Sachs. Because information regarding
the exploration of strategic alternatives was publicly available for over two
months before execution of the Reorganization Agreement, the Cowles Board
believes that any qualified candidate interested in making a proposal had
sufficient opportunity to do so.
FINANCIAL CAPABILITY OF MCCLATCHY. The Cowles Board considered
McClatchy's financial ability to complete the proposed Cowles Merger, including
its financing commitments and the fact that the Reorganization Agreement does
not include any financing-related conditions to McClatchy's obligation to
complete the Cowles Merger.
OPINION OF FINANCIAL ADVISOR. Goldman Sachs has provided its opinion to
the Cowles Board that, as of November 13, 1997, the Cash Consideration and the
Stock Consideration to be received by the holders of Cowles Common Stock under
the Reorganization Agreement, taken as a unitary transaction, is fair from a
financial point of view to such holders.
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INCREASED POTENTIAL FOR CONTINUED SUCCESS. The Cowles Board believes
that prospects for continued performance at the levels achieved by the STAR
TRIBUNE in recent years will be enhanced by greater size and scale. In the
Reorganization, the STAR TRIBUNE will become part of a substantially larger
enterprise, and the Cowles Board believes that the STAR TRIBUNE's enhanced
access to capital and other resources as a result of the proposed merger would
substantially increase its ability to compete successfully in the increasingly
consolidating newspaper industry.
CONTINUED ACCESS TO OUTSTANDING MANAGEMENT. The Cowles Board believes
that opportunities and challenges in the newspaper industry will become more
complex in the future, especially as technological advances and other industry
developments continue to emerge. The Cowles Board also believes that the STAR
TRIBUNE's performance in recent years has been substantially enhanced by its
ability to attract and retain outstanding management and that continued success
will require continued access to outstanding executive talent. Cowles' planning
for development and succession among senior executives has demonstrated that
larger enterprises have an increasing advantage in attracting and retaining
outstanding executives, including the ability to provide long-term equity based
compensation, stronger opportunities for career development within a single
organization, and capital resources and support functions necessary for
development and execution of aggressive strategic and operating plans.
LIQUIDITY FOR STOCK OF COWLES. Although Cowles stock has traded on a
local over-the-counter basis since 1981 and bid-and-asked prices for Cowles
stock have been publicly quoted since 1993, opportunities to buy and sell Cowles
stock have remained limited and relatively unpredictable. The Cowles Board
believes that stockholder interest in greater liquidity and diversification has
increased, and stockholders have continued to make inquiries to Cowles about
opportunities for additional liquidity. Certain stockholders (including, among
others, members of the Cowles family and current and former employees of Cowles)
have substantial percentages of their personal assets invested in Cowles stock.
Such stockholders currently do not have reliable opportunities to liquidate such
stock to fund personal needs for retirement, education and other purposes at
values that are representative of those available in public markets for stock of
other media or publishing companies.
SUPPORT OF MAJORITY HOLDER. Trustees of the Cowles Family Voting Trust,
which holds a majority of all outstanding shares of Cowles Voting Common Stock,
have indicated their support for the proposed Cowles Merger and their commitment
to vote such shares in favor of the Cowles Proposal pursuant to the Cowles
Stockholders Voting Agreement.
OTHER FACTORS. In addition to the foregoing, the Cowles Board also
considered certain disadvantages of the Reorganization, such as the fact that
the minimum stock consideration of 15% may cause some Cowles stockholders to
receive more New McClatchy Class A Common Stock than they might otherwise elect;
the fact that McClatchy is a family-controlled company and some elements of
liquidity (including, among others, average trading volume) for New McClatchy
Class A Common Stock will be more limited than those of other possible
candidates; and the fact that, immediately following the Reorganization, New
McClatchy will be substantially more leveraged than before the Reorganization.
RECOMMENDATION OF THE MCCLATCHY BOARD; MCCLATCHY'S REASONS FOR THE
REORGANIZATION
The McClatchy Board believes that the terms of the Reorganization
Agreement and the transactions contemplated thereby are fair to and in the best
interests of McClatchy and its stockholders. Accordingly, the McClatchy Board
has unanimously approved the Reorganization Agreement and recommends approval
thereof by the stockholders of McClatchy.
In view of the variety of factors considered in connection with its
evaluation of the Reorganization, the McClatchy Board did not quantify or
otherwise attempt to assign relative weights to the specific factors considered
in reaching its determination. In reaching its determination to recommend
approval of the Reorganization Agreement, the McClatchy Board consulted with
McClatchy management, as well as its legal counsel and financial advisors, and
considered a number of factors.
In deciding to approve the execution of the Reorganization Agreement,
the McClatchy Board considered Salomon Brothers' written opinion that, as of
November 13, 1997, from a financial point of view, the consideration
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to be paid to holders of Cowles Common Stock in the Cowles Merger was fair to
McClatchy. See "--Opinion of McClatchy's Financial Advisor."
The McClatchy Board also considered the nature and scope of the
business of Cowles, and quality and breadth of its assets, its financial
condition, competitive position and prospects for further development. The
McClatchy Board recognized that although New McClatchy would be expected to
achieve lower earnings per share in the next several years (based on pro forma
combination analysis) than McClatchy would otherwise have achieved on a
stand-alone basis in the absence of the Reorganization, the McClatchy Board
nevertheless believes that the Reorganization presents a rare opportunity for
McClatchy to obtain a high-quality newspaper in a premier market while adding
additional geographic diversification to McClatchy's revenue base.
The McClatchy Board also concluded that the Reorganization is
consistent with McClatchy's strategic vision: (i) the Twin Cities market growth
together with the contemplated synergies created by the Cowles Merger will
position McClatchy as the eighth largest newspaper company in the United States
based on daily and Sunday circulation; (ii) the STAR TRIBUNE is the leading
newspaper in Minnesota (nearly twice that of its primary competitor in the Twin
Cities market) with circulation of 387,000 daily and 673,000 on Sunday, it ranks
as the 16th largest daily and the 12th largest Sunday newspaper in the country,
and it is recognized as one of the top newspapers in the nation for journalistic
integrity and quality and has won a Pulitzer Prize for investigative reporting,
the Robert F. Kennedy Award and numerous other national honors; (iii) the STAR
TRIBUNE's strong name-brand recognition has enabled Cowles to leverage its core
business into a powerful marketing information company through the introduction
of new products and services, including special interest publications, online
services, voice services, non-subscriber products, direct mail and event
sponsorships; and (iv) in addition to the STAR TRIBUNE, Cowles has operated the
three Non-newspaper Subs, which Cowles and McClatchy have executed agreements to
sell at or as soon as practicable after the Effective Time, using the proceeds
of such sales to reduce the debt incurred by the Reorganization Financings.
OPINION OF MCCLATCHY'S FINANCIAL ADVISOR
McClatchy engaged Salomon Brothers to act as its financial advisor in
connection with the transactions contemplated by the Reorganization Agreement
based upon Salomon Brothers' qualifications, expertise and reputation as an
investment banking firm and familiarity with McClatchy. On November 13, 1997,
Salomon Brothers delivered a written opinion to the Board of Directors of
McClatchy (the "Salomon Brothers Opinion") to the effect that, as of such date,
and based upon and subject to the assumptions, limitations and qualifications
set forth in such opinion, the consideration to be paid to the Cowles
stockholders in the Cowles Merger was fair to the stockholders of McClatchy from
a financial point of view.
THE FULL TEXT OF THE SALOMON BROTHERS OPINION IS SET FORTH AS ANNEX D
TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND SHOULD BE READ CAREFULLY IN ITS
ENTIRETY, INCLUDING WITHOUT LIMITATION, THE DESCRIPTIONS OF THE PROCEDURES
FOLLOWED, ASSUMPTIONS MADE, OTHER MATTERS CONSIDERED AND LIMITATIONS OF THE
REVIEW UNDERTAKEN IN ARRIVING AT SUCH OPINION. THE SALOMON BROTHERS OPINION
ADDRESSES ONLY THE FAIRNESS OF THE CONSIDERATION TO BE PAID TO THE COWLES
STOCKHOLDERS IN THE COWLES MERGER TO THE COMMON STOCKHOLDERS OF MCCLATCHY FROM A
FINANCIAL POINT OF VIEW AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER OF MCCLATCHY OR COWLES AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
RESPECTIVE SPECIAL MEETINGS. THE SUMMARY OF THE SALOMON BROTHERS OPINION SET
FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE SALOMON BROTHERS OPINION.
The Salomon Brothers Opinion does not constitute an opinion as to the
price at which McClatchy Common Stock or New McClatchy Common Stock will
actually trade at any time. Salomon Brothers was requested to evaluate, from a
financial point of view, the fairness of the consideration to be paid to the
Cowles stockholders in the Cowles Merger to the stockholders of McClatchy. No
restrictions or limitations were imposed upon Salomon Brothers with respect to
the investigations made or procedures followed by Salomon Brothers in rendering
its opinion. In arriving at its opinion, Salomon Brothers, among other things,
reviewed the Reorganization Agreement, including Annexes thereto, as well as
financial and other information that was publicly available or furnished to it
by McClatchy and Cowles including information provided during discussions with
their respective managements regarding their businesses and prospects. Included
in the information provided during discussions with the respective
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managements were certain financial forecasts and other information relating to
the business operations, financial condition and prospects of McClatchy and
Cowles, respectively, prepared by their respective managements. In addition,
Salomon Brothers compared certain financial and securities data of McClatchy and
Cowles with various other companies whose securities are traded in public
markets, reviewed prices and premiums paid in certain other business
combinations and conducted such other financial studies, analyses and
investigations as Salomon Brothers deemed appropriate for purposes of rendering
its opinion. Salomon Brothers also considered such other information, financial
studies, analyses, investigations and financing, economic and market criteria
that Salomon Brothers deemed relevant.
In rendering its opinion, Salomon Brothers did not independently verify
or assume responsibility for verifying any of the information and assumed the
accuracy and completeness of all of the financial and other information reviewed
by it. Salomon Brothers did not conduct a physical inspection of the properties
or facilities, nor make or obtain or assume responsibility for obtaining any
independent evaluation or appraisal of any assets (including properties and
facilities) or liabilities, of McClatchy or Cowles. Salomon Brothers relied upon
the estimates of the respective managements of McClatchy and Cowles of the
operating savings and other benefits and cost reductions achievable as a result
of the Reorganization. Salomon Brothers also assumed that the financial
forecasts and other information relating to the prospects of McClatchy and
Cowles were reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of the management of McClatchy and Cowles,
respectively, as to the likely future financial performance of McClatchy and
Cowles, respectively, and Salomon Brothers expressed no opinion with respect to
such forecasts or the assumptions on which they are based. Salomon Brothers did
not make any independent investigation of any legal matters affecting McClatchy
or Cowles, and assumed the correctness of all legal advice given to each of them
and to the Board of Directors of McClatchy, including advice as to the tax
consequences of the Reorganization. While Salomon Brothers believes that its
review as described herein is an adequate basis for the Salomon Brothers
Opinion, the Salomon Brothers Opinion is necessarily based upon financial,
economic, monetary, political, market and other conditions that existed and
could be evaluated as of the date of the Salomon Brothers Opinion and does not
speak to any date other than the date on which the Salomon Brothers Opinion was
delivered. Salomon Brothers does not have any obligation to update, revise or
reaffirm its opinion as a result of changes in such conditions or otherwise.
The following is a brief summary of the analyses performed by Salomon
Brothers in connection with the Salomon Brothers Opinion and included in its
presentations to the Board of Directors of McClatchy. All analyses discussed
below, unless otherwise indicated, exclude anticipated cost savings resulting
from the Reorganization estimated by the management of McClatchy.
PUBLIC MARKET VALUATION. Salomon Brothers compared the operating
performance of Cowles to certain market trading statistics of selected publicly
traded companies in the industries considered by Salomon Brothers to be
reasonably comparable to Cowles with similar historical financial and operating
data, and projections of future financial performance. In the newspaper
publishing industry, these companies were A.H. Belo Corporation, Central
Newspapers, Inc., Dow Jones & Company, Inc., Gannet Co., Hollinger International
Inc., Knight-Ridder, Inc., Lee Enterprises Incorporated, McClatchy Newspapers,
Inc., The New York Times Company, The Times Mirror Company, The Tribune Company
and The Washington Post Company (the "Newspaper Publishing Companies") and in
the magazine publishing industry, these companies were American Media
Operations, Inc., CMF-Media Inc., Marvel Entertainment Group, Inc., Mecklermedia
Corporation, Meredith Corporation, The Petersen Companies, Inc., PRIMEDIA Inc.
(formerly K-III Communications Corporation), Playboy Enterprises, Inc., The
Readers Digest Association, Inc. and Waverly, Inc. (the "Magazine Publishing
Companies"). Historical financial information used in connection with the ratios
provided below with respect to the Newspaper Publishing Companies and the
Magazine Publishing Companies is as of the most recent financial statements
publicly available for each company as of November 6, 1997.
Salomon Brothers examined certain publicly available financial data of
the Newspaper Publishing Companies and the Magazine Publishing Companies
including Firm Value (defined as market value of fully diluted common equity
less any option proceeds ("Equity Value") plus book value of total debt,
minority interest and preferred stock and out-of-the-money convertible
securities, less investments in unconsolidated affiliates and cash) as a
multiple of revenues over the last twelve months ("LTM") sales, earnings before
interest, taxes, depreciation and amortization
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("EBITDA"), earnings before interest and taxes ("EBIT"), and estimated EBITDA
for calendar years 1997 and 1998, and price to earnings ratios ("P/E") based on
estimated earnings per share ("EPS") for calendar years 1997 and 1998. EPS and
EBITDA estimates for Cowles were based on certain financial forecasts prepared
by the management of Cowles and the management of McClatchy; EPS and EBITDA
estimates for the Newspaper Publishing Companies and the Magazine Publishing
Companies were based upon a composite of equity research analysts' estimates.
Salomon Brothers compared the principal business units of Cowles to the
Newspaper Publishing Companies and the Magazine Publishing Companies with a view
to determining the valuation that the public securities markets would give to
those units on a stand-alone basis. Based on this analysis, Salomon Brothers
calculated a firm value reference range of approximately $909 million to
approximately $1.1 billion for Cowles, implying an equity reference range of
$56.20 to $68.98 for each share of the Cowles Common Stock on a noncontrol
premium adjusted basis. Adjusting for a 30% to 40% control premium, Salomon
Brothers calculated a firm value reference range of approximately $1.2 billion
to approximately $1.5 billion for Cowles, implying an equity reference range of
$73.06 to $96.57 for each share of the Cowles Common Stock.
No company used in the public market valuation analysis summarized
above is identical to McClatchy or Cowles. Accordingly, any analysis of the
value of the Reorganization based upon the Newspaper Publishing Companies and
the Magazine Publishing Companies involves complex considerations and judgments
concerning differences in the potential financial and operating characteristics
of the Newspaper Publishing Companies and the Magazine Publishing Companies and
other factors in relation to the trading and acquisition values of the Newspaper
Publishing Companies and the Magazine Publishing Companies.
COMPARABLE TRANSACTION ANALYSIS. Salomon Brothers reviewed and analyzed
selected merger or acquisition transactions involving other companies in the
newspaper and publishing industries it deemed relevant. These transactions
included the following: Hollinger International Inc./Southam Inc. (announced May
1997); The E.W. Scripps Company/Harte-Hanks Communications (announced May 1997);
Knight-Ridder, Inc./ABC Media, Inc. (announced April 1997); A.H. Belo
Corporation/The Providence Journal Company (announced September 1996); Media
General, Inc./Park Communications Inc. (announced July 1996); Pulitzer
Publishing Company/Scripps League Newspapers, Inc. (announced May 1996); Media
General, Inc./Worrell Enterprises, Inc. (announced September 1995);
Knight-Ridder, Inc./Lesher Communications, Inc. (announced August 1995);
McClatchy/The News and Observer Publishing Company (announced May 1995); Hearst
Corp./Houston Post (announced April 1995); Hollinger Inc./The Sun-Times Company
(announced February 1994); and The New York Times Company/Affiliated
Publications, Inc. (announced June 1993). Salomon Brothers also reviewed the
acquisitions made by CBM, CEM, and CCP of existing publications. Among other
matters, Salomon Brothers indicated that the merger and acquisition transaction
environment varies over time because of macroeconomic factors such as interest
rate and equity market fluctuations and microeconomic factors such as industry
results and growth expectations. Salomon Brothers noted that no transaction
reviewed was identical to the Reorganization and that, accordingly, an
assessment of the results of the following analysis necessarily involves
considerations and judgments concerning differences in financial and operating
characteristics of Cowles and other factors that would affect the acquisition
value of the companies to which it is being compared. Salomon Brothers reviewed,
for each acquired company, the ratio of firm value to latest LTM sales and to
LTM EBITDA, when available. Based on these analyses and the prices paid in the
transactions described above, Salomon Brothers calculated a firm value reference
range of approximately $1.2 billion to approximately $1.5 billion for Cowles,
implying an equity reference range of $77.48 to $100.05 for each share of the
Cowles Common Stock.
DISCOUNTED CASH FLOW ANALYSIS. Using a discounted cash flow ("DCF")
methodology, Salomon Brothers valued Cowles estimating the present value of
unlevered future free cash flows available to its debt and equity holders if
Cowles were to perform on a stand-alone basis (without giving effect to the
Reorganization). The discounted cash flow analysis for Cowles was based upon
certain discussions with management of Cowles and McClatchy and upon certain
financial forecasts prepared by the management of Cowles and McClatchy. This
analysis was performed for each major business unit of Cowles on a stand-alone
basis. Free cash flow represented the amount of cash generated and available for
principal and interest payments after providing for ongoing business operations.
Salomon Brothers aggregated (x) the present value of the free cash flows of each
business unit over a five-year forecast period with (y) the present value of the
range of terminal values. The range of terminal values
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represented each business unit's value beyond the applicable forecast period.
This range of terminal values was generally calculated by applying a range of
selected EBITDA multiples to each business unit's EBITDA in the final year of
the forecast period. As part of the DCF analysis, Salomon Brothers used discount
rates reflecting each business unit's specific financial characteristics. This
analysis indicated a firm value reference range of approximately $1.3 billion to
approximately $1.5 billion for Cowles, implying an equity reference range of
$86.39 to $97.22 for each share of the Cowles Common Stock. Salomon Brothers
also performed a DCF analysis including the value of anticipated cost savings.
The value of the anticipated cost savings was calculated using similar discount
rates and was comprised of the sum of the present value of the annual amounts of
anticipated cost savings plus the present value of a range of terminal values.
This analysis indicated a firm value reference range of approximately $1.5
billion to approximately $1.7 billion for Cowles, implying an equity reference
range of $96.94 to $108.96 for each share of the Cowles Common Stock.
PRO FORMA COMBINATION ANALYSIS. Salomon Brothers analyzed the pro forma
effect of the Reorganization on the projected earnings per share of McClatchy.
Such analysis was based on certain financial forecasts prepared by managements
of McClatchy and Cowles, and anticipated cost savings as forecasted by the
management of McClatchy and Cowles contemplated to result from the
Reorganization. This analysis is based on a number of assumptions, including,
among other things, the projected financial performance of McClatchy and Cowles,
and the estimated amounts and timing of the anticipated cost savings. The
analysis indicated that (accounting for the transaction as a purchase, and
giving effect to the anticipated cost savings), the pro forma earnings per share
forecasts for New McClatchy are anticipated to be lower than McClatchy's
stand-alone earnings per share forecasts for each of the next several years.
Salomon Brothers noted that the dilution of forecasted earnings per share was
primarily attributable to amortization of goodwill resulting from the
Reorganization.
The summary set forth above does not purport to be a complete
description of the analyses performed by Salomon Brothers, but describes, in
summary form, the principal elements of the analyses made by Salomon Brothers in
arriving at the Salomon Brothers Opinion. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily summarized. Each of
the analyses conducted by Salomon Brothers was carried out in order to provide a
different perspective on the transaction and add to the total mix of information
available. Salomon Brothers did not form a conclusion as to whether any
individual analysis, considered in isolation, supported or failed to support an
opinion as to fairness from a financial point of view. Rather, in reaching its
conclusion, Salomon Brothers considered the results of the analyses in light of
each other and ultimately reached its opinion based on the results of the
analyses taken as a whole. Further, Salomon Brothers' conclusion involved
significant elements of judgment and qualitative analyses as well as the
financial and quantitative analyses. Salomon Brothers did not place particular
reliance or weight on any individual factor, but instead concluded that its
analyses, taken as a whole, supported its determination. Accordingly,
notwithstanding the separate factors summarized above, Salomon Brothers believes
that its analyses must be considered as a whole and that selecting portions of
its analysis and the factors considered by it, without considering all analyses
and factors, could create an incomplete or misleading view of the evaluation
process underlying its opinions. In addition, analyses relating to the value of
the businesses or securities do not purport to be appraisals, or to reflect the
prices at which such businesses or securities can actually be sold. The analyses
performed by Salomon Brothers are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses.
Salomon Brothers was selected to render an opinion in connection with
the Reorganization based upon Salomon Brothers' qualifications, expertise and
reputation, including the fact that Salomon Brothers, as part of its investment
banking business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, underwritings, sales and
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
Pursuant to a letter agreement between McClatchy and Salomon Brothers
dated September 29, 1997 (the "Salomon Brothers Engagement Letter"), McClatchy
has paid Salomon Brothers $550,000 ($250,000 of which was paid upon delivery of
the Salomon Brothers Opinion) and has agreed to pay Salomon Brothers an
additional fee equal to 0.50% of the Aggregate Consideration (as defined herein)
less the $550,000 previously paid upon the con-
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summation of an acquisition transaction in which McClatchy acquires Cowles by
merger, tender offer or otherwise, or directly or indirectly purchases all or a
significant portion of the assets, or more than 10% of the equity securities, of
Cowles. "Aggregate Consideration" is defined in the Salomon Brothers Engagement
Letter as the total amount of cash and the fair market value (on the date of
payment) of all other property paid or payable by McClatchy directly or
indirectly to Cowles, its employees or its security holders or its security
holders in connection with an acquisition transaction or a transaction related
thereto. McClatchy has agreed to reimburse Salomon Brothers for its
out-of-pocket expenses, including reasonable fees and expenses of its counsel,
and to indemnify Salomon Brothers for liabilities and expenses, including
liabilities under federal securities laws, arising out of its engagement
thereunder. The terms of the fee arrangement with Salomon Brothers, which
Salomon Brothers and McClatchy believe are customary in transactions of this
nature, were negotiated at arm's length between McClatchy and Salomon Brothers
and the Board of Directors of McClatchy was aware of such arrangement, including
the fact that a significant portion of the aggregate fee payable to Salomon
Brothers is contingent upon consummation of the Reorganization.
In the ordinary course of business, Salomon Brothers may actively trade
the securities of McClatchy, New McClatchy or Cowles for its own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
OPINION OF COWLES' FINANCIAL ADVISOR
On November 13, 1997, Goldman Sachs delivered its oral opinion to the
Cowles Board which it confirmed in writing, that as of November 13, 1997, the
Stock Consideration and the Cash Consideration to be received by holders of
Cowles Common Stock pursuant to the Reorganization Agreement, taken as a unitary
transaction, was fair from a financial point of view to the holders of Cowles
Common Stock.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED NOVEMBER
13, 1997, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS
ANNEX E TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. HOLDERS OF COWLES COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH
OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other
things, (i) the Reorganization Agreement; (ii) Annual Reports to Stockholders of
Cowles for the five fiscal years ended March 29, 1997 and Annual Reports to
Stockholders and Annual Reports on Form 10-K of McClatchy for the five years
ended December 31, 1996; (iii) certain interim reports to stockholders and
Quarterly Reports of Cowles and certain interim reports to stockholders and
Quarterly Reports on Form 10-Q of McClatchy; (iv) certain other communications
from Cowles and McClatchy to their respective stockholders; and (v) certain
internal financial analyses and forecasts for Cowles and McClatchy prepared by
members of their respective senior managements. Goldman Sachs also held
discussions with members of senior management of Cowles and McClatchy regarding
the past and current business operations, financial condition and future
prospects of their respective companies. In addition, Goldman Sachs reviewed the
reported prices and trading activity for the publicly traded shares of Cowles
and McClatchy, compared certain financial and stock market information for
Cowles and McClatchy with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in the newspaper industry specifically and in other
industries generally and performed such other studies and analyses as it
considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and has assumed such accuracy and
completeness for purposes of rendering its opinion. Goldman Sachs did not make
an independent evaluation or appraisal of the assets and liabilities of Cowles,
McClatchy or any of their subsidiaries and was not furnished with any such
evaluation or appraisal. The advisory services and opinion of Goldman Sachs are
provided for the information and assistance of the Cowles Board in connection
with its consideration of the transaction contemplated by the Reorganization
Agreement and such opinion does not constitute a recommendation as to how any
holder of Cowles Common Stock should vote with respect to such transaction.
Goldman Sachs does not express any opinion as to the prices at which the shares
of New McClatchy Class A Common Stock may trade if and when issued.
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The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its November 13, 1997 opinion to the
Cowles Board.
(i) PUBLIC MARKET ANALYSIS. Goldman Sachs reviewed and compared certain
financial information, ratios and public market multiples for fifteen publicly
traded newspaper corporations: Hollinger International Inc., Central Newspapers,
Inc., McClatchy Newspapers, Inc., Media General, Inc., Pulitzer Publishing
Company, Journal Register Company, A.H. Belo Corporation, Dow Jones & Company,
Inc., The E.W. Scripps Company, Gannett Co., Inc., Knight-Ridder, Inc., The New
York Times Company, Tribune Company, The Times Mirror Company and The Washington
Post Company (collectively, the "Selected Companies"). The Selected Companies
were chosen because they are companies with operations that for purposes of
analysis may be considered similar to certain operations of Cowles.
With respect to the Selected Companies, Goldman Sachs calculated
price/earnings ("P/E") ratios, based on EPS and growth estimates provided by
Institutional Brokers Estimate System ("IBES"), which ranged from 11.4x to 39.4x
for LTM, with a mean and median of 23.1x and 22.9x, respectively; from 16.9x to
42.1x for estimated 1997, with a mean and median of 23.2x and 23.0x,
respectively; and from 13.7x to 33.4x for estimated 1998, with a mean and median
of 20.4x and 20.5x, respectively. Goldman Sachs computed EBITDA multiples for
the Selected Companies (based on research analysts' estimates) which ranged from
8.5x to 15.6x for LTM, with a mean and median of 10.8x and 10.6x, respectively;
6.1x to 13.3x for estimated 1997, with a mean and median of 9.7x and 10.1x,
respectively; and from 5.6x to 11.4x for estimated 1998, with a mean and median
of 8.9x and 9.3x, respectively.
As part of the public market analysis, Goldman Sachs also considered
LTM revenue multiples which ranged from 1.2x to 4.1x, with a mean and median of
2.6x and 2.4x, respectively; five-year projected EPS growth based on IBES
estimates which ranged from 10% to 20%, with a mean and median of 13% and 13%,
respectively; the multiple of estimated 1998 earnings divided by the five-year
projected EPS growth which ranged from 0.9x to 2.7x, with a mean and median of
1.6x and 1.6x, respectively; and dividend yields which ranged from zero to 3.0%,
with a mean and median of 1.5% and 1.3%, respectively.
(ii) MERGER MARKET ANALYSIS. Goldman Sachs reviewed selected
acquisitions in the newspaper industry since 1990 where the consideration paid
exceeded $100 million and where the buyer and seller were, respectively,
Knight-Ridder, Inc. and Walt Disney Company; A.H. Belo Corporation and The
Providence Journal Company; McClatchy and The News & Observer Publishing
Company; The New York Times Company and Affiliated Publications, Inc.; News
Corp. and The Hearst Corporation; Gannett Co., Inc. and Persis Corporation; TCI
Communications, Inc. and Kearns-Tribune Corporation; The Hearst Corporation and
The Houston Post Company; American Publishing Company and The Sun-Times Company;
and Blade Communications, Inc. and The E.W. Scripps Company. In six transactions
from major markets without competitive newspapers, the LTM revenue multiples
ranged from 2.3x to 4.7x, with a mean and median of 3.3x and 3.1x, respectively;
and forward EBITDA multiples ranged from 11.0x to 14.5x, with a mean and median
of 12.7x and 12.4x, respectively. In four transactions from major markets with
competitive newspapers, the LTM revenue multiples ranged from 0.8x to an
estimated 1.4x, with a mean and median of 1.1x and 1.1x, respectively; and
forward EBITDA multiples ranged from 8.0x to 9.7x, with a mean and median of
8.8x and 8.6x, respectively.
(iii) DISCOUNTED CASH FLOW ANALYSIS. Goldman Sachs performed a
discounted cash flow analysis based on management projections. Using terminal
values in the year 2000 based on EBITDA multiples ranging from 9.0x to 13.0x and
discounting these terminal values to present value using discount rates ranging
from 9.0% to 15.0%, the implied equity value per share of Cowles Common Stock
ranged from $59.75 to $98.98.
(iv) SUMMARY ACQUISITION ANALYSIS. Goldman Sachs reviewed the financial
consequences to McClatchy of acquiring Cowles both utilizing a structure that
involved part stock and part cash (for purposes of their analysis, Goldman Sachs
utilized a structure that consisted of 25% stock consideration and 75% cash
consideration) and utilizing a structure that involved only cash consideration.
This analysis indicated that before synergies the acquisition of Cowles would,
in a part stock/part cash structure, be dilutive to McClatchy's projected future
earnings
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per share by an estimated 43.8% in 1998 and 31.3% in 1999 and would in an all
cash structure be dilutive to McClatchy's projected future earnings per share by
an estimated 58.7% in 1998 and 36.9% in 1999.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Cowles or McClatchy or the contemplated transaction. The analyses were prepared
solely for purposes of Goldman Sachs' providing its opinion to the Cowles Board
as to the fairness from a financial point of view of the Stock Consideration and
the Cash Consideration, taken as a unitary transaction, to be received by
holders of Cowles Common Stock and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of Goldman Sachs, Goldman Sachs does not assume responsibility if future
results are materially different from those forecast. Goldman Sachs' opinion to
the Cowles Board was one of many factors taken into consideration by the Board
in making its determination to approve the Merger Agreement. The foregoing
summary does not purport to be a complete description of the analysis performed
by Goldman Sachs and is qualified by reference to the written opinion of Goldman
Sachs set forth in Annex E hereto.
Goldman Sachs, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements, and valuations for estate, corporate and other purposes. Goldman
Sachs is familiar with Cowles, having acted as its financial advisor in
connection with, and having participated in the negotiations leading to, the
Reorganization Agreement. Goldman Sachs may provide investment banking services
to McClatchy or New McClatchy in the future. Cowles selected Goldman Sachs as
its financial advisor because it is a nationally recognized investment banking
firm that has substantial experience in transactions similar to this one.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities including derivative securities, of
Cowles or McClatchy for its own account and for the accounts of customers.
Pursuant to a letter agreement signed by Cowles on August 12, 1997 (the
"Engagement Letter"), Cowles engaged Goldman Sachs to act as its exclusive
financial advisor in connection with exploring strategic alternatives and a
possible strategic transaction. Pursuant to the terms of the Engagement Letter,
Cowles has agreed to pay Goldman Sachs a transaction fee of 0.7% of the
aggregate consideration to be paid by McClatchy (as described in the Engagement
Letter). Cowles has agreed to reimburse Goldman Sachs for its reasonable
expenses, including attorney's fees, and to indemnify Goldman Sachs against
certain liabilities, including certain liabilities under the federal securities
laws.
CERTAIN FINANCIAL FORECASTS
As part of their respective business planning cycles, management of
each of Cowles and McClatchy from time to time have prepared financial forecasts
regarding their respective anticipated future operations. Such internal
forecasts, to the extent shared by each party with the other in the fall of 1997
during the course of negotiating the proposed Cowles Merger, included, among
other things, (i) for Cowles, forecasted fiscal 1998 revenue, EBITDA, and
earnings per share of $542.8 million, $102.0 million and $3.04, respectively,
and forecasted fiscal 1999 revenue, EBITDA, and earnings per share of $584.6
million, $116.3 million and $3.55, respectively; and (ii) for McClatchy,
forecasted fiscal 1998 revenue, EBITDA, and earnings per share of $676 million,
$178 million and $1.84, respectively, and forecasted fiscal 1999 revenue,
EBITDA, and earnings per share of $706 million, $194 million and $2.16,
respectively.
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These internal forecasts were not prepared with a view to public
disclosure or compliance with published guidelines of the Commission or the
guidelines established by the American Institute of Certified Public Accountants
regarding projections or forecasts. While presented with numerical specificity,
these internal forecasts are based upon a variety of assumptions relating to the
business of their respective companies and are inherently subject to significant
uncertainties and contingencies that are beyond the control of management of
Cowles or McClatchy, including the impact of economic conditions, the
competitive environment in which each operates and other factors. See
"FORWARD-LOOKING STATEMENTS." Accordingly, actual results may differ materially
from those forecasted. The inclusion of these internal forecasts herein should
not be regarded as a representation by Cowles, McClatchy, New McClatchy or any
other person that the internal forecasts are or will prove to be correct. None
of Cowles, McClatchy or New McClatchy intends to make publicly available any
update or other revisions to any internal forecast presented above to reflect
circumstances existing after the respective dates of such internal forecast's
preparation.
FEDERAL INCOME TAX MATTERS
The following discusses the material federal income tax consequences of
the Mergers to holders of McClatchy Common Stock and Cowles Common Stock. The
discussion is based upon the Code, applicable Treasury Regulations thereunder,
administration rulings and judicial authority, all as of the date hereof. All of
the foregoing are subject to change, possibly with retroactive effect, and any
such change could affect the continuing validity of the discussion.
This discussion does not address the federal income tax considerations
that may affect the treatment of a stockholder subject to special tax rules,
such as a non-United States person, a tax-exempt entity, an insurance company, a
financial institution, a person who acquired McClatchy Common Stock or Cowles
Common Stock through the exercise of employee stock options or otherwise as
compensation, a person holding shares of McClatchy Common Stock or Cowles Common
Stock as part of a "straddle," "hedge" or "conversion transaction" or a person
under the jurisdiction of a court in a case under Title 11 of the United States
Code or a receivership, foreclosure, or similar proceeding in a federal or state
court. Holders of McClatchy Common Stock and Cowles Common Stock are urged to
consult their own tax advisors as to the tax consequences of the Mergers to
them. This discussion does not address any aspect of state, local or foreign
taxation. This summary assumes that the holders of the McClatchy Common Stock
and Cowles Common Stock will, at the Effective Time, hold such shares as a
capital asset.
As of the date hereof, it is intended that the McClatchy Merger will
constitute a reorganization pursuant to section 368(a) of the Code for federal
income tax purposes and/or a transfer of property to New McClatchy by the
holders of McClatchy Common Stock and Cowles Common Stock governed by section
351 of the Code. It is a condition to the obligation of McClatchy to complete
the Mergers that McClatchy shall have received an opinion of Pillsbury Madison &
Sutro LLP, dated as of the Closing Date, or if such firm is unwilling or unable
to render such opinion, an opinion of Fried, Frank, Harris, Shriver & Jacobson,
special counsel to Cowles, dated as of the Closing Date, that the McClatchy
Merger will be treated for federal income tax purposes as a reorganization
described in section 368(a) of the Code and/or a transfer of property, to New
McClatchy by the holders of McClatchy Common Stock governed by section 351 of
the Code. The opinion of Pillsbury Madison & Sutro LLP will be based upon, among
other things, certain customary representations made by McClatchy and certain of
its stockholders. Assuming that the customary representations referred to in the
preceding sentence are true and correct at the time the McClatchy Merger is
consummated and assuming further that the McClatchy Merger is consummated in
accordance with the terms of the Reorganization Agreement, then in the opinion
of Pillsbury Madison & Sutro LLP, the McClatchy Merger will qualify as a
reorganization within the meaning of section 368(a) of the Code and will have
the material federal income tax consequences described below under the headings
"--Treatment of Holders of McClatchy Common Stock--Exchange of McClatchy Common
Stock for New McClatchy Common Stock" and "--Reporting Requirements."
Cowles' obligation to complete the Cowles Merger is not conditioned
upon the receipt by Cowles of an opinion of counsel regarding the tax
consequences of the Cowles Merger. However, it is anticipated that Faegre &
Benson LLP and Fried, Frank, Harris, Shriver & Jacobson, counsel to Cowles, each
will deliver an opinion to Cowles to the effect that the exchange of Cowles
Common Stock for New McClatchy Class A Common Stock pursuant to
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the Cowles Merger will qualify as a tax-free exchange under section 351 of the
Code. These opinions will be based upon, among other things, (i) certain
customary representations made by McClatchy and Cowles, and (ii) the assumption
that, at the time of the Mergers, there will be no plan or intention on the part
of certain stockholders of McClatchy and Cowles who receive New McClatchy Common
Stock in the Mergers to dispose of the stock. Assuming that the customary
representations and the assumptions referred to in (i) and (ii) above are
correct and assuming that the Mergers are consummated in accordance with the
terms of the Reorganization Agreement, then in the opinion of Faegre & Benson
LLP and Fried, Frank, Harris, Shriver & Jacobson, the Mergers will qualify as a
tax-free exchange under section 351 of the Code and will have the material
federal income tax consequences described below under the headings "--Treatment
of Holders of Cowles Common Stock" (and the subheadings thereof) and
"--Reporting Requirements." Although the tax law is unclear in this regard, if
the assumption referred to in (ii) above is incorrect, the Internal Revenue
Service (the "IRS") or a court might reach the conclusion that the exchange of
Cowles Common Stock for New McClatchy Class A Common Stock pursuant to the
Cowles Merger does not qualify as a tax-free exchange under section 351 of the
Code, but instead is a fully taxable transaction. As of the date of the Joint
Proxy Statement/Prospectus, neither McClatchy nor Cowles has any reason to
believe that the assumption referred to in (ii) above is incorrect.
No rulings have been or will be requested from the IRS with respect to
any of the matters discussed herein. The opinions of counsel described above are
not binding on the IRS or a court and, thus, in considering the matters
addressed in those opinions, the IRS or a court could reach a conclusion
contrary to that reached in the opinions. Also, there can be no assurance that
future legislation, regulations, administrative rulings or court decisions will
not adversely affect the accuracy of the statements contained herein.
TREATMENT OF HOLDERS OF MCCLATCHY COMMON STOCK--EXCHANGE OF MCCLATCHY
COMMON STOCK FOR NEW MCCLATCHY COMMON STOCK. A holder of McClatchy Common Stock
who, pursuant to the McClatchy Merger, exchanges McClatchy Common Stock for New
McClatchy Common Stock will not recognize gain or loss upon such exchange. The
tax basis of the New McClatchy Common Stock received by such holder will be
equal to the tax basis of the McClatchy Common Stock surrendered and the holding
period of the New McClatchy Common Stock will include the holding period of the
McClatchy Common Stock surrendered.
Generally, a holder of McClatchy Class B Common Stock who receives
solely cash in exchange for that stock pursuant to the exercise of dissenter's
rights under the DGCL (a "dissenter") will recognize capital gain or loss equal
to the difference between the tax basis of the McClatchy Class B Common Stock
surrendered and the amount of cash received therefor (except that any cash
received that is or is deemed to be interest for federal income tax purposes
will be taxed as ordinary income). Such capital gain or loss will constitute
long-term capital gain or loss if the McClatchy Class B Common Stock has been
held by the dissenter for more than eighteen months at the Effective Time and
mid-term capital gain if it has been held for more than one year, but not more
than eighteen months. Gain or loss must be calculated separately for each block
of McClatchy Class B Common Stock (i.e., shares of McClatchy Class B Common
Stock acquired at the same time in a single transaction). Under certain
circumstances (e.g., if a dissenter remains an officer, director or employee of
McClatchy following the Effective Time), the federal income tax consequences to
a dissenter could be different, and generally less favorable, from those
described in the preceding three sentences. Specifically, the dissenter could
recognize dividend income equal to all or part of the cash received. A holder of
McClatchy Class B Common Stock contemplating dissenting should contact his or
her tax advisor regarding the tax consequences of dissenting.
TREATMENT OF HOLDERS OF COWLES COMMON STOCK--EXCHANGE OF COWLES COMMON
STOCK SOLELY FOR NEW MCCLATCHY COMMON STOCK. Assuming section 351 of the Code
applies to the Cowles Merger, then, except as discussed below under "--Cash in
Lieu of Fractional Shares," a holder of Cowles Common Stock who receives solely
New McClatchy Class A Common Stock in exchange for Cowles Common Stock will not
recognize gain or loss upon such exchange. The aggregate tax basis of the New
McClatchy Class A Common Stock received by such holder will be equal to the
aggregate tax basis of the Cowles Common Stock surrendered (excluding any
portion of the holder's basis allocated to fractional shares) and the holding
period of the New McClatchy Class A Common Stock will include the holding period
of the Cowles Common Stock surrendered. A holder of Cowles Common Stock who is
considering making a Stock Election should note that there can be no assurance
that such holder will receive only New McClatchy Class A Common Stock (because
of the possibility of proration) and, therefore, there
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<PAGE>
can be no assurance that a holder who makes a Stock Election will recognize no
taxable gain upon such holder's exchange of Cowles Common Stock.
If the exchange of Cowles Common Stock for New McClatchy Class A Common
Stock pursuant to the Cowles Merger fails to qualify as a tax-free exchange
under section 351 of the Code (which might occur if either the representations
of McClatchy and Cowles or the assumption that, at the time of the Mergers,
there will be no plan or intention on the part of certain stockholders of
McClatchy and Cowles to dispose of New McClatchy Common Stock received in the
Mergers is not true and correct), then a holder of Cowles Common Stock who
receives New McClatchy Class A Common Stock in exchange for Cowles Common Stock
in the Cowles Merger will recognize capital gain or loss equal to the difference
between the tax basis in the Cowles Common Stock surrendered and the fair market
value of the New McClatchy Class A Common Stock received.
EXCHANGE OF COWLES COMMON STOCK SOLELY FOR CASH. A holder of Cowles
Common Stock who receives solely cash in exchange for Cowles Common Stock in the
Cowles Merger or pursuant to the exercise of dissenter's rights under the DGCL
will recognize capital gain or loss equal to the difference between the tax
basis of the Cowles Common Stock surrendered and the amount of cash received
therefor (except that, in the case of a dissenter, any cash received that is or
is deemed to be interest for federal income tax purposes will be taxed as
ordinary income). Any such capital gain or loss will constitute long-term
capital gain or loss if the Cowles Common Stock has been held by the holder for
more than eighteen months at the Effective Time and mid-term capital gain or
loss if it has been held for more than one year, but not more than eighteen
months. Gain or loss must be calculated separately for each block of Cowles
Common Stock (i.e., shares of Cowles Common Stock acquired at the same time in a
single transaction).
EXCHANGE OF COWLES COMMON STOCK FOR A COMBINATION OF NEW MCCLATCHY
CLASS A COMMON STOCK AND CASH. Assuming section 351 of the Code applies to the
Cowles Merger (see "--Treatment of Holders of Cowles Common Stock--Exchange of
Cowles Common Stock Solely for New McClatchy Common Stock" above), then, except
as discussed below under "--Cash in Lieu of Fractional Shares," a holder of
Cowles Common Stock who receives a combination of New McClatchy Class A Common
Stock and cash in exchange for Cowles Common Stock (by making a Stock Election
for some shares and a Cash Election for the holder's remaining shares, or by
reason of the application of the proration procedures) will recognize capital
gain realized in the transaction but will not recognize any loss realized in the
transaction. The amount of capital gain that is recognized will be calculated
separately for each block of Cowles Common Stock surrendered, in an amount equal
to the lesser of (a) the amount of gain realized in respect of such block (i.e.,
the excess of (i) the sum of the amount of cash and the fair market value of New
McClatchy Class A Common Stock received that is allocable to such block of
Cowles Common Stock over (ii) the tax basis of such block) and (b) the amount of
cash received that is allocable to such block. Any such capital gain will
constitute long-term capital gain if such block of Cowles Common Stock has been
held by the holder for more than eighteen months at the Effective Time and
mid-term capital gain if it has been held for more than one year, but not more
than eighteen months. For this purpose, all of the cash and New McClatchy Class
A Common Stock received by a holder will be allocated proportionately among the
blocks of Cowles Common Stock surrendered by such holder. The tax basis of the
New McClatchy Class A Common Stock received in exchange for a block of Cowles
Common Stock will be equal to the tax basis of such surrendered block of Cowles
Common Stock, decreased by the amount of cash received in respect of such block
and increased by the amount of gain recognized in respect of such block. The
holding period of the New McClatchy Class A Common Stock will include the
holding period of such block of Cowles Common Stock surrendered.
If section 351 of the Code does not apply to the Cowles Merger (which
might occur if either the representations of McClatchy and Cowles or the
assumption that, at the time of the Mergers, there will be no plan or intention
on the part of certain stockholders of McClatchy and Cowles to dispose of New
McClatchy Common Stock received in the Mergers are not true and correct), then a
holder of Cowles Common Stock who receives New McClatchy Class A Common Stock
and cash in exchange for Cowles Common Stock in the Cowles Merger will recognize
capital gain or loss equal to the difference between the tax basis in the Cowles
Common Stock surrendered and the sum of the fair market value of the New
McClatchy Class A Common Stock plus the amount of the cash received.
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<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS IN MAKING AN ELECTION. If a
stockholder of Cowles who makes an effective Stock Election for all of such
stockholder's Cowles Common Stock receives cash as a result of the proration
procedures, the federal income tax consequences will be those described in the
preceding paragraph. If a stockholder of Cowles who makes an effective Cash
Election for all of such stockholder's Cowles Common Stock receives New
McClatchy Class A Common Stock as a result of the proration procedures, the
federal income tax consequences will be those described in the preceding
paragraph. The actual federal income tax consequences to each Cowles stockholder
of making a Cash Election or Stock Election will not be ascertainable at the
time the election is made because stockholders of Cowles will not know at such
time if, or to what extent, the proration procedures will apply.
CASH IN LIEU OF FRACTIONAL SHARES. A holder of Cowles Common Stock who
receives cash in lieu of a fractional share of New McClatchy Common Stock will
be treated as having received such fractional share pursuant to the Cowles
Merger and then as having exchanged such fractional share for cash in a
redemption by New McClatchy. Any gain or loss attributable to a fractional share
generally will be capital gain or loss. The amount of such gain or loss will be
equal to the difference between the ratable portion of the tax basis of the
Cowles Common Stock (adjusted as described above to reflect any cash received
and gain recognized by such holder) surrendered in the Cowles Merger that is
allocated to such fractional share and the cash received in lieu thereof. Any
such capital gain or loss will constitute long-term capital gain or loss if the
Cowles Common Stock has been held by the holder for more than eighteen months at
the Effective Time and mid-term capital gain or loss if it has been held for
more than one year, but not more than eighteen months.
REPORTING REQUIREMENTS. Each holder of Cowles Common Stock that
receives New McClatchy Class A Common Stock in the Cowles Merger and each holder
of McClatchy Common Stock that receives New McClatchy Common Stock in the
McClatchy Merger will be required to retain records and file with such holder's
federal income tax return a statement setting forth certain facts relating to
the Cowles Merger and the McClatchy Merger, respectively. It is also expected
that holders of McClatchy Common Stock will be asked to indicate in their Letter
of Transmittal their tax basis in McClatchy Common Stock surrendered.
ACCOUNTING TREATMENT
The Cowles Merger will be accounted for under the purchase method of
accounting, in accordance with generally accepted accounting principles. Under
the purchase method of accounting, the purchase price of Cowles, including
direct costs of the Reorganization, will be allocated to the assets acquired and
liabilities assumed based upon their estimated relative fair values, with the
excess purchase consideration allocated to goodwill. The conversion of
McClatchy's Common Stock into New McClatchy Common Stock will be treated as a
reorganization with no change in the recorded amount of McClatchy's assets and
liabilities. The financial statements of McClatchy will become the financial
statements of New McClatchy. The results of New McClatchy's operations will
include the results of operations of Cowles commencing at the Effective Time.
The Unaudited Pro Forma Combined Condensed Financial Statements
appearing elsewhere in this Joint Proxy Statement/Prospectus are based upon
certain assumptions and allocate the purchase price to assets and liabilities
based upon preliminary estimates of their respective fair values. The unaudited
pro forma adjustments and combined amounts are included for informational
purposes only. If the Reorganization is consummated, then New McClatchy's
financial statements will reflect effects of acquisition adjustments only from
the Effective Time. The actual allocation of the purchase price may differ
significantly from the allocation reflected in the Unaudited Pro Forma Combined
Condensed Financial Statements.
EFFECT ON STOCK OPTIONS AND EMPLOYEE BENEFIT MATTERS
The Reorganization Agreement provides that, subject to certain
exceptions and for varying periods of time depending upon the particular plan,
New McClatchy shall provide to certain employees as specified in the
Reorganization Agreement benefits that are in the aggregate no less favorable to
such employee than those provided under any such Cowles benefit plan immediately
before the Effective Time. See "DESCRIPTION OF NEW McCLATCHY CAPITAL
STOCK--McClatchy Stock Options" and "THE REORGANIZATION AGREEMENT--Cowles Stock
Options."
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<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGERS
Certain directors and officers of Cowles have interests, described
below, that may present them with potential conflicts of interest in connection
with the Reorganization. Each of the McClatchy Board and the Cowles Board is
aware of the conflicts and considered them in addition to the other matters
described under "--Background of the Cowles Merger," "--Recommendation of the
McClatchy Board; McClatchy's Reasons for the Reorganization" and
"--Recommendation of the Cowles Board and Reasons for the Cowles Merger" when
they approved the Reorganization Agreement and recommended that their
stockholders vote in favor of the Reorganization.
Certain officers and directors of Cowles participate in the Cowles 1995
Stock Incentive Plan (the "Long Term Plan"), the Cowles Executive Income
Continuation Policy (the "EICP") and the Cowles Supplemental Executive
Retirement Plan (the "SERP"). As a result of the Cowles Merger, each person
named below will receive the benefits listed below for such person:
<TABLE>
<CAPTION>
Retirement
Value of EICP Benefit
Name Title Certain PSUs(1) Payments(2) Enhancement(3)
- ---- ----- ------------ -------- -----------
<S> <C> <C> <C>
John Cowles III Chairman of the Board -0- $ 108,000 -0-
David C. Cox President and Chief $2,454,360 1,638,624 $133,212
Executive Officer
James J. Viera Vice President and Chief 800,835 685,744 97,644
Financial Officer
Joel R. Kramer Publisher and President, 1,522,300 691,968 8,525
STAR TRIBUNE
Pamela J. Sveinson Vice President, Human 392,680 348,618 4,067
Resources
Franklin J. Parisi Vice President, 295,392 348,618 13,231
Communications and
Corporate Relations
- ----------------
<FN>
(1) Under the Long Term Plan, each executive holds certain Cowles
Converted Stock Units, some of which will become earned and vested
(or, in some cases, become earned and vested earlier than otherwise)
as a result of the Cowles Merger. For each executive, the amount shown
is the product of $90.50 multiplied by the number of Converted Stock
Units held by such Executive.
(2) Under the EICP, an "Involuntary Termination" means, generally, a
termination by Cowles without cause or a resignation by the executive
that (a) follows any involuntary material change in the terms and
conditions of employment or (b) occurs within the 60-day period that
begins 120 days following a change in control of Cowles. In the event
of an Involuntary Termination, Cowles will be required to pay to the
executive: (i) during a continuation period (not exceeding 24 months),
monthly payments equal to one-twelfth of the executive's base salary;
(ii) during the continuation period, monthly payments equal to
one-twelfth of the executive's target amount under the annual
management incentive plan; (iii) for the fiscal year in which
termination occurs, a pro-rated portion of such target amount; and
(iv) a lump-sum payment equal to the monthly health insurance premium
paid by Cowles (if any), multiplied by the number of months in the
continuation period. The amount shown assumes an Involuntary
Termination on or about the Closing Date (although there is no
assurance that such Involuntary Termination will occur at that time)
and represents the sum of items (i) through (iv) for the named
executive.
(3) Under the SERP, in the event of a change in control followed by an
Involuntary Termination, the named executive would be entitled to
enhancement of his or her retirement benefit, so that his or her total
annual retirement benefit would be increased by the amount shown.
</FN>
</TABLE>
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<PAGE>
Under a compensation continuation plan, as amended, each Cowles
director (other than Mr. Cox) is entitled to receive a monthly retirement
benefit (commencing when such director ceases serving as such), equal to
one-twelfth of the annual director's fee then in effect. Such benefit is subject
to a vesting requirement of 60 months of service, which requirement is reduced
to 48 months in the event of a change in control. The monthly benefit is paid
until the former director has received the lesser of (a) one payment for each
full month of service or (b) 120 payments. The benefit for Ms. Ballantine and
Ms. Bullitt (each of whom has served for 56 months) and for Mr. Wilkins (who has
served for 51 months) will vest as a result of the Cowles Merger.
Shares of McClatchy Common Stock held by officers and directors of
McClatchy will be converted into the right to receive the same consideration as
shares of McClatchy Common Stock held by other stockholders. Options held by
officers and directors of McClatchy will be treated in the same manner as any
Options held by other Option holders. Similarly, shares of Cowles Common Stock
held by officers and directors of Cowles will be converted into the right to
receive the same consideration as shares of Cowles Common Stock held by other
stockholders. Options held by officers and directors of Cowles will be treated
in the same manner as any Options held by other Option holders. See "--Effect on
Stock Options and Employee Benefit Matters."
Pursuant to the Reorganization Agreement, McClatchy has agreed that, at
all times after the Effective Time, New McClatchy and the Cowles Surviving
Corporation shall indemnify all present and former directors, officers and
employees of Cowles and its subsidiaries to the fullest extent called for by the
Cowles Indemnification Provisions (as defined herein) (in each case as the
Cowles Indemnification Provisions exist immediately before the Effective Time
and regardless of whether any of them is subsequently amended, qualified,
repealed or otherwise changed). McClatchy has also agreed that New McClatchy
will maintain for at least six years the directors' and officers' liability
insurance coverage currently maintained by Cowles. See "THE REORGANIZATION
AGREEMENT--Indemnification and Insurance."
EXECUTIVE OFFICERS AND DIRECTORS OF THE MERGER SUBS. Because the Merger
Subs are acquisition vehicles established solely to consummate the
Reorganization, they do not have any executive officers other than those
individuals who have been appointed officers in order to effect the
Reorganization. These individuals have no interests in the Reorganization other
than as executives or employees of McClatchy, nor will they receive any
compensation for serving as such.
REGULATORY APPROVALS
Consummation of the Reorganization is subject to the expiration or
termination of the applicable waiting period under the HSR Act. Certain aspects
of the Reorganization will require notification to, and filings with, certain
securities and other authorities in certain states, including jurisdictions
where McClatchy and Cowles currently operate.
ANTITRUST. Under the HSR Act and the rules promulgated thereunder by
the FTC, the Reorganization may not be consummated until notifications have been
given and certain information has been furnished to the FTC and the Antitrust
Division and the applicable waiting period has expired or been terminated. All
such requisite waiting periods have expired or been terminated. Notwithstanding
such expiration or termination, at any time before or after consummation of the
Reorganization, the Antitrust Division, the FTC or any state could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the consummation of the Reorganization or
seeking divestiture of substantial assets of McClatchy or Cowles. Private
parties may also seek to take legal action under the antitrust laws under
certain circumstances.
Based on information available to them, management of McClatchy and
Cowles believe that the Reorganization would not violate federal and state
antitrust laws. However, there can be no assurance that a challenge to the
consummation of the Mergers on antitrust grounds will not be made or that, if
such a challenge were made, McClatchy and Cowles would prevail or would not be
required to accept certain adverse conditions in order to consummate the
Mergers.
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<PAGE>
OTHER. The obligations of McClatchy and Cowles under the Reorganization
Agreement are also subject to the filing of all notices, reports and other
requisite filings and the receipt of all consents, registrations, approvals,
permits and authorizations required to be obtained prior to the Effective Time
by McClatchy or Cowles, or any of their respective subsidiaries, from any
governmental entity in connection with the execution and delivery of the
Reorganization Agreement and the consummation of the Reorganization and the
other transactions contemplated thereby upon terms and conditions that are not
reasonably likely to have a material adverse effect on McClatchy. Neither
McClatchy nor Cowles is aware of any such notices, reports, filings, consents,
registrations, approvals, permits or authorizations that would delay the
consummation of the Reorganization.
EXCHANGE ACT REPORTING
New McClatchy has applied to list the shares of New McClatchy Class A
Common Stock on the NYSE and will register such shares under the Exchange Act,
and thus will be required to comply with the proxy and periodic reporting
requirements of the Exchange Act. As a result of the Reorganization, the shares
of McClatchy Class A Common Stock will be deregistered under the Exchange Act.
Thus, McClatchy will not be required to comply with the proxy or the periodic
reporting requirements of the Exchange Act and does not plan to provide any
reports or information to its stockholders other than pursuant to the right to
inspect the books and records of McClatchy as required by Delaware law. Instead,
such information would be provided, to the extent required, in filings made by
New McClatchy as a successor registrant to McClatchy.
REORGANIZATION FINANCINGS
McClatchy expects funds necessary for payment of the cash consideration
and fees and expenses incurred in connection with the Reorganization to be
approximately $1,022.0 million (assuming a 25% stock election) or $1,152.9
million (assuming a 15% stock election). In addition, $91.0 million of assumed
debt from Cowles and $94.0 million of pre-existing McClatchy debt will be
refinanced as a result of the Reorganization. The total transaction contemplated
will be funded by approximately $1,307.0 million (assuming a 25% stock election)
or $1,435.0 million (assuming a 15% stock election) of bank borrowings pursuant
to a senior secured term loan facility arranged by Salomon Smith Barney. When
the sale of the Non-newspaper Subs is completed, which McClatchy and Cowles
expect to accomplish at or as soon as practicable after the Effective Time, New
McClatchy will reduce its borrowings by approximately $170.0 million. Included
in the senior secured facility is a $100.0 million revolving credit facility
which will be used for partial funding of the Reorganization and for working
capital requirements of New McClatchy following the Reorganization. On November
13, 1997, McClatchy executed commitments from Salomon Brothers (now Salomon
Smith Barney) with respect to the Reorganization Financings. Such commitments
are subject to customary conditions, including the negotiation, execution and
delivery of definitive documentation with respect thereto. See "RISK
FACTORS--Substantial Leverage; Negative Net Tangible Assets; Liquidity."
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial
information is based upon the historical consolidated financial statements of
each of McClatchy and Cowles, and should be read in conjunction with those
consolidated financial statements and related notes. The pro forma adjustments
were applied to the respective historical financial statements to reflect the
reorganization of McClatchy pursuant to the McClatchy Merger (with no resulting
change in the recorded amount of McClatchy's assets and liabilities) and to
account for the Cowles Merger as a purchase. Under purchase accounting, the
purchase cost will be allocated to acquired assets and liabilities in accordance
with their relative fair values at the Effective Date. The Cowles purchase price
will exceed the fair value of the net assets acquired at the Effective Date.
This difference has been allocated to goodwill which will be amortized over 40
years. The foregoing allocations are subject to final determination based on
valuation studies and a review of the books, records and accounting policies of
Cowles. These studies are expected to be completed after the Effective Date but
before the end of fiscal 1998. Accordingly, the final allocations will be
different from the amount reflected herein. Based on current information,
management is unable to determine whether the final allocations will differ
materially from the amounts presented herein. See Note 1 to the "UNAUDITED PRO
FORMA CONDENSED COMBINED FINANCIAL INFORMATION." See "THE
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<PAGE>
REORGANIZATION--Accounting Treatment." The unaudited pro forma condensed
combined financial information presented also gives effect to the sales of the
Non-newspaper Subs and the application of the proceeds therefrom.
The Reorganization Agreement provides that a minimum of 15% and a
maximum of 25% of the consideration will be paid to Cowles stockholders in the
form of New McClatchy Class A Common Stock. Because it cannot be determined at
this time the amount of cash or stock consideration that will be paid, two
alternatives of unaudited pro forma condensed combined financial statements are
presented--a 25% stock election alternative and a 15% stock election
alternative. These alternatives further assume an Exchange Ratio of 3.01667.
As further discussed in the notes to the unaudited pro forma condensed
combined financial statements, the unaudited pro forma condensed combined
statements of income for the year ended December 31, 1996 (March 29, 1997 for
Cowles) and for the nine months ended September 30, 1997 (39 weeks ended
September 27, 1997 for Cowles) give effect to the Cowles Merger and the sales of
the Non-newspaper Subs (and application of the proceeds therefrom) as if each
were consummated on the first day of fiscal 1996.
As further discussed in the notes to the unaudited pro forma condensed
combined financial statements, the unaudited pro forma balance sheet presents
the combined financial position of McClatchy and Cowles as of September 30, 1997
for McClatchy and September 27, 1997 for Cowles. The unaudited pro forma
condensed combined balance sheet reflects the acquisition of Cowles and the
sales of the Non-newspaper Subs (and application of the proceeds therefrom) as
if each were consummated on September 30, 1997.
The unaudited pro forma condensed combined financial statements are not
necessarily indicative of the results of operations or the financial position of
McClatchy had the Cowles Merger been consummated on the dates discussed above,
nor do these statements purport to represent the expected results for future
periods. No pro forma adjustments were made to reflect any operational
efficiencies that could be derived as a result of the Cowles Merger or
disposition of Cowles' Non-newspaper Subs.
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<PAGE>
<TABLE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET 25% STOCK ELECTION ALTERNATIVE (UNAUDITED)
SEPTEMBER 30, 1997
(IN THOUSANDS)
<CAPTION>
Pro Forma Pro Forma Pro Forma
McClatchy Cowles Purchase Combined Prior Businesses
September 30, September 27, Accounting to Businesses Disposed Pro Forma
1997 1997 Adjustments Disposed Adjustments Combined
------------- ------------- ------------- ------------- ------------- ----------
(See note 1) (See note 3(a))
<S> <C> <C> <C> <C> <C> <C>
Current assets............................. $ 118,242 $ 103,567 $ 2,188 $ 223,997 $ (51,785) $ 172,212
Property, plant and equipment--net......... 328,510 115,672 110,057 554,239 (88,693) 465,546
Intangibles--net........................... 397,125 116,093 1,250,610 1,763,828 (112,445) 1,651,383
Other assets............................... 11,373 6,667 -- 18,040 (742) 17,298
------------- ------------- ----------- ------------- ------------ -------------
Total assets.......................... $ 855,250 $ 341,999 $ 1,362,855 $ 2,560,104 $ (253,665) $ 2,306,439
============= ============= ============ ============= ============ =============
Current liabilities........................ $ 101,444 $ 122,792 $ 224,236 $ (56,036) $ 168,200
Long-term debt............................. 119,000 83,194 $ 1,021,340 1,223,534 (190,083) 1,033,451
Other long-term obligations................ 87,546 36,051 120,951 244,548 (7,546) 237,002
Stockholders' equity:
Common stock............................. 381 2,334 (2,227) 488 488
Additional paid-in capital............... 73,650 665 319,754 394,069 394,069
Retained earnings........................ 473,229 96,963 (96,963) 473,229 473,229
------------- ------------- ------------ ------------- ------------ -------------
Total.................................... 547,260 99,962 220,564 867,786 867,786
------------- ------------- ------------ ------------- ------------ -------------
Total liabilities and stockholders'
equity............................ $ 855,250 $ 341,999 $ 1,362,855 $ 2,560,104 $ (253,665) $ 2,306,439
============= ============= ============ ============= ============ =============
</TABLE>
See notes to pro forma condensed combined financial statements.
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<PAGE>
<TABLE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS 25% STOCK ELECTION ALTERNATIVE (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<CAPTION>
Pro Forma Pro Forma Pro Forma
McClatchy Cowles Purchase Combined Prior Businesses
September 30, September 27, Accounting to Businesses Disposed Pro Forma
1997 1997 Adjustments Disposed Adjustments Combined
-------------- ------------- ------------- ------------- ------------------------
(See note 2) (See note 3(b))
<S> <C> <C> <C> <C> <C> <C>
Revenues - net......................... $ 472,501 $ 390,129 $ 862,630 $ (119,700)$ 742,930
Operating expenses..................... 350,076 323,019 673,095 (112,226) 560,869
Depreciation and amortization.......... 40,167 16,204 $ 33,923 90,294 (6,787) 83,507
------------- ------------ ------------ ------------ ------------- -----------
Total................................. 390,243 339,223 33,923 763,389 (119,013) 644,376
------------- ------------ ------------ ------------ ------------- -----------
Operating income....................... 82,258 50,906 (33,923) 99,241 (687) 98,554
Interest expense....................... (7,005) (5,824) (56,684) (69,513) 10,828 (58,685)
Other non-operating--net............... 7,523 3,692 -- 11,215 (1,059) 10,156
------------- ------------ ------------ ------------ ------------- -----------
Income from continuing operating before
income tax provision.................. 82,776 48,774 (90,607) 40,943 9,082 50,025
Income tax provision................... 34,302 20,278 (29,621) 24,959 (80) 24,879
------------- ------------ ------------ ------------ ------------- -----------
Income (loss) from continuing
operations............................ $ 48,474 $ 28,496 $ (60,986) $ 15,984 $ 9,162 $ 25,146
============= ============ ============ ============ ============= ===========
Earnings per share from continuing
operations............................ $1.27 $0.52
Weighted average common shares......... 38,103 10,684 48,787
</TABLE>
See notes to pro forma condensed combined financial statements.
-50-
<PAGE>
<TABLE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS 25% STOCK ELECTION ALTERNATIVE (UNAUDITED)
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<CAPTION>
Cowles Pro Forma Pro Forma Pro Forma
McClatchy March 29, Purchase Combined Prior Businesses
December 31, 1997 Accounting to Businesses Disposed Pro Forma
1996 Adjustments Disposed Adjustments Combined
------------ ------------ ------------ ------------ ----------- ------------
(See note 2) (See note 3(b))
<S> <C> <C> <C> <C> <C> <C>
Revenues - net......................... $ 624,233 $ 517,069 $ 1,141,302 $ (167,006) $ 974,296
Operating expenses..................... 486,044 440,511 926,555 (163,184) 763,371
Depreciation and amortization.......... 52,954 22,193 $ 45,231 120,378 (9,627) 110,751
------------ ------------ ------------ ------------ ----------- ------------
Total................................. 538,998 462,704 45,231 1,046,933 (172,811) 874,122
------------ ------------ ------------ ------------ ----------- ------------
Operating income....................... 85,235 54,365 (45,231) 94,369 5,805 100,174
Interest expense....................... (13,321) (8,273) (75,579) (97,173) 14,257 (82,916)
Other non-operating--net............... 6,001 7,228 13,229 (770) 12,459
------------ ------------ ------------ ----------- ----------- ------------
Income from continuing operating before
income tax provision.................. 77,915 53,320 (120,810) 10,425 19,292 29,717
Income tax provision................... 33,422 23,828 (39,495) 17,755 4,042 21,797
------------ ------------ ------------ ----------- ----------- ------------
Income (loss) from continuing operation$ 44,493 $ 29,492 $ (81,315) $ (7,330) $ 15,250 $ 7,920
============ ============ ============ ============ =========== ============
Earnings (loss) per share from continu
ing operations........................ $1.18 $0.16
Weighted average common shares......... 37,812 10,684 48,496
</TABLE>
See notes to pro forma condensed combined financial statements.
-51-
<PAGE>
<TABLE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET 15% STOCK ELECTION ALTERNATIVE (UNAUDITED)
SEPTEMBER 30, 1997
(IN THOUSANDS)
<CAPTION>
Pro Forma Pro Forma Pro Forma
McClatchy Cowles Purchase Combined Prior Businesses
September 30, September 27, Accounting to Businesses Disposed Pro Forma
1997 1997 Adjustments Disposed Adjustments Combined
------------- ------------- ------------- ------------- ------------- ----------
(See note 1) (See note 3(a))
<S> <C> <C> <C> <C> <C> <C>
Current assets............................. $ 118,242 $ 103,567 $ 2,188 $ 223,997 $ (51,785) $ 172,212
Property, plant and equipment--net......... 328,510 115,672 110,057 554,239 (88,693) 465,546
Intangibles--net........................... 397,125 116,093 1,253,610 1,766,828 (112,445) 1,654,383
Other assets............................... 11,373 6,667 -- 18,040 (742) 17,298
------------- ------------- ----------- ------------- ------------ -------------
Total assets.......................... $ 855,250 $ 341,999 $ 1,365,855 $ 2,563,104 $ (253,665) $ 2,309,439
============= ============= ============ ============= ============ =============
Current liabilities........................ $ 101,444 $ 122,792 $ 224,236 $ (56,036) $ 168,200
Long-term debt............................. 119,000 83,194 $ 1,152,550 1,354,744 (190,083) 1,164,661
Other long-term obligations................ 87,546 36,051 120,951 244,548 (7,546) 237,002
Stockholders' equity:
Common stock.............................. 381 2,334 (2,270) 445 445
Additional paid-in capital................ 73,650 665 191,587 265,902 265,902
Retained earnings......................... 473,229 96,963 (96,963) 473,229 473,229
------------- ------------- ------------ ------------- ------------ -------------
Total..................................... 547,260 99,962 92,354 739,576 739,576
------------- ------------- ------------ ------------- ------------ -------------
Total liabilities and stockholders'
equity............................. $ 855,250 $ 341,999 $ 1,365,855 $ 2,563,104 $ (253,665) $ 2,309,439
============= ============= ============ ============= ============ =============
</TABLE>
See notes to pro forma condensed combined financial statements.
-52-
<PAGE>
<TABLE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS 15% STOCK ELECTION ALTERNATIVE (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<CAPTION>
Pro Forma Pro Forma Pro Forma
McClatchy Cowles Purchase Combined Prior Businesses
September 30, September 27, Accounting to Businesses Disposed Pro Forma
1997 1997 Adjustments Disposed Adjustments Combined
-------------- ------------- ------------- ------------- ------------- -----------
(See note 2) (See note 3(b))
<S> <C> <C> <C> <C> <C> <C>
Revenues - net......................... $ 472,501 $ 390,129 $ 862,630 $ (119,700)$ 742,930
Operating expenses..................... 350,076 323,019 673,095 (112,226) 560,869
Depreciation and amortization.......... 40,167 16,204 $ 33,979 90,350 (6,787) 83,563
------------- ------------ ------------ ------------ ------------- -----------
Total................................. 390,243 339,223 33,979 763,445 (119,013) 644,432
------------- ------------ ------------ ------------ ------------- -----------
Operating income....................... 82,258 50,906 (33,979) 99,185 (687) 98,498
Interest expense....................... (7,005) (5,824) (63,966) (76,795) 10,828 (65,967)
Other non-operating--net............... 7,523 3,692 -- 11,215 (1,059) 10,156
------------- ------------ ------------ ------------ ------------- -----------
Income from continuing operating before
income tax provision.................. 82,776 48,774 (97,945) 33,605 9,082 42,687
Income tax provision................... 34,302 20,278 (32,606) 21,974 (80) 21,894
------------- ------------ ------------ ------------ ------------- -----------
Income (loss) from continuing
operations............................ $ 48,474 $ 28,496 $ (65,339) $ 11,631 $ 9,162 $ 20,793
============= ============ ============ ============ ============= ===========
Earnings per share from continuing
operations............................ $1.27 $0.47
Weighted average common shares......... 38,103 6,411 44,514
</TABLE>
See notes to pro forma condensed combined financial statements.
-53-
<PAGE>
<TABLE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS 15% STOCK ELECTION ALTERNATIVE (UNAUDITED)
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<CAPTION>
Cowles Pro Forma Pro Forma Pro Forma
McClatchy March 29, Purchase Combined Prior Businesses
December 31, 1997 Accounting to Businesses Disposed Pro Forma
1996 Adjustments Disposed Adjustments Combined
------------ ------------ ------------ ------------ ----------- ------------
(See note 2) (See note 3(b))
<S> <C> <C> <C> <C> <C> <C>
Revenues - net......................... $ 624,233 $ 517,069 $ 1,141,302 $ (167,006) $ 974,296
Operating expenses..................... 486,044 440,511 926,555 (163,184) 763,371
Depreciation and amortization.......... 52,954 22,193 $ 45,306 120,453 (9,627) 110,826
------------ ------------ ------------ ------------ ----------- ------------
Total................................. 538,998 462,704 45,306 1,047,008 (172,811) 874,197
------------ ------------ ------------ ------------ ----------- ------------
Operating income....................... 85,235 54,365 (45,306) 94,294 5,805 100,099
Interest expense....................... (13,321) (8,273) (85,289) (106,883) 14,257 (92,626)
Other non-operating--net............... 6,001 7,228 13,229 (770) 12,459
------------ ------------ ------------ ------------ ----------- ------------
Income from continuing operating before
income tax provision.................. 77,915 53,320 (130,595) 640 19,292 19,932
Income tax provision................... 33,422 23,828 (43,476) 13,774 4,042 17,816
------------ ------------ ------------ ------------ ----------- ------------
Income (loss) from continuing
operation............................. $ 44,493 $ 29,492 $ (87,119)$ (13,134) $ 15,250 $ 2,116
============ ============ ============ ============ =========== ============
Earnings per share from continuing
operations............................ $1.18 $0.05
Weighted average common shares......... 37,812 6,411 44,223
</TABLE>
See notes to pro forma condensed combined financial statements.
-54-
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
1. Pro Forma Adjustments to Reflect Purchase Accounting
The following tables set forth the determination of the estimated
purchase price based on a market value of $30.00 per share of McClatchy
Common Stock, and assumes that either 25% or 15% of the total
consideration in the Cowles Merger is paid in New McClatchy Class A
Common Stock (in thousands):
<TABLE>
<CAPTION>
25% Alternative 15% Alternative
-------------------- --------------------
<S> <C> <C>
New McClatchy Class A Common Stock (10,684,197 and 6,410,518, $ 320,526 $ 192,316
respectively, @ $30.00 per share).......................................
Assumed debt.............................................................. 92,134 92,134
Cash paid including transaction costs..................................... 1,021,340 1,152,550
-------------------- --------------------
Estimated purchase price.................................................. $ 1,434,000 $ 1,437,000
==================== ====================
</TABLE>
New McClatchy will fund the acquisition of Cowles using bank debt along
with issuing Class A Common Stock as discussed above. A syndicate of banks have
committed to providing the debt in three tranches. The term loan facility will
consist of two tranches: Tranche A, of $735 million, will bear interest at LIBOR
plus 125 basis points and 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. In addition, a revolving credit facility of
up to $200 million will bear interest at LIBOR plus 125 basis points, will be
partially available for New McClatchy's working capital needs and will be
payable in seven years. The debt is secured by certain assets of New McClatchy,
and all of the debt is pre-payable without penalty. To the extent that New
McClatchy reduces outstanding debt relative to its EBITDA, the interest rate
spread over LIBOR on the debt will decline. Although New McClatchy has no
present plan in place for early repayment of this debt, New McClatchy intends to
accelerate payments on this debt as cash generation allows. An additional $170
million of debt will be added to Tranche B in the event that the sales of the
Non-newspaper Subs (see note 3) do not close at the Effective Time.
The estimated transaction costs totaling $34 million (25% alternative)
and $37 million (15% alternative) include approximately $22 million of bank fees
($25 million in the 15% alternative) and approximately $12 million in advisory,
accounting and legal fees, including costs of disposing of the Non-newspaper
Subs (see Note 3).
The preliminary allocation of the estimated purchase price is as
follows (in thousands):
<TABLE>
<CAPTION>
25% Alternative 15% Alternative
------------------ ------------------
<S> <C> <C>
Cowles shareholder equity as reported........................................ $ 99,962 $ 99,962
Cowles debt as reported...................................................... 92,134 92,134
Increases to assets and liabilities:
Newsprint inventory at fair market price.................................... 2,188 2,188
STAR TRIBUNE property....................................................... 30,000 30,000
Non-newspaper net assets.................................................... 80,057 80,057
STAR TRIBUNE identifiable intangible assets (net of
$3,648 of previously recorded intangible assets).......................... 271,352 271,352
Deferred income taxes payable............................................... (120,951) (120,951)
Goodwill.................................................................... 979,258 982,258
------------------ ------------------
Investment in Cowles $ 1,434,000 $ 1,437,000
================== ==================
</TABLE>
-55-
<PAGE>
The STAR TRIBUNE identifiable intangible assets relate to daily
subscriber lists (amortized over 15 years) and Sunday subscriber lists
(amortized over 8 years). The amounts and related amortization periods have been
estimated by McClatchy based on its knowledge of the industry and values
associated with recent acquisitions made by McClatchy. A formal appraisal of all
of the assets purchased will be performed as soon after the Effective Time as
possible. This appraisal may result in adjustments to the amounts allocated to
STAR TRIBUNE tangible property, subscriber lists, goodwill and certain of their
amortization periods, which could result in annual depreciation and amortization
costs that would be as much as $6 million higher than reflected in these pro
forma results.
2. Pro Forma Adjustments to Combined Statement of Operations (excluding assets
to be disposed) for the nine months ended September 30, 1997 and the year ended
December 31, 1996:
<TABLE>
<CAPTION>
Increase (Decrease) In Income
----------------------------------------------------------------
25% Alternative 15% Alternative
---------------------------------- ----------------------------
1997 1996 1997 1996
--------------- ---------------- ---------------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Increase in depreciation and amortization on
carrying value of property, plant and
equipment and identifiable intangible assets
of STAR TRIBUNE................................... $ (15,562) $ (20,750) $ (15,562) $ (20,750)
Increase in goodwill amortization................... (18,361) (24,481) (18,417) (24,556)
Interest charges on new debt assuming 7.4%
rate.............................................. (56,684) (75,579) (63,966) (85,289)
Tax effect of pro forma adjustments................. 29,621 39,495 32,606 43,476
-------------- --------------- --------------- --------------
Net decrease in income $ (60,986) $ (81,315) $ (65,339) $ (87,119)
============== =============== =============== ==============
</TABLE>
The 7.4% interest rate used above is based upon McClatchy's calculation
of expected outstanding debt and interest expense on the various tranches of
debt (see note 1), divided by the average debt balance. A 0.25% increase (or
decrease) in this rate would increase (or decrease) annual interest expense by
$2.5 million and decrease (or increase) net income by $1.5 million under the 25%
alternative and increase (or decrease) interest expense by $2.9 million and
decrease (or increase) net income by $1.7 million in the 15% alternative.
The tax effects of the pro forma adjustments are calculated as follows
(in thousands):
<TABLE>
<CAPTION>
25% Alternative 15% Alternative
---------------------------------- ---------------------------------
1997 1996 1997 1996
--------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Additional interest deduction....................... $ (56,684) $ (75,579) $ (63,966) $ (85,289)
Additional depreciation and amortization............ (33,923) (45,231) (33,979) (45,306)
-------------- --------------- --------------- --------------
Net income adjustments.............................. (90,607) (120,810) (97,945) (130,595)
Non taxable goodwill amortization................... 18,361 24,481 18,417 24,556
-------------- --------------- --------------- --------------
Net taxable adjustments............................. (72,246) (96,329) (79,528) (106,039)
Statutory tax rate(1)............................... 41% 41% 41% 41%
-------------- --------------- --------------- --------------
Reduction to taxes.................................. $ (29,621) $ (39,495) $ (32,606) $ (43,476)
============== =============== =============== ==============
- ----------
<FN>
(1) Taxes reflect 35% federal rate and 9.8% state rate net of federal benefit.
</FN>
</TABLE>
Pro forma combined earnings per share from continuing operations is
calculated assuming that New McClatchy issued 10,666,702 and 6,400,021 shares of
its Class A Common Stock, assuming a 25% stock election and 15% stock election,
respectively, in the Cowles Merger at the beginning of each year (see Note 1).
-56-
<PAGE>
3. Pro Forma Adjustments for Businesses Disposed
McClatchy and Cowles executed definitive agreements in January 1998 to
sell Non-newspaper Subs CEM and CBM to PRIMEDIA Inc., and to sell Non-newspaper
Sub CCP to a management group led by CCP's president. The sales of the
Non-Newspaper Subs, valued at $208.3 million including the assumption of $29.6
million in debt and other liabilities, are expected to close at or as soon as
practicable after the Effective Time, although there can be no assurance that
these transactions will close at such time. See "BUSINESS OF NEW McCLATCHY
FOLLOWING THE REORGANIZATION." Accordingly, the pro forma financial statements
reflect these businesses as a discontinued operating segment. The following
adjustments are in thousands:
(a) To reclassify assets and liabilities of segment sold:
<TABLE>
<CAPTION>
Pro Forma
Cowles Businesses
September 27, Pro Forma Disposed
1997 Adjustments Adjustments
--------------- -------------- ---------------
<S> <C> <C> <C>
Current assets..................................................... $ 51,785 $ -- $ 51,785
Net property, plant & equipment
including increase in carrying value.............................. 8,636 80,057 88,693
Net intangibles.................................................... 112,445 -- 112,445
Other assets....................................................... 742 -- 742
Current liabilities................................................ (56,036) -- (56,036)
Long-term debt..................................................... (15,808) (6,275) (22,083)
Other liabilities.................................................. (6,834) (712) (7,546)
--------------- -------------- ---------------
Net reduction in New McClatchy debt............................. $ 94,930 $ 73,070 $ 168,000
=============== ============== ===============
</TABLE>
The carrying value of the net assets sold represents New McClatchy's
best estimate of the after-tax proceeds expected to be used to reduce debt. New
McClatchy does not expect a significant gain or loss on the sale of these
assets. The after-tax proceeds are net of $3 million in costs ($2 million in
advisor fees and $1 million in legal and accounting fees).
(b) To reclassify operating results of discontinued operations (in
thousands):
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Cowles Businesses Cowles Businesses
Sept. 27, Pro Forma Disposed March 29, Pro Forma Disposed
1997 Adjustments Adjustments 1997 Adjustments Adjustments
-------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues - net................ $ (119,700) $ -- $ (119,700) $ (167,006) $ -- $ (167,006)
Operating expenses............ (112,226) -- (112,226) (163,184) -- (163,184)
Depreciation and amortization. (6,787) -- (6,787) (9,627) -- (9,627)
Interest...................... (1,504) (9,324) (10,828) (1,825) (12,432) (14,257)
Other non-operating--net....... (1,059) -- (1,059) (770) -- (770)
Earnings (loss) before taxes.. (242) 9,324 9,082 6,860 12,432 19,292
Tax expense................... (3,903) 3,823 (80) 1,055 5,097 4,042
------------- ------------- ------------- ------------- ------------- -------------
Adjustment to income from
continuing operations.... $ 3,661 $ 5,501 $ 9,162 $ 7,915 $ 7,335 $ 15,250
============= ============= ============== ============= ============= =============
</TABLE>
Interest expense reflects actual interest expense of the Non-newspaper
Subs plus an interest expense reduction of $9,324,000 and $12,432,000 in 1997
and 1996, respectively. The lower interest expense reflects a $168 million
reduction in New McClatchy debt. In addition, tax expense reflects actual taxes
associated with the Non-newspaper Subs plus an increase for the lost interest
deduction at statutory rates.
4. Changes to Expenses Not Reflected in Pro Forma Financial Statements
McClatchy estimates there will be certain expenses which will be
eliminated or incurred which have not been reflected in these pro forma
condensed combined financial statements. The estimated adjustments to expenses
-57-
<PAGE>
relate primarily to the elimination of duplicate corporate functions and
positions ($10 million to $12 million, annually), severance costs for 35-40
employees ($3 million to $5 million of one-time charges), and reduced newsprint
prices resulting from the buying power associated with the increase in volume
($1 million to $2 million, annually). However, there can be no assurances that
these savings and/or additional costs will be realized or incurred.
-58-
<PAGE>
DIVIDENDS AND PRICES OF COMMON STOCK
MCCLATCHY
McClatchy's Class A Common Stock is listed and traded on the NYSE under
the symbol "MNI," and on the Midwest Stock Exchange and the Pacific Stock
Exchange. McClatchy's Class B Common Stock is not publicly traded. The following
table shows the dividends paid (or payable) by McClatchy on its Class A Common
Stock (which dividends are also paid on its Class B Common Stock) and the high
and low closing prices for the McClatchy Class A Common Stock for the fiscal
periods indicated, as reported by the NYSE Composite Transactions Tape:
<TABLE>
<CAPTION>
Stock Price
-------------------------------
High Low Dividend
---------- ---------- ----------
<S> <C> <C> <C>
Year Ended December 31, 1996:
First Quarter............................... $19.70 $17.40 $0.076
Second Quarter.............................. 22.10 18.60 0.076
Third Quarter............................... 22.80 19.50 0.076
Fourth Quarter.............................. 28.10 21.90 0.095
Year Ended December 31, 1997:
First Quarter............................... 28.00 23.75 0.095
Second Quarter.............................. 30.50 23.38 0.095
Third Quarter............................... 35.19 29.25 0.095
Fourth Quarter.............................. 34.69 26.50 0.095
Year Ending December 31, 1998:
First Quarter (through February 13, 1998)... 28.88 25.13 0.095
</TABLE>
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. The McClatchy Board 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 McClatchy Board, subject to
limitations contained in the terms of the Reorganization Financings, and will
depend upon McClatchy's future earnings, financial condition and requirements,
and other factors considered relevant by the McClatchy Board. Further, McClatchy
and Cowles have agreed to coordinate dividend payments while the Reorganization
is pending. See "--Cowles."
As of the McClatchy Record Date, there were approximately 1,470
stockholders of record of McClatchy Class A Common Stock and approximately 24
stockholders of record of McClatchy Class B Common Stock.
On November 13, 1997, the last trading day before public announcement
of the execution of the Reorganization Agreement, the last sale price of
McClatchy Class A Common Stock as reported on the NYSE Composite Transactions
Tape was $32.625 per share.
On February 13, 1998, the most recent practicable date prior to the
date of this Joint Proxy Statement/Prospectus, the last sale price of McClatchy
Class A Common Stock as reported on the NYSE Composite Transactions Tape was
$27.8125 per share.
-59-
<PAGE>
COWLES
Cowles' Common Stock is traded on the local over-the-counter market
under "Cowles Media." The following table shows the dividends paid (or payable)
on Cowles Common Stock and the high and low bid-and-asked prices for Cowles
Common Stock for the fiscal periods indicated, as published in the STAR TRIBUNE:
<TABLE>
<CAPTION>
High Low Dividend
------- -------- ----------
<S> <C> <C> <C>
Year Ended March 30, 1996:
First Quarter................................ $25.00 $22.00 $0.15
Second Quarter............................... 25.00 23.00 0.15
Third Quarter................................ 25.00 23.00 0.15
Fourth Quarter............................... 24.50 23.00 0.15
Year Ended March 29, 1997:
First Quarter................................ 24.50 23.50 0.16
Second Quarter............................... 25.50 23.50 0.16
Third Quarter................................ 25.50 24.50 0.16
Fourth Quarter............................... 26.50 24.50 0.16
Year Ending March 28, 1998:
First Quarter................................ 27.00 25.50 0.17
Second Quarter............................... 50.00 26.00 0.17
Third Quarter................................ 85.00 50.00 0.17
Fourth Quarter (through February 13, 1998)... 80.00 80.00 0.17
</TABLE>
As of the Cowles Record Date, there were approximately 389 stockholders
of record of Cowles Common Stock.
On September 26, 1997, the last day on which prices were published in
STAR TRIBUNE before public announcement of the execution of the Reorganization
Agreement, the average of the bid-and-asked prices of Cowles Common Stock was
$50.00 per share.
On February 13, 1998, the most recent practicable date prior to the
date of this Joint Proxy Statement/Prospectus, the bid price of Cowles Common
Stock as published in the STAR TRIBUNE was $80.00 per share. No ask price was
published on that date.
Stockholders of Cowles should obtain current market prices of the
McClatchy Class A Common Stock and the Cowles Common Stock.
Pursuant to the Reorganization Agreement, Cowles and McClatchy (for
itself and on behalf of New McClatchy) have agreed to coordinate with each other
on the declaration and payment of dividends on McClatchy Common Stock and Cowles
Common Stock (and the record dates and payment dates thereto), so that with
respect to each holder of McClatchy Common Stock and Cowles Common Stock, such
holder will not, in the calendar quarter in which the Reorganization is
consummated, receive two dividends or fail to receive any dividend. Both
McClatchy and Cowles have declared a dividend for the first quarter of 1998.
McClatchy's first quarter dividend will be paid on April 1, 1998 to McClatchy
stockholders of record as of February 13, 1998. Cowles' first quarter dividend
will be paid on March 2, 1998 to Cowles stockholders of record as of February
13, 1998.
-60-
<PAGE>
DESCRIPTION OF NEW MCCLATCHY CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
New McClatchy is authorized by its Certificate of Incorporation to
issue an aggregate of 160,000,000 shares of Common Stock, of which 100,000,000
shares are Class A Common Stock with a par value of $0.01 per share and
60,000,000 shares are Class B Common Stock with a par value of $0.01 per share.
The following is a summary of certain of the rights, powers, preferences and
limitations pertaining to New McClatchy's capital stock.
COMMON STOCK. The Certificate of Incorporation of New McClatchy
provides that in all matters other than the election and removal of directors,
the holders of the New McClatchy Class A Common Stock vote together with the
holders of the New McClatchy Class B Common Stock as a single class, provided
that the holders of New McClatchy Class A Common Stock have one-tenth (1/10) of
a vote for each share and the holders of New McClatchy Class B Common Stock
shall have one (1) vote for each share, except as may otherwise be required by
law. Approval of matters brought before the stockholders requires the
affirmative vote of a majority of the voting power of outstanding shares, except
as otherwise required by law. All shares of New McClatchy Common Stock are
entitled to share in such dividends as the New McClatchy Board may from time to
time declare from sources legally available therefor. Holders of New McClatchy
Common Stock are entitled to share ratably in a distribution of assets of New
McClatchy upon any liquidation, dissolution or winding-up of New McClatchy.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
DELAWARE LAW
CERTIFICATE OF INCORPORATION. Certain provisions of the Certificate of
Incorporation of New McClatchy are designed to enhance the likelihood of
continuity and stability of the New McClatchy Board and the policies formulated
thereby. Accordingly, such provisions may have the effect of discouraging,
delaying or preventing a change in control or unsolicited acquisition proposals
that a stockholder might consider favorable. These provisions include: (i) the
grant of one-tenth (1/10) a vote per share of New McClatchy Class A Common Stock
and one (1) vote per share of New McClatchy Class B Common Stock; and (ii) the
right of the holders of Class A Common Stock to elect only 25% of the New
McClatchy Board. The concentration of voting control may have the effect of
impeding the ability of holders of New McClatchy Class A Common Stock to replace
the management of New McClatchy even if factors warranted such a change. The
concentration of voting control may also affect the price investors might be
willing to pay in the future for shares of New McClatchy Class A Common Stock.
DELAWARE TAKEOVER STATUTE. New McClatchy is subject to section 203 of
the DGCL ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that such
stockholder became an interested stockholder, unless: (i) prior to such date,
the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction that resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the law will be tendered in a tender or exchange offer;
or (iii) on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66-2/3% of the outstanding voting stock that is not owned by the interested
stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided
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by or through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by such entity or person.
MCCLATCHY STOCK OPTIONS
At the Effective Time, each McClatchy Stock Option will be assumed by
New McClatchy in such manner that it is converted into an option to purchase
shares of New McClatchy Common Stock, with each such McClatchy Stock Option to
otherwise be exercisable upon the same terms and conditions as then are
applicable to such McClatchy Stock Option, including the number of shares,
exercise price and vesting schedule provided thereby. At the Effective Time, New
McClatchy will assume all rights and obligations of McClatchy under McClatchy's
stock option plans as in effect at the Effective Time and will continue such
plans in accordance with their terms.
THE REORGANIZATION AGREEMENT
The following summary describes the material provisions of the
Reorganization Agreement, a copy of which is attached as Annex A to this Joint
Proxy Statement/Prospectus and is incorporated herein by reference. This summary
is qualified in its entirety by reference to the Reorganization Agreement.
THE MERGERS
Pursuant to the Reorganization Agreement and subject to the terms and
conditions thereof, MNI Merger Sub and CMC Merger Sub will be merged with and
into McClatchy and Cowles, respectively. As a result of the Reorganization,
McClatchy and Cowles will become wholly owned subsidiaries of New McClatchy. As
part of the Reorganization, stockholders of McClatchy and stockholders of Cowles
will receive the consideration described below.
It is anticipated that the closing of the transactions contemplated by
the Reorganization Agreement (the "Closing") will take place on the date of the
Special Meetings, subject to the satisfaction or waiver of all conditions to the
Reorganization Agreement (the "Closing Date"). The Mergers will become effective
upon the date and time of filing of a certificate of merger with the Secretary
of State of the State of Delaware for each of the McClatchy Merger and the
Cowles Merger (each a "Certificate of Merger"), which filings shall be made
contemporaneously. The time at which the Mergers become effective is referred to
as the "Effective Time." Subject to certain limitations, the Reorganization
Agreement may be terminated by either McClatchy or Cowles if, among other
reasons, the Mergers have not been consummated on or before May 31, 1998. See
"--Conditions to the Consummation of the Reorganization" and "--Termination."
CONVERSION OF MCCLATCHY COMMON STOCK
Upon consummation of the McClatchy Merger, pursuant to the
Reorganization Agreement, (i) each share of McClatchy Class A Common Stock or
McClatchy Class B Common Stock, except for McClatchy Excluded Shares or
McClatchy Dissenting Shares, issued and outstanding at the Effective Time, will
be converted into one share of New McClatchy Class A Common Stock or New
McClatchy Class B Common Stock, respectively (the "McClatchy Merger
Consideration"), and upon such conversion all shares of McClatchy Common Stock
will be canceled and cease to exist, and (ii) all McClatchy Excluded Shares will
be canceled and retired without payment of any consideration therefor. With
regard to treatment of McClatchy Dissenting Shares, see "STOCKHOLDERS' APPRAISAL
RIGHTS."
AT THE EFFECTIVE TIME, EACH CERTIFICATE REPRESENTING SHARES OF
McCLATCHY COMMON STOCK WILL, WITHOUT ANY ACTION ON THE PART OF THE HOLDER
THEREOF, BE DEEMED TO REPRESENT AN EQUAL NUMBER OF SHARES OF NEW McCLATCHY
COMMON STOCK. HOLDERS OF McCLATCHY COMMON STOCK SHOULD NOT SEND ANY CERTIFICATES
REPRESENTING McCLATCHY COMMON STOCK WITH THE ENCLOSED PROXY CARD.
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COWLES MERGER CONSIDERATION
Pursuant to the Reorganization Agreement, upon consummation of the
Cowles Merger (a) each share of Cowles Common Stock and each Cowles Converted
Stock Unit (as defined herein) issued and outstanding immediately prior to the
Effective Time, except for Cowles Excluded Shares or Dissenting Shares, will be
converted into the right to receive, at the election of the holder thereof,
either (i) cash (subject to proration) of $90.50 (the "Cash Election Price"),
(ii) that number of shares (subject to proration) of New McClatchy Class A
Common Stock as equals the Exchange Ratio (as defined herein) (the "Stock
Election Price"), or (iii) a combination of cash and shares of New McClatchy
Class A Common Stock (the "Cowles Merger Consideration," and collectively with
the McClatchy Merger Consideration, the "Merger Consideration"), (b) all such
shares of Cowles Common Stock will be canceled and cease to exist and (c) all
Cowles Excluded Shares will be canceled and retired without payment of any
consideration therefor. A "Cowles Converted Stock Unit" is a restricted
performance stock unit granted under an employee benefit plan or arrangement of
Cowles. With regard to the treatment of (i) fractional shares of New McClatchy,
see "--Fractional Shares," and (ii) Dissenting Shares, see "STOCKHOLDERS'
APPRAISAL RIGHTS."
The "Exchange Ratio" is equal to $90.50 divided by the McClatchy Stock
Price (as defined herein), rounded to the nearest 1/100,000, provided, however,
that if the foregoing would cause the Exchange Ratio to be less than 2.68820,
then the Exchange Ratio shall be 2.68820 and if the foregoing would cause the
Exchange Ratio to be greater than 3.01667, then the Exchange Ratio shall be
3.01667. The "McClatchy Stock Price" is equal to the average of the Volume
Weighted Average Trading Price (as defined herein) of McClatchy Class A Common
Stock on the NYSE, as reported on the NYSE Composite Transactions Tape for the
15 trading days randomly selected by lot out of the 25 trading days ending on
the second trading day immediately preceding the Closing Date. "Volume Weighted
Average Trading Price" means, for any given trading day, an amount equal to (A)
the sum of each of the products of (x) each sales price at which McClatchy Class
A Common Stock was traded during such trading day on the NYSE (or such other
principal exchange on which such security is listed) and (y) the number of
shares of McClatchy Class A Common Stock traded at such price during such
trading day, divided by (B) the total number of shares of McClatchy Class A
Common Stock so traded on such trading day.
The maximum number of shares of Cowles Common Stock and Cowles
Converted Stock Units (the "Maximum Stock Number") in respect of which the
holders thereof shall be entitled to receive shares of New McClatchy Class A
Common Stock pursuant to the Cowles Merger shall be equal to 25% multiplied by
the Determination Date Number (as defined herein). The "Determination Date
Number" is the total number of shares of Cowles Common Stock outstanding (other
than Cowles Excluded Shares) plus the number of Cowles Converted Stock Units and
Cowles Compensation Units (as defined herein), in each case as of the last day
of the valuation period used to determine the McClatchy Stock Price (the
"Determination Date").
The maximum number of shares of Cowles Common Stock and Cowles
Converted Stock Units (the "Maximum Cash Number") in respect of which the
holders thereof shall be entitled to receive cash pursuant to the Cowles Merger
shall be equal to (i) 85% multiplied by the Determination Date Number, less (ii)
that number that is the sum of the Dissenting Shares (as defined herein) plus
the "Cowles Compensation Units" (performance compensation units or stay-bonus
compensation units that will be converted at the Effective Time into the right
to receive consideration equal to the Cash Election Price).
ELECTION PROCEDURES. Each person who, on or prior to the Election
Record Date (as defined herein), is a record holder of shares of Cowles Common
Stock or is a holder of Cowles Converted Stock Units will be entitled, with
respect to all or any portion of such shares of Cowles Common Stock or Cowles
Converted Stock Units, as applicable, to make an election on or prior to the
Election Date to receive the Cash Election Price (a "Cash Election") and/or the
Stock Election Price (a "Stock Election," each of which shall be an "Election").
Each share of Cowles Common Stock or each Cowles Converted Stock Unit as to
which an Election has been made and not revoked shall be an "Electing Share" and
each share of Cowles Common Stock or Converted Stock Unit that is not an
Electing Share shall be a "Non-Electing Share."
Chase Mellon Shareholders Services LLC (the "Exchange Agent") is
mailing a Form of Election with this Joint Proxy Statement/Prospectus to each
record holder of Cowles Common Stock and each holder of a Cowles
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Converted Stock Unit as of the Cowles Record Date, which Form of Election shall
be used by any such holder wanting to make an Election in respect of any or all
Cowles Common Stock or Cowles Converted Stock Unit, as the case may be, held by
any such holder. Any purported Election shall have been properly made only if
the Exchange Agent shall have received by the business day next preceding the
date of Cowles Special Meeting (the "Election Record Date"), a Form of Election
properly completed and signed and, in the case of delivery of a Form of Election
in respect of Cowles Common Stock, accompanied by the certificates evidencing
the shares of Cowles Common Stock (each a "Cowles Stock Certificate") to which
such Form of Election relates (but no Cowles Converted Stock Unit shall be
subject to any requirement of delivering any Cowles Stock Certificate), duly
endorsed in blank or otherwise in form acceptable for transfer on the books of
Cowles (or by an appropriate written guarantee of delivery of such Cowles Stock
Certificates in accordance with such Form of Election). Any Form of Election may
be revoked only by the record holder of the applicable share of Cowles Common
Stock or the holder of the applicable Cowles Converted Stock Unit, as the case
may be, submitting it and only by written notice received by the Exchange Agent
prior to the Election Record Date. Each Form of Election shall be automatically
revoked if the Exchange Agent is notified in writing by McClatchy and Cowles
that the Cowles Merger has been abandoned.
PRORATION--EXCESS STOCK ELECTIONS. If the total number of Electing
Shares covered by Stock Elections (the "Stock Electing Shares") exceeds the
Maximum Stock Number, then all Electing Shares covered by Cash Elections (the
"Cash Electing Shares") and all Non-Electing Shares shall be converted into the
right to receive the Cash Election Price, and all Stock Electing Shares shall be
converted in the following manner: (i) for each Stock Election, the number of
Stock Electing Shares to be converted into the right to receive the Stock
Election Price shall be the total number of Stock Electing Shares covered by
such Stock Election multiplied by the Stock Proration Factor (as defined herein)
and (ii) all Stock Electing Shares, other than that number converted into the
right to receive the Stock Election Price in accordance with (i) above, shall be
converted into the right to receive the Cash Election Price. The "Stock
Proration Factor" shall be the Maximum Stock Number divided by the total number
of Stock Electing Shares (rounded to the nearest 1/1,000,000).
PRORATION--EXCESS CASH ELECTIONS. If the total number of Cash Electing
Shares exceeds the Maximum Cash Number, then all Stock Electing Shares and all
Non-Electing Shares shall be converted into the right to receive the Stock
Election Price, and the Cash Electing Shares shall be converted in the following
manner: (i) for each Cash Election, the number of Cash Electing Shares to be
converted into the right to receive the Cash Election Price shall be the total
number of Cash Electing Shares covered by such Cash Election multiplied by the
Cash Proration Factor (as defined herein) and (ii) all Cash Electing Shares,
other than that number converted into the right to receive the Cash Election
Price in accordance with (i) above, shall be converted into the right to receive
the Stock Election Price. The "Cash Proration Factor" shall be the Maximum Cash
Number divided by the number of Cash Electing Shares (rounded to the nearest
1/1,000,000).
PRORATION--NO EXCESS STOCK ELECTIONS OR EXCESS CASH ELECTIONS. If there
are neither excess Stock Elections nor excess Cash Elections, then all Cash
Electing Shares shall be converted into the right to receive the Cash Election
Price, all Stock Electing Shares shall be converted into the right to receive
the Stock Election Price and each Non-Electing Share, if any, shall be converted
into the right to receive (i) cash equal to the product of (x) the Cash Election
Price and (y) a fraction (the "Non-Election Fraction"), the numerator of which
shall be the excess, if any, of the Maximum Cash Number over the total number of
Cash Electing Shares and the denominator of which shall be the excess of (A) the
Determination Date Number (less (i) the number of shares of Cowles Stock that
are Dissenting Shares and (ii) the number of Cowles Compensation Units) over (B)
the sum of the total number of Electing Shares; plus (ii) to the extent
applicable, a number of New McClatchy Class A Common Stock shares equal to the
product of (x) the Stock Election Price and (y) a fraction equal to 1.0 minus
the Non-Election Fraction (unless if the Non-Election Fraction is greater than
1.0 or has a denominator of zero, then the Non-Election Fraction shall be 1.0.).
COWLES STOCK OPTIONS
For each Cowles Stock Option (as defined herein) that is outstanding
immediately before the Effective Time, the terms of such Cowles Stock Option
(and such Cowles stock plan, as applicable) shall be amended so as to provide as
follows: (i) if such Cowles Stock Option is vested before (or as a consequence
of) the Cowles Merger
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and is exercisable at an exercise price that is less than $90.50, and the holder
of such Cowles Stock Option has elected (by written notice to McClatchy received
prior to the Election Record Date) to receive the payment contemplated by this
clause (i), then such Cowles Stock Option shall be canceled in exchange for a
payment from New McClatchy (payable in cash at Closing, subject to any
applicable withholding taxes) equal to the excess of $90.50 over the exercise
price, or (ii) if such Cowles Stock Option is not canceled pursuant to clause
(i) above, such Cowles Stock Option shall become (at the Effective Time) an
option to acquire (on the same terms and conditions as were applicable under
such Cowles Stock Option) the number of shares of New McClatchy Class A Common
Stock as equals the Exchange Ratio, at an exercise price per share of New
McClatchy Class A Common Stock (which exercise price shall be rounded to the
nearest one cent) equal to (A) the exercise price under such Cowles Stock Option
divided by (B) the Exchange Ratio. "Cowles Stock Option" shall mean an option to
purchase one share of Cowles Common Stock granted under any plan or arrangement
of Cowles.
PROCEDURES FOR EXCHANGE OF STOCK CERTIFICATES
With respect to each certificate evidencing a share of Cowles Common
Stock (a "Cowles Stock Certificate") outstanding at the Effective Time (other
than any evidencing Cowles Dissenting Shares), New McClatchy shall cause the
Exchange Agent to mail (as soon as practicable after the Closing Date), to the
holder of such Cowles Stock Certificate, (a) a letter of transmittal and (b)
instructions to effect the surrender of such Cowles Stock Certificate (if such
certificate had not been previously surrendered with a Form of Election) in
exchange for the Cowles Merger Consideration. The letter of transmittal sent to
Cowles stockholders will contain instructions with respect to the surrender of
Cowles Stock Certificates in exchange for cash or certificates representing
shares of New McClatchy Class A Common Stock or the amount of cash in lieu of
any fractional interest in a share of New McClatchy Class A Common Stock for
which the shares represented by the Cowles Stock Certificates so surrendered are
exchangeable pursuant to the Reorganization Agreement. Holders of a certificate
evidencing a share of McClatchy Common Stock (a "McClatchy Stock Certificate"
and, together with the Cowles Stock Certificates, the "Stock Certificates") need
not exchange such certificate for a certificate representing shares of New
McClatchy Class A Common Stock or New McClatchy Class B Common Stock.
As soon as practicable after the Effective Time, each holder of an
outstanding Cowles Stock Certificate who surrenders or has previously
surrendered to the Exchange Agent such Cowles Stock Certificate shall be
entitled to the amount of cash, if any, into which the number of shares of
Cowles Common Stock previously represented by such certificate or certificates
surrendered shall have been converted pursuant to the Reorganization Agreement
and a certificate or certificates representing the number of full shares of New
McClatchy Class A Common Stock, if any, to be received by the holder thereof
pursuant to the Reorganization Agreement. The Exchange Agent will accept such
Cowles Stock Certificates when duly executed and completed in accordance with
the instructions thereto, together with such other documents as may reasonably
be required by the Exchange Agent. After the Effective Time, there will be no
further transfer on the records of McClatchy or Cowles or its transfer agent of
any Cowles Stock Certificate or McClatchy Stock Certificate. If any Cowles Stock
Certificate is presented for transfer, it shall be canceled against delivery by
the Exchange Agent of the applicable Cowles Merger Consideration. If any Cowles
Merger Consideration is to be delivered or paid to a name other than that in
which the surrendered Cowles Stock Certificate is registered, a condition of
such exchange shall be that such Cowles Stock Certificate so surrendered shall
be properly endorsed, with signature guaranteed, or otherwise in proper form for
transfer and the person requesting such exchange shall (A) pay to New McClatchy
any transfer (or other) tax required by reason of the issuance of such
certificate in a name other than that in which the surrendered certificate is
registered, or (B) establish to the satisfaction of New McClatchy that such tax
has been paid or is not applicable. Until surrendered, each Cowles Stock
Certificate shall, at all times after the Effective Time, represent only the
right to receive the applicable Merger Consideration upon such surrender. No
interest will be paid (and none will accrue) under the Reorganization Agreement
on any cash payable as Cowles Merger Consideration or payable in respect of
Cowles Converted Stock Units or Cowles Compensation Units.
No dividends or other distributions with respect to shares of New
McClatchy Common Stock having a record date after the Closing Date shall be paid
with respect to any share of New McClatchy Common Stock represented by any
unsurrendered Cowles Stock Certificate until surrender thereof to the Exchange
Agent. Subject to the effect of applicable laws, following surrender of any such
Cowles Stock Certificate, there shall be paid
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(without interest) to the holder of New McClatchy Common Stock issued in
exchange therefor, (i) at the time of such surrender, the amount of dividends or
other distributions theretofore paid with respect to such New McClatchy Common
Stock having a record date after the Closing Date, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with respect to
such New McClatchy Common Stock having (A) a record date after the Closing Date
but prior to such surrender and (B) a payment date after such surrender.
At the Effective Time, each certificate evidencing a share of McClatchy
Class A Common Stock or McClatchy Class B Common Stock (other than any
evidencing Dissenting Shares), shall be converted and treated on the stock
records of New McClatchy, without any action on the part of the holder thereof,
as evidencing a share of New McClatchy Class A Common Stock or New McClatchy
Class B Common Stock, respectively.
ACCORDINGLY, HOLDERS OF McCLATCHY STOCK CERTIFICATES SHOULD RETAIN
THEIR McCLATCHY STOCK CERTIFICATES.
FRACTIONAL SHARES
No certificate or scrip representing any fractional share of New
McClatchy Common Stock shall be issued as Cowles Merger Consideration or in
respect of Converted Stock Units and no such fractional-share interest will
entitle the holder thereof to any vote or any other right of a stockholder of
New McClatchy. Each holder entitled to receive Cowles Merger Consideration or
payment in respect of a Converted Stock Unit who would otherwise have been
entitled to receive a fraction of a share of New McClatchy Common Stock (after
taking into account all Cowles Merger Consideration or other consideration to
which such holder is entitled) shall receive, in lieu thereof and in accordance
with the exchange procedures, a cash payment (without interest) equal to such
fraction multiplied by the McClatchy Stock Price (each a "Fractional Share
Payment"). All fractional-share interests of each such holder will be
aggregated, and no such holder will receive any Fractional Share Payment equal
to or greater than the McClatchy Stock Price.
REPRESENTATIONS AND WARRANTIES
The Reorganization Agreement contains customary representations and
warranties of McClatchy and its subsidiaries relating to, among other things:
(i) organization, standing and similar corporate matters, including the identity
of all subsidiaries of McClatchy; (ii) McClatchy's capital stock structure;
(iii) the authorization, execution, delivery, performance and enforceability of
the Reorganization Agreement and related matters; (iv) the absence of conflict
between the execution and delivery of the Reorganization Agreement and the
transactions contemplated thereby and (A) McClatchy's charter or a material
contract of McClatchy and (B) all government and other consents; (v) the
accuracy of information contained in public documents filed by McClatchy with
the Commission; (vi) the absence of certain material adverse changes or other
events with respect to McClatchy; (vii) litigation and compliance with
applicable laws; (viii) benefit plans and other matters relating to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and certain
employment matters; (ix) certain labor matters; (x) filing of complete and
correct tax returns and payment of all applicable taxes; (xi) environmental
matters; (xii) brokers' and financial advisors' fees and expenses; (xiii) the
receipt of the fairness opinion of Salomon Brothers; (xiv) the recommendation by
the McClatchy Board to McClatchy's stockholders of the approval of the
Reorganization Agreement and the transactions contemplated thereby; (xv) the
required vote of holders of outstanding shares of McClatchy Common Stock to
approve and adopt the Reorganization Agreement and the transactions contemplated
thereby; (xvi) that McClatchy has or has available sufficient funds to pay all
consideration payable under the Reorganization Agreement; and (xvii) that
McClatchy has not taken any actions that would prevent the McClatchy Merger or
the Cowles Merger from qualifying for the intended tax treatment.
The Reorganization Agreement contains customary representations and
warranties of Cowles and its subsidiaries relating to, among other things: (i)
organization, standing and similar corporate matters, including the identity of
all subsidiaries of Cowles; (ii) Cowles' capital stock structure; (iii) the
authorization, execution, delivery, performance and enforceability of the
Reorganization Agreement and related matters; (iv) the absence of conflict
between the execution and delivery of the Reorganization Agreement and the
transactions contemplated thereby and (A) Cowles' charter or a material contract
of Cowles and (B) all government and other consents; (v) the accuracy
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of information contained in documents made publicly available by Cowles to its
stockholders; (vi) the absence of certain material adverse changes or other
events with respect to Cowles; (vii) litigation and compliance with applicable
laws; (viii) benefit plans and other matters relating to ERISA and certain
employment matters; (ix) certain labor matters; (x) filing of complete and
correct tax returns and payment of all applicable taxes; (xi) environmental
matters; (xii) title to owned real property, valid leasehold interests in leased
real property and other real estate related matters; (xiii) Cowles' ownership of
or right to use its intellectual property; (xiv) books and records of Cowles
(xv) brokers' and financial advisors' fees and expenses; (xvi) insurance; (xvii)
the validity of and the absence of defaults under material contracts; (xviii)
the absence of certain transactions with affiliates of Cowles; (xix) the receipt
of a fairness opinion, dated as of November 13, 1997, of Goldman Sachs; (xx) the
recommendation by the Cowles Board to Cowles' stockholders of the approval of
the Reorganization Agreement and the transactions contemplated thereby; and
(xxi) the required vote of holders of outstanding shares of Cowles Common Stock
to approve and adopt the Reorganization Agreement and the transactions
contemplated thereby.
CERTAIN PRE-CLOSING COVENANTS
Pursuant to the Reorganization Agreement and until the Effective Time,
McClatchy has agreed to only conduct the businesses of McClatchy and its
subsidiaries in the ordinary course of its business in all material respects and
consistent with past practice. McClatchy agreed that, except with the prior
written consent of Cowles, it will not, and will not permit any of its
subsidiaries to: (i) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock or make payments to
stockholders, except that McClatchy may continue the declaration and payment of
regular quarterly cash dividends consistent with current dividend policies
regarding payout ratio; (ii) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock; (iii) purchase,
redeem or otherwise acquire any shares of capital stock of McClatchy or any of
its subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities; (iv) amend its
Certificate of Incorporation or By-laws; (v) adopt a plan of liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization; (vi) issue any shares of its capital stock at less than fair
market value as determined in good faith by McClatchy's board of directors
(other than pursuant to the McClatchy's employee benefit plans); (vii) acquire
or agree to acquire any other entity if, in connection with such acquisition,
McClatchy would issue shares of McClatchy Common Stock in an aggregate amount
exceeding 10% of the aggregate amount of shares of McClatchy Common Stock
outstanding on the date of the Reorganization Agreement; or (viii) take any
action, or permit any subsidiary to take any action that could be reasonably
expected to prevent or materially delay McClatchy's, New McClatchy's or the
Merger Subs' consummation of the transactions contemplated by the Reorganization
Agreement.
Pursuant to the Reorganization Agreement and until the Effective Time,
Cowles has agreed to only conduct the businesses of Cowles and its subsidiaries
in the ordinary course of its business in all material respects and consistent
with past practice, and to use its reasonable best efforts to preserve intact
the business organization of Cowles and its subsidiaries, to keep available the
services of its present officers and employees and to preserve the present
relationships of Cowles and its subsidiaries with customers, suppliers,
advertisers and other persons having business dealings with Cowles. Cowles
agreed that, except with the written consent of McClatchy, it will not, and will
not permit any of its subsidiaries to: (i) declare, set aside or pay any
dividends on, or make any other distributions in respect of, any of its capital
stock or make payments to stockholders (except that Cowles may continue the
declaration and payment of regular quarterly cash dividends not in excess of
$0.17 per share of Cowles Common Stock); (ii) split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital stock;
(iii) purchase, redeem or otherwise acquire any shares of capital stock of
Cowles or any of its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities (except in
connection with options under employee benefit plans); (iv) issue, deliver,
sell, pledge or otherwise encumber any shares of its capital stock, or any
rights, warrants or options to acquire any such shares (other than in connection
with employee benefit plans); (v) amend its Certificate of Incorporation or
By-laws; (vi) acquire or agree to acquire any business or any entity, or
otherwise acquire any assets having a purchase price greater than a specified
amount; (vii) sell, lease, license, encumber or otherwise dispose of any of its
assets other than in the ordinary course of business consistent with past
practice or in transactions not exceeding a specified amount; (viii) incur any
indebtedness for borrowed money or
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guarantee any such indebtedness, issue or sell any debt securities or warrants
or other rights to acquire any debt securities of Cowles or any of its
subsidiaries, guarantee any debt securities of others, or agree to maintain any
financial condition of others, except for borrowings under its revolving credit
facilities incurred in the ordinary course of business consistent with past
practice, or make any loans, advances or capital contributions to, or
investments in, any other person (other than to Cowles or any subsidiary of
Cowles and other than routine advances to employees in the ordinary course of
business); (ix) make or agree to make any capital expenditures except (A)
capital expenditures which would not exceed a certain specified amount, and (B)
purchases of newsprint, ink and other inventory and supplies and replacements in
the ordinary course of business; (x) pay, discharge or satisfy any claims,
liabilities or obligations, except for the payment, discharge or satisfaction of
(A) liabilities or obligations in the ordinary course of business consistent
with past practice or in accordance with their respective terms, (B) liabilities
reflected or reserved against in, or disclosed in, the most recent consolidated
financial statements (or the notes thereto) of Cowles, (C) claims settled or
compromised in the ordinary course of business, consistent with past practice,
and (D) other claims, liabilities or obligations at a cost not exceeding a
certain specified amount; (xi) adopt a plan of liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or reorganization; (xii) change
any material accounting principle used by it, except for such changes as may be
required under GAAP or rules and regulations of the Commission promulgated after
the date of the Reorganization Agreement; (xiii) make any material tax election
or settle or compromise any material federal, state, local or foreign income tax
liability, except in the ordinary course of business and consistent with past
practice; (xiv) enter into any contract that is not terminable by Cowles without
penalty upon six months' notice, or that obligates Cowles or any subsidiary to
make annual expenditures in excess of a certain specified amount, or terminate
or modify in any material respect any material contract to which Cowles or any
subsidiary is a party; (xv) except in the ordinary course of business consistent
with past practice, sell, assign, transfer, license or permit to lapse any
material right with respect to Cowles' intellectual property rights; (xvi)
increase or enhance the compensation or benefits of directors, officers or
employees, except under certain circumstances; or (xvii) enter into, or
otherwise engage in any transactions over a certain specified amount with
affiliates of Cowles.
NO SOLICITATION OF TRANSACTIONS
Pursuant to the Reorganization Agreement, Cowles has agreed that Cowles
shall not (and shall not permit any of its officers, directors, agents,
representatives or advisors to): (i) solicit, initiate, or knowingly encourage
the submission of any proposal or offer from any person relating to any (A)
acquisition of a substantial amount of assets of Cowles (other than in the
ordinary course of business) or of more than 15% of all outstanding Cowles
Common Stock or more than 15% of all outstanding Cowles Voting Common Stock or
(B) tender offer or exchange offer that, if consummated, would result in any
person beneficially owning more than 15% of all outstanding Cowles Common Stock
or more than 15% of all outstanding Cowles Voting Common Stock, or (C) merger,
consolidation, business combination, sale of substantially all assets,
recapitalization, liquidation or similar transaction involving Cowles, other
than the transactions contemplated by the Reorganization Agreement (each an
"Alternative Proposal"), or agree to or endorse any Alternative Proposal, or
(ii) enter into or participate in any discussions or negotiations regarding any
Alternative Proposal, or furnish to any other person any non-public information
with respect to its business, properties or assets, or otherwise cooperate with,
or assist or participate in, any attempt by any other person to make any
Alternative Proposal; provided, however, subject to the following paragraph,
nothing in the Reorganization Agreement shall prohibit Cowles, following receipt
of an Alternative Proposal, from disclosing to its stockholders a position with
respect to such Alternative Proposal to the extent required by applicable law.
Cowles must promptly notify McClatchy upon receipt of an Alternative Proposal.
BOARD RECOMMENDATIONS
The McClatchy Board and the Cowles Board have each agreed, pursuant to
the Reorganization Agreement, (i) to recommend approval of the Reorganization
Agreement and the respective Merger to their respective stock- holders, (ii) to
include, and to not withdraw or modify, each such recommendation in the Joint
Proxy Statement/Prospectus unless under applicable law it is required to omit,
withdraw or modify any such recommendation, (iii) to submit for approval of its
stockholders the matters to be voted upon at the respective Special Meeting,
(iv) to use its best efforts (including, without limitation, soliciting proxies
for such approvals), to the extent permitted by
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applicable law, to obtain such stockholder approval, and (v) to not take any
action to nullify its resolution approving the respective Merger and the
Reorganization Agreement and its submission to their respective stockholders.
LISTING OF NEW MCCLATCHY CLASS A COMMON STOCK ON THE NYSE
The Reorganization Agreement provides that McClatchy shall cause the
shares of New McClatchy Class A Common Stock to be issued in the Mergers and
under the employee benefit plans of McClatchy and Cowles to be approved for
listing on the NYSE prior to the Closing Date, subject only to official notice
of issuance. After the consummation of the Reorganization, the shares of
McClatchy Class A Common Stock will be delisted from the NYSE.
BOARD OF DIRECTORS AND OFFICERS OF NEW MCCLATCHY FOLLOWING THE MERGERS
The Reorganization Agreement provides that the directors of McClatchy
immediately prior to the Effective Time, plus one present member of the Cowles
Board, will be the directors of New McClatchy after the Effective Time until the
next annual meeting of stockholders of New McClatchy (or the earlier of their
resignation or removal) and until their respective successors are duly elected
and qualified, as the case may be. Further, New McClatchy's Board of Directors
has agreed to nominate such present member of the Cowles Board, or any such
other person as designated by the Cowles Board on the date of the Reorganization
Agreement after consultation with New McClatchy (or a person mutually acceptable
to Cowles and New McClatchy), for election by the holders of New McClatchy Class
A Common Stock as a director of New McClatchy. Information about such new member
of McClatchy's Board, Elizabeth Ballantine, is set forth below. See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Elizabeth Ballantine, 49, will become a director of New McClatchy after
the Effective Time. Ms. Ballantine has been a director of Cowles since 1993. Ms.
Ballantine has been an attorney with Dickstein Shapiro Morin & Oshinsky LLP
since November 1993. From August 1990 until November 1993, she worked as a
private consultant for international business investments. Ms. Ballantine has
also been an Adjunct Professor of History with The George Washington University
since August 1991.
The Reorganization Agreement also provides that the officers of
McClatchy immediately prior to the Effective Time will be officers of New
McClatchy following the Reorganization until the earlier of their resignation or
removal and until their respective successors are duly elected and qualified, as
the case may be. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
REGISTRATION RIGHTS AGREEMENT
As a condition to Cowles' obligation to effect the Cowles Merger, New
McClatchy will execute the Registration Rights Agreement with the Cowles
Stockholders (as defined in the Cowles Stockholders Voting Agreement), which
will provide that New McClatchy will, subject to certain conditions, register
the resale of all or any portion of New McClatchy Class A Common Stock owned by
the Cowles Stockholders.
New McClatchy must use all reasonable efforts to prepare and file with
the Commission as of the Closing the registration statement required by such
provisions (the "Resale Registration Statement"). Further, New McClatchy shall
use all reasonable efforts to cause the Resale Registration Statement to be
declared effective under the Securities Act as soon as practicable after the
filing thereof, and to keep the Resale Registration Statement continuously
effective under the Securities Act until the earlier of the time at which (i)
all registrable securities covered by the Resale Registration Statement have
been sold under the Resale Registration Statement, (ii) a subsequent
registration statement covering all of the registrable securities has been
declared effective under the Securities Act, (iii) holders no longer hold any
registrable securities, (iv) with respect to any holder, all registrable
securities held by such holder may be sold in compliance with Rule 144 or Rule
145 within any three month period, or (v) two years has elapsed from the
Effective Date of the Cowles Merger (the "Effectiveness Period").
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In registering registrable securities, New McClatchy will make
commercially reasonable efforts, which include relevant filings with the
Commission, relevant notices and necessary disclosures to requesting parties,
and customarily required warranties and representations to underwriters.
The Cowles Stockholders will pay all underwriting discounts,
commissions and transfer taxes related to the registrable securities offered for
sale by the Cowles Stockholders. All other fees and expenses in connection with
the registration of registrable securities will be borne by New McClatchy. New
McClatchy agrees to indemnify the Cowles Stockholders and the prospective
underwriters of registrations of registrable securities for liabilities arising
out of violations by New McClatchy of applicable laws relating to the
registration statement and for material misstatements and omissions, not
provided by the Cowles Stockholders, included in the registration statement.
Likewise, each Cowles Stockholder agrees to indemnify New McClatchy, all other
Cowles Stockholders or any underwriter for liabilities arising out of violations
of applicable laws relating to its offer and sale of registrable securities and
for material misstatements and omissions made in the registration statement in
reliance on information provided to New McClatchy by such Cowles Stockholders.
ACCESS TO INFORMATION
Subject to confidentiality agreements between the parties, Cowles shall
(a) provide to McClatchy and its representatives reasonable access during normal
business hours to Cowles' and its subsidiaries' properties, books, contracts,
commitments, personnel and records and (b) furnish promptly to McClatchy (i) a
copy of each report, schedule, registration statement and other document filed
by Cowles during such period pursuant to the requirements of federal or state
securities laws and (ii) all other information concerning its business,
properties, financial condition, operations and personnel as McClatchy may from
time to time reasonably request. Similarly, subject to confidentiality
agreements between the parties, McClatchy shall (a) provide to Cowles and its
representatives reasonable access during normal business hours to its
properties, books, contracts, commitments, personnel and records and (b) furnish
promptly to Cowles (i) a copy of each report, schedule, registration statement
and other document filed by McClatchy during such period pursuant to the
requirements of federal or state securities laws and (ii) all other information
concerning its business, properties, financial condition, operations and
personnel as Cowles may from time to time reasonably request.
PUBLIC ANNOUNCEMENTS
With respect to any news release or other public announcement or
statement relating to the Reorganization Agreement or the transactions
contemplated thereby, McClatchy and Cowles have agreed to consult with each
other before issuing such announcement or statement, and to provide to the other
reasonable opportunity to review and comment on such announcement or statement,
and to not issue such announcement or statement prior to such consultation and
opportunity (except as otherwise required by applicable law).
INDEMNIFICATION AND INSURANCE
Pursuant to the Reorganization Agreement, at all times after the
Effective Time, New McClatchy and the Cowles Surviving Corporation shall
indemnify all present and former directors, officers and employees of Cowles and
its subsidiaries to the fullest extent called for by the Cowles Indemnification
Provisions (in each case as the Cowles Indemnification Provisions exist
immediately before the Effective Time and regardless of whether any of them is
subsequently amended, qualified, repealed or otherwise changed). The "Cowles
Indemnification Provisions" mean the provisions of the certificate of
incorporation, articles of organization and by-laws of Cowles and its
subsidiaries which contemplate indemnification of directors, officers and
employees of Cowles and its subsidiaries. New McClatchy shall cause to be
maintained for a period of not less than six years after the Closing Date, the
directors' and officers' liability insurance policy currently maintained by
Cowles or, if not available, comparable policies; provided, however, that New
McClatchy shall not be obligated to make annual premium payments for such
insurance to the extent that premiums exceed 200% of the annual premiums paid as
of the date of the Reorganization Agreement by Cowles for such insurance (the
"Current Premium"), and if such premiums for such insurance would at any time
exceed 200% of Cowles' Current Premium, then New McClatchy shall cause to be
maintained policies
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of insurance which provide the maximum coverage available at an annual insurance
premium equal to 200% of the Current Premium.
REASONABLE BEST EFFORTS
Pursuant to the Reorganization Agreement and subject to certain
conditions and limitations described therein, McClatchy, Cowles and New
McClatchy have agreed to use their reasonable best efforts to consummate the
Reorganization as soon as practicable.
CONDITIONS TO THE CONSUMMATION OF THE REORGANIZATION
The respective obligations of McClatchy and Cowles to effect the
Reorganization are subject to the following closing conditions: (i) the
Reorganization Agreement and the transactions contemplated thereby shall have
been approved by the vote of the holders of outstanding shares of Cowles Voting
Common Stock and McClatchy Common Stock; (ii) the shares of New McClatchy Class
A Common Stock shall have been approved for listing on the NYSE, subject only to
official notice of issuance; (iii) the waiting period (and any extension
thereof) applicable to the Reorganization under the HSR Act shall have expired
or been terminated; (iv) no temporary or permanent injunction or other order
issued by any court of competent jurisdiction prohibiting consummation of the
Mergers shall be in effect; (v) the Registration Statement of which this Joint
Proxy Statement/Prospectus is a part shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceeding
(initiated or threatened) seeking a stop order; and (vi) McClatchy shall have
received all material state securities and "blue sky" permits and approvals
necessary to consummate the Mergers.
McClatchy's obligations to effect the Reorganization are further
subject to the following additional conditions: (i) the representations and
warranties of Cowles which contain materiality exclusions shall be true and
correct in all material respects generally as of November 13, 1997 and as of the
Closing Date (except for each representation and warranty that is expressly made
as of a specified date); (ii) the other representations and warranties of Cowles
in the Reorganization Agreement generally shall be true and correct as of
November 13, 1997 and as of the Closing Date as though made on and as of the
Closing Date (except for each representation and warranty that is expressly made
as of a specified date), except to the extent the effect of breaches thereof
would not have a material adverse effect on Cowles; (iii) Cowles shall have
performed in all material respects all of its obligations under the
Reorganization Agreement on or prior to the Closing Date; (iv) McClatchy shall
have received evidence that Cowles has obtained the consent or approval of third
parties whose consents or approvals are required in order to consummate the
Reorganization (except for those consents or approvals which would not have a
material adverse effect on New McClatchy, McClatchy or Cowles or the ability to
effect the Mergers); (v) McClatchy shall have received an opinion of Pillsbury
Madison & Sutro LLP, counsel to McClatchy, or, if such firm is unwilling or
unable to render such opinion, an opinion of special counsel to Cowles, dated as
of the Closing Date, based upon customary representations from McClatchy,
Cowles, and certain stockholders of McClatchy, that the McClatchy Merger will
qualify as a reorganization within the meaning of section 368(a) of the Code or
that the McClatchy Merger, either alone or in connection with Cowles Merger,
will qualify as a transaction described in section 351 of the Code.
The obligations of Cowles to effect the Reorganization are further
subject to the following additional conditions: (i) the representations and
warranties of McClatchy which contain materiality exclusions shall be true and
correct in all material respects generally as of November 13, 1997
and as of the Closing Date (except for each representation and warranty that is
expressly made as of a specified date); (ii) the other representations and
warranties of McClatchy in the Reorganization Agreement and the representations
and warranties of New McClatchy in the Reorganization Agreement shall be true
and correct generally as of November 13, 1997 and as of the Closing
Date as though made on and as of the Closing Date (except for each
representation and warranty that is expressly made as of a specified date),
except to the extent the effect of breaches thereof would not have a material
adverse effect on McClatchy or (taking into account the transactions
contemplated thereby) New McClatchy, as the case may be; (iii) each of McClatchy
and New McClatchy shall have performed all of its obligations under the
Reorganization Agreement required to be performed in any material respect at or
prior to the Closing Date; and (iv) Cowles shall have received evidence that
McClatchy has obtained the consent or approval of third parties whose
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consents or approvals are required in order to consummate the Reorganization
(except for those consents or approvals which would not have a material adverse
effect on New McClatchy, McClatchy or Cowles or the ability to effect the
Mergers).
TERMINATION
The Reorganization Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the stockholders of
McClatchy or Cowles:
(a) by mutual written consent of McClatchy and Cowles;
(b) by either McClatchy or Cowles if any court or governmental entity
shall have issued an order, decree or ruling permanently enjoining or
prohibiting the Reorganization and such order, decree or ruling shall have
become final and nonappealable (but only if the party seeking to so terminate
shall have used all reasonable efforts to oppose and remove such order, decree
or ruling);
(c) by either McClatchy or Cowles if the Mergers shall not have been
consummated on or before May 31, 1998 (other than due to failure of the party
seeking termination to perform in all material respects its obligations under
the Reorganization Agreement required to be performed at or prior to the
Effective Time, or the failure of such party's stockholders to have approved by
such date the Reorganization Agreement and the transactions to be submitted to
them thereunder for their approval);
(d) by McClatchy if (i) (A) as of such time of determination, any of
the representations and warranties of Cowles in the Reorganization Agreement
which contain materiality exclusions shall not be true and correct in all
material respects or any of the other representations and warranties of Cowles
set forth in the Reorganization Agreement shall not be true and correct, except
in the case of such other representations and warranties to the extent the
effect of breaches thereof would not have a material adverse effect on Cowles,
or (B) Cowles or the Cowles Stockholders shall have failed to perform in any
material respect any material obligation under the Reorganization Agreement or
the Cowles Stockholders Voting Agreement and, in the case of (A), such untruth
or incorrectness cannot be or has not been cured within 30 days after the giving
of written notice to Cowles, and, in the case of (B), such failure cannot be or
has not been cured within 15 days after the giving of written notice to Cowles
or the Cowles Stockholders, as appropriate; or (ii) at the time of the Cowles
Special Meeting the holders of more than 10% of the outstanding shares of Cowles
Common Stock have submitted valid written demands for appraisal of their
respective shares pursuant to Section 262 of the DGCL which demands have not
been withdrawn at the time of the Cowles Special Meeting; or
(e) by Cowles, if (i) as of such time of determination, any of the
representations and warranties of McClatchy in the Reorganization Agreement
which contain materiality exclusions shall not be true and correct in all
material respects or any of the other representations or warranties of McClatchy
or the representations and warranties of New McClatchy set forth in the
Reorganization Agreement shall not be true and correct, except in the case of
such other representations and warranties to the extent the effect of breaches
thereof would not have a material adverse effect on McClatchy or (taking into
account the transaction contemplated thereby) New McClatchy, as the case may be,
or (ii) McClatchy, New McClatchy or either Merger Sub or, with respect to the
McClatchy Stockholders Voting Agreement, the McClatchy Stockholders, shall have
failed to perform in any material respect any material obligation or to comply
in any material respect with any material agreement or covenant of McClatchy,
New McClatchy or either Merger Sub or, with respect to the McClatchy
Stockholders Voting Agreement, the stockholders of McClatchy, to be performed or
complied with by it under the Reorganization Agreement or the McClatchy
Stockholders Voting Agreement and, in the case of (i), such untruth or
incorrectness cannot be or has not been cured within 30 days after the giving of
written notice to McClatchy, and, in the case of (ii), such failure cannot be or
has not been cured within 15 days after the giving of written notice to
McClatchy, or the McClatchy Stockholders, as appropriate.
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AMENDMENT; EXTENSION; WAIVER
The Reorganization Agreement may be amended by the parties at any time
before or after obtaining approval of the Reorganization Agreement and the
Mergers by the stockholders of McClatchy or Cowles. At any time prior to the
Effective Time any party may (i) extend the time for the performance of any of
the obligations or other acts of the other parties of the Reorganization
Agreement, (ii) waive any inaccuracies in the representations and warranties
made by the other party contained in the Reorganization Agreement or in any
document delivered pursuant thereto and (iii) waive compliance with any of the
agreements or conditions contained in the Reorganization Agreement.
FEES AND EXPENSES
Cowles has agreed to pay to McClatchy a termination fee of $45 million
upon occurrence of any termination of the Reorganization Agreement by McClatchy
for reasons described in clause (c) under "--Termination," as a result of the
failure of Cowles to obtain the approval of its stockholders, or for reasons
described in clause (d)(i) under "--Termination," as a result of the failure of
the Cowles Stockholders to comply with the Cowles Stockholders Voting Agreement.
Similarly, McClatchy has agreed to pay to Cowles a termination fee of $45
million upon occurrence of any termination of the Reorganization Agreement by
Cowles for reasons described in clause (c) under "--Termination," as a result of
the failure of McClatchy to obtain the approval of its stockholders, or for
reasons described in clause (e) under "--Termination," as a result of failure by
the McClatchy Stockholders to comply with the McClatchy Stockholders Voting
Agreement.
Except as otherwise provided above, all fees and expenses incurred in
connection with the Reorganization Agreement and the Mergers shall be paid by
the party incurring such expenses, whether or not the Reorganization is
consummated, except that McClatchy and Cowles shall share equally all fees and
expenses, other than attorneys' fees and accountants' fees, incurred in
connection with the printing and filing of this Joint Proxy
Statement/Prospectus.
CERTAIN PROVISIONS OF THE COWLES STOCKHOLDERS VOTING AGREEMENT
The following summary describes the material provisions of the Cowles
Stockholders Voting Agreement between the trustees (the "Cowles Voting
Trustees") and certain certificateholders (the "Cowles Certificateholders") of
Cowles on the one hand, and McClatchy, on the other hand, a copy of which is
attached as Annex C to this Joint Proxy Statement/Prospectus and is incorporated
herein by reference. This summary is qualified in its entirety by reference to
the Cowles Stockholders Voting Agreement.
VOTING ARRANGEMENTS. Pursuant to the Cowles Stockholders Voting
Agreement, the Cowles Certificateholders, severally and not jointly, have agreed
to call a meeting of the Cowles Certificateholders to vote upon the Cowles
Merger and the Reorganization Agreement, and at such meeting or in any other
circumstances upon which a vote, consent or other approval (including by written
consent) with respect to the Cowles Merger and the Reorganization Agreement is
sought, each Cowles Certificateholder shall vote the number of Cowles Voting
Common Stock he or she is the beneficial owner of (the "Cowles
Certificateholders Shares") in favor of the Cowles Proposal. The Cowles
Certificateholders have waived any appraisal rights granted pursuant to Section
262 of the General Corporation Law of the State of Delaware to which they may be
entitled as a result of the Cowles Merger or the other transactions contemplated
by the Reorganization Agreement.
Pursuant to the Cowles Stockholders Voting Agreement, the Cowles Voting
Trustees, severally and jointly, have agreed that at any meeting of the Cowles
stockholders called to vote upon the Cowles Merger and the Reorganization
Agreement or in any other circumstances upon which a vote, consent or other
approval (including by written consent) with respect to the Cowles Merger and
the Reorganization Agreement is sought, each Cowles Voting Trustee shall vote
the number of Cowles Voting Common Stock he or she is the record owner of and
possess legal title to and the sole right to vote (the "Cowles Voting Trust
Shares") (i) in favor of the Cowles Merger, the adoption by Cowles of the
Reorganization Agreement and the approval of the terms thereof and (ii) against
(A) any
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merger agreement or merger (other than the Reorganization Agreement and the
Cowles Merger), consolidation, combination, sale of substantial assets,
reorganization, recapitalization, dissolution, liquidation or winding up of or
involving Cowles (each an "Alternative Proposal") or (B) any amendment of
Cowles' certificate of incorporation or by-laws or other proposal or transaction
involving Cowles or any of its subsidiaries, which amendment or other proposal
or transaction would in any manner impede, frustrate, prevent, delay or nullify
the Cowles Merger, the Reorganization Agreement or any of the other transactions
contemplated by the Reorganization Agreement or change in any manner the voting
rights of any class of capital stock of Cowles. The Voting Trustees further
agreed not to take any action inconsistent with the foregoing.
TRANSFER RESTRICTIONS. Under the Cowles Stockholders Voting Agreement,
the Cowles Voting Trustees and the Cowles Certificateholders have agreed not to
(i) transfer, sell, pledge, assign or otherwise dispose of (including by gift)
(collectively, "Transfer"), or enter into any contract, option or other
arrangement (including any profit sharing arrangement) with respect to the
Transfer of, any of the subject shares to any person, other than pursuant to the
terms of the Cowles Merger or (ii) enter into any voting arrangement, whether by
proxy, power-of-attorney, voting agreement, voting trust or otherwise, in
connection with, directly or indirectly, any Alternative Proposal.
NO SOLICITATION. During the term of the Cowles Stockholders Voting
Agreement, the Cowles Voting Trustees and the Cowles Certificateholders shall
not, nor shall they permit any of their affiliates or any director, officer,
employee, investment banker, attorney or other adviser or representative of any
of the foregoing to (i) directly or indirectly, solicit, initiate or knowingly
encourage the submission of, any Alternative Proposal or (ii) directly or
indirectly, participate in any discussions or negotiations regarding, or furnish
to any person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Alternative Proposal.
ASSISTANCE. Until the Cowles Merger is consummated or the
Reorganization Agreement is terminated other than pursuant to section (c) or (d)
under "THE REORGANIZATION AGREEMENT--Termination," as a result of the failure to
obtain Cowles Stockholder Approval, the Cowles Voting Trustees and the Cowles
Certificateholders shall use all reasonable efforts to assist and cooperate with
the other parties to consummate and make effective, in the most expeditious
manner practicable, the Cowles Merger and the other transactions contemplated by
the Reorganization Agreement.
TREATMENT OF CERTAIN CERTIFICATEHOLDER PROFITS. In the event that the
Reorganization Agreement shall have been terminated pursuant to section (c) or
(d) under "THE REORGANIZATION AGREEMENT--Termination" above as a result of the
failure to obtain Cowles Stockholder Approval at a meeting of the stockholders
of Cowles called for the purpose of obtaining such approval, each Cowles
Certificateholder which failed to comply with its voting obligations under the
Cowles Stockholders Voting Agreement shall pay to McClatchy on demand an amount
equal to all profit (determined in accordance with the Cowles Stockholders
Voting Agreement) of such Cowles Certificateholder from the consummation of any
Alternative Proposal (an "Alternative Transaction") within 18 months of such
termination.
GRANT OF IRREVOCABLE PROXY. Under the Cowles Stockholders Voting
Agreement, the Cowles Voting Trustees revoked all previous proxies with respect
to Cowles Voting Trust Shares. Following the receipt of the vote of the Cowles
Certificateholders for the Cowles Merger, upon McClatchy's or New McClatchy's
request, each Cowles Voting Trustee has agreed to irrevocably grant to, and
appoint, McClatchy and New McClatchy, and each of them, and any person who may
hereafter be designated by McClatchy or New McClatchy as permitted under
applicable law, and each of them individually, the Cowles Voting Trustee's proxy
and attorney-in-fact (with full power of substitution), for and in the name,
place and stead of the Cowles Voting Trustee, to vote the Cowles Voting Trust
Shares, or grant a consent or approval in respect of such Cowles Voting Trust
Shares, in favor of or against, as the case may be, the Cowles Merger and
Alternative Proposals, and to execute and deliver an appropriate instrument
irrevocably granting such proxy. The proxy terminates upon any termination of
the Cowles Stockholders Voting Agreement in accordance with its terms.
AFFILIATE LETTER; TAX CERTIFICATES. Each Cowles Voting Trustee and
Cowles Certificateholder, to the extent an affiliate of Cowles, shall execute
and deliver an Affiliate Letter contemplated by the Reorganization Agreement
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and such tax certificates as may reasonably be requested by Cowles in connection
with the rendering of the tax opinions contemplated by the Reorganization
Agreement.
TERMINATION. The Cowles Stockholders Voting Agreement shall terminate
upon the earlier of (a) the 18 month anniversary of the termination of the
Reorganization Agreement pursuant to its terms or (b) the Effective Time of the
Cowles Merger; provided, however, that unless (i) Cowles is in material breach
of its material obligations under the Reorganization Agreement, (ii) any Cowles
Voting Trustee or Cowles Certificateholder is in material breach of its material
obligations under the Cowles Stockholders Voting Agreement, or (iii) a meeting
of the Cowles Stockholders (or any adjournment thereof) has been held to
consider the Cowles Merger and the other transactions contemplated by the
Reorganization Agreement and the requisite approval of the stockholders of
Cowles was not obtained, the Cowles Stockholders Voting Agreement shall
terminate at the time the Reorganization Agreement is terminated pursuant to its
terms. Notwithstanding the foregoing, the Cowles Stockholders Voting Agreement
shall (if operative in accordance with its terms) survive the termination of the
Reorganization Agreement for the period of time specified therein.
CERTAIN PROVISIONS OF THE MCCLATCHY STOCKHOLDERS VOTING AGREEMENT
The following summary describes the material provisions of the
McClatchy Stockholders Voting Agreement, a copy of which is attached as Annex B
to this Joint Proxy Statement/Prospectus and is incorporated herein by
reference. This summary is qualified in its entirety by reference to the
McClatchy Stockholders Voting Agreement.
Pursuant to the McClatchy Stockholders Voting Agreement, certain
McClatchy Class B Common Stockholders have severally agreed to vote their shares
of McClatchy Class B Common Stock (the "Subject Shares") at any meeting of
stockholders of McClatchy called to vote upon the McClatchy Merger and the
Reorganization Agreement (or in any other circumstances upon which a vote,
consent or other approval, including a written consent, with respect to the
McClatchy Merger and the Reorganization Agreement is sought) in favor of the
McClatchy Proposal. Each signatory to the McClatchy Stockholder Voting Agreement
has agreed to waive any appraisal rights granted pursuant to Section 262 to
which it may otherwise be entitled as a result of the McClatchy Merger or the
other transactions contemplated by the Reorganization Agreement.
The McClatchy Stockholders Voting Agreement will expire on the earlier
of the 18 month anniversary of the termination of the Reorganization Agreement
or the Effective Time.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF COWLES
The following table sets forth, as of February 16, 1998, each person
known to Cowles to own beneficially more than 5% of the Cowles Voting Common
Stock. Except as otherwise indicated and subject to community property laws
where applicable, each person has sole investment and voting power with respect
to the shares shown. Ownership information is based upon information furnished
by the respective individuals and entities. Information with respect to stock
ownership of directors and certain executive officers of Cowles is set forth
following the table below.
<TABLE>
<CAPTION>
Number of Voting
Shares and Nature of Percent of Voting
Name Of Beneficial Owner Beneficial Ownership Shares Outstanding
- ------------------------ -------------------- ------------------
<S> <C> <C>
Elizabeth Ballantine(1),(2)................................... 2,164,836(3) 56.42%
Elizabeth Bullitt(1),(2)...................................... 2,164,404(4) 56.41
John Cowles III(1),(2)........................................ 2,163,258(5) 56.38
Russell Cowles II(1),(2)...................................... 2,283,552(6) 59.51
Joe Scofield(1)............................................... 2,163,186(7) 56.38
5333 County Road 100
Carbondale, CO 81623
Post-Newsweek Stations, Michigan, Inc......................... 881,532 22.97
3 Constitution Plaza
Hartford, CT 06103
- -----------
<FN>
(1) Elizabeth Ballantine, Elizabeth Bullitt, John Cowles III, Russell Cowles
II and Joe Scofield are Voting Trustees under a Voting Trust Agreement
dated as of October 30, 1996 (the "Voting Trust"), and have shared
voting power with respect to the shares of Cowles Voting Common Stock
deposited in the Voting Trust. Each of Elizabeth Ballantine, Elizabeth
Bullitt and John Cowles III is also a director of Cowles. The Voting
Trustees may not, except upon obtaining the affirmative approval of
holders of voting trust certificates representing at least two-thirds of
the shares of Cowles Voting Common Stock deposited in the Voting Trust,
vote in favor of or consent to any action involving matters of merger,
liquidation, or transfer of substantially all of the assets of Cowles.
The term of the Voting Trust continues until October 29, 2010, subject
to earlier termination by the holders of voting trust certificates or by
the Voting Trustees.
(2) The mailing address of this person is c/o Sherburne & Coughlin, Ltd.,
708 South Third Street, #510, Minneapolis, MN 55415.
(3) This amount includes 2,163,186 shares held in the Voting Trust (of which
29,214 were deposited by Ms. Ballantine, 3,336 were deposited by trusts
of which she is a trustee and 1,800 were deposited by her husband).
(4) This amount includes 2,163,186 shares held in the Voting Trust (of which
98,286 were deposited by Ms. Bullitt, 28,200 were deposited by trusts of
which she is a trustee and 600 were deposited by her husband) and 1,200
held in trusts of which Ms. Bullitt is a trustee having shared voting
power and shared investment power.
(5) This amount includes 2,163,186 shares held in the Voting Trust (of which
23,172 were deposited by John Cowles III, 765,372 were deposited by
trusts of which he is a trustee and 600 were deposited by his wife).
(6) This amount includes 2,163,186 shares held in the Voting Trust (of which
277,472 shares were deposited by trusts of which Mr. Cowles is a
trustee) plus 210 shares held personally by him and 119,160 shares held
in trusts of which he is a trustee having shared voting power and shared
investment power.
(7) This amount includes 2,163,186 shares held in the Voting Trust (of which
510 shares were deposited by Mr. Scofield).
</FN>
</TABLE>
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The following table sets forth, as of February 16, 1998, the number of
shares of Cowles Voting Common Stock and Cowles Non-voting Common Stock
beneficially owned by the directors, the chief executive officer and the four
most highly compensated executive officers of Cowles and all directors and
officers of Cowles as a group. Except as otherwise indicated and subject to
community property laws where applicable, each person has sole investment and
voting power with respect to the shares shown.
<TABLE>
<CAPTION>
Number Of Shares And Nature Of
Beneficial Ownership Percent Of Shares Outstanding
----------------------------------- ----------------------------------
Name Of Beneficial Owner Voting Non-voin Voting Non-voting
- -------------------------------------------- ----------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Elizabeth Ballantine1....................... 2,164,836(2) 326,018(3) 56.42% 3.24%
Elizabeth Bullitt1.......................... 2,164,404(4) 106,470(5) 56.41 1.06
John Cowles III1............................ 2,163,258(6) 451,158(7) 56.38 4.48
David C. Cox................................ 37,775(8) 171,295(9) * 1.70
William A. Hodder........................... -- 500 * *
Joel R. Kramer.............................. 18,901(10) 77,266(11) * *
K. Prescott Low............................. -- -- * *
Franklin J. Parisi.......................... -- 7,552(12) * *
James N. Rosse.............................. -- 2,000 * *
Terry T. Saario............................. -- 210 * *
Pamela J. Sveinson.......................... 2,185 9,358 * *
James J. Viera.............................. 6,211(13) 32,730(14) * *
Herbert P. Wilkins, Sr...................... -- -- * *
Director and officers as a group
(16 individuals)....................... 2,233,965(15) 1,201,525(16) 58.22 11.86
- -----------
<FN>
* Less than 1%.
(1) Elizabeth Ballantine, Elizabeth Bullitt, John Cowles III, Russell Cowles
II and Joe Scofield are Voting Trustees under a Voting Trust Agreement
dated as of October 30, 1996 (the "Voting Trust"), and have shared
voting power with respect to the shares of Cowles Voting Common Stock
deposited in the Voting Trust. Each of Elizabeth Ballantine, Elizabeth
Bullitt and John Cowles III is also a director of Cowles. The Voting
Trustees may not, except upon obtaining the affirmative approval of
holders of voting trust certificates representing at least two-thirds of
the shares of Cowles Voting Common Stock deposited in the Voting Trust,
vote in favor of or consent to any action involving matters of merger,
liquidation, or transfer of substantially all of the assets of Cowles.
The term of the Voting Trust continues until October 29, 2010, subject
to earlier termination by the holders of voting trust certificates or by
the Voting Trustees.
(2) This amount includes 2,163,186 shares held in the Voting Trust (of which
29,214 were deposited by Ms. Ballantine and 3,336 were deposited by
trusts of which she is a trustee).
(3) This amount includes 175,504 shares held in various trusts of which Ms.
Ballantine is a trustee having shared investment power, 13,684 shares
held by her minor children and 36,162 held by her husband directly or as
trustee for minor children.
(4) This amount includes 2,163,186 shares held in the Voting Trust (of which
98,286 were deposited by Ms. Bullitt, 28,200 were deposited by trusts of
which she is a trustee and 600 were deposited by her husband) and 1,200
held in trusts of which Ms. Bullitt is a trustee having shared voting
power and shared investment power.
(5) This amount includes 7,332 shares held in various trusts of which Ms.
Bullitt is a trustee having shared investment power and 1,290 shares
held by her husband.
(6) This amount includes 2,163,186 shares held in the Voting Trust (of which
23,172 were deposited by Mr. Cowles, 765,372 were deposited by trusts of
which he is a trustee and 600 were deposited by his wife).
(7) This amount includes 391,976 shares held in various trusts of which Mr.
Cowles is a trustee having shared investment power and 9,396 shares held
by his wife.
(8) This amount includes 31,127 shares held in various trusts of which Mr.
Cox is a trustee having shared voting power and shared investment power.
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<PAGE>
(9) This amount includes 32,907 shares held in various trusts of which Mr.
Cox is a trustee having shared investment power and 13,200 shares held
in a charitable foundation of which Mr. Cox is a director having shared
investment power.
(10) This amount includes 15,854 shares held by his wife.
(11) This amount includes 41,142 shares held by his wife.
(12) This amount includes 3,932 shares held by his wife.
(13) This amount includes 1,320 shares held by his wife.
(14) This amount includes 12,480 shares held by his wife.
(15) This amount includes 2,163,138 shares held in the Voting Trust (of which
Elizabeth Ballantine, Elizabeth Bullitt and John Cowles III are trustees
having shared voting power).
(16) This amount includes the following number of shares that the named
individual or group may purchase under options granted by Cowles: Mr.
Cox, 59,701 (all of which are subject to repurchase by Cowles at the
exercise price if he voluntarily terminates employment under certain
circumstances within one year after exercise); Mr. Parisi, 3,420 (of
which all are subject to repurchase); and directors and officers as a
group, 65,438.
</FN>
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION OF COWLES
RECENT EVENTS
Net earnings for Cowles for the third quarter ended December 27, 1997
were $12.4 million, compared to $9.3 million for the same period of 1996.
Earnings per share were $0.87 in the third quarter ended December 27, 1997, up
from $0.67 for the same period of 1996. The increase in net earnings reflects
strong marketer revenue growth and positive effects of a recent acquisition at
STAR TRIBUNE, improved earnings at CEM from initiatives and acquisitions, and a
positive tax settlement. Net earnings were partially offset by a cash bonus paid
directly to all employees in lieu of an annual stock contribution made in prior
years to the Employee Stock Plan, and charges related to the pending
Reorganization. CBM net earnings decreased from the prior period primarily due
to the timing of a trade show. CCP net earnings also decreased due to the
continued decline in the continuity book business.
Net earnings for Cowles for the nine months ended December 27, 1997 were
$34.0 million, compared to $22.6 million for the same period of 1996. Earnings
per share were $2.41 in the nine months ended December 27, 1997, up from $1.63
in the nine months ended December 28, 1996. The increase in net earnings
reflects strong marketer revenue growth and lower newsprint prices at STAR
TRIBUNE, and improved earnings performance at CBM and CEM.
SIX MONTHS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
OVERVIEW. Net earnings of Cowles for the six months ended September 27,
1997 were $21.6 million, compared with $13.4 million for the same period of
1996. Earnings per share were $1.53 in the six months ended September 27, 1997,
up from $0.96 in the six months ended September 28, 1996. The increase in net
earnings reflects strong marketer revenue growth and lower newsprint prices at
STAR TRIBUNE, improved earnings growth at CBM and CEM, and lower charitable
contributions.
OPERATING REVENUE. Operating revenue for the six months ended September
27, 1997 was $260.4 million, up from $252.6 million, or 3% over the same period
of 1996.
STAR TRIBUNE consolidated revenue in the six months ended September 27,
1997 grew 7% over the same period of 1996 due to a 7% increase in existing
marketer revenue, a 67% increase in new business marketer revenue, and a 1%
growth in reader revenue.
Newspaper marketer revenue is categorized into three primary advertising
categories: display ROP (run of press), classified and preprinted supplement.
Display ROP advertising is advertising other than classified advertising which
is printed on STAR TRIBUNE presses and appears within the body of the newspaper.
Display ROP revenue grew 2% in the six months ended September 27, 1997 of which
more than 1% was due to volume growth and less than 1% was due to rate
increases. Classified advertising revenue grew 11%, of which 10% was an increase
in employment advertising due to gains in volume and price. Preprinted
supplement revenue increased 1%.
STAR TRIBUNE reader revenue grew 1% in for the six months ended
September 27, 1997. The daily metro edition single copy prices were raised to 50
cents in September of 1996, the first increase since 1986. Net paid circulation
at September 1997 was 387,400 daily and 668,500 Sunday, compared with 393,700
daily and 678,000 Sunday at September 1996. While circulation declined slightly,
the STAR TRIBUNE has retained its position as number 12 in the top 25 Sunday
newspapers nationwide and ranks number 16 in the metropolitan daily newspaper
group.
STAR TRIBUNE had significant contributions from investments in new
businesses during the six months ended September 27, 1997. New business revenues
increased 67% over the same period in 1996, primarily due to a 34% increase in
revenue at Alternate Delivery Extra Distribution Company (ADX), which
distributes a total market coverage product as well as product samples in the
Twin Cities. Additional increases came from Metro Marketing, a direct mailer
that was acquired in August 1997. Revenue from electronic products and services
increased 156% over the same period in 1996. The STAR TRIBUNE also saw increased
usage of STAR TRIBUNE Online and
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<PAGE>
WorkAvenue.com, a web based employment service, and the launch of FreeTime.com
digital initiatives during the six months ended September 27, 1997. Revenue from
other printed products increased 55% compared to the same period in 1996.
Operating revenues for the six months ended September 27, 1997 for CEM,
CBM and CCP were slightly lower than the same period last year, reflecting
increased revenue at CEM and CBM due to magazine acquisitions of Climbing,
Kitplanes, American Demographics, and Circulation Management, offset by the
divestitures of Walking Magazine, Inside Media, Weissmann Travel, and several
business conferences. As referred to above, the Company discontinued or divested
several CEM and CBM properties which lacked a strong strategic fit with ongoing
operations. CEM revenue increased 1%; excluding recent acquisitions and
divestitures, revenue would have increased 8%. CBM revenue decreased 3%.
Excluding recent acquisitions and divestitures, CBM revenue would have decreased
9%. CCP's lower revenues were offset slightly by the acquisition of NorthWord
Publishing, Inc., a producer of nature-related materials.
OPERATING EXPENSES. Operating expenses (other than depreciation and
amortization) decreased 4% in the six months ended September 27, 1997 compared
to the same period in 1996. For STAR TRIBUNE, the largest operating expense
items are labor and benefits (approximately one-half of total operating
expenses) and newsprint (18% of total operating expenses). STAR TRIBUNE total
operating expenses increased 2% in the six months ended September 27, 1997.
Labor increased 5% primarily due to labor rate increases and increased sales
incentives. Newsprint expense was down 13% primarily due to decreased price. A
portion of the savings in newsprint expense was used to fund investments in
strategic initiatives including new digital capabilities and the acquisition of
Metro Marketing, a direct mailer.
Operating expenses for CEM, CBM and CCP decreased 12% in the six months
ended September 27, 1997 compared to the same period in 1996 as acquisition and
start-up costs were offset by reduced expense due to divestitures and
discontinued operations. Operating expenses for CEM decreased 7%, primarily as a
result of divestitures and discontinued properties, partially offset by
increased start-up costs and acquisitions. Operating expenses for CBM decreased
17%, which decrease was primarily related to divested conferences. CCP operating
expenses decreased 15% in line with a planned year to year decline in sales.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
4% in the six months ended September 27, 1997 compared to the same period in
1996 to $11.5 million. The increase was due mainly to higher depreciation at the
STAR TRIBUNE.
OPERATING EARNINGS. Operating earnings were $39.3 million in the six
months ended September 27, 1997 compared to $22.6 million in the same period in
1996. The 74% increase reflects the 3% increase in operating revenues and the 4%
decrease in operating expenses discussed above, which were offset partially by
the increase in depreciation and amortization.
INTEREST EXPENSE. Interest expense (net of investment income) decreased
$0.5 million in the six months ended September 27, 1997 compared to the same
period in 1996 mainly due to debt refinancing in late fiscal year 1996 and again
in late fiscal year 1997, resulting in lower interest rates.
OTHER NON-OPERATING INCOME. Other non-operating income (net of expense)
decreased $3.2 million in the six months ended September 27, 1997 compared to
the same period in 1996, primarily due to the absence of real estate
transactions in 1997.
INCOME TAX EXPENSE. Income tax expense increased $5.8 million in the six
months ended September 27, 1997 compared to the same period in 1996, mainly a
result of higher earnings. The effective income tax rate as a percent of
earnings before income taxes was 41.0% and 40.9% for the six months ended
September 27, 1997 and September 28, 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES. Cash and cash equivalents as of
September 27, 1997 and September 28, 1996 were $3.4 million and $3.3 million,
respectively. Cash generated by operating activities in the six months
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<PAGE>
ended September 27, 1997 totaled $23.4 million (after payment of interest and
income taxes). The cash generated by operating activities and proceeds from
disposal of properties funded $10.8 million of acquisition expenditures, $8.0
million of capital spending, as well as debt principal payments and dividends.
Stockholders' equity increased from $70.7 million as of September 28, 1996 to
$100.0 million as of September 27, 1997.
As of September 27, 1997, $65 million remained unused on our credit
agreements to provide working capital and meet other capital requirements.
Management believes that cash generated from its operations and the availability
of funds from external sources should be adequate to cover planned capital
expenditures, dividend payments, scheduled debt principal payments and other
cash requirements in the remainder of the fiscal year. Dividends increased to
$0.34 per share for the six months ended September 27, 1997 compared to $0.32
per share for the same period in 1996.
<TABLE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<CAPTION>
First Second
---------------------------- ----------------------------
Fiscal Year Fiscal Year Fiscal Year Fiscal Year
1998 1997 1998 1997
----------- ----------- ----------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Results of operations:
Operating revenue.......... $ 127,883 $ 126,288 $ 132,536 $ 126,305
Operating earnings......... 20,006 9,073 19,298 13,560
Net earnings............... 10,922 6,238 10,696 7,112
Earnings per share................ $ 0.79 $ 0.45 $ 0.74 $ 0.51
</TABLE>
FISCAL YEARS 1997, 1996 AND 1995
OVERVIEW. Net earnings of Cowles for fiscal 1997 were $29.5 million,
compared with $24.4 million in fiscal 1996 and $22.5 million in fiscal 1995.
Earnings per share were $2.13 in fiscal 1997, up from $1.76 in fiscal 1996 and
$1.61 in fiscal 1995. The increase in net earnings from fiscal 1996 to fiscal
1997 reflected strong revenue growth and lower newsprint prices at STAR TRIBUNE
and a decrease in depreciation and amortization expense. Earnings growth at STAR
TRIBUNE more than offset lower earnings at CCP, higher charitable contributions,
investments in strategic business initiatives and reengineering charges at CEM,
CBM and CCP.
Net earnings increased 9% in fiscal 1996 from fiscal 1995. STAR TRIBUNE
net earnings increased 6%, reflecting an 8% increase in revenue, partially
offset by a 38% increase in newsprint expense. Combined operating revenues of
the Non-newspaper Subs increased 14%; however, net losses of the Non-newspaper
Subs increased to $2.7 million in fiscal 1996 from $1.3 million in fiscal 1995,
due primarily to a writedown of $1.5 million of intangible assets related to a
magazine title. The increase in Cowles net earnings in fiscal 1996 included an
increase of $1.1 million in gains from sales of real estate, offset by a
decrease of $1.6 million in revenue from a non-compete covenant related to the
sale of the GREAT FALLS (Mont.) TRIBUNE in 1990.
OPERATING REVENUE. Operating revenue for fiscal 1997 was $517.1 million,
up 5% over revenue of $492.6 million in fiscal 1996 and $449.7 million in fiscal
1995. STAR TRIBUNE consolidated revenue grew 7% in fiscal 1997 over fiscal 1996
as a result of a 10% increase in advertising revenue and a 1% increase in
circulation revenue. STAR TRIBUNE fiscal 1996 revenue increased 8% over fiscal
1995 as a result of a 9% increase in advertising revenue and a 5% increase in
circulation revenue. In fiscal 1997, newspaper display advertising revenue
increased $6.7 million, or 5%, and classified advertising revenue increased
$12.3 million, or 11%, resulting in an overall increase in "core" newspaper
revenue of $21.1 million, or 7%. Pre-printed supplement advertising revenue
increased 1%. The largest increase in classified advertising revenue was in
employment advertising (a 15% increase over fiscal 1996 resulting from increased
volume and price). In fiscal 1996, newspaper display advertising increased $2.6
million, or 2%, and classified advertising revenue increased $13.4 million, or
14%, resulting in an overall increase in "core" newspaper revenue of $18.2
million, or 6%.
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STAR TRIBUNE circulation revenue grew 1% in fiscal 1997 over fiscal 1996
and grew 5% in fiscal 1996 over fiscal 1995. The daily metro edition single-copy
price was raised to $.50 in September, 1996, the first increase since 1986. Net
paid circulation at the end of fiscal 1997 was 387,300 daily and 673,000 Sunday,
compared with 388,120 daily and 682,318 Sunday at the end of fiscal 1996. While
circulation declined slightly, the STAR TRIBUNE retained its position as 12th in
the largest 25 Sunday newspapers nationwide and it rose from 18th to 16th among
metropolitan daily newspapers.
In fiscal 1997, STAR TRIBUNE had significant contributions from
investments in new businesses. New-business revenues increased 30% over fiscal
1996, including a $2.0 million revenue increase for ADX and increased 107% in
fiscal 1996 over fiscal 1995. Revenue from electronic products and services
increased 26% over fiscal 1996. Fiscal 1997 also included increased use of STAR
TRIBUNE Online, the launch of WorkAvenue.com (a web-based employment service)
and other digital initiatives. Revenue from other printed products increased by
$0.7 million in fiscal 1997, reflecting increased development and promotional
spending.
Operating revenues for CEM, CBM and CCP were largely unchanged from
fiscal 1996, reflecting increased revenue at CEM and CBM (offset by the sale of
MOBILE OFFICE magazine in early fiscal 1997) and slightly lower revenue at CCP.
In fiscal 1997, Cowles sold or discontinued several CEM and CBM properties which
lacked a strong strategic fit with ongoing operations, including WALKING
magazine at CEM at the end of fiscal 1997. CEM revenue increased by 4% over
fiscal 1996 and, excluding recent acquisitions and divestitures, revenue would
have increased 7%. This performance reflects strong increases for VEGETARIAN
TIMES, DOLL READER, and HORSE & RIDER magazines. CEM's fiscal 1996 revenue
reflects a 10% increase over fiscal 1995. CBM revenue increased 1% in fiscal
1997 over 1996. Excluding the sale of MOBILE OFFICE, INSIDE MEDIA and Weissmann
Travel Reports, as well as discontinued businesses, CBM revenue would have
increased 9%. CBM's fiscal 1996 revenue reflects a 13% increase over fiscal
1995. CCP revenue for fiscal 1997 decreased by $1.7 million, or 4% from fiscal
1996, reflecting lower revenues due to reduced direct-mail solicitations in
fiscal 1996. CCP's fiscal 1996 revenue reflects a 20% increase over fiscal 1995
due to the transfer of a book and products division from CEM.
OPERATING EXPENSES. Operating expenses (other than depreciation and
amortization) increased 4% in fiscal 1997. STAR TRIBUNE operating expenses
(approximately half of which are labor and benefits costs) increased 5%,
although newsprint expense (approximately 20% of total operating expenses) was
down 14% from fiscal 1996 due to decreased price and volume. A portion of the
savings in newsprint expense was used to fund investments in strategic
initiatives, including new digital capabilities and a campaign to develop and
promote the STAR TRIBUNE brand.
Operating expenses for CEM, CBM and CCP increased 2% in fiscal 1997.
Operating expenses for CEM increased 4%, due principally to increased
investments in new business initiatives (including database marketing and the
start-up of a new affinity buying club for history enthusiasts, the National
Historical Society). Operating expenses for CBM increased 1%, with increases at
established businesses offset by divested or discontinued properties. CCP
operating expenses were down 1%. In fiscal 1996, operating expenses for these
units increased 14% over fiscal 1995. Excluding recent acquisitions, the
increase would have been 9%.
DEPRECIATION AND AMORTIZATION. In fiscal 1997, depreciation and
amortization decreased by 9% from fiscal 1996, due mainly to lower depreciation
at STAR TRIBUNE (related to fully depreciated assets at the Heritage Center
production facility) and lower amortization expense at CBM (related to an
intangible asset write-down for a discontinued trade show). In fiscal 1996,
depreciation and amortization increased 13% from fiscal 1995, due mainly to
increased intangible asset amortization (from acquisitions) and additional
depreciation (from the newly refurbished STAR TRIBUNE offices).
OPERATING EARNINGS. Operating earnings were $54.4 million in fiscal
1997, compared with $45.2 million in fiscal 1996, a 20% increase reflecting
higher growth in revenues than in operating expense and decreased amortization
and depreciation expense. Operating earnings in fiscal 1996 were $45.2 million
compared to $42.7 million in fiscal 1995, a 6% increase. In 1996, revenue growth
outpaced the increase in operating expenses, but this increase was offset
partially by higher amortization and depreciation expense.
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INTEREST EXPENSE. Interest expense (net of investment income) decreased
$0.7 million in fiscal 1997 over fiscal 1996, due mainly to debt refinancing and
lower interest rates. Interest expense did not change materially in fiscal 1996
from fiscal 1995.
OTHER NON-OPERATING INCOME. Other non-operating income (net of expense)
increased $1.8 million in fiscal 1997 over fiscal 1996 as a result of sales of
publications by CEM and CBM, and increased income from sales of real estate. In
fiscal 1996, other non-operating income (net of expense) decreased $0.6 million
from fiscal 1995, as a result of reduced income from non-compete agreements,
partially offset by increased gains from sales of real estate.
INCOME TAX EXPENSE. Income tax expense increased $6.7 million in fiscal
1997 over fiscal 1996, mainly as a result of higher earnings and additional
taxes from sales of assets. Income tax expense did not change materially in
fiscal 1996 over fiscal 1995. The effective income tax rate as a percentage of
earnings before income taxes was 44.7%, 41.2% and 43.3% for fiscal 1997, fiscal
1996 and fiscal 1995, respectively. During fiscal 1996, approximately $900,000
of tax benefits were recognized as a result of tax credits and differences
between book and tax basis of assets contributed to the Cowles Media Foundation.
LIQUIDITY AND CAPITAL RESOURCES. Cash and cash equivalents at the end of
fiscal 1997 and 1996 were $5.9 million and $0.7 million, respectively. Cash
generated by operating activities in fiscal 1997 was $46.0 million (after
payment of interest and income taxes) and, together with proceeds from sales of
businesses, was used to fund $9.4 million of acquisition expenditures, $17.9
million of capital spending, plus debt principal payments and dividends. Cash
generated by operating activities in fiscal 1996 was $32.0 million and, together
with existing cash reserves and $6.0 million of net short-term borrowings,
funded $6.4 million of acquisition expenditures, $16.1 million of capital
spending (including $4.9 million for refurbishing the STAR TRIBUNE offices),
plus debt principal payments and dividends.
During fiscal 1997, stockholders' equity increased to $79.8 million,
from $63.1 million in fiscal 1996 and $48.5 million in fiscal 1995.
As of March 29, 1997, $65 million remained available under Cowles'
credit agreements to provide working capital and meet other capital
requirements. Management believes that cash generated from operations and the
availability of funds from external sources will be adequate to cover planned
capital expenditures of approximately $25 million, dividend payments of
approximately $10 million, scheduled debt principal payments of approximately $8
million and other cash requirements in fiscal 1998. Dividends were increased
from $.60 per share in fiscal 1996 to $.64 per share in fiscal 1997.
<TABLE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Fiscal Quarter
------------------------------------------------------------------------------------------------------
First Second Third Fourth
------------------------ ------------------------ ------------------------ ------------------------
1997 1996 1997 1996 1997 1996 1997 1996
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Results of operations:
Operating revenue.......... $ 126,288 $ 120,375 $ 126,305 $ 122,868 $ 134,766 $ 125,004 $ 129,710 $ 124,388
Operating earnings......... 9,073 10,170 13,560 10,397 20,130 12,834 11,602 11,757
Net earnings............... 6,238 5,948 7,112 4,800 9,264 5,798 6,878 7,881
Earnings per share.......... $ 0.45 $ 0.43 $ 0.51 $ 0.34 $ 0.67 $ 0.42 $ 0.50 $ 0.57
</TABLE>
COMPARISON OF STOCKHOLDERS' RIGHTS
COMPARISON OF STOCKHOLDERS' RIGHTS WITH RESPECT TO NEW MCCLATCHY AND MCCLATCHY
New McClatchy and McClatchy are both organized under the laws of the
State of Delaware. The New McClatchy Certificate of Incorporation and the New
McClatchy By-laws are substantially similar to the McClatchy Certificate of
Incorporation and McClatchy By-laws, respectively.
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COMPARISON OF STOCKHOLDERS' RIGHTS WITH RESPECT TO NEW MCCLATCHY CLASS A COMMON
STOCK AND COWLES COMMON STOCK
New McClatchy and Cowles are both organized under the laws of the State
of Delaware. Any differences, therefore, in the rights of holders of New
McClatchy Common Stock and Cowles Common Stock arise solely from differences in
their respective charter documents. The following discussion summarizes the
material differences between the rights of the holders of New McClatchy Class A
Common Stock and the rights of the holders of Cowles Common Stock.
CAPITAL STOCK. The total number of authorized shares of capital stock of
New McClatchy is 160,000,000, consisting of 100,000,000 shares of Class A Common
Stock, with a par value of $.01 per share and 60,000,000 shares of Class B
Common Stock, with a par value $.01 per share. The total number of authorized
shares of capital stock of Cowles is 14,600,000, consisting of 4,000,000 shares
of Voting Common Stock and 10,600,000 shares of Non-Voting Common Stock, all of
which are without par value.
VOTING RIGHTS. The Certificate of Incorporation of New McClatchy
provides that in all matters other than the election and removal of Directors,
the holders of the New McClatchy Class A Common Stock vote together with the
holders of the New McClatchy Class B Common Stock as a single class, provided
that the holders of New McClatchy Class A Common Stock have one-tenth (1/10) of
a vote for each share and the holders of New McClatchy Class B Common Stock have
one (1) vote for each share, except as may otherwise be required by law. The
Restated Certificate of Incorporation of Cowles provides in all matters, the
entire voting power shall be vested in the Cowles Voting Common Stock, and the
Cowles Non-Voting Common Stock has no voting power, except as may otherwise be
provided for by law.
SPECIAL MEETINGS OF STOCKHOLDERS. The By-laws of New McClatchy provide
that a special meeting of the stockholders may be called by the board of
directors, while the By-laws of Cowles provide that the chairman of the board or
president, a majority of the board of directors, or stockholders owning a
majority in amount of the entire capital stock of Cowles issued and outstanding
and entitled to vote may call such a meeting.
QUORUM. The By-laws of New McClatchy provide that at all elections or
votes for any purpose, there must be represented a number of shares sufficient
to constitute a majority of the outstanding voting power of the Common Stock,
and at all meetings of the board of directors, a majority of the directors then
in office constitutes a quorum. The By-laws of Cowles provide that the holders
of a majority of the stock issued and outstanding, and entitled to vote thereat,
present in person, or represented by proxy, constitutes a quorum at all meetings
of the stockholders for the transaction of business, and at each meeting of the
board of directors, a majority of all directors then holding office is necessary
and sufficient to constitute a quorum for the transaction of business.
ADJOURNMENTS OF STOCKHOLDER MEETINGS. The By-laws of New McClatchy
provide that if the adjournment of a meeting of stockholders is for more than 30
days, or if after the adjournment a new record date is fixed for the reconvened
meeting, a notice of the reconvened meeting must be given to each stockholder of
record entitled to vote at the meeting. Cowles is subject to the requirements
with respect to adjournment of stockholder meetings set forth under Delaware
law.
REMOVAL OF DIRECTORS. The Certificate of Incorporation of New McClatchy
provides that the holders of New McClatchy Class A Common Stock are entitled to
vote as a separate class on the removal, with or without cause, of any director
elected by the holders of New McClatchy 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. The holders of New McClatchy Class B Common Stock are
entitled to vote as a separate class on removal, with or without cause, of any
director who was elected by the holders of New McClatchy Class B Common Stock,
provided that any director may be removed for cause by the board of directors.
Pursuant to Delaware law, holders of Cowles Voting Common Stock may remove any
director with or without cause.
ELECTION OF DIRECTORS. The By-laws and the Certificate of Incorporation
of New McClatchy provide that holders of New McClatchy Class A Common Stock
voting as a separate class shall be entitled to elect 25% of the
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total membership of the board of directors. Such election is from a slate of
director nominees separate from a slate of director nominees from which holders
of New McClatchy Class B Common Stock elect directors. The remaining number of
authorized directors are elected by the holders New McClatchy Class B Common
Stock, voting as a separate class. For the election of directors a plurality of
the votes cast by the respective classes is sufficient to elect the directors to
be elected by each such class. The By-laws of Cowles provide that at an annual
meeting of the stockholders, they shall elect by plurality vote by ballot a
board of directors.
INDEMNIFICATION AND LIMITATION OF LIABILITY. The Certificate of
Incorporation of New McClatchy provides that in addition to any vote of the
holders of any class or series of the stock required by law, the affirmative
vote of the holders of at least 66-2/3% of the voting power of all of the then
outstanding shares of stock of New McClatchy entitled to vote in any general
election of directors, voting together as a single class, is required to amend
or repeal Article VII of the Certificate of Incorporation of New McClatchy
relating to the indemnification of directors and officers. The Certificate of
Incorporation for Cowles does not provide for a supermajority vote in order to
amend the indemnification provisions of the Certificate of Incorporation of
Cowles. Therefore holders of Cowles Common Stock who become holders of New
McClatchy Class A Common Stock after the Reorganization is consummated may find
it more difficult to amend or repeal the provisions governing indemnification of
directors and officers of New McClatchy. New McClatchy's Certificate of
Incorporation provides for indemnification of its officers and directors to the
fullest extent authorized by the DGCL. The Cowles Certificate and By-laws
provide for similar indemnification of its officers and directors.
SECTION 203. Section 203 could prohibit or delay mergers or other
takeover or change in control attempts with respect to New McClatchy, and,
accordingly, may discourage attempts to acquire New McClatchy. Cowles has not
previously been subject to Section 203 because Section 203 does not apply to
corporations which, subject to certain exceptions, do not have a class of voting
stock that is (i) listed on a national securities exchange; (ii) authorized for
quotation on The Nasdaq Stock Market; or (iii) held of record by more than 2,000
stockholders. Thus, holders of Cowles Common Stock who become holders of New
McClatchy Class A Common Stock after the Cowles Merger is consummated will be
afforded certain statutory protections provided by Section 203 in connection
with an attempted takeover or change in control of New McClatchy that such
holders did not previously have.
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<PAGE>
STOCKHOLDERS' APPRAISAL RIGHTS
HOLDERS OF SHARES OF McCLATCHY CLASS B COMMON STOCK AND COWLES VOTING
COMMON STOCK WHO DO NOT VOTE IN FAVOR OF OR CONSENT TO THE McCLATCHY PROPOSAL OR
THE COWLES PROPOSAL, RESPECTIVELY, AND HOLDERS OF McCLATCHY CLASS B COMMON
STOCK, COWLES VOTING COMMON STOCK AND COWLES NON-VOTING COMMON STOCK WHO HAVE
PROPERLY COMPLIED WITH THE REQUIREMENTS OF SECTION 262 WILL BE ENTITLED TO
APPRAISAL RIGHTS UNDER SECTION 262. SECTION 262 IS REPRINTED IN ITS ENTIRETY AS
ANNEX F TO THIS JOINT PROXY STATEMENT/PROSPECTUS. THE FOLLOWING DISCUSSION IS A
SUMMARY OF THE LAW RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO ANNEX F. THIS DISCUSSION AND ANNEX F SHOULD BE REVIEWED
CAREFULLY BY ANY HOLDER WHO WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS, IF
AVAILABLE, OR WHO WISHES TO PRESERVE THE RIGHT TO DO SO, AS FAILURE TO COMPLY
WITH THE PROCEDURES SET FORTH HEREIN OR THEREIN WILL RESULT IN THE LOSS OF
APPRAISAL RIGHTS, IF AVAILABLE.
Stockholders of McClatchy's Class A Common Stock are not entitled to
appraisal rights in connection with the McClatchy Merger.
A stockholder of McClatchy Class B Common Stock or Cowles Common Stock
who makes the demand described below with respect to his or her shares, who
continuously is the record holder of such shares through the Effective Time, who
otherwise complies with the statutory requirements of Section 262 and who
neither votes in favor of the McClatchy Proposal (with respect to holders of
McClatchy Class B Common Stock) or the Cowles Proposal (with respect to holders
of Cowles Voting Stock) nor consents thereto in writing (hereinafter referred to
as "Dissenting Stockholders") may be entitled to an appraisal by the Delaware
Court of Chancery (the "Delaware Court") of the fair value of his or her shares
of McClatchy Class B Common Stock or Cowles Common Stock, exclusive of any
element of value arising from the accomplishment or expectation of the
Reorganization, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Except as set forth herein, holders
of McClatchy Class B Common Stock and Cowles Common Stock will not be entitled
to appraisal rights in connection with the Reorganization.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the Special Meetings, not less than 20 days prior
to the meeting, each constituent corporation must notify each of the holders of
its stock for which appraisal rights are available that such appraisal rights
are available and include in each such notice a copy of Section 262. This Joint
Proxy Statement/Prospectus will constitute such notice to the holders of
McClatchy Class B Common Stock and Cowles Common Stock.
Holders of McClatchy Class B Common Stock and Cowles Voting Common Stock
who desire to exercise their appraisal rights must NOT vote in favor of the
McClatchy Proposal or the Cowles Proposal, respectively, and holders of
McClatchy Class B Common Stock and Cowles Common Stock must deliver a separate
written demand for appraisal to McClatchy or Cowles, whichever the case may be,
prior to the vote by the stockholders of McClatchy on the McClatchy Proposal or
Cowles on the Cowles Proposal, respectively. A Dissenting Stockholder of
McClatchy or Cowles Voting Common Stock who signs and returns a proxy without
expressly directing (by checking the applicable boxes on the [reverse side of
the] proxy enclosed herewith) that his or her shares of McClatchy Class B Common
Stock or Cowles Voting Common Stock be voted against the McClatchy Proposal or
the Cowles Proposal, respectively, or that an abstention be registered with
respect to his or her shares of McClatchy Class B Common Stock or Cowles Voting
Common Stock will effectively have thereby waived his or her appraisal rights as
to those shares of McClatchy Class B Common Stock or Cowles Voting Common Stock
because, in the absence of express contrary instructions, such shares of
McClatchy Class B Common Stock or Cowles Voting Common Stock will be voted in
favor of the McClatchy Proposal or the Cowles Proposal, respectively. See "THE
SPECIAL MEETINGS--Record Dates; Vote Required; Voting at the Meetings--Voting
and Revocation of Proxies." Accordingly, a stockholder who desires to perfect
appraisal rights with respect to any of his or her shares of McClatchy Class B
Common Stock or Cowles Voting Common Stock must, as one of the procedural steps
involved in such perfection, either (i) refrain from executing and returning the
enclosed proxy and from voting in person in favor of the McClatchy Proposal or
the Cowles Proposal, respectively, or (ii) check either the "Against" or the
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"Abstain" box next to the McClatchy Proposal or the Cowles Proposal,
respectively, on such proxy or affirmatively vote in person against the
McClatchy Proposal or the Cowles Proposal, respectively, or register in person
an abstention with respect thereto.
The written demand for appraisal should specify the name and mailing
address of the stockholder, the number of shares of McClatchy Class B Common
Stock or Cowles Common Stock owned, and that the stockholder is thereby
demanding appraisal of his or her shares. A proxy or vote against the McClatchy
Proposal (with respect to a holder of McClatchy Class B Common Stock) or the
Cowles Proposal (with respect to a holder of Cowles Voting Common Stock) will
not by itself constitute such a demand. Within 10 days after the Effective Time,
the surviving corporation must provide notice of the Effective Time to all
stockholders of McClatchy or Cowles who have complied with Section 262.
A person having a beneficial interest in shares of McClatchy Class B
Common Stock or Cowles Common Stock that are held of record in the name of
another person, such as a broker, fiduciary or other nominee, must act promptly
to cause the record holder to follow the steps summarized herein properly and in
a timely manner to perfect whatever appraisal rights may be available. If the
shares of McClatchy Class B Common Stock or Cowles Common Stock are owned of
record by a person other than the beneficial owner, including a broker,
fiduciary (such as a trustee, guardian or custodian) or other nominee, such
demand must be executed by or for the record owner. If the shares of McClatchy
Class B Common Stock or Cowles Common Stock are owned of record by more than one
person, as in a joint tenancy or tenancy in common, such demand must be executed
by or for all joint owners. An authorized agent, including an agent for two or
more joint owners, may execute the demand for appraisal for a stockholder of
record; however, the agent must identify the record owner and expressly disclose
the fact that, in exercising the demand, such person is acting as agent for the
record owner. If a stockholder holds shares through a broker who in turn holds
the shares through a central securities depository nominee such as Cede & Co., a
demand for appraisal of such shares must be made by or on behalf of the
depository nominee and must identify the depository nominee as record holder.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of McClatchy Class B Common Stock or Cowles Common Stock as a nominee for
others may exercise appraisal rights with respect to the shares held for all or
less than all beneficial owners of shares as to which such person is the record
owner. In such case, the written demand must set forth the number of shares
covered by such demand. Where the number of shares is not expressly stated, the
demand will be presumed to cover all shares of McClatchy Class B Common Stock or
Cowles Common Stock outstanding in the name of such record owner.
A stockholder of McClatchy Class B Common Stock who elects to exercise
appraisal rights, if available, should mail or deliver his or her written demand
to: McClatchy Newspapers, Inc., 2100 "Q" Street, Sacramento, California 95816,
Attention: Karole Morgan-Prager, Corporate Secretary. A stockholder of Cowles
Common Stock who elects to exercise appraisal rights, if available, should mail
or deliver his or her written demand to: Cowles Media Company, 329 Portland
Avenue, Minneapolis, Minnesota 55415, Attention: William R. Busch, Jr.,
Secretary.
Within 120 days after the Effective Time, either the surviving
corporation or any Dissenting Stockholder who has complied with the required
conditions of Section 262 may file a petition in the Delaware Court, with a copy
served on the surviving corporation in the case of a petition filed by a
Dissenting Stockholder, demanding a determination of the fair value of the
shares of all stockholders of McClatchy or Cowles entitled to appraisal rights.
There is no present intent on the part of McClatchy to file an appraisal
petition and Dissenting Stockholders seeking to exercise appraisal rights should
not assume that the surviving corporation will file such a petition or that the
surviving corporation will initiate any negotiations with respect to the fair
value of such shares. Accordingly, Dissenting Stockholders who desire to have
their shares appraised should initiate any petitions necessary for the
perfection of their appraisal rights within the time periods and in the manner
prescribed in Section 262. If appraisal rights are available, within 120 days
after the Effective Time, any Dissenting Stockholder who has theretofore
complied with the applicable provisions of Section 262 will be entitled, upon
written request, to receive from the surviving corporation a statement setting
forth the aggregate number of shares of McClatchy Class B Common Stock or Cowles
Voting Common Stock not voting in favor of the McClatchy Proposal or the Cowles
Proposal, as applicable, and with respect to which demands for appraisal were
received by McClatchy or Cowles and the number
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of holders of such shares (hereinafter referred to as "Dissenting Shares"). Such
statement must be mailed within 10 days after the written request therefor has
been received by the surviving corporation.
If a petition for appraisal described above is duly filed by a
Dissenting Stockholder and a copy thereof is served upon the surviving
corporation, the surviving corporation will then be obligated within 20 days to
provide the Delaware Court Register with a duly verified list containing the
names and addresses of all holders of Dissenting Shares with whom agreement as
to the value of their shares has not been reached. After notice to such
Dissenting Stockholders, the Delaware Court is empowered to conduct a hearing
upon the petition in order to determine those Dissenting Stockholders who have
complied with Section 262 and who have become entitled to appraisal rights
thereunder. The Delaware Court may require the Dissenting Stockholders who
demanded payment for their shares to submit their stock certificates to the
Delaware Court Register for notation thereon of the pendency of the appraisal
proceedings. If any Dissenting Stockholder fails to comply with such direction,
the Delaware Court may dismiss the proceedings as to such Dissenting
Stockholder. After determination of the Dissenting Stockholders entitled to an
appraisal, the Delaware Court will appraise the Dissenting Shares, determining
their fair value, together with a fair rate of interest, if any, to be paid on
the amount determined to be fair value. In determining fair value, the Delaware
Court may consider all relevant factors. Although future prospects may be
considered, Delaware law requires that fair value be determined exclusive of any
element of value arising from the accomplishment or expectation of the
Reorganization. The approach of the Delaware Court in determining value in an
appraisal action may differ from the approaches used by the Board of Directors
of McClatchy or Cowles in evaluating the fairness of the Reorganization. In
determining the fair rate of interest, the Delaware Court shall take into
account all relevant factors, including the rate of interest McClatchy or
Cowles, as the case may be, would have had to pay to borrow money during the
pendency of the proceeding. When the fair value is determined, the Delaware
Court will direct the payment by the surviving corporation of such value, with
interest thereon, if any, to the Dissenting Stockholders entitled to receive the
same, upon surrender to the surviving corporation by such Dissenting
Stockholders of the certificates representing his or her Dissenting Shares.
Stockholders of McClatchy or Cowles considering seeking appraisal should
recognize that the fair value of their shares determined under Section 262 could
be more than, the same as or less than the consideration they are entitled to
receive pursuant to the Reorganization Agreement if they do not seek appraisal
of their shares. The cost of the appraisal proceeding may be determined by the
Delaware Court and taxed against the parties as the Delaware Court deems
equitable in the circumstances. Upon application of a Dissenting Stockholder
entitled to appraisal rights, the Delaware Court may order that all or a portion
of the expenses incurred by any Dissenting Stockholder entitled to appraisal
rights in connection with the appraisal proceeding, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts, be
charged pro rata against the value of all shares of stock entitled to appraisal.
Any Dissenting Stockholder who has duly demanded appraisal in compliance
with Section 262 will not, after the Effective Time, be entitled to vote for any
purpose any shares subject to such demand or to receive payment of dividends or
other distributions on such shares, except for dividends or distributions
payable to stockholders of McClatchy or Cowles of record at a date prior to the
Effective Time.
At any time within 60 days after the Effective Time, any Dissenting
Stockholder will have the right to withdraw such demand for appraisal and to
accept the terms offered in the McClatchy Merger or the Cowles Merger, as
applicable; after this period, the Dissenting Stockholder may withdraw such
demand for appraisal only with the consent of the surviving corporation. If no
petition for appraisal is filed with the Delaware Court within 120 days after
the Effective Time, stockholders of McClatchy or Cowles rights to appraisal will
cease, and Dissenting Stockholders will be entitled to receive the consideration
they would have received pursuant to the Reorganization Agreement. Any
Dissenting Stockholder may withdraw such Dissenting Stockholder's demand for
appraisal by delivering to the surviving corporation a written withdrawal of his
or her demand for appraisal and acceptance of the consideration they would have
received pursuant to the Reorganization Agreement, except (i) that any such
attempt to withdraw made more than 60 days after the Effective Time will require
written approval of the surviving corporation and (ii) that no appraisal
proceeding in the Delaware Court will be dismissed as to any Dissenting
Stockholder without the approval of the Delaware Court, and such approval may be
conditioned upon such terms as the Delaware Court deems just. Any Dissenting
Stockholder who withdraws such Dissenting Stockholder's
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<PAGE>
demand for appraisal or who fails to perfect such demand after the Effective
Time will be entitled to the consideration they would have received pursuant to
the Reorganization Agreement in accordance with the Reorganization Agreement for
each share of McClatchy Class B Common Stock or Cowles Common Stock owned by
such Dissenting Stockholder. Any such Dissenting Stockholder holding shares of
Cowles Common Stock will be deemed not to have made an Election with respect to
such shares.
EXPERTS
The consolidated financial statements of McClatchy and the related
financial statement schedule incorporated in this Joint Proxy
Statement/Prospectus by reference from McClatchy's Annual Report on Form 10-K
for the year ended December 31, 1996 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report which is incorporated herein by
reference, and have been incorporated in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Cowles as of March 29, 1997 and
March 30, 1996 and for each of the years in the three-year period ended March
29, 1997 included in this Joint Proxy Statement/Prospectus have been audited by
KPMG Peat Marwick LLP, independent auditors, as stated in their report appearing
herein and elsewhere in the registration statement, and have been so included in
reliance upon the report of such firm given their authority as experts in
accounting and auditing.
LEGAL MATTERS
The legality of the shares of New McClatchy Class A Common Stock being
issued in the Reorganization is being passed on by Pillsbury Madison & Sutro
LLP, Palo Alto, California. Pillsbury Madison & Sutro LLP has rendered an
opinion regarding certain United States federal income tax matters, which
opinion will be confirmed as of the Closing Date. Fried, Frank, Harris, Shriver
& Jacobson and Faegre & Benson LLP will also render opinions regarding certain
United States federal income tax matters.
OTHER INFORMATION AND STOCKHOLDER PROPOSALS
As specified in McClatchy's Proxy Statement dated April 4, 1997 for its
1997 Annual Meeting of Stockholders, any stockholder proposals to be included in
McClatchy's Proxy Statement for the 1998 Annual Meeting of Stockholders must
have been received by McClatchy by December 4, 1997.
Assuming that the proposed Cowles Merger is consummated, Cowles will not
hold an Annual Meeting of Stockholders in 1998.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF COWLES MEDIA COMPANY
HISTORICAL ANNUAL FINANCIAL STATEMENTS:
Independent Auditors' Report............................................... F-2
Consolidated Statements of Earnings for the Years in the Three-Year
Period Ended March 29, 1997.............................................. F-3
Consolidated Balance Sheets as of March 29, 1997 and March 30, 1996........ F-4
Consolidated Statements of Stockholders' Equity for the Years in the
Three-Year Period Ended March 29, 1997................................... F-5
Consolidated Statements of Cash Flows for the Years in the Three-Year
Period Ended March 29, 1997.............................................. F-6
Notes to Consolidated Financial Statements................................. F-7
INTERIM PERIOD FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of September 27, 1997 and
September 28, 1996 (Unaudited).......................................... F-23
Consolidated Statements of Earnings for the Six Months Ended
September 27, 1997 and September 28, 1996 (Unaudited)................... F-24
Consolidated Statement of Stockholders' Equity for the Six-Month
Period Ended September 27, 1997 (Unaudited)............................. F-25
Consolidated Statements of Cash Flows for the Six Months Ended
September 27, 1997 and September 28, 1997 (Unaudited)................... F-26
Note to Interim Consolidated Financial Statements......................... F-27
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Cowles Media Company:
We have audited the accompanying consolidated balance sheets of Cowles
Media Company and subsidiaries as of March 29, 1997 and March 30, 1996, and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the years in the three-year period ended March 29, 1997. These
consolidated financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cowles Media
Company and subsidiaries at March 29, 1997 and March 30, 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended March 29, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
May 1, 1997
F-2
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED
MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995
<CAPTION>
1997 1996 1995
---------------- ---------------- -----------------
(In thousands except per share amounts)
<S> <C> <C> <C>
Operating revenue............................................. $ 517,069 $ 492,635 $ 449,738
Expenses:
Operating................................................. 253,821 261,126 234,573
Selling, general and administrative....................... 186,690 161,956 150,780
Depreciation.............................................. 15,117 16,094 15,189
Amortization of intangible assets (Note 3)................ 7,076 8,301 6,502
---------------- ---------------- -----------------
Operating earnings.................................... 54,365 45,158 42,694
---------------- ---------------- -----------------
Other income (expense), net:
Investment income......................................... 302 199 307
Interest expense.......................................... (8,273) (8,847) (8,950)
Other, net (Note 4)....................................... 6,926 5,055 5,612
---------------- ---------------- -----------------
(1,045) (3,593) (3,031)
---------------- ---------------- -----------------
Earnings before income taxes.......................... 53,320 41,565 39,663
Provision for income taxes (Note 11).......................... 23,828 17,138 17,164
---------------- ---------------- -----------------
Net earnings.................................................. $ 29,492 $ 24,427 $ 22,499
================ ================ =================
Net earnings per share........................................ $2.13 $1.76 $1.61
================ ================ =================
Average equivalent common shares (in thousands)............... 13,858 13,908 13,934
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 29, 1997 AND MARCH 30, 1996
<CAPTION>
1997 1996
-------------- --------------
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................................................................... $ 5,867 $ 674
Receivables, less allowance for doubtful accounts of $9,397 and $8,671 in 1997 and
1996, respectively........................................................................ 63,174 55,489
Inventories (Note 5).......................................................................... 12,512 8,872
Deferred tax asset............................................................................ 7,791 7,587
Prepaid expenses and other.................................................................... 14,076 15,761
-------------- --------------
Total current assets...................................................................... 103,420 88,383
-------------- --------------
Property, plant and equipment, at cost:
Land and land improvements.................................................................... 10,261 10,730
Buildings..................................................................................... 59,229 57,335
Machinery and equipment....................................................................... 181,920 169,566
Construction in progress...................................................................... 6,374 5,517
-------------- --------------
257,784 243,148
Less accumulated depreciation................................................................. 142,017 128,913
-------------- --------------
Net property, plant and equipment......................................................... 115,767 114,235
-------------- --------------
Intangible assets, net of accumulated amortization of $34,604 and $36,660 in 1997 and
1996, respectively (Note 3)................................................................... 101,240 105,994
Other assets.................................................................................... 6,363 7,554
-------------- --------------
Total..................................................................................... $ 326,790 $ 316,166
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Borrowings under lines of credit (Note 6)..................................................... $ 0 $ 13,000
Current installments of long-term debt (Note 6)............................................... 7,838 3,902
Accounts payable.............................................................................. 15,556 15,720
Accrued expenses and other liabilities (Note 7)............................................... 48,287 44,420
Unearned income, principally subscriptions paid in advance.................................... 50,078 51,631
Income taxes.................................................................................. 5,687 7,731
-------------- --------------
Total current liabilities................................................................. 127,446 136,404
-------------- --------------
Long-term debt, less current installments (Note 6).............................................. 84,976 85,979
Deferred income taxes........................................................................... 12,020 9,923
Deferred credit................................................................................. 3,000 4,500
Other liabilities............................................................................... 19,528 16,305
Stockholders' equity:
Voting common stock, $0.17 stated value; 4,000,000 shares authorized; 3,858,687 and
3,857,533 shares issued; 3,818,808 and 3,828,841 shares outstanding....................... 643 643
Non-voting common stock, $0.17 stated value; 10,600,000 shares authorized; 10,145,836
and 10,142,790 shares issued; 9,857,081 and 9,997,614 shares outstanding.................. 1,691 1,690
Capital in excess of stated value............................................................. 4,506 4,320
Retained earnings............................................................................. 80,009 59,333
-------------- --------------
86,849 65,986
Less:
Treasury stock, at cost; 328,635 and 173,868 common shares.................................... 7,029 2,931
Unamortized value of restricted stock issued (Note 9)......................................... 0 0
-------------- --------------
Total stockholders' equity................................................................ 79,820 63,055
-------------- --------------
Commitments and contingent liabilities (Notes 8, 9 and 12)......................................
Total..................................................................................... $ 326,790 $ 316,166
============== ==============
</TABLE>
See accompanying notes to consolidated financial
statements.
F-4
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED
MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995
<CAPTION>
Unamortized
Common Stock Value Of Capital
---------------------- Treasury Restricted In Excess Of Retained
Voting Non-voting Stock Stock Stated Value Earnings Total
--------- ---------- -------- ---------- ------------ ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 2, 1994................... $ 636 $ 1,674 $ (232) $ (1,118) $ 1,144 $ 28,379 $ 30,483
--------- --------- -------- --------- ------------ --------- ---------
Net earnings......................... -- -- -- -- -- 22,499 22,499
Cash dividends on common stock:
$.56 per share................... -- -- -- -- -- (7,675) (7,675)
Amortization of restricted stock..... -- -- -- 3,810 -- -- 3,810
Restricted stock granted, net of
forfeitures: 121,108 shares.......... 6 16 (345) (2,785) 3,108 -- 0
Stock options exercised: 900 shares. -- -- -- -- 18 -- 18
Purchases of common stock: 87,099
shares........................... -- -- (2,033) -- -- -- (2,033)
Estimated shares to be issued to
Employee Stock Plan: 60,120
shares (Note 9).................. -- -- 1,367 -- 16 -- 1,383
Adjustment to stock-based incentive
plans............................ 1 -- 40 33 (49) -- 25
--------- --------- -------- --------- ------------ --------- ---------
Balance, April 1, 1995................... 643 1,690 (1,203) (60) 4,237 43,203 48,510
--------- --------- -------- --------- ------------ --------- ---------
Net earnings......................... -- -- -- -- -- 24,427 24,427
Cash dividends on common stock:
$.60 per share................... -- -- -- -- -- (8,297) (8,297)
Restricted stock forfeited, net of
grants: 11,404 shares............ (262) 262 -- 0
Stock options exercised: 4,410 shares -- -- -- -- 89 -- 89
Purchases of common stock:
108,335 shares................... -- -- (2,597) -- -- -- (2,597)
Estimated shares to be issued to
Employee Stock Plan: 49,266
shares (Note 9).................. -- -- 1,182 -- -- 1,182
Adjustment to stock-based incentive
plans............................ -- -- (51) (202) (6) -- (259)
--------- --------- -------- --------- ------------ --------- ---------
Balance, March 30, 1996.................. 643 1,690 (2,931) 0 4,320 59,333 63,055
--------- --------- -------- --------- ------------ --------- ---------
Net earnings......................... -- -- -- -- -- 29,492 29,492
Cash dividends on common stock:
$.64 per share................... -- -- -- -- -- (8,816) (8,816)
Stock options exercised: 7,800 shares -- 1 84 -- 80 -- 165
Purchases of common stock: 205,489
shares........................... -- -- (5,166) -- -- -- (5,166)
Estimated shares to be issued to
Employee Stock Plan: 44,014
shares (Note 9).................. -- -- 1,052 -- 90 -- 1,142
Adjustment to stock-based incentive
plans............................ -- -- (124) -- 5 -- (119)
Shares issued to stock-based
incentive plans: 2,797 shares.... -- -- 56 11 -- 67
--------- --------- -------- --------- ------------ --------- ---------
Balance, March 29, 1997.................. $ 643 $ 1,691 $ (7,029) $ 0 $ 4,506 $ 80,009 $ 79,820
--------- --------- -------- --------- ------------ --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
MARCH 29, 1997, MARCH 30, 1996 AND APRIL 1, 1995
<CAPTION>
1997 1996 1995
----------------- ---------------- ----------------
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers................................ $ 493,804 $ 467,491 $ 436,666
Cash paid to suppliers and employees........................ (416,592) (409,394) (373,818)
Interest paid............................................... (8,809) (8,901) (8,505)
Investment income received.................................. 302 202 354
Income taxes paid........................................... (22,681) (17,403) (21,771)
----------------- ---------------- ----------------
Net cash from operating activities...................... 46,024 31,995 32,926
----------------- ---------------- ----------------
Cash Flows from Investing Activities:
Net cash outlay for acquisitions (Note 2)................... (9,402) (6,402) (32,726)
Capital expenditures........................................ (17,911) (16,134) (24,182)
Proceeds from sales of assets and businesses................ 18,006 4,357 3,932
Other....................................................... (1,259) (1,258) (1,570)
----------------- ---------------- ----------------
Net cash used by investing activities................... (10,566) (19,437) (54,546)
----------------- ---------------- ----------------
Cash Flows from Financing Activities:
Net borrowings under revolving credit agreement............. (13,000) 6,000 7,000
Payments on long-term debt.................................. (3,186) (9,749) (7,615)
Dividends paid.............................................. (8,816) (8,297) (7,675)
Capital stock repurchased................................... (5,166) (2,597) (2,033)
Other....................................................... (97) 0 (9)
----------------- ---------------- ----------------
Net cash used by financing activities................... (30,265) (14,643) (10,332)
----------------- ---------------- ----------------
Net Change in Cash and Cash Equivalents....................... 5,193 (2,085) (31,952)
Cash and cash equivalents at beginning of year................ 674 2,759 34,711
----------------- ---------------- ----------------
Cash and Cash Equivalents at End of Year...................... $ 5,867 $ 674 $ 2,759
================= ================ ================
Reconciliation of net earnings to net cash from operating activities:
Net earnings................................................ $ 29,492 $ 24,427 $ 22,499
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization........................ 22,193 24,395 21,691
Stock-based compensation expense..................... 2,619 2,621 5,193
Deferred income taxes................................ (479) (2,478) (1,476)
Changes in assets and liabilities, net of effects
from acquisitions and divestitures:
Accounts receivable.............................. (9,476) (7,738) (7,253)
Inventories...................................... (3,916) (1,089) (1,990)
Prepaid and other assets......................... 1,663 (1,022) (3,690)
Accounts payable, accrued expenses and
unearned income............................... 6,089 (4,957) 5,393
Income taxes payable............................. 1,626 2,213 (3,131)
Other, net........................................... (3,787) (4,377) (4,310)
------------------ ----------------- -----------------
Net cash from operating activities............................ $ 46,024 $ 31,995 $ 32,926
================== ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1997, March 30, 1996 and April 1, 1995
ALL REFERENCES ARE TO FISCAL YEARS UNLESS OTHERWISE NOTED.
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summary explains the accounting policies followed in
preparing our consolidated financial statements:
FISCAL YEAR. Our fiscal year ends on the Saturday closest to March 31.
As a result, most fiscal years are fifty-two weeks in length, although every
five or six years we have a fiscal year consisting of fifty-three weeks. This
fiscal year schedule simplifies year-to-year comparisons because each fiscal
year contains the same number of Sundays (except in the case of a fifty-three
week year). For the STAR TRIBUNE, the Sunday paper, which is the largest issue
of the week both in circulation and advertising content, significantly affects
revenues and profits. All of the years for which financial results are presented
in this report contained fifty-two weeks.
CONSOLIDATION. We combine our financial statements with those of our
wholly owned subsidiaries and present them on a consolidated basis. The
consolidated financial statements do not include the results of transactions
between our parent company and our subsidiaries or among our subsidiaries.
CASH EQUIVALENTS. We invest cash in excess of amounts needed for daily
operations in marketable securities. Investments that are readily convertible
into cash and have original maturities of three months or less are considered
cash equivalents. These investments are shown on the financial statements at
their cost, which approximates market value. We record income from these
investments as interest accrues or dividends are declared. We account for each
individual investment security so that when we sell, we are able to specifically
identify and record the gain or loss on that security.
DEPRECIATION AND MAINTENANCE. Property, plant and equipment are
recorded initially at cost, which is reduced over time by the recording of
depreciation. Depreciation is generally computed on a straight-line basis over
the estimated useful lives of the assets as follows:
Estimated
Service Lives
-------------
Buildings and improvements 10 to 40 years
Machinery and equipment 3 to 20 years
Costs of repairs and maintenance are expensed as incurred, and costs of
new construction or major renewals and betterments, which represent
improvements, are capitalized as additions to the appropriate asset accounts.
INVENTORIES. Our inventories consist primarily of newsprint and books
and products. We value our newsprint inventories at the lower of replacement
value or cost, as determined principally under the last-in, first-out ("LIFO")
method of accounting. The LIFO method has the general effect of not allowing
rising price levels to inflate inventory value. All other inventories are stated
at the lower of cost, as determined on the first-in, first-out ("FIFO") method,
or market value.
INTANGIBLE ASSETS. A majority of the intangible assets represent the
unamortized excess of the amount paid to acquire a company or business over the
fair value of its net tangible assets at the date of acquisition. We amortize
these assets on a straight-line basis over periods of up to 40 years.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1997, March 30, 1996 and April 1, 1995
ALL REFERENCES ARE TO FISCAL YEARS UNLESS OTHERWISE NOTED.
We assess the recoverability of our intangible assets by determining
whether the amortization of the intangible balance over its remaining life can
be recovered through projected undiscounted future cash flows over the remaining
amortization period. As of March 29, 1997, our intangible assets were fully
recoverable.
In fiscal 1996, we adopted Statement of Financial Accounting Standards
No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS 121 established accounting standards
for the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of. The adoption of SFAS 121
did not have a material impact on our results of operations or financial
position.
DEFERRED REVENUE. Customer prepayments on subscriptions received at the
beginning of a subscription period are deferred and later recorded as earned
revenue at the time of publication.
DEFERRED EXPENSES. Deferred expenses consist primarily of
direct-response advertising and book production costs. Direct-response
advertising expenditures comprise a majority of the magazine subscription
procurement costs; we capitalize such costs and amortize them based on the
average life of the subscriptions procured. We also use direct response
advertising to market books and products; such costs are capitalized and
amortized to match the expense with the revenue generated by the direct response
campaign. At March 29, 1997 and March 30, 1996, $8,623,000 and $7,171,000,
respectively, of direct-response advertising costs were reported as assets.
Advertising expense which includes direct-response advertising costs, was
$23,894,000, $21,217,000 and $17,947,000 in 1997, 1996 and 1995, respectively.
Non-direct-response advertising costs are expensed as incurred. Book production
costs (editorial, art, and photography costs incurred in the production of a
book) are capitalized and amortized over the period in which related revenues
are earned.
STOCK-BASED COMPENSATION. The company has adopted the disclosure-only
provision of FAS 123, "Accounting for Stock-Based Compensation," effective for
1997, whose disclosures are presented in Note 9, "Incentive Plans." Accordingly,
the company continues to account for stock-based compensation under APB Opinion
No. 25. Under this opinion, compensation cost is recorded when the excess of the
fair market value of the company's stock at the date of grant for fixed options
exceeds the exercise price of the stock option. The company's policy is to grant
stock options at a value equal to its common stock's fair market value on the
date of grant. Compensation cost for restricted stock awards is recorded when we
achieve certain financial performance goals as established by the Board of
Directors.
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS. We provide certain health
care benefits for retired employees. Statement of Financial Accounting Standards
No. 106 (SFAS 106), "Employers' Accounting for Post-retirement Benefits Other
Than Pensions," requires that the expected cost of providing these
post-retirement benefits be accrued over the years that employees render the
necessary service.
FINANCIAL STATEMENT PREPARATION. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make 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.
INCOME TAXES. Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes," requires us to use the asset and liability
method of accounting for income taxes. Under this method, deferred
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1997, March 30, 1996 and April 1, 1995
ALL REFERENCES ARE TO FISCAL YEARS UNLESS OTHERWISE NOTED.
tax amounts are recognized for future tax consequences attributable to
differences between amounts shown on the financial statements for existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using tax rates expected to apply to taxable income in
the years in which those differences will be recovered or settled. The effect of
a change in tax rates is recognized as income or expense in the period that
includes the enactment date of such change.
EARNINGS PER SHARE. Earnings per share are calculated by dividing net
earnings by the weighted average number of common shares and common stock
equivalents outstanding during each year. Common stock equivalents include stock
options, restricted shares, performance stock units and shares to be issued to
the Employee Stock Plan.
Note 2 ACQUISITIONS
In 1997, we acquired PROMO magazine, CIRCULATION MANAGEMENT magazine,
KITPLANES magazine and a number of small enthusiast magazines. In 1996, we
acquired the remaining stock of Simba Information, Inc. not previously owned by
the Company and a number of small publishing and information services
businesses. In 1995, we acquired Cy DeCosse Incorporated, WALKING magazine and
SOUTHWEST ART magazine.
We accounted for these acquisitions as purchases; as a result, we
included the acquired businesses' operating results in our consolidated
financial statements from the dates of purchase. Costs of acquisitions incurred
during 1997, 1996 and 1995 were $18,407,000, $6,402,000, and $40,175,000,
respectively, including liabilities incurred of $8,645,000, $0, and $7,349,000,
respectively. Payments related to acquisitions may occur over time and there may
be additional payments contingent upon financial results. The 1997 purchases
generated $20.1 million of intangible assets.
The financial results of the businesses acquired in 1997, 1996 and 1995
are not material on an individual basis in relation to our consolidated
financial results. The following unaudited pro forma financial information
reflects consolidated results as if the businesses acquired in 1997, 1996 and
1995 had each been acquired at the beginning of 1995. This pro forma information
is not necessarily indicative of results which would actually have occurred or
of results which may occur in the future.
Pro Forma (unaudited)
1997 1996 1995
--------- --------- ---------
(In thousands, except per share amounts)
Operating revenue..................... $ 521,134 $ 500,807 $ 464,425
Net earnings.......................... 30,297 25,040 24,232
Earnings per share.................... 2.19 1.80 1.74
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1997, March 30, 1996 and April 1, 1995
ALL REFERENCES ARE TO FISCAL YEARS UNLESS OTHERWISE NOTED.
Note 3 INTANGIBLE ASSETS
Intangible assets consist of the following:
1997 1996
------------ ------------
(In thousands)
Goodwill.................................... $ 87,465 $ 87,085
Subscriber relationships.................... 38,187 42,456
Agreements not to compete................... 9,515 12,436
Other....................................... 677 677
------------ ------------
135,844 142,654
Less accumulated amortization............... 34,604 36,660
------------ ------------
$ 101,240 $ 105,994
============ ============
During 1997 and 1996, we recognized write-downs of $944,000 and
$1,500,000, respectively, related to impairment of CBM intangible assets. The
1997 writedown was due to the discontinuation of a trade show. The 1996
writedown was related to magazine intangible assets and was determined by
estimating the amount recoverable from the sale of a magazine property compared
to the carrying value. Both amounts are included in amortization expense.
Note 4 OTHER INCOME AND EXPENSE
During 1997, 1996 and 1995 we sold or contributed several parcels of
land which increased pretax earnings by $4,153,000, $3,466,000 and $2,330,000,
respectively.
During 1997, 1996 and 1995, we recognized $1,560,000, $1,500,000 and
$3,100,000, respectively, of pretax earnings from agreements not to compete
related to the 1997 sale of Weissmann Travel Reports and the 1990 sales of Great
Falls Tribune Company and Rapid City Journal Company. Amounts related to these
agreements not to compete which have not yet been recognized as income are
reflected on the Consolidated Balance Sheets as a deferred credit. Income of
$1,740,000, $1,740,000 and $1,680,000 will be recognized in fiscal 1998, 1999
and 2000, respectively.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1997, March 30, 1996 and April 1, 1995
ALL REFERENCES ARE TO FISCAL YEARS UNLESS OTHERWISE NOTED.
Note 5 INVENTORIES
Inventories consist of the following:
1997 1996
--------- ---------
(In thousands)
Books and products................................... $ 7,849 $ 6,066
Paper................................................ 2,367 1,064
Newsprint............................................ 1,408 634
Other................................................ 888 1,108
--------- ---------
$ 12,512 $ 8,872
========= =========
Newsprint inventories are valued at the lower of replacement value or
cost, with cost determined using the LIFO method. If the inventories had been
valued using replacement cost at year-end, the amounts would be increased by
$2,024,000 and $2,919,000 as of March 29, 1997 and March 30, 1996, respectively.
Books and products inventory consists primarily of books that we have developed,
had printed by third parties, and hold for sale. Paper inventory consists of
magazine paper stock.
Note 6 LONG-TERM DEBT
Long-term debt consists of the following:
1997 1996
--------- --------
(In thousands)
Senior Notes (unsecured), bearing interest
between 6.97% and 9.84% per annum, due from 2003 to 2007.. $ 69,550 $ 68,550
Notes, contracts and obligations under capital leases,
bearing interest between 4.92 % and 12% per annum,
due from 1998 to 2039..................................... 23,264 21,331
-------- --------
92,814 89,881
Less current installments................................... 7,838 3,902
-------- --------
$ 84,976 $ 85,979
======== ========
We have a credit agreement under which we may borrow, from time to
time, up to $50 million on a revolving basis. Under the agreement, our right to
borrow on a revolving basis will expire in August, 2000. Outstanding borrowings
during the revolving credit period bear interest, at our discretion, at (1) the
higher of the prime rate or the federal funds rate plus 1/2%; (2) LIBOR (London
Interbank Offered Rate) plus a margin ranging from .2% to .4%, depending on the
ratio of consolidated debt to EBITDA; or (3) a bid rate solicited from the
participating banks. We pay annual fees of up to $112,500, depending on the
ratio of consolidated debt to EBITDA under the agreement. In addition to the
revolving credit agreement discussed above, we have a $15 million
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1997, March 30, 1996 and April 1, 1995
ALL REFERENCES ARE TO FISCAL YEARS UNLESS OTHERWISE NOTED.
uncommitted credit line with rates negotiable at the time of borrowing. There
was $0 and $13 million outstanding for these lines of credit at the end of 1997
and 1996, respectively. The weighted average interest rate for these lines of
credit on amounts outstanding at the end of 1996 was 5.56%.
Agreements and instruments governing the debt described above contain
covenants regarding additional debt incurrence, maintenance of minimum net
worth, and payment of cash dividends. In general, dividends paid after April 2,
1988, may not exceed the sum of $10,000,000 plus cumulative net earnings after
April 2, 1988.
Excluding payments under the revolving credit agreement, the long-term
debt outstanding at March 29, 1997 is scheduled to be repaid as follows:
1998--$7,838,000; 1999--$6,625,000; 2000--$12,781,000; 2001--$13,835,000;
2002--$12,884,000 and thereafter--$38,581,000.
Note 7 ACCRUED EXPENSES
Accrued expenses and other liabilities consist of the following:
1997 1996
--------- ---------
(In thousands)
Compensation and benefits........................ $ 23,467 $ 17,528
Insurance (primarily workers compensation)....... 7,258 9,067
Other............................................ 17,562 17,825
--------- ---------
$ 48,287 $ 44,420
========= =========
Note 8 RETIREMENT PLANS
We sponsor and administer retirement plans that cover the majority of
our employees. The plans include eligibility requirements of age, length of
service and hours worked per year. Benefits under these plans generally are
based on the employee's years of service and compensation during various periods
preceding retirement. Pension costs are determined by independent actuaries
using the projected unit credit method. The plans are funded solely by our
payments, which are equal to funding requirements imposed by law plus additional
amounts which may be contributed from time to time.
The components of net periodic pension expense for company-administered
plans and the amounts charged to pension expense for multi-employer pension
plans in 1997, 1996 and 1995 are summarized as follows:
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1997, March 30, 1996 and April 1, 1995
ALL REFERENCES ARE TO FISCAL YEARS UNLESS OTHERWISE NOTED.
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- --------------
(In thousands)
<S> <C> <C> <C>
Service cost--benefits earned during the period........................ $ 5,417 $ 4,435 $ 4,250
Interest cost on projected benefit obligation......................... 10,500 10,265 9,555
Loss/(return) on assets
Actual............................................................. (28,742) (38,618) 685
Deferred........................................................... 15,612 26,602 (12,246)
Amortization of unrecognized prior service cost....................... 785 785 706
Amortization of net transition asset.................................. (1,951) (1,951) (1,950)
Amortization of unrecognized net gain (loss).......................... 59 (48) 9
-------------- -------------- --------------
Company-administered plans......................................... 1,680 1,470 1,009
Multi-employer plans............................................... 1,506 1,441 1,349
-------------- -------------- --------------
Net pension expense................................................... $ 3,186 $ 2,911 $ 2,358
============== ============== ==============
</TABLE>
We have also, on occasion, offered certain employees special retirement
incentives, some of which will be paid from plan assets.
We have unfunded deferred compensation plans that provide supplemental
retirement benefits for certain officers and other key employees. The 1997, 1996
and 1995 net pension expense for company-administered plans includes the costs
of these plans.
We have several defined contribution savings plans. Amounts recorded as
expense, based on plan formulas or collective bargaining agreements, were
$1,534,000, $1,464,000 and $1,360,000 for 1997, 1996 and 1995, respectively.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1997, March 30, 1996 and April 1, 1995
ALL REFERENCES ARE TO FISCAL YEARS UNLESS OTHERWISE NOTED.
The following table reflects the funded status of the
Company-administered plans:
<TABLE>
<CAPTION>
March 29, 1997 March 30, 1996
---------------------------------------- ---------------------------------------
Plans with Plans with Plans with Plans with
Assets in Accumulated Assets in Accumulated
Excess of Benefits in Excess of Benefits in
Accumulated Excess of Accumulated Excess of
Benefits Assets Benefits Assets
------------------ ------------------ ------------------ -----------------
(In thousands)
<S> <C> <C> <C> <C>
Accumulated benefit obligation
Vested............................. $ 121,340 $ 2,551 $ 121,883 $ 2,123
Non-vested......................... 7,583 81 6,767 128
------------------ ------------------ ------------------ -----------------
$ 128,923 $ 2,632 $ 128,650 $ 2,251
================== ================== ================== =================
Projected benefit obligation............ $ 145,176 $ 3,230 $ 144,375 $ 3,079
Market value of plan assets*............ 178,918 -- 157,401 --
------------------ ------------------ ------------------ -----------------
Plan assets in excess of/(less than)
projected benefit obligation....... $ 33,742 $ (3,230) $ 13,026 $ (3,079)
Less unrecognized:
Prior service cost................. (5,095) (395) (6,221) (444)
Net transition asset............... 10,587 30 12,533 35
Net gains/(losses)................. 28,819 (228) 6,136 (368)
------------------ ------------------ ------------------ -----------------
Prepaid/(accrued) net pension cost...... $ (569) $ (2,637) $ 578 $ (2,302)
================== ================== ================== =================
- ----------
<FN>
* Consists of equity securities, fixed income instruments and cash equivalents.
</FN>
</TABLE>
1997 1996
------ ------
Actuarial Assumptions:
Discount rate....................................... 7.5% 7.0%
Expected long-term rate of return on plan assets.... 9.5 9.5
Average assumed rate of compensation increase....... 4.0 3.5
Prepaid pension cost is included in the Consolidated Balance Sheets
within "Other Assets" while accrued net pension cost for plans with accumulated
benefits in excess of plan assets is included within "Other Liabilities."
Retiree Medical Benefits--We provide continued medical benefits until
age 65 to employees who retire prior to that age, if they meet certain
length-of-service and other requirements. The cost of providing retiree medical
benefits is actuarially determined and accrued over the service period of the
employee. It is our policy to fund these benefits as claims and premiums are
paid.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1997, March 30, 1996 and April 1, 1995
ALL REFERENCES ARE TO FISCAL YEARS UNLESS OTHERWISE NOTED.
The Consolidated Balance Sheets include the accumulated retiree medical
obligation within "Other Liabilities." The accrued retiree medical obligation
components are as follows:
March 29, March 30,
1997 1996
----------- -----------
(In thousands)
Accumulated retiree medical obligation
Retirees.................................. $ 1,812 $ 1,988
Fully eligible active plan participants... 3,114 2,874
Other active plan participants............ 4,590 4,656
----------- -----------
9,516 9,518
Less unrecognized actuarial loss.......... 1,078 1,505
----------- -----------
Accrued retiree medical obligation............. $ 8,438 $ 8,013
=========== ===========
The accumulated obligation was determined using discount rates of 7.5%
as of March 29, 1997 and 7% as of March 30, 1996. An annual health care cost
increase of 10% was used in 1997 and is assumed to decrease evenly for eight
years until it reaches 5.5%, and remain level thereafter. For 1996 the annual
health care cost increase was assumed to be 10.6%, decreasing evenly for ten
years until it reached 5.25%.
The components of retiree medical benefits accrued as operating expense
in 1997, 1996, and 1995 were:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
(In thousands)
<S> <C> <C> <C>
Service cost--benefits earned during the period........................... $ 526 $ 408 $ 432
Interest cost on accumulated retiree medical obligation................... 664 687 638
Amortization of unrecognized net loss..................................... 29 -- 23
-------------- -------------- --------------
Net periodic retiree medical cost......................................... $ 1,219 $ 1,095 $ 1,093
============== ============== ==============
</TABLE>
The health care cost trend rate has a significant effect on the amounts
reported. For example, a 1% increase in the health care cost trend rate would
increase the accumulated retiree medical obligation as of March 29, 1997 by
$926,000 and the net periodic cost for 1997 by $145,000.
Note 9 INCENTIVE PLANS
Employee Stock Plan--The Cowles Media Company Employee Stock Plan (the
Stock Plan) covers substantially all employees. The cost of the Stock Plan is
borne by the Company through discretionary contributions of shares of our common
stock. Any contributed shares are allocated to individual accounts for employees
and held in trust until termination of employment, retirement or death. For all
voting shares allocated to employee accounts, the employee is entitled to
provide voting instructions to the trustee with respect to each matter submitted
for a shareholder vote.
Amounts recorded as expense and the related shares allocated to
employee accounts are as follows:
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1997, March 30, 1996 and April 1, 1995
ALL REFERENCES ARE TO FISCAL YEARS UNLESS OTHERWISE NOTED.
Expenses Shares
----------- ----------
(In thousands)
1997................. $ 1,142 44,014
1996................. 1,182 49,266
1995................. 1,383 60,120
The shares represented by the expense recorded in 1997 had not been
issued to the Stock Plan as of March 29, 1997, but were considered common stock
equivalents as of that date for purposes of computing earnings per share.
LONG TERM INCENTIVE PLAN
The Cowles Media Company Long Term Incentive Plan (1990 Plan) provided
for grants of stock options and shares of common stock with deferred and
contingent vesting ("restricted stock") to certain key employees at any time on
or prior to May 31, 1996. Options were either "incentive stock options," within
the meaning of Section 422A of the Internal Revenue Code, or non-statutory
options. The price at which an option to purchase stock may be exercised was not
less than the fair market value of such stock on the date of grant. Options were
exercisable during a period beginning not less than one year after the date of
grant and ending not more than 10 years after the date of grant, except in the
event of termination, retirement or death of the employee. No additional awards
will be made available under the 1990 Plan.
In May 1995, the Board of Directors adopted the Cowles Media Company
1995 Stock Incentive Plan (1995 Plan). The 1995 Plan was subsequently approved
by the Company's shareholders on July 31, 1995. The 1995 Plan provides for
grants of incentive stock options and non-qualified stock options, stock
appreciation rights, restricted stock and restricted stock units, performance
awards, and applicable dividend equivalents to certain key employees. Under the
1995 Plan, 1,229,215 shares of common stock were available for awards,
consisting of 1,000,000 newly authorized shares and 229,215 shares that were
authorized under the 1990 Plan and are still available. The price at which an
option to purchase stock may be exercised will be not less than the fair market
value of such stock on the date of grant. The 1995 Plan succeeds the 1990 Plan.
Information concerning options granted under the 1990 and 1995 Plans
and weighted average exercise prices are as follows:
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1997, March 30, 1996 and April 1, 1995
ALL REFERENCES ARE TO FISCAL YEARS UNLESS OTHERWISE NOTED.
Number of Weighted-Average
Shares Exercise Price
----------- ----------------
Options outstanding on April 2, 1994.......... 123,228 $24.54
Granted in 1995.......................... 4,035 23.00
Exercised in 1995........................ (900) 19.59
Expired in 1995.......................... (2,490) 25.41
----------
Options outstanding on April 1, 1995.......... 123,873 24.51
Granted in 1996.......................... 261,350 24.00
Exercised in 1996........................ (4,410) 20.10
Expired in 1996.......................... (7,560) 27.38
----------
Options outstanding on March 30, 1996......... 373,253 24.15
Granted in 1997.......................... 37,037 24.09
Exercised in 1997........................ (7,800) 21.14
Expired in 1997.......................... (89,672) 24.66
Converted in 1997........................ (30,889) 24.00
----------
Options outstanding on March 29, 1997......... 281,929 24.07
==========
As reported in Note 1, Cowles has adopted the disclosure-only
provision, of FAS 123, "Accounting for Stock-Based Compensation" and continues
to account for stock-based compensation as in prior years. Restricted
performance stock units have been granted under the 1995 Plan in fiscal years
1997 and 1996. In general, restricted shares and restricted performance stock
units will vest and related expense will be recorded if and to the extent that
we achieve certain financial performance goals established by the Board of
Directors. Compensation expense of $1,594,000, $1,495,000, and $3,942,000 was
recorded in 1997, 1996 and 1995, respectively, related to restricted performance
stock units and restricted shares. As of March 29,1997, 167,053 restricted
performance stock units were outstanding and not yet vested and there were no
remaining shares of restricted stock. At March 29, 1997, 810,056 shares are
available for additional award grants under the 1995 Plan.
Under FAS 123, Cowles is required to report the pro forma effect of net
earnings per share for 1997 and 1996 which would have resulted if the fair value
method of accounting for stock-based compensation issued in those years had been
adopted. Stock-based compensation issued prior to 1996 is not included in the
pro forma calculation. Employing the fair value method for stock options granted
would have reduced Cowles' net earnings and earnings per share by $137,000 or
$.01 per share for 1997, and $468,000, or $.04 per share for 1996. The per share
weighted average fair value of stock options granted in 1997 and 1996 are $4.88
and $4.60, respectively. The fair value of stock options granted was estimated
on the grant date using the Black-Scholes option pricing model with the
following assumptions: dividend yield of 2.6% (2.5% in 1996), volatility of 8.6%
(4.7% in 1996), risk free interest rate of 6.5% (6.35% in 1996) and an expected
life of seven years.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1997, March 30, 1996 and April 1, 1995
ALL REFERENCES ARE TO FISCAL YEARS UNLESS OTHERWISE NOTED.
Further information on outstanding and exercisable stock options by
exercise price range as of March 29, 1997 is disclosed in the table below:
<TABLE>
<CAPTION>
Weighted Average
Range Of Number Remaining Weighted Average Number Weighted Average
Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
----------------- ----------------- ---------------- ------------------ -------------- ----------------
<S> <C> <C> <C> <C> <C>
$19.17-23.83 58,713 4.95 $21.13 58,713 $21.13
24.00 189,967 8.45 24.00 129,797 24.00
25.00-33.33 33,249 3.12 29.71 31,143 30.02
------- -------
281,929 219,653
======= =======
</TABLE>
Note 10 COMMON STOCK
The Board of Directors has authorized the purchase of 1,000,000 shares
of our stock from time to time in the open market. In 1997, 1996 and 1995,
151,462, 16,662 and 40,500 shares of Common Stock were purchased in the open
market at a total cost of $3,812,000, $406,000 and $935,000, respectively.
A total of 44,014 shares held in the treasury as of March 29, 1997 will
be issued to the Employee Stock Plan in satisfaction of the 1997 contribution.
Note 11 INCOME TAXES
Our provision for income taxes on earnings consists of these
components:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ -----------
(In thousands)
<S> <C> <C> <C>
Current:
Federal.............................. $ 19,305 $ 14,851 $ 15,215
State and local...................... 5,002 4,765 3,425
Deferred:
Federal.............................. (351) (1,871) (1,140)
State and local...................... (128) (607) (336)
----------- ------------ -----------
Total provision for income taxes..... $ 23,828 $ 17,138 $ 17,164
</TABLE>
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1997, March 30, 1996 and April 1, 1995
ALL REFERENCES ARE TO FISCAL YEARS UNLESS OTHERWISE NOTED.
Our provision for income taxes differs from the federal statutory income tax
rate as a result of the following items:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Percentage of earnings before income taxes
Federal income tax rate......................................................... 35.0% 35.0% 35.0%
Items affecting effective income tax rate:
State and local income taxes, net of federal tax........................... 5.9 6.5 6.7
Amortization not deductible................................................ 1.4 1.8 1.5
Difference between tax basis and book basis on disposal of assets.......... 1.8 (1.3) --
Tax exempt interest........................................................ -- -- (0.1)
Other...................................................................... .6 (0.8) 0.2
--------- --------- ----------
Effective tax rate.............................................................. 44.7% 41.2% 43.3%
========== ========== ===========
</TABLE>
Deferred income taxes reflect temporary differences in the recognition
of revenue and expense for tax reporting and financial statement purposes. Our
deferred tax assets and liabilities were comprised of the following at the end
of 1997 and 1996:
<TABLE>
<CAPTION>
March 29, March 30,
1997 1996
---------------- ----------------
(In thousands)
<S> <C> <C>
Liabilities:
Depreciation and amortization........................... $ 23,925 $ 23,949
Employee benefits....................................... 527 2,603
Other................................................... 7,363 7,766
---------------- ----------------
Total deferred tax liabilities.......................... 31,815 34,318
Assets:
Fixed assets............................................ 628 1,168
Intangible Assets....................................... 957 1,471
Employee benefits....................................... 11,467 13,113
Agreements not to compete............................... 2,140 3,105
Reserves deductible in future years..................... 9,757 9,501
Other................................................... 2,637 3,625
---------------- ----------------
Total deferred tax assets............................... 27,586 31,983
---------------- ----------------
Net deferred tax liabilities................................. $ 4,229 $ 2,335
================ ================
</TABLE>
We have determined that establishing a valuation allowance for the
deferred tax assets is not required since it is more likely than not that the
deferred tax assets will be realized principally through carry back to taxable
income in prior years and future reversals of existing temporary differences.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1997, March 30, 1996 and April 1, 1995
ALL REFERENCES ARE TO FISCAL YEARS UNLESS OTHERWISE NOTED.
Note 12 COMMITMENTS AND CONTINGENT LIABILITIES
Various libel actions, employment, environmental and other legal
proceedings that have arisen in the ordinary course of business are pending
against us. It is our opinion, based on our review of such actions with counsel,
that matters currently pending will not have a material adverse effect on our
financial position or results of operations.
We rent certain facilities under operating leases with remaining terms
of one to eight years. The minimum lease payments due under these operating
leases are as follows: 1998--$4,191,000; 1999--$3,595,000; 2000--$2,952,000;
2001--$2,257,000; 2002--$1,305,000 and thereafter--$5,375,000.
Rental expense was $7,095,000, $7,186,000 and $6,079,000 for 1997, 1996
and 1995, respectively.
At March 29, 1997, we had outstanding letters of credit in the amount
of $21,200,000. These letters of credit support our deferred acquisition
obligations and insurance programs relating to workers' compensation, automobile
and general liability.
The company has entered into commitments to purchase 218,000 metric
tons of newsprint over the next four years at a negotiated price per metric ton.
The metric tons purchased during 1997 and 1996 under this commitment was 88,800
and 89,300 metric tons, respectively.
Note 13 FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS 107),
"Disclosures About Fair Value of Financial Instruments," requires us to disclose
the estimated fair value of our financial instruments. The following estimates
were determined using available market information and appropriate valuation
methodologies:
<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------------------------- -------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents................................ $ 5,867 $ 5,867 $ 674 $ 674
Long-term investments.................................... $ 2,060 $ 2,060 $ 1,404 $ 1,404
Long-term debt........................................... $ 92,814 $ 93,084 $ 89,881 $ 92,980
</TABLE>
The carrying amount of cash and cash equivalents approximates fair
value because of the short maturity of those investments.
Long-term investments consist of a certificate of deposit, a low-income
housing investment and three stock holdings. The fair value of each is
approximately equal to its carrying value.
Long-term debt consists primarily of Senior Notes, borrowings under our
revolving credit agreement and seller financing related to past business
acquisitions. The fair value of the Senior Notes was determined by using
interest rates currently available to us for issuance of debt with similar terms
and remaining maturities. Although
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1997, March 30, 1996 and April 1, 1995
ALL REFERENCES ARE TO FISCAL YEARS UNLESS OTHERWISE NOTED.
market rates of interest are currently lower than the interest rates associated
with some of our Senior Notes, prepayment clauses limit our ability to refinance
at lower rates. The fair value of the capital leases and the seller-financed
debt is approximately equal to the carrying value.
Note 14 INDUSTRY SEGMENTS
Cowles primary business activities include newspaper publishing, which
is the largest of its operations, and magazine and book publishing. For
financial reporting purposes, Cowles has established three segments:
(i) newspaper, (ii) non-newspaper and (iii) corporate.
The newspaper segment consists principally of a daily newspaper in the
Minneapolis-Saint Paul ("Twin Cities") metropolitan area and other print and
digital information services and products. The non-newspaper segment consists of
(i) specialized business magazines and conferences, special interest consumer
magazines, and (ii) specialty consumer publishing, including the distribution
and direct marketing of books, videos and interactive media in the home arts,
home improvement and outdoor markets. The majority of this segment consists of
approximately 50 magazine and newsletter titles, nine conferences and over 500
print and audio book titles. The corporate segment represents "central"
operations and unallocated assets, primarily cash, investments and real estate.
Separate financial data for each of Cowles three business segments are
as follows. Intersegment sales are not material. Operating income represents
total revenue less operating expenses, depreciation and amortization of
intangibles. There were no customers that represent 10% of revenue in the fiscal
year's presented. In determining operating income by industry segment, general
corporate expenses, interest expense, income taxes, and other income and expense
items of a non-operating nature are not considered. Corporate assets include
cash and cash equivalents, investments, receivables, and plant and equipment
primarily used for corporate purposes. Identifiable assets are those assets used
in Cowles operation of each segment.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1997, March 30, 1996 and April 1, 1995
ALL REFERENCES ARE TO FISCAL YEARS UNLESS OTHERWISE NOTED.
<TABLE>
COWLES MEDIA COMPANY -- SEGMENT REPORTING
<CAPTION>
Fiscal Year
---------------------------------------------------------------
1997 1996 1995
------------------- ------------------ -----------------
(In millions)
<S> <C> <C> <C>
OPERATING REVENUE
Newspapers..................................... $ 350.1 $ 326.1 $ 302.6
Non-Newspapers................................. 167.0 166.5 147.1
Corporate...................................... 0.0 0.0 0.0
------------------ ----------------- -----------------
$ 517.1 $ 492.6 $ 449.7
================== ================= =================
OPERATING EARNINGS
Newspapers..................................... $ 71.2 $ 57.7 $ 55.0
Non-Newspapers................................. (5.8) (5.0) (3.7)
Corporate...................................... (11.0) (7.5) (8.6)
------------------ ----------------- -----------------
$ 54.4 $ 45.2 $ 42.7
================== ================= =================
IDENTIFIABLE ASSETS
Newspapers..................................... $ 148.9 $ 142.5 $ 144.5
Non-Newspapers................................. 166.1 163.9 160.9
Corporate...................................... 11.8 9.8 8.8
------------------ ----------------- -----------------
$ 326.8 $ 316.2 $ 314.2
================== ================= =================
CAPITAL EXPENDITURES
Newspapers..................................... $ 13.5 $ 12.6 $ 20.7
Non-Newspapers................................. 4.1 3.2 3.1
Corporate...................................... 0.3 0.3 0.4
------------------ ----------------- -----------------
$ 17.9 $ 16.1 $ 24.2
================== ================= =================
DEPRECIATION AND AMORTIZATION
Newspapers..................................... $ 12.4 $ 13.8 $ 13.2
Non-Newspapers................................. 9.6 10.5 8.4
Corporate...................................... 0.2 0.1 0.1
------------------ ----------------- -----------------
$ 22.2 $ 24.4 $ 21.7
================== ================= =================
</TABLE>
F-22
<PAGE>
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
(UNAUDITED)
ALL REFERENCES ARE TO INTERIM PERIODS.
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Assets (In thousands)
Current assets:
Cash and cash equivalents..................................................................... $ 3,410 $ 3,272
Receivables, less allowance for doubtful accounts of $9,931 as of September 27, 1997
and $9,047 as of September 28, 1996....................................................... 62,769 58,382
Inventories................................................................................... 14,303 11,071
Deferred tax asset............................................................................ 7,405 7,079
Prepaid expenses and other.................................................................... 15,680 15,800
-------------- --------------
Total current assets...................................................................... 103,567 95,604
-------------- --------------
Property, plant and equipment, at cost:
Land and land improvements.................................................................... 10,261 10,731
Buildings..................................................................................... 59,231 57,335
Machinery and equipment....................................................................... 183,827 172,752
Construction in progress...................................................................... 12,460 11,002
-------------- --------------
265,779 251,820
Less accumulated depreciation................................................................. 150,107 136,844
-------------- --------------
Net property, plant and equipment......................................................... 115,672 114,976
-------------- --------------
Intangible assets, net of accumulated amortization of $38,191 as of September 27, 1997
and $40,625 as of September 28, 1996.......................................................... 116,093 104,843
Other assets.................................................................................... 6,667 7,550
-------------- --------------
Total..................................................................................... $ 341,999 $ 322,973
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Borrowings under lines of credit.............................................................. $ 0 $ 15,000
Current installments of long-term debt........................................................ 8,940 4,369
Accounts payable.............................................................................. 13,535 15,055
Accrued expenses and other liabilities........................................................ 46,059 43,565
Unearned income, principally subscriptions paid in advance.................................... 48,198 51,712
Income taxes.................................................................................. 6,060 6,342
-------------- --------------
Total current liabilities................................................................. 122,792 136,043
-------------- --------------
Long-term debt, less current installments....................................................... 83,194 85,833
Deferred income taxes........................................................................... 11,313 8,846
Deferred credit................................................................................. 2,250 3,750
Other liabilities............................................................................... 22,488 17,788
Stockholders' equity:
Voting common stock, $0.17 stated value; 4,000,000 shares authorized; 3,858,687
and 3,858,687 shares issued; 3,831,546 and 3,829,291 shares outstanding................... 643 643
Non-voting common stock, $0.17 stated value; 10,600,000 shares authorized; 10,145,836
and 10,145,836 shares issued; 10,027,842 and 9,999,634 shares outstanding................. 1,691 1,691
Capital in excess of stated value............................................................. 4,517 4,406
Retained earnings............................................................................. 96,963 68,250
-------------- --------------
103,814 74,990
Less:
Treasury stock, at cost; 145,136 as of September 27, 1997 and 175,599 as of
September 28, 1996........................................................................ 3,852 4,277
-------------- --------------
Total stockholders' equity................................................................ 99,962 70,713
-------------- --------------
Commitments and contingent liabilities..........................................................
Total..................................................................................... $ 341,999 $ 322,973
============== ==============
</TABLE>
See accompanying note to interim consolidated financial statements.
F-23
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
(UNAUDITED)
ALL REFERENCES ARE TO INTERIM PERIODS.
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(In thousands, except per share amounts)
<S> <C> <C>
Operating revenue............................................. $ 260,419 $ 252,593
Expenses:
Operating................................................. 123,517 134,280
Selling, general and administrative....................... 86,123 84,657
Depreciation.............................................. 8,393 7,920
Amortization of intangible assets......................... 3,082 3,103
----------------- -----------------
Operating earnings.................................... 39,304 22,633
----------------- -----------------
Other income (expense), net:
Investment income......................................... 214 136
Interest expense.......................................... (3,506) (3,977)
Other, net................................................ 633 3,809
----------------- -----------------
(2,659) (32)
----------------- -----------------
Earnings before income taxes.......................... 36,645 22,601
Provision for income taxes.................................... 15,027 9,251
----------------- -----------------
Net earnings.................................................. $ 21,618 $ 13,350
================= =================
Net earnings per share........................................ $1.53 $0.96
================= =================
Average equivalent common shares.............................. 14,111 13,920
</TABLE>
See accompanying note to interim consolidated financial statements.
F-24
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 27, 1997
(UNAUDITED)
ALL REFERENCES ARE TO INTERIM PERIODS.
<TABLE>
<CAPTION>
Common Stock Capital
----------------------------- Treasury In Excess Of Retained
Voting Non-voting Stock Stated Value Earnings Total
------------- ------------- ------------ ------------ ------------- ------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Balance, March 29, 1997 $ 643 $ 1,691 $ (7,029) $ 4,506 $ 80,009 $ 79,820
Net earnings...................... -- -- -- -- 21,618 21,618
Cash dividends on common stock:
$.34 per share................ -- -- -- -- (4,664) (4,664)
Stock options exercised: 154,145
shares........................ -- -- 3,641 (16) -- 3,625
Purchases of common stock: 34,676
shares........................ -- -- (925) -- -- (925)
Estimated shares to be issued to
Employee Stock Plan: 0 shares. -- -- -- -- -- 0
Shares issued to executives:
2,831 shares.................. -- -- 65 10 -- 75
Shares issued to stock-based
incentive plans: 17,235
shares........................ -- -- 396 17 -- 413
------------- ------------- ------------ ------------ ------------- ------------
Balance, September 27, 1997......... $ 643 $ 1,691 $ (3,852) $ 4,517 $ 96,963 $ 99,962
============= ============= ============ ============ ============= ============
</TABLE>
See accompanying note to interim consolidated financial statements.
F-25
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 27, 1997
AND SEPTEMBER 28, 1996
(UNAUDITED)
ALL REFERENCES ARE TO INTERIM PERIODS.
<TABLE>
<CAPTION>
1997 1996
------------------- ------------------
(In thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers............................................... $ 252,414 $ 242,819
Cash paid to suppliers and employees....................................... (210,796) (210,582)
Interest paid.............................................................. (3,416) (3,978)
Investment income received................................................. 216 136
Income taxes paid.......................................................... (15,058) (11,204)
------------------ ------------------
Net cash from operating activities..................................... 23,360 17,191
------------------ ------------------
Cash Flows from Investing Activities:
Net cash outlay for acquisitions (Note 2).................................. (10,775) (4,867)
Capital expenditures....................................................... (7,964) (8,747)
Proceeds from sales of assets and businesses............................... 105 5,683
Other...................................................................... (337) (1,103)
------------------ ------------------
Net cash used by investing activities.................................. (18,971) (9,034)
------------------ ------------------
Cash Flows from Financing Activities:
Net borrowings under revolving credit agreement............................ -- 20,000
Payments on long-term debt................................................. (4,866) (19,974)
Dividends paid............................................................. (4,664) (4,415)
Proceeds from stock options exercised...................................... 3,625 165
Capital stock repurchased.................................................. (925) (1,305)
Other...................................................................... (16) (30)
------------------ ------------------
Net cash used by financing activities.................................. (6,846) (5,559)
------------------ ------------------
Net Change in Cash and Cash Equivalents...................................... (2,457) 2,598
Cash and cash equivalents at beginning of year............................... 5,867 674
------------------ ------------------
Cash and Cash Equivalents at End of Year..................................... $ 3,410 $ 3,272
================== ==================
Reconciliation of net earnings to net cash from operating activities:
Net earnings............................................................... $ 21,618 $ 13,350
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization....................................... 11,475 11,023
Stock-based compensation expense.................................... 1,289 1,385
Deferred income taxes............................................... (321) (569)
Changes in assets and liabilities, net of effects from acquisitions and
divestitures:
Accounts receivable............................................. 1,822 (2,824)
Inventories..................................................... (768) (2,199)
Prepaid and other assets........................................ (1,050) (92)
Accounts payable, accrued expenses and unearned income.......... (10,488) 707
Income taxes payable............................................ 290 (1,384)
Other, net.......................................................... (507) (2,206)
------------------- -------------------
Net cash from operating activities........................................... $ 23,360 $ 17,191
=================== ===================
</TABLE>
See accompanying note to interim consolidated financial statements.
F-26
<PAGE>
NOTE TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 27, 1997, September 28, 1996 ALL
REFERENCES ARE TO INTERIM PERIODS UNLESS OTHERWISE NOTED.
The interim financial statements should be read in conjunction with the
audited consolidated financial statements of Cowles and related notes thereto
appearing elsewhere herein.
In the opinion of management, the interim financial statements contain
all adjustments necessary to present fairly the Company's balance sheets,
consolidated statement of earnings and cash flows for the interim periods
presented. All adjustments are normal recurring entries. These interim financial
statements are not necessarily indicative of the results to be expected for a
full year.
F-27
<PAGE>
ANNEX A
-------
===============================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
DATED AS OF FEBRUARY 13, 1998
BY AND AMONG
MCCLATCHY NEWSPAPERS, INC.,
COWLES MEDIA COMPANY,
MNI NEWCO, INC.,
MNI MERGERCO, INC.
AND
CMC MERGERCO, INC.
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 Merger........................................................... 2
Section 1.01 Mergers................................................... 2
Section 1.02 Closing................................................... 2
Section 1.03 Effective Time............................................ 2
Section 1.04 Effects of the Mergers.................................... 2
Section 1.05 Organization of Newco Holding and Merger
Subsidiaries.............................................. 2
Section 1.06 Certificate of Incorporation; Bylaws...................... 3
Section 1.07 Directors and Officers.................................... 3
ARTICLE 2 Conversion of Securities......................................... 3
Section 2.01 Effect on Capital Stock................................... 3
Section 2.02 Elections................................................. 5
Section 2.03 Proration................................................. 6
Section 2.04 Exchange Ratio Definitions................................ 7
Section 2.05 Stock Plans and Compensation Units........................ 8
Section 2.06 Payment of Merger Consideration........................... 9
ARTICLE 3 Representations and Warranties of the Company................... 12
Section 3.01 Organization, Standing and Corporate Power............... 12
Section 3.02 Company Subsidiaries..................................... 13
Section 3.03 Capital Structure........................................ 13
Section 3.04 Authority; Non-Contravention............................. 14
Section 3.05 Company Public Documents................................. 15
Section 3.06 Absence of Certain Changes or Events..................... 16
Section 3.07 Litigation; Compliance with Law.......................... 16
Section 3.08 Benefit Plans............................................ 16
Section 3.09 Labor Matters............................................ 19
Section 3.10 Tax Returns and Tax Payments............................. 19
Section 3.11 Environmental Matters.................................... 19
Section 3.12 Title to Properties; Encumbrances........................ 20
Section 3.13 Intellectual Property.................................... 20
Section 3.14 Books and Records........................................ 21
Section 3.15 Brokers.................................................. 21
Section 3.16 Insurance................................................ 21
Section 3.17 Material Contracts....................................... 21
Section 3.18 Affiliate Transactions................................... 21
Section 3.19 Opinion of Company's Financial Advisor................... 21
Section 3.20 Company Board Recommendation............................. 21
Section 3.21 Company Stockholder Approval............................. 21
Section 3.22 No Other Representations or Warranties................... 22
Section 3.23 Deemed Execution Date.................................... 22
ARTICLE 4 Representations and Warranties of Parent........................ 22
Section 4.01 Organization, Standing and Corporate Power............... 22
Section 4.02 Subsidiaries............................................. 22
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Section 4.03 Capital Structure........................................ 22
Section 4.04 Authority; Non-Contravention............................. 23
Section 4.05 Parent SEC Documents..................................... 24
Section 4.06 Absence of Certain Changes or Events..................... 25
Section 4.07 Litigation; Compliance with Law.......................... 25
Section 4.08 Benefit Plans............................................ 25
Section 4.09 Labor Matters............................................ 27
Section 4.10 Tax Returns and Tax Payments............................. 27
Section 4.11 Environmental Matters.................................... 27
Section 4.12 Brokers.................................................. 28
Section 4.13 Opinion of Parent's Financial Advisor.................... 28
Section 4.14 Parent Board Recommendation.............................. 28
Section 4.15 Parent Stockholder Approval.............................. 28
Section 4.16 Financial Capability..................................... 28
Section 4.17 Qualification as a Reorganization for Tax Purposes....... 28
Section 4.18 No Other Representations or Warranties................... 28
Section 4.19 Deemed Execution Date.................................... 28
ARTICLE 4A Representations and Warranties of Newco Holding................. 29
Section 4A.01 Organization, Standing and Corporate Power and Authority. 29
Section 4A.02 Non-Contravention........................................ 29
Section 4A.03 Interim Operations....................................... 29
ARTICLE 5 Covenants Regarding Conduct of Business......................... 29
Section 5.01 Conduct of Business by the Company....................... 29
Section 5.02 Conduct of Business by Parent............................ 32
Section 5.03 Coordination of Dividends................................ 32
ARTICLE 6 Additional Agreements Relating to the Mergers................... 33
Section 6.01 Preparation of Form S-4 and Joint Proxy Statement;
Stockholder Meetings..................................... 33
Section 6.02 Letter of Company's Accountants.......................... 34
Section 6.03 Letter of Parent's Accountants........................... 34
Section 6.04 Access to Information; Confidentiality................... 34
Section 6.05 Mutual Best Efforts...................................... 35
Section 6.06 Public Announcements..................................... 36
Section 6.07 Affiliate Agreements..................................... 36
Section 6.08 Stock Exchange Listing................................... 36
Section 6.09 Directorships............................................ 36
Section 6.10 No Solicitation.......................................... 36
Section 6.11 Indemnification.......................................... 37
Section 6.12 Certain Newspaper Matters................................ 37
Section 6.13 Charitable Contributions................................. 37
Section 6.14 Tax Matters.............................................. 38
Section 6.15 Registration of Parent Stock Held by Rule 145
Affiliates............................................... 38
ARTICLE 7 Employment Matters.............................................. 38
Section 7.01 Certain Employment-Related Definitions................... 38
Section 7.02 Benefit Plans............................................ 39
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Section 7.03 Severance Payments to Non-Represented Employees.......... 40
Section 7.04 Other Employment-Related Obligations..................... 41
Section 7.05 Enforcement.............................................. 41
ARTICLE 8 Conditions Precedent to Merger.................................. 41
Section 8.01 Conditions to Each Party's Obligation.................... 41
Section 8.02 Conditions to Obligations of Parent...................... 42
Section 8.03 Conditions to Obligation of the Company.................. 43
ARTICLE 9 Termination, Amendment, Fees and Expenses....................... 43
Section 9.01 Termination.............................................. 43
Section 9.02 Effect of Termination.................................... 44
Section 9.03 Amendment................................................ 44
Section 9.04 Extension; Waiver........................................ 45
Section 9.05 Procedure for Termination, Amendment, Etc................ 45
Section 9.06 Fees and Expenses........................................ 45
ARTICLE 10 General Provisions.............................................. 45
Section 10.01 Nonsurvival of Representations and Warranties............ 45
Section 10.02 Notices.................................................. 45
Section 10.03 Certain Definitions...................................... 46
Section 10.04 Interpretation........................................... 47
Section 10.05 Counterparts............................................. 47
Section 10.06 Entire Agreement; Third-Party Beneficiaries.............. 47
Section 10.07 Governing Law............................................ 48
Section 10.08 Assignment............................................... 48
Section 10.09 Enforcement.............................................. 48
Section 10.10 Severability............................................. 48
EXHIBITS
- --------
Exhibit 1.05(B) Form of Newco Holding and Merger Subs Certificate and By-laws
Exhibit 1.06 Form of Newco Holding Post-Closing Certificate and By-laws
Exhibit 6.15 Registration Rights Agreement
Exhibit 7.03(F) Form of Employee Release
SCHEDULES
- ---------
Company Disclosure Schedules
Parent Disclosure Schedules
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DEFINED TERMS
- -------------
Term Section
- ---- -------
Access..................................................... 6.04(a)
Affiliate.................................................. 10.03(a)
Agreement.................................................. (Page 1)
Alternative Proposal....................................... 6.10(a)(i)
Announcement............................................... 6.06
Base Compensation.......................................... 7.01(i)
Cash Election.............................................. 2.02(a)
Cash Electing Shares....................................... 2.03(a)
Cash Election Price........................................ 2.01(e)(i)(A)
Cash Proration Factor...................................... 2.03(b)(i)
Certificate of Merger...................................... 1.03
Change in Employment Terms................................. 7.01(h)
Closing.................................................... 1.02
Closing Date............................................... 1.02
Code....................................................... (Page 1)
Company.................................................... (Page 1)
Company Benefit Plan....................................... 3.08(b)
Company Compensation Unit.................................. 2.05(e)
Company Indemnification Provisions......................... 6.11
Company Disclosure Schedule................................ 3
Company Excluded Shares.................................... 2.01(f)
Company Financial Statements............................... 3.05
Company Merger............................................. 1.01
Company Merger Consideration............................... 2.01(e)(i)
Company Merger Sub......................................... 1.05(a)
Company Non-voting Stock................................... (Page 1)
Company Pension Plan....................................... 3.08(b)(i)
Company Public Documents................................... 3.05
Company Stock.............................................. (Page 1)
Company Stock Certificate.................................. 2.02(c)
Company Stock Option ...................................... 2.05(a)
Company Stock Price........................................ 2.04(a)
Company Stock Unit......................................... 2.05(b)
Company Stockholder Approval............................... (Page 1)
Company Stockholder Meeting................................ 6.01(b)
Company Subsidiaries....................................... 3.02
Company Subsidiary......................................... 3.02
Company Surviving Corporation.............................. 1.01
Company Voting Stock....................................... (Page 1)
Company Welfare Plan....................................... 3.08(b)(ii)
Confidentiality Agreement.................................. 6.04(d)
Converted Stock Unit....................................... 2.05(b)(i)
Converted Stock Unit Terms and Conditions.................. 2.05(b)(i)
Current Premium............................................ 6.11
Defined Benefit Pension Plan............................... 3.08(g)
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Term Section
- ---- -------
Determination Date......................................... 2.01(d)(ii)(A)
Determination Date Number.................................. 2.01(e)(ii)(B)
Deloitte................................................... 6.03
DGCL....................................................... 1.01
Dissenting Share........................................... 2.01(g)
Effective Time............................................. 1.03
Electing Share............................................. 2.02(a)
Election................................................... 2.2(a)
Election Record Date....................................... 2.2(c)
Employee................................................... 7.1(d)
Employee Pension Benefit Plan.............................. 3.8(a)
Employee Welfare Benefit Plan.............................. 3.8(a)
Environmental Claim........................................ 3.11(b)(i)
Environmental Laws......................................... 3.11(b)(iii)
Environmental Permits...................................... 3.11(b)(ii)
ERISA...................................................... 3.08(a)
Exchange Act............................................... 4.04(c)(ii)
Exchange Agent............................................. 2.02(b)
Exchange Fund.............................................. 2.06(f)
Exchange Ratio............................................. 2.04(b)
Executive Income Continuation Policy....................... 7.03(a)(ii)
Final Employee Release..................................... 7.03(f)
For Cause.................................................. 7.01(f)
Form of Election........................................... 2.02(c)
Form S-4................................................... 6.01(a)
Fractional Share Payment................................... 2.06(e)(ii)
GAAP....................................................... 3.05
Governmental Entity........................................ 3.04(c)
Hazardous Materials........................................ 3.11(b)(iv)
HSR Act.................................................... 3.04(c)(i)
Involuntary Termination.................................... 7.01(g)
Joint Proxy Statement...................................... 4.04(c)(ii)
KPMG....................................................... 6.02
Liens...................................................... 3.02
Material Adverse Change.................................... 10.03(b)
Material Adverse Effect.................................... 10.03(b)
Maximum Cash Number........................................ 2.01(e)(ii)(D)
Maximum Stock Number....................................... 2.01(e)(ii)(C)
Medical Allowance.......................................... 7.03(d)
Mergers.................................................... 1.01
Merger Consideration....................................... 2.01(e)(i)
Merger Subs................................................ 1.05(a)
Multiemployer Plan......................................... 3.08(h)
1990 Long Term Incentive Plan.............................. 2.05
1995 Long Term Incentive Plan.............................. 2.05
Newco Holding.............................................. (Page 1)
Newco Holding Class A Stock................................ 1.06
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Term Section
- ---- -------
Newco Holding Class B Stock................................ 1.06
Newco Holding Stock........................................ 1.06
Non-electing Share......................................... 2.02(a)
Non-election Fraction...................................... 2.03(c)(i)
Non-represented Employee................................... 7.01(c)
NYSE....................................................... 2.04(c)
One-Year Period............................................ 7.01(e)
Parent..................................................... (Page 1)
Parent Class A Stock....................................... (Page 1)
Parent Class B Stock....................................... (Page 1)
Parent Disclosure Schedule................................. 4
Parent Merger.............................................. 1.01
Parent Merger Consideration................................ 2.01(c)
Parent Merger Sub.......................................... 1.05(a)
Parent SEC Documents....................................... 4.05
Parent Stock............................................... (Page 1)
Parent Stock Price......................................... 2.04(c)
Parent Stockholder Approval................................ (Page 1)
Parent Stockholders Meeting................................ 6.01(b)
Parent Subsidiaries........................................ 4.02
Parent Subsidiary.......................................... 4.02
Parent Surviving Corporation............................... 1.01
PBGC....................................................... 3.08(f)(ii)
Permitted Company Stock Changes............................ 5.01(b)
Permitted Investments...................................... 2.06(h)
Person..................................................... 10.03(c)
Qualified Plan............................................. 3.08(e)
Reorganization............................................. (Page 1)
Represented Employee....................................... 7.01(b)
Rule 145 Affiliate......................................... 6.07
Salomon Opinion............................................ 4.13
SEC........................................................ 3.02
Securities Act............................................. 3.03(b)
Severance Amount........................................... 7.03(b)
Severance Period........................................... 7.03(d)
Significant Subsidiary..................................... 3.02
Stock Electing Shares...................................... 2.03(a)
Stock Election............................................. 2.02(a)
Stock Election Price....................................... 2.01(e)(i)(B)
Stock Exchange............................................. 2.04(c)
Stock Plan................................................. 2.05
Stock Proration Factor..................................... 2.03(a)
Subsidiary................................................. 10.03(d)
Surviving Corporation...................................... 7.01(a)
Volume Weighted Average Trading Price...................... 2.04(c)
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION (this "Agreement") is dated as of February 13, 1998, by and among
McClatchy Newspapers, Inc., a Delaware corporation ("Parent"), Cowles Media
Company, a Delaware corporation (the "Company"), MNI Newco, Inc., a Delaware
corporation ("Newco Holding"), MNI Mergerco, Inc., a Delaware corporation and
wholly owned subsidiary of Newco Holding ("Parent Merger Sub") and CMC Mergerco,
Inc., a Delaware corporation and wholly owned subsidiary of Newco Holding
("Company Merger Sub" and, together with Parent Merger Sub, the "Merger Subs"),
and amends and restates the agreement between Parent and the Company dated as of
November 13, 1997 (the "Original Agreement").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, the Company,
Newco Holding and each Merger Sub have approved the reorganization whereby Newco
Holding will acquire all of the stock of each of Parent and the Company through
the merger of Parent Merger Sub and Company Merger Sub with and into each of
Parent and the Company respectively (the "Reorganization"); and
WHEREAS, the authorized capital stock of the Company consists of
14,600,000 shares of common stock without par value ("Company Stock"), of which
4,000,000 shares are voting common stock ("Company Voting Stock") and 10,600,000
shares are non-voting common stock ("Company Non-Voting Stock"); and
WHEREAS, the authorized capital stock of Parent consists of 100,000,000
shares of Class A Common Stock, $.01 par value ("Parent Class A Stock"), and
60,000,000 shares of Class B Common Stock, $.01 par value ("Parent Class B
Stock," and together with the Parent Class A Stock, "Parent Stock"); and
WHEREAS, the Company Merger (as hereinafter defined) and this Agreement
require the affirmative vote of holders of a majority of all outstanding shares
of Company Voting Stock for the approval thereof (the "Company Stockholder
Approval"); and
WHEREAS, the Parent Merger (as hereinafter defined) and this Agreement
require the affirmative vote of holders of a majority in voting interest of all
outstanding shares of Parent Stock for approval thereof (the "Parent Stockholder
Approval"); and
WHEREAS, concurrent with the execution and delivery of this Agreement,
in order to induce Parent to enter into this Agreement, certain record and
beneficial stockholders of the Company are entering into the Company
Stockholders Voting Agreement; and
WHEREAS, concurrent with the execution and delivery of this Agreement,
in order to induce the Company to enter into this Agreement, certain
stockholders of Parent are entering into the Parent Stockholders Voting
Agreement; and
WHEREAS, for Federal income-tax purposes, it is intended that (i) the
Parent Merger qualify as a reorganization under the provisions of section 368(a)
of the Internal Revenue Code of 1986, as amended
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(the "Code"), and/or as an exchange under the provisions of section 351 of the
Code and (ii) the Company Merger qualify as an exchange under the provisions of
section 351 of the Code.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements in this Agreement, the
parties agree as follows:
ARTICLE 1
MERGER
SECTION 1.01 MERGERS. Under the terms and conditions in this Agreement,
and in accordance with the Delaware General Corporation Law (the "DGCL"), the
Company Merger Sub shall be merged with and into the Company (the "Company
Merger"), and the Parent Merger Sub shall be merged with and into Parent (the
"Parent Merger," and together with the Company Merger, the "Mergers"), at the
Effective Time. At the Effective Time, the separate existence of the Company
Merger Sub shall cease, and the Company shall continue to exist as the surviving
corporation (the "Company Surviving Corporation"), a wholly owned subsidiary of
Newco Holding, and the separate existence of Parent Merger Sub shall cease and
Parent shall continue to exist as the surviving corporation (the "Parent
Surviving Corporation"), a wholly owned subsidiary of Newco Holding. At the
Effective Time, the certificates of incorporation and bylaws of the Company and
Parent shall be the certificates of incorporation and bylaws of the Company
Surviving Corporation and the Parent Surviving Corporation, respectively,
provided that, in connection with the Mergers, the Company Surviving Corporation
and the Parent Surviving Corporation may change their respective corporate names
and make such other changes to their respective certificates of incorporation
and bylaws as Parent shall determine to be reasonably necessary or desirable.
SECTION 1.02 CLOSING. Unless this Agreement shall have been terminated
pursuant to Article 9, and subject to satisfaction or waiver of the conditions
in Article 8, the closing of the Reorganization (the "Closing") will occur at
10:00 a.m., local time, on the first business day after satisfaction or waiver
of the conditions set forth in Section 8.01 (or as soon as practicable
thereafter following satisfaction or waiver of the conditions set forth in
Sections 8.02 and 8.03), at the offices of Pillsbury Madison & Sutro LLP in San
Francisco, California (the day on which the Closing occurs being the "Closing
Date").
SECTION 1.03 EFFECTIVE TIME. As soon as practicable on or after the
Closing Date, the parties shall cause to be duly prepared and filed with the
Secretary of State of the State of Delaware a certificate of merger for each of
the Company Merger and the Parent Merger (each, a "Certificate of Merger"),
executed in accordance with the applicable provisions of the DGCL, and shall
make all other filings or recordings required under the DGCL. The Mergers shall
become effective upon the date and time of filing with the Secretary of State of
the State of Delaware of (i) the Certificate of Merger relating to the Company
Merger and (ii) the Certificate of Merger relating to the Parent Merger, which
filings shall be made contemporaneously (such time when the Mergers become
effective being the "Effective Time").
SECTION 1.04 EFFECTS OF THE MERGERS. The Mergers shall have the effects
stated in the DGCL.
SECTION 1.05 ORGANIZATION OF NEWCO HOLDING AND MERGER SUBSIDIARIES.
(a) Parent has caused Newco Holding and the Merger Subs to be organized
for the sole purpose of effectuating the Reorganization.
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(b) The initial certificate of incorporation and bylaws of Newco
Holding are set forth in Exhibit 1.05(b).
(c) The certificate of incorporation and bylaws of Company Merger Sub
are set forth in Exhibit 1.05(b).
(d) The certificate of incorporation and bylaws of Parent Merger Sub
are set forth in Exhibit 1.05(b).
SECTION 1.06 CERTIFICATE OF INCORPORATION; BYLAWS. Parent shall cause
the certificate of incorporation and bylaws of Newco Holding to be amended prior
to the Closing to be in the forms attached as Exhibit 1.06, with such changes as
Parent may determine to be appropriate; PROVIDED, HOWEVER, that such changes may
not be made without the prior consent of the Company, which consent shall not be
unreasonably withheld. The Class A Common Stock, $.01 par value, described in
the certificate of incorporation set forth in Exhibit 1.06 is referred to herein
as the "Newco Holding Class A Stock", and the Class B Common Stock, $.01 par
value, described in the certificate of incorporation set forth in Exhibit 1.06
is referred to herein as the "Newco Holding Class B Stock," and together with
the Newco Holding Class A Stock, the "Newco Holding Stock".
SECTION 1.07 DIRECTORS AND OFFICERS.
(a) DIRECTORS AND OFFICERS OF NEWCO HOLDING. Subject to Section 6.09
hereof, as of the Effective Time, the directors and officers of Newco Holding
will be identical to the directors and officers of Parent immediately prior to
the Effective Time. Each such director and officer shall remain in office until
his or her successor is elected and qualified.
(b) DIRECTORS OF SURVIVING CORPORATIONS. The directors of Parent Merger
Sub immediately prior to the Effective Time shall be the directors of Parent
Surviving Corporation, and the directors of Company Merger Sub immediately prior
to the Effective Time shall be the directors of the Company Surviving
Corporation, in each case as of the Effective Time and until their respective
successors are elected and qualified.
ARTICLE 2
CONVERSION OF SECURITIES
SECTION 2.01 EFFECT ON CAPITAL STOCK. As of the Effective Time, each of
the following shall occur:
(a) STOCK OF MERGER SUBS. Each share of common stock of Company Merger
Sub issued and outstanding immediately prior to the Effective Time shall be
converted into and shall become one share of voting common stock of Company
Surviving Corporation. Each share of common stock of Parent Merger Sub issued
and outstanding immediately prior to the Effective Time shall be converted into
and shall become one share of class A common stock of Parent Surviving
Corporation.
(b) NEWCO HOLDING CAPITAL STOCK. Each share of capital stock of Newco
Holding issued and outstanding immediately prior to the Effective Time shall be
canceled and retired and shall cease to exist.
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(c) CONVERSION OF PARENT STOCK. Except as otherwise provided herein, at
the Effective Time, each issued and outstanding share of Parent Class A Stock or
Parent Class B Stock shall be converted into one share of Newco Holding Class A
Stock or Newco Holding Class B Stock, respectively (the "Parent Merger
Consideration.")
(d) CANCELLATION OF TREASURY STOCK AND COMPANY OWNED PARENT STOCK. At
the Effective Time, each share of Parent Stock which is owned by Parent as
treasury stock or by any Parent Subsidiary (as hereinafter defined), and each
share of Parent Stock that is owned by the Company or any Company Subsidiary (as
hereinafter defined), shall automatically be canceled and retired and shall
cease to exist, and no cash, Newco Holding Stock or other consideration shall be
delivered in exchange therefor.
(e) CONVERSION OF COMPANY STOCK.
(i) Except as otherwise provided herein, including without
limitation Section 2.03, each issued and outstanding share of Company
Stock shall be converted into the right to receive, from Newco Holding,
at the election of the holder thereof as provided in Section 2.02, the
following (the "Company Merger Consideration," and together with the
Parent Merger Consideration, the "Merger Consideration"):
(A) cash of $90.50 (the "Cash Election Price");
(B) that number of fully paid and nonassessable
shares of Newco Holding Class A Stock as equals the Exchange
Ratio (as hereinafter defined), (the "Stock Election Price");
or
(C) a combination of cash and shares of Newco Holding
Class A Stock.
(ii) CERTAIN DEFINITIONS.
(A) The "Determination Date" shall be the last day of
the valuation period used to determine the Parent Stock Price
under Section 2.04(c).
(B) The total number of shares of Company Stock
outstanding (other than Company Excluded Shares) plus the
number of Converted Stock Units and Company Compensation Units
(each as hereinafter defined), in each case at the
Determination Date, shall be the "Determination Date Number."
(C) The "Maximum Stock Number" shall be the number
obtained by multiplying 25% by the Determination Date Number.
(D) The "Maximum Cash Number" shall be equal to (I)
85% multiplied by the Determination Date Number less (II) that
number which is the sum of the Dissenting Shares plus the
Company Compensation Units.
(f) CANCELLATION OF TREASURY STOCK AND PARENT OWNED COMPANY STOCK. At
the Effective Time, each share of Company Stock that is owned by the Company as
treasury stock or by any Company Subsidiary, and each share of Company Stock
that is owned by Parent or any Parent Subsidiary, shall automatically be
canceled and retired and shall cease to exist (such shares to be referred to
herein as
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"Company Excluded Shares"), and no cash, Newco Holding Stock or other
consideration shall be delivered in exchange therefor.
(g) DISSENTING SHARES. Notwithstanding anything in this Agreement to
the contrary, each share (if any) of Parent Class B Stock or Company Stock
issued and outstanding immediately before the Effective Time for which the
holder submitted a valid written demand for appraisal of such share pursuant to
Section 262 of the DGCL, which demand has not been withdrawn at or prior to such
time (each, a "Dissenting Share"), shall not be converted into any Parent Merger
Consideration or Company Merger Consideration, respectively. If after the
Effective Time any such holder fails to perfect (or otherwise loses) any such
right to appraisal, then each such share of such holder shall be treated
thereafter, (i) if Parent Class B Stock, as a share thereof that had been
converted as of the Effective Time into the right to receive the Parent Merger
Consideration and (ii) if Company Stock, as a share that is not an Electing
Share (as hereinafter defined) that had been converted into the right to receive
the Company Merger Consideration. The Company shall give prompt notice to Parent
and Newco Holding of each demand received by the Company for appraisal of
Company Stock, and Parent (prior to the Effective Time) and Newco Holding shall
have the right to participate in negotiations and proceedings regarding each
such demand. The Company shall not, except with the prior written consent of
Parent (prior to the Effective Time) and Newco Holding, settle or make any
payment regarding any such demand.
(h) CONVERSION OF CERTAIN STOCK UNITS. Except as otherwise provided
herein, each Converted Stock Unit (as hereinafter defined) shall be converted
into the same consideration as the Company Merger Consideration, in the manner
provided in Section 2.01(e), as though such Converted Stock Unit were one issued
and outstanding share of Company Stock.
SECTION 2.02 ELECTIONS.
(a) Each person who, on or prior to the Election Date (as hereinafter
defined), is a record holder of shares of Company Stock or is a holder of
Converted Stock Units will be entitled, with respect to all or any portion of
such shares of Company Stock or Converted Stock Units, as applicable, to make an
election on or prior to the Election Date to receive the Cash Election Price (a
"Cash Election") and/or the Stock Election Price (a "Stock Election"), each of
which shall be an "Election" and shall be subject to the following terms.
Subject to paragraph (e) below, each share of Company Stock or Converted Stock
Unit as to which an Election has been made and not revoked shall be an "Electing
Share" and each share of Company Stock or Converted Stock Unit that is not an
Electing Share shall be a "Non-Electing Share."
(b) Prior to mailing of the Joint Proxy Statement (as hereinafter
defined), Parent shall cause Newco Holding to appoint Chase Mellon Shareholder
Services LLC (or if Chase Mellon Shareholder Services LLC is unwilling or unable
to act, any other bank or trust company mutually acceptable to the Company and
Parent) to act as exchange agent (the "Exchange Agent") for payment and delivery
of the Merger Consideration.
(c) Parent, on behalf of Newco Holding, shall prepare a form of
election (which, when approved by the Company, shall be the "Form of Election")
and shall mail the Form of Election with the Joint Proxy Statement to each
record holder of Company Stock and each holder of a Converted Stock Unit as of
the record date for the Company Stockholder Meeting (as hereinafter defined),
which Form of Election shall be used by any such holder wanting to make an
Election in respect of any or all Company Stock or Converted Stock Unit, as the
case may be, held by any such holder. Any purported Election shall have been
properly made only if the Exchange Agent shall have received at its office
designated in the Form of Election by 5:00 p.m., New York time, on the business
day (the "Election Record Date") next
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preceding the date of the Company Stockholder Meeting, a Form of Election
properly completed and signed and, in the case of delivery of a Form of Election
in respect of Company Stock, accompanied by the certificates evidencing the
shares of Company Stock (each a "Company Stock Certificate") to which such Form
of Election relates (but no Converted Stock Unit shall be subject to any
requirement of delivering any Company Stock Certificate), duly endorsed in blank
or otherwise in form acceptable for transfer on the books of the Company (or by
an appropriate written guarantee of delivery of such Company Stock Certificates
in accordance with such Form of Election, from a firm which is a member of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
in the United States, if such Company Stock Certificates are in fact delivered
to the Exchange Agent within five New York Stock Exchange trading days after
delivery of such guarantee).
(d) Any Form of Election may be revoked only by the record holder of
the applicable share of Company Stock or the holder of the applicable Converted
Stock Unit, as the case may be, submitting it and only by written notice
received by the Exchange Agent prior to 5:00 p.m. New York time on the Election
Record Date. Each Form of Election shall automatically be revoked if the
Exchange Agent is notified in writing by Parent and the Company that the Company
Merger has been abandoned. If a Form of Election is revoked, each Company Stock
Certificate (or guarantee of delivery, as the case may be) to which such Form of
Election relates shall be promptly returned to the submitting holder.
(e) The Exchange Agent's good-faith determination shall be binding
(except in the case of manifest error) as to whether or not any election has
been properly made or revoked and as to when any election or revocation was
received. If the Exchange Agent determines, with respect to any share of Company
Stock or any Converted Stock Unit, that any purported election was not properly
made, such share of Company Stock or Converted Stock Unit, as the case may be,
shall be treated by the Exchange Agent as a Non-Electing Share. The Exchange
Agent shall make all computations as to allocation and proration referred to
below and each such computation made in good faith shall be conclusive and
binding on each holder of Company Stock or Converted Stock Unit, as the case may
be (except in the case of manifest error). The Exchange Agent may, with the
agreement of Parent and the Company, make such rules as are consistent with this
Section for implementation of Elections and termination of Converted Stock
Units.
SECTION 2.03 PRORATION.
(a) If the total number of Electing Shares covered by Stock Elections
(the "Stock Electing Shares") exceeds the Maximum Stock Number, then all
Electing Shares covered by Cash Elections (the "Cash Electing Shares") and all
Non-Electing Shares shall be converted into the right to receive the Cash
Election Price, and all Stock Electing Shares shall be converted in the
following manner:
(i) The "Stock Proration Factor" shall be the Maximum Stock
Number divided by the total number of Stock Electing Shares (rounded to
the nearest 1/1,000,000).
(ii) For each Stock Election, the number of Stock Electing
Shares to be converted into the right to receive the Stock Election
Price shall be the total number of Stock Electing Shares covered by
such Stock Election multiplied by the Stock Proration Factor.
(iii) All Stock Electing Shares, other than that number
converted into the right to receive the Stock Election Price in
accordance with Section 2.03(a)(ii), shall be converted into the right
to receive the Cash Election Price.
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(b) If the total number of Cash Electing Shares exceeds the Maximum
Cash Number, then all Stock Electing Shares and all Non-Electing Shares shall be
converted into the right to receive the Stock Election Price, and the Cash
Electing Shares shall be converted in the following manner:
(i) The "Cash Proration Factor" shall be the Maximum Cash
Number divided by the number of Cash Electing Shares (rounded to the
nearest 1/1,000,000).
(ii) For each Cash Election, the number of Cash Electing
Shares to be converted into the right to receive the Cash Election
Price shall be the total number of Cash Electing Shares covered by such
Cash Election multiplied by the Cash Proration Factor.
(iii) All Cash Electing Shares, other than that number
converted into the right to receive the Cash Election Price in
accordance with Section 2.03(b)(ii), shall be converted into the right
to receive the Stock Election Price.
(c) If neither Section 2.03(a) nor Section 2.03(b) applies, then all
Cash Electing Shares shall be converted into the right to receive the Cash
Election Price, all Stock Electing Shares shall be converted into the right to
receive the Stock Election Price, and each Non-Electing Share, if any, shall be
converted into the right to receive
(i) cash equal to the product of (x) the Cash Election Price
and (y) a fraction (the "Non-Election Fraction"), the numerator of
which shall be the excess, if any, of the Maximum Cash Number over the
total number of Cash Electing Shares and the denominator of which shall
be the excess of (A) the Determination Date Number (less (i) the number
of shares of Company Stock that are Dissenting Shares and (ii) the
number of Company Compensation Units) over (B) the sum of the total
number of Electing Shares; plus
(ii) to the extent applicable, a number of Newco Holding Class
A Stock shares equal to the product of (x) the Stock Election Price and
(y) a fraction equal to 1.0 minus the Non-Election Fraction.
(Notwithstanding the foregoing, however, if, in the absence of this sentence,
the Non-Election Fraction would be greater than 1.0 or would have a denominator
of zero, then the Non-Election Fraction shall be 1.0.)
SECTION 2.04 EXCHANGE RATIO DEFINITIONS.
(a) "Company Stock Price" is $90.50.
(b) "Exchange Ratio" is the Company Stock Price divided by the Parent
Stock Price, rounded to the nearest 1/100,000, PROVIDED, HOWEVER, that if the
foregoing would cause the Exchange Ratio to be less than 2.68820, then the
Exchange Ratio shall be 2.68820 and if the foregoing would cause the Exchange
Ratio to be greater than 3.01667, then the Exchange Ratio shall be 3.01667.
(c) "Parent Stock Price" is the average of the Volume Weighted Average
Trading Price (as hereinafter defined) of Parent Class A Stock on the New York
Stock Exchange ("NYSE" or the "Stock Exchange"), as reported on the NYSE
Composite Transactions Tape for the 15 trading days randomly selected by lot out
of the 25 trading days ending on the second trading day immediately preceding
the
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Closing Date. "Volume Weighted Average Trading Price" means, for any given
trading day, an amount equal to (A) the sum of each of the products of (x) each
sales price at which Parent Class A Stock was traded during such trading day on
the NYSE (or such other principal exchange on which such security is listed) and
(y) the number of shares of Parent Class A Stock traded at such price during
such trading day, divided by (B) the total number of shares of Parent Class A
Stock so traded on such trading day.
SECTION 2.05 STOCK PLANS AND COMPENSATION UNITS. "Stock Plan" means any
plan, program or arrangement of the Company under which the Company has granted
any stock option, restricted stock, right to receive stock or other compensation
payable in Company Stock including without limitation the Company's Long Term
Incentive Plan As Amended and Restated, effective July 25, 1990 (the "1990 Long
Term Incentive Plan"), and the Company's 1995 Stock Incentive Plan, as amended
(the "1995 Long Term Incentive Plan"). As soon as practicable following November
13, 1997, the Board of Directors of the Company shall adopt such resolutions or
take such other actions as may be required to effect the following with respect
to each Stock Plan:
(a) "Company Stock Option" shall mean an option to purchase one share
of Company Stock granted under any Stock Plan. For each Company Stock Option
that is outstanding immediately before the Effective Time, the terms of such
Company Stock Option (and such Stock Plan, as applicable) shall be amended so as
to provide as follows:
(i) If such Company Stock Option is vested before (or as a
consequence of) the Company Merger and is exercisable at an exercise
price that is less than the Company Stock Price, and the holder of such
Company Stock Option shall have elected (by written notice to Parent,
by 5:00 p.m. San Francisco time on the Election Record Date) to receive
the payment contemplated by this clause (i), then such Company Stock
Option shall be canceled in exchange for a payment from Newco Holding
(payable in cash at Closing, subject to any applicable withholding
taxes) equal to the excess of the Company Stock Price over the exercise
price.
(ii) Any Company Stock Option that is not canceled pursuant to
clause (i) above shall become (at the Effective Time) an option to
acquire (on the same terms and conditions as were applicable under such
Company Stock Option) the number of shares of Newco Holding Class A
Stock as equals the Exchange Ratio, at an exercise price per share of
Newco Holding Class A Stock (which exercise price shall be rounded to
the nearest one cent) equal to (A) the exercise price under such
Company Stock Option divided by (B) the Exchange Ratio.
(b) "Company Stock Unit" shall mean a restricted performance stock unit
granted under a Stock Plan. For each Company Stock Unit that is outstanding
immediately before the Effective Time, the terms of such Company Stock Unit (and
such Stock Plan, as applicable) shall be amended so as to provide as follows:
(i) Each Company Stock Unit referred to in Company Disclosure
Schedule 2.05(b) shall be a "Converted Stock Unit" and shall be
converted at the Effective Time into the right to receive consideration
equal to the Company Merger Consideration, in each case subject to the
terms and conditions specified for such Converted Stock Unit in Company
Disclosure Schedule 2.05(b), including withholding of any applicable
taxes (in each case the "Converted Stock Unit Terms and Conditions").
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(ii) Each Company Stock Unit that is not a Converted Stock
Unit shall be canceled at the Effective Time, no amount shall be paid
or exchanged therefor and Company Surviving Corporation shall have no
obligation with regard thereto after the Effective Time.
(c) As of the Effective Time, Parent shall cause Newco Holding to
assume all of the Company's obligations under each Stock Plan (as amended
pursuant to the terms hereof).
(d) As soon as practicable after the Closing Date, Parent shall cause
Newco Holding to include under a registration statement on Form S-8 filed by
Newco Holding covering the total number of shares of Newco Holding Stock subject
to outstanding Company Stock Options. Parent shall maintain the effectiveness of
such registration statement until all Company Stock Options have been exercised,
expired or forfeited.
(e) "Company Compensation Unit" shall mean a Performance Compensation
Unit referred to in Company Disclosure Schedule 2.05(e) or a Stay-Bonus
Compensation Unit referred to in Company Disclosure Schedule 2.05(e). Each
Company Compensation Unit shall be converted at the Effective Time into the
right to receive consideration equal to the Cash Election Price, and Newco
Holding shall cause the Company Surviving Corporation to pay such consideration
within 20 days after the Closing Date.
SECTION 2.06 PAYMENT OF MERGER CONSIDERATION.
(a) EXCHANGE AGENT. On the Closing Date, Parent shall cause Newco
Holding to deposit with the Exchange Agent all cash and certificates evidencing
shares of Newco Holding Stock which holders of shares of Company Stock and
Converted Stock Units are entitled to receive under this Agreement as the
Company Merger Consideration for the benefit of such holders and for exchange in
accordance with this Article 2. The Exchange Agent shall, under irrevocable
instructions, deliver and pay all Merger Consideration and other consideration
in accordance with this Article 2.
(b) EXCHANGE PROCEDURES.
(i) With respect to each Company Stock Certificate outstanding
at the Effective Time (other than any evidencing Dissenting Shares),
Newco Holding shall cause the Exchange Agent to mail (as soon as
practicable after the Closing Date, but in any event within five days
thereafter), to the holder of such Company Stock Certificate, (A) a
letter of transmittal and (B) instructions to effect the surrender of
such Stock Certificate in exchange for the Company Merger
Consideration.
(ii) With respect to each holder of
(A) a Company Stock Certificate that is surrendered
to the Exchange Agent (together with and in accordance with
the duly executed letter of transmittal and such other
customary documents as may be required pursuant to the
instructions provided by the Exchange Agent);
(B) a Company Stock Certificate previously
surrendered with a Form of Election for making any Election;
or
(C) a Converted Stock Unit,
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Newco Holding shall cause the Exchange Agent to deliver and pay to such
holder certificates evidencing the number of shares of Newco Holding
Stock (if any) plus the amount of cash (if any) to which such holder is
entitled pursuant to this Agreement as the Company Merger Consideration
or payable with respect to Converted Stock Units (which delivery and
payment in the case of each Converted Stock Unit shall be subject to
its respective Converted Stock Unit Terms and Conditions).
(iii) After the Effective Time, there shall be no further
transfer on the records of the Company or Parent or its respective
transfer agent of any Company Stock Certificate or certificate
evidencing a share of Parent Stock (a "Parent Stock Certificate";
Parent Stock Certificates and Company Stock Certificates, collectively,
the "Stock Certificates"). If any Company Stock Certificate is
presented for transfer, it shall be canceled against delivery by the
Exchange Agent of the Company Merger Consideration. Any Parent Stock
Certificate presented for transfer shall be treated in a manner that
gives effect to Section 2.06(b)(iv). If any Company Merger
Consideration is to be delivered or paid to a name other than that in
which the surrendered Company Stock Certificate, is registered, a
condition of such exchange shall be that such Stock Certificate so
surrendered shall be properly endorsed, with signature guaranteed, or
otherwise in proper form for transfer and the person requesting such
exchange shall (A) pay to Newco Holding any transfer (or other) tax
required by reason of the issuance of such certificate in a name other
than that in which the surrendered certificate is registered, or (B)
establish to the satisfaction of Newco Holding that such tax has been
paid or is not applicable. Until surrendered as contemplated by this
Section, each Company Stock Certificate shall, at all times after the
Effective Time, represent only the right to receive the Company Merger
Consideration upon such surrender. No interest will be paid (and none
will accrue) under this Agreement on any cash payable as Company Merger
Consideration or payable in respect of Converted Stock Units or Company
Compensation Units.
(iv) At and after the Effective Time, each Parent Stock
Certificate outstanding immediately prior to the Effective Time (other
than any evidencing Dissenting Shares) shall be deemed for all purposes
to evidence ownership of, and to represent, that number of shares of
Newco Holding Class A Stock or Newco Holding Class B Stock, as the case
may be, equal to the Parent Merger Consideration payable in respect to
the shares of Parent Class A Stock or Parent Class B Stock formerly
evidenced by such Parent Stock Certificate, and Newco Holding shall
treat each holder of record of Parent Class A Stock or Parent Class B
stock immediately prior to the Effective Time as a holder of record of
Newco Holding Class A Stock or Newco Holding Class B Stock,
respectively, as of the Effective Time. The registered owner on the
books and records of Newco Holding or its transfer agent of each
outstanding Parent Stock Certificate which, immediately prior to the
Effective Time of the Merger, evidenced shares of Parent Class A Stock
or Parent Class B Stock, shall, until such Parent Stock Certificate
shall have been surrendered for transfer or conversion or otherwise
accounted for to Newco Holding or its transfer agent, have and be
entitled to exercise any and all voting and other rights with respect
to, and to receive any and all dividends and other distributions upon,
the shares of Newco Holding Class A Stock or Newco Holding Class B
Stock, as appropriate, of which such person is the owner.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividend or
other distribution with respect to Newco Holding Stock having a record date
after the Closing Date shall be paid with respect
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to any share of Newco Holding Stock represented by any unsurrendered Company
Stock Certificate, until surrender thereof in accordance with this Agreement.
Following surrender of any such Company Stock Certificate, there shall be paid
(without interest) to the holder of Newco Holding Stock issued in exchange
therefor,
(i) at the time of such surrender, the amount of dividends or
other distributions theretofore paid with respect to such Newco Holding
Stock having a record date after the Closing Date, and
(ii) at the appropriate payment date, the amount of dividends
or other distributions with respect to such Newco Holding Stock having
(A) a record date after the Closing Date but prior to
such surrender and
(B) a payment date after such surrender.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMPANY STOCK. The Company Merger
Consideration paid and delivered upon surrender of any Company Stock
Certificate, and the Parent Merger Consideration paid and delivered at the
Effective Time in respect of each Parent Stock Certificate, in accordance with
this Article 2 shall be deemed to have been issued (and paid) in full
satisfaction of all rights regarding Company Stock or Parent Stock, as
applicable, theretofore represented by such Stock Certificate, SUBJECT, HOWEVER,
to the Company Surviving Corporation's and Parent Surviving Corporation's
respective obligations, with respect to shares of Company Stock or Parent Stock,
as applicable, outstanding immediately before the Effective Time, to pay such
dividends and make any such other distribution having a record date prior to the
Effective Time which
(i) were declared or made by the Company with respect to such
Company Stock, or Parent with respect to such Parent Stock, as
applicable, prior to November 13, 1997, or thereafter in accordance
with this Agreement; and
(ii) remain unpaid at the Effective Time.
(e) NO FRACTIONAL SHARES.
(i) Notwithstanding anything in this Article 2 to the
contrary, no certificate or scrip representing any fractional share of
Newco Holding Stock shall be issued as Company Merger Consideration or
in respect of Converted Stock Units and no such fractional-share
interest will entitle the holder thereof to any vote or any other right
of a stockholder of Newco Holding.
(ii) Each holder entitled to receive Company Merger
Consideration or payment in respect of a Converted Stock Unit who would
otherwise have been entitled to receive a fraction of a share of Newco
Holding Stock (after taking into account all Company Merger
Consideration or other consideration to which such holder is entitled)
shall receive, in lieu thereof and in accordance with Section 2.06(b),
a cash payment (without interest) equal to such fraction multiplied by
the Parent Stock Price (each a "Fractional Share Payment"). All
fractional-share interests of each such holder will be aggregated, and
no such holder will receive any Fractional Share Payment equal to or
greater than the Parent Stock Price.
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(f) TERMINATION OF EXCHANGE FUND. Any portion of the Company Merger
Consideration or other consideration deposited with the Exchange Agent (the
"Exchange Fund") which remains undistributed for six months after the Closing
Date shall be delivered to Newco Holding upon demand, and any person otherwise
entitled to receive Company Merger Consideration or other consideration who has
not theretofore complied with this Article 2 shall thereafter look only to Newco
Holding and only as a general creditor thereof for payment of any claim for
Company Merger Consideration or other consideration and any dividends or
distributions with respect to Newco Holding Stock to which such person may be
entitled.
(g) NO LIABILITY. None of Newco Holding, the Merger Subs, the Company,
the Parent Surviving Corporation or the Company Surviving Corporation or the
Exchange Agent shall be liable to any person in respect of any shares of Newco
Holding Stock (or dividends or distributions with respect thereto) or cash from
the Exchange Fund that may be delivered to a public official pursuant to any
applicable law regarding abandoned property, escheat or similar matters.
(h) INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall invest any
cash included in the Exchange Fund, as directed by Newco Holding, on a daily
basis, PROVIDED, HOWEVER, that all such investments shall be in (i) obligations
guaranteed by the United States of America, (ii) commercial paper obligations
having the highest rating from Moody's Investors Service, Inc. or Standard &
Poor's Corporation or (iii) certificates of deposit or banker's acceptances of
commercial banks with capital exceeding $500 million (collectively, "Permitted
Investments"). The maturities of Permitted Investments shall be such as to
permit the Exchange Agent to make prompt payment to former stockholders of the
Company entitled thereto as provided in this Article 2. Newco Holding shall
promptly deposit cash into the Exchange Fund to the extent that losses are
incurred. All interest and other income resulting from Permitted Investments
shall be paid to Newco Holding. If for any reason (including losses) the
Exchange Fund shall at any time have an insufficient number of shares of Newco
Holding Stock or an insufficient amount of cash to deliver or pay all Company
Merger Consideration or other consideration deliverable or payable under this
Article 2, then Newco Holding shall be liable for payment or delivery thereof.
The Exchange Fund shall not be used for any purpose not specifically authorized
by this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent, Newco Holding and each
Merger Sub that, except as disclosed in the disclosure schedules delivered to
Parent by the Company at the time of execution of the Original Agreement (the
"Company Disclosure Schedules" and each a "Company Disclosure Schedule"):
SECTION 3.01 ORGANIZATION, STANDING AND CORPORATE POWER. Each of the
Company and the Company Subsidiaries is duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated and
has the requisite corporate power and authority to carry on its business as now
being conducted, to own or use the properties and assets that it purports to own
or use, and to perform all its obligations under its material contracts. Each of
the Company and the Company Subsidiaries is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed would not have a material adverse effect (as hereinafter defined) on
the Company. Company Disclosure Schedule 3.01 includes complete and correct
copies of the certificate of incorporation and by-laws of the Company, as in
effect
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on November 13, 1997. The Company has made available to Parent complete and
correct copies of the organizational documents and by-laws of each Company
Subsidiary, in each case as in effect on November 13, 1997.
SECTION 3.02 COMPANY SUBSIDIARIES. The only direct or indirect
subsidiaries of the Company (other than subsidiaries of the Company that would
not constitute in the aggregate a "Significant Subsidiary" within the meaning of
Rule 1-02 of Regulation S-X of the Securities and Exchange Commission (the
"SEC"); it being understood that for purposes of this Agreement, Cowles
Enthusiast Media, Inc., Cowles Business Media, Inc. and Cowles Creative
Publishing, Inc. shall be deemed a "Significant Subsidiary" regardless of
whether such subsidiary would actually be a "Significant Subsidiary" under such
Rule 1-02) are those listed in Company Disclosure Schedule 3.02 (the "Company
Subsidiaries" and each a "Company Subsidiary"). All outstanding shares of
capital stock of each such Company Subsidiary that is a corporation have been
duly authorized and validly issued, are fully paid and nonassessable, were not
issued in violation of preemptive rights or similar rights and are owned (of
record and beneficially) by the Company or by another Company Subsidiary, free
and clear of all rights of first refusal, pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens"). Except for (a) the ownership interests listed in
Company Disclosure Schedule 3.02 and (b) other ownership interests not having a
value in excess of $500,000, the Company does not own, directly or indirectly,
any capital stock or other ownership interest in any corporation, partnership,
joint venture or other entity.
SECTION 3.03 CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of 14,600,000
shares of Company Stock, of which 4,000,000 shares are Company Voting Stock and
10,600,000 shares are Company Non-Voting Stock. Subject to any Permitted Company
Stock Changes (as hereinafter defined) there are:
(i) 3,833,873 shares of Company Voting Stock issued and
outstanding;
(ii) 10,041,028 shares of Company Non-Voting Stock issued and
outstanding;
(iii) 5,749 shares of Company Voting Stock issuable upon
exercise of outstanding but unexercised Company Stock Options;
(iv) 112,150 shares of Company Non-Voting Stock issuable upon
exercise of outstanding but unexercised Company Stock Options;
(v) 80,393 shares of Company Non-Voting Stock issuable under
Company Stock Units that are earned and fully vested;
(vi) 175,267 shares of Company Non-Voting Stock issuable under
Company Stock Units earned but not yet fully vested.
(vii) 13,116 Company Compensation Units, the value of which
are determined by reference to one share of Company Non-Voting Stock;
and
(viii) 44,170 shares of Company Non-Voting Stock reserved for
possible contribution to the Employee Stock Plan of the Company with
respect to the Company's
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fiscal year ending in 1998 (which contribution may be made in such
shares of Company Stock or by contribution or distribution of cash
based on the value thereof).
(b) Except as stated above, no shares of capital stock or other equity
securities of the Company are issued and outstanding and neither the Company nor
any Company Subsidiary is a party to any contract, understanding or arrangement
based on or otherwise tracking the performance or characteristics of such stock
or other equity securities. All outstanding shares of Company Stock are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive (or similar) rights and are held of record by the persons identified
on Company Disclosure Schedule 3.03(b). Except as stated above, there are no
outstanding bonds, debentures, notes or other indebtedness or other securities
of the Company having the right to vote (or convertible into, or exercisable or
exchangeable for securities having the right to vote) on any matters on which
stockholders of the Company may vote. Except as stated above, there are no
outstanding securities, options, warrants, rights, or agreements of any kind to
which the Company or any Company Subsidiary is a party (or by which any of them
is bound) obligating the Company or any Company Subsidiary to issue, deliver,
transfer or sell shares of capital stock or other equity securities of the
Company or any Company Subsidiary. Other than the Company Stock Options, the
Company Stock Units, the Company Compensation Units and the other agreements and
arrangements referred to in this Agreement or Company Disclosure Schedule
3.03(b), there are no outstanding contractual obligations, commitments or
arrangements of the Company or any Company Subsidiary to repurchase, redeem or
otherwise acquire or make any payment in respect of any shares of capital stock
of the Company or any Company Subsidiary. Except as disclosed in Company
Disclosure Schedule 3.03(b), there are no agreements or arrangements pursuant to
which the Company is required to register shares of Company Stock under the
Securities Act of 1933, as amended (the "Securities Act"). None of the
outstanding equity securities of the Company was issued in violation of the
Securities Act or the blue sky laws of any jurisdiction.
SECTION 3.04 AUTHORITY; NON-CONTRAVENTION.
(a) The Company has the requisite corporate power and authority to
enter into this Agreement and (subject to Company Stockholder Approval) to
consummate the transactions contemplated hereby. Execution and delivery of this
Agreement by the Company and consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company (subject to Company Stockholder Approval). This
Agreement has been duly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms (subject in each case to the effect of any applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws affecting
creditors' rights generally, and to general principles of equity).
(b) Except as disclosed in Company Disclosure Schedule 3.04(b),
execution and delivery of this Agreement by the Company do not (and consummation
of the transactions contemplated hereby will not)
(i) conflict with or violate the certificate of incorporation
or by-laws of the Company or any comparable charter documents of any
Company Subsidiary, or any resolution adopted by the Board of Directors
or stockholders of the Company or any Company Subsidiary,
(ii) subject to the governmental filings and other matters
referred to in paragraph (c) below, violate in any material respect any
judgment, order, statute, law, rule or regulation applicable to the
Company or any Company Subsidiary, or
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(iii) with respect to any material loan or credit agreement,
or material note, bond, mortgage, indenture, lease or other material
agreement, instrument, or license applicable to the Company or any
Company Subsidiary, result in any material breach or violation of, or
material default thereunder (with or without notice or lapse of time,
or both), or give rise to a material right of termination, cancellation
or modification, or imposition of material fees or penalties
thereunder, or acceleration of any material obligation thereunder, or
result in the creation of any material Lien upon assets of the Company
or any Company Subsidiary thereunder.
(c) No consent, approval, order or authorization of (or from), or
registration, notification, declaration or filing with, any Federal, state or
local government or any court, administrative agency of other governmental
authority, domestic or foreign (each a "Governmental Entity"), or other third
party, is required by or with respect to the Company or any Company Subsidiary
in connection with execution and delivery of this Agreement by the Company or
consummation by the Company of the transactions contemplated hereby, except for
(i) filing of a pre-merger notification and report form under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"),
(ii) filing of the Certificates of Merger with the Secretary
of State of the State of Delaware and appropriate documents with
authorities of other states in which Parent or the Company is qualified
to do business,
(iii) such other consents, approvals, orders, authorizations,
registrations, declarations, filings or notices disclosed in Company
Disclosure Schedule 3.04(c), and
(iv) such third-party consents and approvals (if any), the
absence of which would not be material to the Company and its
subsidiaries taken as a whole or would not prevent or materially delay
the consummation of the transactions contemplated hereby.
SECTION 3.05 COMPANY PUBLIC DOCUMENTS.
(a) Company Disclosure Schedule 3.05 includes complete copies of all
annual reports and proxy materials made available by the Company to its
stockholders or the public since January 1, 1994, and the most recent quarterly
reports since March 29, 1997, made available to the public by the Company
(collectively, the "Company Public Documents"). As of their respective dates,
none of the Company Public Documents (including any and all financial statements
included therein) contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The consolidated financial statements of the Company
included in the Company Public Documents (the "Company Financial Statements")
present fairly, in all material respects, the consolidated financial position of
the Company and its subsidiaries at the respective dates thereof, and the
results of their operations and their cash flows for the respective periods
specified therein, in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved, subject to
(i) such exceptions as may be indicated in the notes thereto, (ii) in the case
of unaudited financial statements, normal year-end audit adjustments, and (iii)
in the case of unaudited financial statements, the omission of footnotes that
may be required by GAAP.
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(b) Except to the extent reflected or reserved against in the Company
Financial Statements as of and for the fiscal year ended March 29, 1997 (and the
notes thereto), or otherwise disclosed in the Company Disclosure Schedules, the
Company and the Company Subsidiaries have no material liabilities or other
obligations (including contingent liabilities and obligations) except (i)
liabilities and obligations incurred in the ordinary course of business since
the date of the most recent audited balance sheet included in the Company
Financial Statements or (ii) that would not be required to be reflected or
reserved against in the consolidated balance sheet of the Company and its
subsidiaries prepared in accordance with GAAP.
SECTION 3.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in the Company Public Documents or in Company Disclosure Schedule 3.06, since
the date of the financial statements as of and for the year ended March 29,
1997, included in the Company Public Documents, the Company and each Company
Subsidiary has conducted its business in the ordinary course consistent with
past practice, and there is not and has not been (a) any material adverse change
to the Company, (b) any distribution or dividend made by the Company (other than
quarterly dividends in the amount not in excess of $0.17 per share), (c) any
material repurchase of equity securities by the Company, (d) any condition,
event or occurrence which could reasonably be expected to prevent or materially
delay the Company's consummating the transactions contemplated by this Agreement
or (e) any material change in accounting methods, principles or practices of the
Company.
SECTION 3.07 LITIGATION; COMPLIANCE WITH LAW.
(a) Except as identified specifically in the Company Public Documents
or in Company Disclosure Schedule 3.07, (i) there is no material suit, order,
action or proceeding outstanding or pending (or, to the knowledge of the
Company, threatened) against the Company or any Company Subsidiary and (ii)
neither the Company nor any Company Subsidiary is subject to any material
judgment, decree, injunction or order of any Governmental Entity outstanding
against the Company or any Company Subsidiary.
(b) The Company and each Company Subsidiary has conducted its business
in compliance in all material respects with all judgments, orders, statutes,
laws, rules, and regulations applicable thereto.
SECTION 3.08 BENEFIT PLANS.
(a) The term "employee pension benefit plan" shall have the meaning
provided in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and the term "employee welfare benefit plan" shall have the
meaning provided in Section 3(1) of ERISA.
(b) Company Disclosure Schedule 3.08 includes a list of
(i) each Qualified Plan (as hereinafter defined) and each
other material employee pension benefit plan (a "Company Pension Plan")
and
(ii) each material employee welfare benefit plan (a "Company
Welfare Plan")
under which the Company or any Company Subsidiary has any material liability to
(or with respect to) any present or former employee (or survivor or dependent
thereof) of the Company or any Company Subsidiary (each of the foregoing a
"Company Benefit Plan").
(c) With respect to each Company Benefit Plan (other than any
Multiemployer Plan, as hereinafter defined), the Company has made available to
Parent a true, complete and correct copy of
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(i) such Company Benefit Plan (or, in the case of any
unwritten Company Benefit Plan, a description thereof),
(ii) the most recent annual report on Form 5500 filed with the
Internal Revenue Service with respect to such Company Benefit Plan (if
any such report was required by applicable law),
(iii) the most recent summary plan description for such
Company Benefit Plan (if a summary plan description is required by
law),
(iv) each material trust agreement and insurance or annuity
contract relating to such Company Benefit Plan,
(v) where applicable, for each Company Pension Plan, the
actuarial report for the most recent reporting period for which such a
report has been prepared; and
(vi) for each qualified Plan, the most recent determination
concerning such Qualified Plan's qualification, as issued by the IRS.
(d) With respect to each Company Benefit Plan (other than any
Multiemployer Plan and except as disclosed in Company Disclosure Schedule 3.08):
(i) such Company Benefit Plan has been administered in all
material respects in accordance with its terms and in compliance in all
material respects with the applicable provisions of ERISA and the Code;
(ii) all material reports, returns and similar documents with
respect to such Company Benefit Plan required to be filed with any
Governmental Entity or distributed to any Company Benefit Plan
participant have been filed or distributed;
(iii) neither the Company nor any Company Subsidiary has
received any written notice to the effect that there is any material
investigation by any Governmental Entity, any termination proceeding or
any other material claim (except claims for benefits payable in the
normal operation of such Company Benefit Plan), suit or proceeding
against or involving such Company Benefit Plan;
(iv) all material contributions required to be made in
accordance with the terms of such Company Benefit Plan or any
applicable collective bargaining agreement have been timely made, and
benefits have been paid in accordance with the terms of such Company
Benefit Plan;
(v) if such Company Benefit Plan is a Company Pension Plan,
there has been no application for waiver of the minimum funding
standards imposed by Section 412 of the Code; and
(vi) if such Company Benefit Plan is a Company Pension Plan,
it had no "accumulated funding deficiency" within the meaning of
Section 412(a) of the Code as of the end of its most recently completed
plan year.
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(e) Except as disclosed in Company Disclosure Schedule 3.08, each
Company Pension Plan (other than any Multiemployer Plan) intended to qualify
under Section 401(a) of the Code (each, a "Qualified Plan") has been the subject
of a determination letter from the Internal Revenue Service to the effect that
such Company Pension Plan is qualified and exempt from Federal income taxes
under Sections 401(a) and 501(a) of the Code, and no such determination letter
has been revoked.
(f) With respect to each Company Benefit Plan that is not a
Multiemployer Plan, except as disclosed in Company Disclosure Schedule 3.08 (and
except for such other items, if any, that are not material), since January 1,
1994:
(i) to the knowledge of the Company, no "prohibited
transaction" (as defined in Section 4975 of the Code or Section 406 of
ERISA) has occurred that involves assets of any Company Benefit Plan
and subjects the Company or any other fiduciary of any trust created
under any Company Benefit Plan to any tax or penalty on prohibited
transactions imposed by Section 4975 of ERISA or the sanctions imposed
under Title I of ERISA; and
(ii) no Company Pension Plan that is subject to Title IV of
ERISA has been terminated or has been the subject of a "reportable
event" (as defined in Section 4043 of ERISA and the regulations
thereunder) for which the filing of notice with the Pension Benefit
Guaranty Corporation ("PBGC") has not been waived.
(g) Except as disclosed in Company Disclosure Schedule 3.08, with
respect to each Company Pension Plan that is a "defined benefit pension plan" as
defined in Section 3(35) of ERISA (a "Defined Benefit Pension Plan") but is not
a Multiemployer Plan, as of January 1, 1997, the fair market value of the assets
of such Defined Benefit Pension Plan exceeded the accumulated benefit
obligations thereunder (as determined by such Defined Benefit Pension Plan's
actuaries).
(h) Except as disclosed in Company Disclosure Schedule 3.08, neither
the Company nor any Company Subsidiary has since January 1, 1991, (i) incurred
any material "withdrawal liability" (as defined in Section 4201 of ERISA) other
than any such liability that has been fully paid as of November 13, 1997, (ii)
announced an intention to withdraw, but has not yet completed withdrawal, from a
"multiemployer plan," as defined in Section 4001(a)(3) of ERISA (a
"Multiemployer Plan"), or (iii) negotiated any benefit increases that would be
material to the Company and its subsidiaries taken as a whole.
(i) All material unpaid liabilities of the Company under a Company
Benefit Plan for benefits (other than COBRA) to employees, retirees or other
former employees, their survivors or dependents, are reflected (to the extent
required by GAAP) in the Company Financial Statements.
(j) Notwithstanding the foregoing, each representation, warranty and
other statement by or on behalf of the Company with respect to any Company
Benefit Plan that is a Multiemployer Plan or is otherwise maintained pursuant to
a collective bargaining agreement and administered by a union or other person
other than the Company (or any Company Subsidiary) is made only to the extent of
written information (if any) received by the Company.
(k) All employment-related agreements with management-level employees
that provide for a term of employment, for bonuses, for incentive pay or for
termination pay have been made available to Parent.
(l) All material bonus or incentive pay programs or policies are
reflected in a written document or documents that have been made available to
Parent.
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SECTION 3.09 LABOR MATTERS. Company Disclosure Schedule 3.09 lists each
collective bargaining agreement and other similar labor-related agreement with a
labor union or labor organization to which the Company or any Company Subsidiary
is a party or by which it is bound. Except as disclosed in Company Disclosure
Schedule 3.09, neither the Company nor any Company Subsidiary is the subject of
any material proceeding claiming an unfair labor practice or seeking to compel
bargaining with any labor organization as to wages or conditions of employment,
nor is there any strike, work stoppage or other material labor dispute involving
the Company or any Company Subsidiary pending (or, to the Company's knowledge,
threatened).
SECTION 3.10 TAX RETURNS AND TAX PAYMENTS.
(a) Each of the Company and the Company Subsidiaries has filed all
material tax returns and reports required to be filed by it (or requests for
extensions to file such returns or reports have been timely filed and granted
and have not expired) and all such tax returns and reports were complete and
accurate in all material respects when filed, except to the extent that such
failures to file, to have extensions granted that remain in effect or to be
complete and accurate in all material respects, as applicable, would not,
individually or in the aggregate, have a material adverse effect. The Company
and each Company Subsidiary has paid (or the Company has paid on its behalf) all
taxes shown as due on such tax returns and reports. The most recent Company
Financial Statements reflect an adequate reserve for all taxes payable by the
Company and Company Subsidiaries for all taxable periods and portions thereof
accrued through the date of such Company Financial Statements, the Company has
received no notice of deficiencies for any taxes proposed, asserted or assessed
against the Company or any Company Subsidiary that are not adequately reserved
for, except for any inadequately reserved taxes and inadequately reserved
deficiencies that, individually or in the aggregate, would not be material to
the Company and its subsidiaries taken as a whole. No requests for waivers of
the time to assess any taxes against the Company or any Company Subsidiary have
been granted or are pending, except for requests with respect to such taxes that
have been adequately reserved for in the most recent Company Financial
Statements or, to the extent not adequately reserved, the assessment of which
would not, individually or in the aggregate, be material to the Company and its
subsidiaries taken as a whole.
(b) The term "taxes" shall include all Federal, state, local and
foreign income, franchise, property, sales, use, excise and other taxes,
including obligations for withholding taxes from payments due or made to any
other person and any interest, penalties or additions to tax.
SECTION 3.11 ENVIRONMENTAL MATTERS.
(a) Except as disclosed in Company Disclosure Schedule 3.11, as of
November 13, 1997:
(i) each of the Company and the Company Subsidiaries holds,
and is in compliance with, all material Environmental Permits
(including without limitation all material Environmental Permits
necessary to store and dispose of printing inks, oils, and solvents)
and is otherwise in compliance in all material respects with all
applicable Environmental Laws;
(ii) neither the Company nor any Company Subsidiary has
received any material Environmental Claim against the Company or any
Company Subsidiary; and
(iii) neither the Company nor any Company Subsidiary (A) has
entered into or agreed to any material consent decree or order under
any Environmental Law, or (B) is
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subject to any material judgment, decree or order of any Governmental
Entity relating to compliance with any Environmental Law or to
investigation, cleanup, remediation or removal of Hazardous Materials
under any Environmental Law (other than orders applying generally to
any industry in which the Company or any Company Subsidiary operates).
(b) For purposes of this Agreement, the following terms have the
following meanings:
(i) "Environmental Claim" means any written notice, claim,
demand, action, suit, complaint or proceeding by any person alleging
liability or potential liability (including without limitation
liability or potential liability for investigatory costs, cleanup
costs, governmental response costs, natural resource damages, property
damage, personal injury, fines or penalties) arising out of, based on
or resulting from (A) the presence, discharge, emission or release of
any Hazardous Materials or (B) any violation or alleged violation of
any Environmental Law or Environmental Permit.
(ii) "Environmental Permits" with respect to any entity means
all permits, licenses, registrations and other governmental
authorizations required for current operations of such entity's
business and facilities and otherwise to conduct such entity's business
in compliance with Environmental Laws.
(iii) "Environmental Laws" means all applicable Federal, state
and local statutes, rules, regulations, ordinances, orders and decrees
regarding contamination, pollution or protection of natural resources,
human health or the environment, including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act,
the Solid Waste Disposal Act, the Clear Air Act, the Clean Water Act,
the Toxic Substances Control Act, the Emergency Planning and
Community-Right-to-Know Act, and the Safe Drinking Water Act, all as
amended.
(iv) "Hazardous Materials" means all hazardous or toxic
substances, wastes, materials or chemicals, petroleum (including crude
oil or any fraction thereof) and petroleum products, asbestos and
asbestos-containing materials, pollutants, contaminants and all other
materials and substances regulated by Environmental Laws.
SECTION 3.12 TITLE TO PROPERTIES; ENCUMBRANCES. The Company and the
Company Subsidiaries own all the material assets and properties reflected as
owned by the Company and the Company Subsidiaries on the Company Financial
Statements as of and for the year ended March 29, 1997, other than any such
assets or properties disposed of in the ordinary course of business since such
date. All material assets and properties owned by the Company and the Company
Subsidiaries are free and clear of material encumbrances other than (a) liens
for current taxes not yet due, (b) minor imperfections of title, if any, none of
which materially impairs the present use of the property subject thereto or
impairs the current operations of the Company or the Company Subsidiaries, and
(c) zoning laws and other use restrictions that do not materially impair the
current use of the property subject thereto. The Company has delivered or made
available to Parent title commitments to all real property owned by the Company
and the Company Subsidiaries.
SECTION 3.13 INTELLECTUAL PROPERTY. The Company and the Company
Subsidiaries own, or have all necessary rights to use, all trademarks, trade
names, copyrights, and other intellectual property currently being used by the
Company and the Company Subsidiaries, which rights are sufficient in all
material respects to permit such current use by the Company and the Company
Subsidiaries. The Company has
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received no material claim of any infringement of any trademark, trade name,
copyright or other intellectual property owned by the Company and the Company
Subsidiaries.
SECTION 3.14 BOOKS AND RECORDS. The minute books and other records of
the Company that have been made available to Parent contain the records of all
meetings held of, and corporate action taken by, the stockholders, the Board of
Directors, and committees of the Board of Directors of the Company, and no
meeting of such stockholders, Board of Directors or committee has been held for
which minutes have not been prepared and are not contained in such minute books
(other than recent meetings for which minutes are currently being prepared).
SECTION 3.15 BROKERS. The Company has not made (and is not bound by)
any agreement or arrangement under which any broker, investment banker,
financial advisor or other person (other than Goldman, Sachs & Co., whose fees
and expenses will be paid in full by the Company under an agreement previously
furnished to Parent) is entitled to any broker's, finder's or financial
advisor's fee or any similar payment in connection with the transactions
contemplated by this Agreement.
SECTION 3.16 INSURANCE. Copies of all material insurance policies of
the Company and its subsidiaries have been made available to Parent, and all
such policies are in full force and effect.
SECTION 3.17 MATERIAL CONTRACTS. The Company has made available to
Parent copies of all material contracts (excluding purchase orders) to which the
Company or any Company Subsidiary is a party or by which any material assets or
operations of the Company or any Company Subsidiary is bound.
Each material contract is a valid and binding obligation of the Company or one
of the Company Subsidiaries and, to the knowledge of the Company, each other
party thereto, and is enforceable against the Company or one or more Company
Subsidiaries and, to the knowledge of the Company, each other party thereto, in
accordance with its terms, except to the extent that such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally and is subject to general
principles of equity. Neither the Company nor any Company Subsidiary, nor to the
knowledge of the Company, any other party, is in default to any material extent
under any of such material contracts.
SECTION 3.18 AFFILIATE TRANSACTIONS. Since the date of the most recent
proxy statement issued by the Company, the Company has not engaged in any
transaction with any officer, director or owner of more than 10 percent of the
equity interests of the Company which would be required to be disclosed under
Item 404 of Regulation S-K of the SEC.
SECTION 3.19 OPINION OF COMPANY'S FINANCIAL ADVISOR. The Company has
received the opinion of Goldman, Sachs & Co., to the effect that the
consideration to be received in the Company Merger by the Company's stockholders
is fair to such stockholders from a financial viewpoint.
SECTION 3.20 COMPANY BOARD RECOMMENDATION. The Board of Directors of
the Company has, by unanimous vote of those directors present at a meeting duly
called and held at which a quorum was present, (a) determined that this
Agreement and the transactions contemplated hereby are in the best interests of
the stockholders of the Company, and (b) recommended that such stockholders
approve this Agreement and the transactions contemplated hereby.
SECTION 3.21 COMPANY STOCKHOLDER APPROVAL. The Company Stockholder
Approval consists of an affirmative vote of holders of a majority of the issued
and outstanding Company Voting Stock and is the only vote of holders of any
class or series of the Company's securities necessary to approve the
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Company's actions taken or to be taken in connection with this Agreement, the
Company Merger and the other transactions contemplated hereby.
SECTION 3.22 NO OTHER REPRESENTATIONS OR WARRANTIES. Other than the
representations and warranties expressly set forth in this Article 3, the
Company shall not be deemed to have made any other representation or warranty in
connection with this Agreement or the transactions contemplated hereby.
SECTION 3.23 DEEMED EXECUTION DATE. For purposes of Article 3 (other
than Sections 3.04, 3.20 and 3.21), this Agreement as amended and restated shall
be deemed to have been executed at the time of the execution of the Original
Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company that, except as disclosed
in the disclosure schedules delivered to the Company by Parent at the time of
execution of the Original Agreement (the "Parent Disclosure Schedules" and each
a "Parent Disclosure Schedule"):
SECTION 4.01 ORGANIZATION, STANDING AND CORPORATE POWER. Parent and
each Parent Subsidiary (as hereinafter defined) is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated and has the requisite corporate power and authority to carry on its
business as now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under its material
contracts. Parent and each Parent Subsidiary is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed would not have a material adverse effect on Parent. Parent Disclosure
Schedule 4.01 includes complete and correct copies of the certificates of
incorporation and by-laws of Parent, each as in effect on November 13, 1997.
Parent has made available to the Company complete and correct copies of the
organizational documents and by-laws of each Parent Subsidiary, in each case as
in effect on November 13, 1997.
SECTION 4.02 SUBSIDIARIES. The only direct or indirect subsidiaries of
Parent (other than such subsidiaries of Parent that would not constitute in the
aggregate a Significant Subsidiary) are those listed in Parent Disclosure
Schedule 4.02 (the "Parent Subsidiaries" and each a "Parent Subsidiary"). All
outstanding shares of capital stock of each Parent Subsidiary that is a
corporation have been duly authorized and validly issued, are fully paid and
nonassessable, were not issued in violation of preemptive or similar rights and
are owned (of record and beneficially) by Parent or by another Parent
Subsidiary, free and clear of all Liens (other than any that would have no
material adverse effect on Parent). Except for (a) the ownership interests
listed in Section 4.02 of the Parent Disclosure Schedule and (b) other ownership
interests not having a value in excess of $500,000, Parent does not own,
directly or indirectly, any capital stock or other ownership interest in any
corporation, partnership, joint venture or other entity.
SECTION 4.03 CAPITAL STRUCTURE.
(a) The authorized capital stock of Parent consists of 160,000,000
shares of Parent Stock, of which 100,000,000 shares are Parent Class A Common
Stock and 60,000,000 shares are Parent Class B Common Stock. As of November 13,
1997, there are:
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(i) 9,421,383 shares of Parent Class A Common Stock issued and
outstanding;
(ii) 28,685,912 shares of Parent Class B Common Stock issued
and outstanding; and
(iii) 798,029 shares of Parent Class A Common Stock issuable
upon exercise of outstanding but unexercised Parent Stock Options.
(b) Except as stated above, as of November 13, 1997, no shares of
capital stock or other equity securities of Parent are issued and outstanding,
and there are no contracts, understandings or arrangements based on or otherwise
tracking the performance or characteristics of such capital stock or other
equity securities. All outstanding shares of capital stock of Parent are (and
all shares to be issued pursuant to this Agreement will be when issued) duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except as stated above, there are no outstanding bonds,
debentures, notes or other indebtedness or other securities of Parent having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which stockholders of Parent may vote. Except
as stated above, there are no outstanding securities, options, warrants, rights
or agreements of any kind to which Parent or any Parent Subsidiary is a party
(or by which any of them is bound) obligating Parent or any Parent Subsidiary to
issue, deliver, transfer or sell additional shares of capital stock or other
equity securities of Parent or any Parent Subsidiary. Except as set forth in
that certain Stockholders Agreement, dated September 17, 1987, by and among
Parent and holders of its Class B Common Stock, there are no outstanding
contractual obligations, commitments, or arrangements of Parent or any Parent
Subsidiary to repurchase, redeem or otherwise acquire or make any payment in
respect of any shares of capital stock of Parent or any Parent Subsidiary.
SECTION 4.04 AUTHORITY; NON-CONTRAVENTION.
(a) Parent has the requisite corporate power and authority to enter
into this Agreement and (subject to the Parent Stockholder Approval) to
consummate the transactions contemplated hereby. Execution and delivery of this
Agreement by Parent and consummation by Parent of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Parent (subject to the Parent Stockholder Approval). This Agreement has been
duly executed and delivered by and constitutes a valid and binding obligation of
Parent, enforceable against Parent in accordance with its terms (subject in each
case to the effect of any applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally, and to general
principles of equity).
(b) Execution and delivery of this Agreement by Parent, Newco Holding
and each Merger Sub do not (and consummation of the transactions contemplated
hereby will not) (i) conflict with, or result in any breach or violation of, or
default under (with or without notice or lapse of time, or both), (ii) give rise
to a right of termination, cancellation, modification or acceleration of any
obligation under, or (iii) result in the creation of any Lien upon assets of
Parent or any Parent Subsidiary under
(A) the certificate of incorporation or by-laws of Parent,
Newco Holding and each Merger Sub or any comparable charter documents
of any other Parent Subsidiary,
(B) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, or license applicable
to Parent, Newco Holding and each Merger Sub or any other Parent
Subsidiary or
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(C) , subject to the governmental filings and other matters
referred to below, any judgment, order, statute, law, rule or
regulation applicable to Parent, Newco Holding and each Merger Sub or
any other Parent Subsidiary,
other than or in the case of (B) or (C) any such conflicts, breaches,
violations, defaults, rights, losses or Liens that would not have a material
adverse effect on Parent and would not prevent or materially delay Parent's
consummating the transactions contemplated by this Agreement.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to Parent, Newco Holding and each Merger Sub or any other Parent
Subsidiary in connection with execution and delivery of this Agreement by
Parent, Newco Holding and each Merger Sub or consummation by Parent, Newco
Holding and each Merger Sub of the transactions contemplated hereby, except for
(i) filing of a pre-merger notification and report form under
the HSR Act;
(ii) filing with the SEC of (A) a proxy statement relating to
the Parent Stockholder Approval (such proxy statement as amended or
supplemented from time to time, together with the proxy statement for
Company Stockholder Approval, being referred to herein as the "Joint
Proxy Statement"), (B) the Form S-4 (as hereinafter defined) and the
SEC filings required by the Registration Rights Agreement referred to
in Section 6.15 and (C) such reports under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as may be required in
connection with this Agreement and the transactions contemplated
hereby;
(iii) filing of the Certificates of Merger with the Secretary
of State of Delaware and appropriate documents with authorities of
other states in which Parent or the Company is qualified to do
business; and
(iv) such other consents, approvals, orders, authorizations,
registrations, declarations, filing and notices as stated in Parent
Disclosure Schedule 4.04(c).
SECTION 4.05 PARENT SEC DOCUMENTS. Parent has filed all required
reports, schedules, forms, statements and other documents with the SEC since
January 1, 1994. Parent has delivered or made available to the Company all
reports, schedules, forms, statements and other documents filed with the SEC
since such date (collectively, and in each case including all exhibits and
schedules thereto and documents incorporated by reference therein, the "Parent
SEC Documents"). As of their respective dates, the Parent SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Parent SEC Documents. As of their
respective dates, none of the Parent SEC Documents (including any and all
financial statements therein) contained any untrue statement of a material fact
or failed to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The consolidated financial statements of
Parent included in the Parent SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP (except, in the case of unaudited consolidated quarterly statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
period involved (except as may be indicated in the notes thereto) and present
fairly, in all material respects, the consolidated financial position of Parent
and its subsidiaries at the
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respective dates thereof and the consolidated results of operations and cash
flows for the periods specified therein (subject, in the case of unaudited
quarterly statements, to normal year-end audit adjustments). Except as reflected
or reserved against in the Parent Financial Statements or otherwise disclosed in
the Parent Disclosure Schedules, Parent and the Parent Subsidiaries have no
material liabilities or other obligations (including contingent liabilities and
obligations), except (i) since the date of the most recent audited balance sheet
included in the Parent Financial Statements, liabilities and obligations
incurred in the ordinary course of business or (ii) that would not be required
to be reflected or reserved against in the consolidated balance sheet of Parent
and its subsidiaries prepared in accordance with GAAP.
SECTION 4.06 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed
in the Parent SEC Documents, or in Parent Disclosure Schedule 4.06, since the
date of the most recent audited balance sheet included in the Parent SEC
Documents, Parent and each Parent Subsidiary has conducted its business in the
ordinary course consistent with past practice, and there is not and has not been
(a) any material adverse change to Parent; or (b) any condition, event or
occurrence which could reasonably be expected to prevent or materially delay
Parent's consummating the transactions contemplated by this Agreement.
SECTION 4.07 LITIGATION; COMPLIANCE WITH LAW.
(a) Except as disclosed in the Parent SEC Documents or the Parent
Disclosure Schedule 4.07, there is no suit, order, action or proceeding
outstanding or pending (or, to the knowledge of Parent, threatened) against
Parent or any Parent Subsidiary that could reasonably be expected to have any
material adverse effect on Parent or prevent or materially delay Parent's
consummating the transactions contemplated by this Agreement, and neither Parent
nor any Parent Subsidiary is subject to any judgment, decree, injunction or
order of any Governmental Entity outstanding against Parent or any Parent
Subsidiary having any such effect.
(b) Parent and each Parent Subsidiary has conducted its business in
compliance with all judgments, orders, statutes, laws, rules and regulations
applicable thereto, except for such failures to comply that would not have a
material adverse effect on Parent.
SECTION 4.08 BENEFIT PLANS.
(a) A "Parent Benefit Plan" includes (i) each Qualified Plan and each
other material employee pension benefit plan (a "Parent Pension Plan") and (ii)
each material employee welfare benefit plan (a "Parent Welfare Plan") under
which Parent or any Parent Subsidiary has any material liability to (or with
respect to) any present or former employee (or survivor or dependent thereof) of
Parent or any Parent Subsidiary.
(b) With respect to each Parent Benefit Plan (other than any
Multiemployer Plan and except as disclosed in Parent Disclosure Schedule 4.08):
(i) such Parent Benefit Plan has been administered in all
material respects in accordance with its terms and in compliance in all
material respects with the applicable provisions of ERISA and the Code;
(ii) all reports, returns and similar documents with respect
to such Parent Benefit Plan required to be filed with any Governmental
Entity or distributed to any participant have been filed or
distributed;
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(iii) neither Parent nor any Parent Subsidiary has received
any written notice to the effect that there is any investigation by any
Governmental Entity, any termination proceeding or any other claim
(except claims for benefits payable in the normal operation of such
Parent Benefit Plan), suit or proceeding against or involving such
benefit plan that would have a material adverse effect on Parent;
(iv) all contributions required to be made in accordance with
the terms of such Parent Benefit Plan or any applicable collective
bargaining agreement have been timely made, and benefits have been paid
in accordance with the terms of such Parent Benefit Plan;
(v) if such Parent Benefit Plan is a Parent Pension Plan,
there has been no application for waiver of the minimum funding
standards imposed by Section 412 of the Code; and
(vi) if such Parent Benefit Plan is a Parent Pension Plan, it
had no "accumulated funding deficiency" within the meaning of Section
412(a) of the Code as of the end of its most recently completed plan
year.
(c) Except as disclosed in Parent Disclosure Schedule 4.08, each Parent
Pension Plan (other than any Multiemployer Plan) intended to qualify under
Section 401(a) of the Code has been the subject of a determination letter from
the Internal Revenue Service to the effect that such Parent Pension Plan is
qualified and exempt from Federal income taxes under Sections 401(a) and 501(a)
of the Code, and no such determination letter has been revoked.
(d) With respect to each Parent Benefit Plan that is not a
Multiemployer Plan, except as disclosed in Parent Disclosure Schedule 4.08 (and
except for such other items, if any, that would have no material adverse effect
on Parent), since January 1, 1994,
(i) to the knowledge of Parent, no "prohibited transaction"
(as defined in Section 4975 of the Code or Section 406 of ERISA) has
occurred that involves assets of any Parent Benefit Plan and subjects
Parent or any other fiduciary of any trust created under any Parent
Benefit Plan to any tax or penalty on prohibited transactions imposed
by Section 4975 of ERISA or the sanctions imposed under Title I of
ERISA; and
(ii) no Parent Pension Plan that is subject to Title IV of
ERISA has been terminated or has been the subject of a "reportable
event" (as defined in Section 4043 of ERISA and the regulations
thereunder) for which the filing of notice with the PBGC has not been
waived.
(e) Except as disclosed in Parent Disclosure Schedule 4.08, with
respect to each Parent Pension Plan that is a Defined Benefit Pension Plan but
is not a Multiemployer Plan, as of January 1, 1997, the fair market value of the
assets of such Defined Benefit Pension Plan exceeded the accumulated benefit
obligations thereunder (as determined by such Defined Benefit Pension Plan's
actuaries).
(f) Except as disclosed in Parent Disclosure Schedule 4.08, neither
Parent nor any Parent Subsidiary has since January 1, 1991, (i) incurred any
"withdrawal liability" (as defined in Section 4201 of ERISA) other than any such
liability that has been fully paid as of the date hereof, or (ii) announced an
intention to withdraw, but has not yet completed withdrawal, from a
Multiemployer Plan.
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(g) The liabilities under the Parent Welfare Plans for benefits (other
than COBRA) to retirees or other former employees, their survivors or
dependents, have been reflected in the Parent Financial Statements.
(h) Notwithstanding the foregoing, each representation, warranty and
other statement made by or on behalf of Parent with respect to any Parent
Benefit Plan that is a Multiemployer Plan or is otherwise maintained pursuant to
a collective bargaining agreement and administered by a union or other person
other than Parent (or any Parent Subsidiary) is made only to the extent of
written information (if any) received by Parent.
SECTION 4.09 LABOR MATTERS. Parent Disclosure Schedule 4.09 lists each
collective bargaining agreement and other similar labor-related agreement with a
labor union or labor organization to which Parent or any Parent Subsidiary is a
party or by which it is bound. Except as disclosed in Parent Disclosure Schedule
4.09, neither Parent nor any Parent Subsidiary is the subject of any material
proceeding claiming an unfair labor practice or seeking to compel bargaining
with any labor organization as to wages or conditions of employment, nor is
there any strike, work stoppage or other material labor dispute involving Parent
or any Parent Subsidiary pending (or, to Parent's knowledge, threatened).
SECTION 4.10 TAX RETURNS AND TAX PAYMENTS. Each of Parent and the
Parent Subsidiaries has filed all material tax returns and reports required to
be filed by it (or requests for extensions to file such returns or reports have
been timely filed and granted and have not expired), and all such tax returns or
reports were complete and accurate in all material respects when filed, except
to the extent that such failures to file, to have extensions granted that remain
in effect or to be complete and accurate in all material respects, as
applicable, would not, individually or in the aggregate, have a material adverse
effect. Parent and each Parent Subsidiary has paid (or Parent has paid on its
behalf) all taxes shown as due on such tax returns and reports. The most recent
Parent Financial Statements reflect an adequate reserve for all taxes payable by
Parent and Parent Subsidiaries for all taxable periods and portions thereof
accrued through the date of such Parent Financial Statements, Parent has
received no notice of deficiencies for any taxes proposed, asserted or assessed
against Parent or any Parent Subsidiary that are not adequately reserved for,
except for inadequately reserved taxes and inadequately reserved deficiencies
that would not, individually or in the aggregate, have a material adverse
effect. No requests for waivers of the time to assess any taxes against Parent
or any Parent Subsidiary have been granted or are pending, except for requests
with respect to such taxes that have been adequately reserved for in the most
recent Parent Financial Statements or, to the extent not adequately reserved,
the assessment of which would not, individually or in the aggregate, have a
material adverse effect.
SECTION 4.11 ENVIRONMENTAL MATTERS.
(a) Except as disclosed in Parent Disclosure Schedule 4.11 (and except
for such matters, if any, which would not have a material adverse effect on
Parent):
(i) each of Parent and the Parent Subsidiaries holds, and is
in compliance with, all Environmental Permits (including without
limitation all Environmental Permits necessary to store and dispose of
printing inks, oils, and solvents) and is otherwise in compliance in
all material respects with all applicable Environmental Laws;
(ii) neither Parent nor any Parent Subsidiary has received any
Environmental Claim against Parent or any Parent Subsidiary; and
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(iii) neither Parent nor any Parent Subsidiary (A) has entered
into or agreed to any material consent decree or order under any
Environmental Law, or (B) is subject to any material judgment, decree
or order of any Governmental Entity relating to compliance with any
Environmental Law or to investigation, cleanup, remediation or removal
of Hazardous Materials under any Environmental Law (other than orders
applying generally to any industry in which Parent or any Parent
Subsidiary operates).
(b) [intentionally removed]
SECTION 4.12 BROKERS. Parent has not made (and is not bound by) any
agreement or arrangement under which any broker, investment banker, financial
advisor or other person (other than Salomon Brothers Inc, whose fees and
expenses will be paid in full by Parent) is entitled to any broker's, finder's
or financial advisor's fee or any similar payment in connection with the
transactions contemplated by this Agreement.
SECTION 4.13 OPINION OF PARENT'S FINANCIAL ADVISOR. Parent has received
the opinion of Salomon Brothers Inc, dated November 13, 1997 (the "Salomon
Opinion"), to the effect that the consideration to be paid in connection with
the Merger by Parent is fair to Parent from a financial viewpoint.
SECTION 4.14 PARENT BOARD RECOMMENDATION. The Board of Directors of
Parent has, by unanimous vote of those directors present at a meeting duly
called and held at which a quorum was present, (a) determined that this
Agreement and the transactions contemplated hereby are in the best interests of
the stockholders of Parent, and (b) recommended that such stockholders approve
this Agreement and the transactions contemplated hereby.
SECTION 4.15 PARENT STOCKHOLDER APPROVAL. The Parent Stockholder
Approval consists of an affirmative vote of holders of a majority of the voting
power of Parent Stock, and is the only vote of holders of any class or series of
the Parent's securities necessary to approve Parent's actions taken or to be
taken in connection with this Agreement, the Reorganization and the other
transactions contemplated hereby.
SECTION 4.16 FINANCIAL CAPABILITY. Parent has, or has available to
it, sufficient funds to pay all Merger Consideration payable under this
Agreement.
SECTION 4.17 QUALIFICATION AS A REORGANIZATION FOR TAX PURPOSES. To the
best of Parent's knowledge after due inquiry, Parent has not taken any action
(or failed to take any action) which action or failure would prevent (i) the
Parent Merger from qualifying as a reorganization within the meaning of Section
368(a) of the Code and/or (ii) the exchange of Parent Stock for Newco Holding
Stock from qualifying under Section 351 of the Code. Parent has in effect no
share-repurchase plan or similar plan to purchase outstanding stock of Parent.
SECTION 4.18 NO OTHER REPRESENTATIONS OR WARRANTIES. Other than the
representations and warranties expressly set forth in this Article 4, Parent,
Newco Holding and Merger Subs shall not be deemed to have made any other
representation or warranty in connection with this Agreement or the transactions
contemplated hereby.
SECTION 4.19 DEEMED EXECUTION DATE. For purposes of Article 4 (other
than Sections 4.04, 4.14 and 4.15), this Agreement as amended and restated shall
be deemed to have been executed at the time of the execution of the Original
Agreement.
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ARTICLE 4A
REPRESENTATIONS AND WARRANTIES OF NEWCO HOLDING
Newco Holding represents and warrants to the Company that as of the
date hereof:
SECTION 4A.01 ORGANIZATION, STANDING AND CORPORATE POWER AND AUTHORITY.
Each of Newco Holding and the Merger Subs is duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
incorporated and has the requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. Execution
and delivery of this Agreement by each of Newco Holding and the Merger Subs and
the consummation by each of them of the transactions contemplated hereby have
been duly authorized by all necessary corporate action.
SECTION 4A.02 NON-CONTRAVENTION. This Agreement has been duly executed
and delivered by each of Newco Holding and the Merger Subs and constitutes a
valid and binding obligation of each of them, enforceable against each of them
in accordance with its terms (subject in each case to the effect of any
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting creditors' rights generally and to general principles of equity).
Execution and delivery of this Agreement by Newco Holding and the Merger Subs do
not (and the consummation of the transactions contemplated hereby will not)
conflict with or violate their respective certificates of incorporation or
bylaws or any resolution adopted by their respective boards of directors or
stockholders.
SECTION 4A.03 INTERIM OPERATIONS. Each of Newco Holding and the Merger
Subs has engaged in no business or other activities except as contemplated by
this Agreement.
ARTICLE 5
COVENANTS REGARDING CONDUCT OF BUSINESS
SECTION 5.01 CONDUCT OF BUSINESS BY THE COMPANY. During the period from
November 13, 1997 to the Effective Time (except as otherwise contemplated by
this Agreement), the Company shall (and shall cause each Company Subsidiary to)
conduct its businesses in the ordinary course of business in all material
respects and consistent with past practice and, to the extent consistent
therewith, use its reasonable best efforts to preserve intact its current
business organizations, keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers, advertisers
and others having business dealings with it. Without limiting the generality of
the foregoing, during the period from November 13, 1997 to the Effective Time,
except as contemplated by this Agreement or disclosed in Company Disclosure
Schedule 5.01, the Company shall not (and shall not permit any Company
Subsidiary to) without the prior written consent of Parent:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends and
distributions by a direct or indirect wholly owned Company Subsidiary to its
parent, and except that the Company may continue the declaration and payment of
regular quarterly cash dividends not in excess of $0.17 per share of Company
Stock (with usual record and payment dates and in accordance with its past
dividend policy), (ii) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock or make any other changes
to its capital structure, or (iii) purchase, redeem or otherwise acquire any
shares of capital stock of the Company or any Company
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Subsidiary or any other securities thereof or any rights, warrants or options to
acquire any such shares or other securities (except in the case of clause (iii),
for the acquisition of shares of Company Stock from (A) the holder of any
Company Stock Option outstanding on November 13, 1997, in full or partial
payment of the exercise price payable by such holder upon exercise of such
Company Stock Option or (B) any former employee of the Company in connection
with a distribution on or after November 13, 1997 of such former employee's
account under the Employee Stock Plan of the Company);
(b) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock or the capital stock of any Company Subsidiary, or any rights,
warrants or options to acquire any such shares (or based on any such shares),
other than (i) issuance of Company Stock upon the exercise of any Company Stock
Option outstanding on November 13, 1997 and (ii) vesting of Company Stock Units
outstanding on November 13, 1997, in each case in accordance with the terms
therefor in effect as of such date (such issuance and vesting, together with
acquisitions of Company Stock permitted under clause (a)(iii) above, being
"Permitted Company Stock Changes");
(c) amend its certificate of incorporation, by-laws or other comparable
charter or organizational documents (but this clause (c) shall not prohibit any
amendment to any charter or organizational document of a Company Subsidiary that
does not reduce the Company's control thereof or rights therein);
(d) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture, association
or other business organization or division thereof; or otherwise acquire any
assets having a purchase price exceeding $250,000 in any one case or $1,000,000
in the aggregate;
(e) sell, lease, license, mortgage or otherwise encumber or subject to
any material Lien or otherwise dispose of any of its properties or assets except
in the ordinary course of business consistent with past practice or in
transactions involving consideration not exceeding $250,000 in any one case or
$1,000,000 in the aggregate;
(f) (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Company or any Company
Subsidiary, guarantee any debt securities of another person or agree to maintain
the financial condition of any person (other than the Company or any Company
Subsidiary), except for borrowings under its revolving credit facilities
incurred in the ordinary course of business consistent with past practice, or
(ii) make any loans, advances or capital contributions to, or investments in,
any other person (other than to the Company or any Company Subsidiary and other
than routine advances to employees in the ordinary course of business);
(g) make or agree to make any capital expenditures except (i) capital
expenditures which (individually or in the aggregate) would not cause the total
thereof during the Company's fiscal year ending in 1998 to exceed $26 million,
and (ii) purchases of newsprint, ink and other inventory and supplies and
replacements in the ordinary course of business;
(h) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), except for
the payment, discharge or satisfaction of (i) liabilities or obligations in the
ordinary course of business consistent with past practice or in accordance with
their respective terms as in effect on November 13, 1997, (ii) liabilities
reflected or reserved against in, or disclosed in, the most recent consolidated
financial statements (or the notes thereto) of the Company included in the
Company Public Documents, (iii) claims settled or compromised in the ordinary
course
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of business (consistent with past practice), and (iv) other claims, liabilities
or obligations at a cost not exceeding $250,000 individually or $1,000,000 in
the aggregate;
(i) adopt a plan of liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or reorganization;
(j) change any material accounting principle used by it, except for
such changes as may be required under GAAP or rules and regulations of the SEC
promulgated following November 13, 1997;
(k) make any material tax election or settle or compromise any material
Federal, state, local or foreign income tax liability, except in the ordinary
course of business and consistent with past practice;
(l) enter into any contract that is not terminable by it without
penalty upon six months' notice, or that obligates the Company or any subsidiary
to make annual expenditures in excess of $250,000; or terminate or modify in any
material respect any material contract to which the Company or any subsidiary is
a party or waive, release or assign any material rights or claims;
(m) except in the ordinary course of business consistent with past
practice, sell, assign, transfer, license or permit to lapse any material rights
with respect to the Company's intellectual property rights;
(n) except for normal changes in the ordinary course of business that
are consistent with past practice, and that, in the aggregate, do not result in
a material increase of benefits or compensation expense to the Company or any of
its subsidiaries relative to the level in effect prior to such changes and
except as required by law,
(i) adopt, enter into, amend or terminate any material bonus,
profit-sharing, compensation, severance, termination, pension,
retirement, deferred compensation, employment or other employee benefit
plan, agreement, trust, fund or other arrangement for the benefit or
welfare of any individual;
(ii) enter into any material new employment arrangement or
relationship with new or existing employees which has the legal effect
of any relationship other than at-will employment;
(iii) increase the compensation or fringe benefits of any
director, officer or management-level employee or pay any benefit to
any director, officer or management-level employee other than pursuant
to an existing plan or arrangement and in amounts consistent with past
practice;
(iv) grant any awards to any director, officer or employee
under any bonus, incentive, performance or other compensation plan or
arrangement (including the removal of existing restrictions in any
benefit plans or agreements or awards made thereunder);
(v) except as required by law or existing contract, take any
action to segregate assets for, or in any other way secure, the payment
of compensation or benefits to any employee under any employee plan,
agreement, contract or arrangement; or
(o) enter into, or otherwise engage in, any transaction referred to
in Section 3.18; or
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(p) commit or agree to take any of the foregoing actions.
SECTION 5.02 CONDUCT OF BUSINESS BY PARENT. During the period from
November 13, 1997 to the Effective Time (except as otherwise contemplated by
this Agreement), Parent shall (and shall cause each Parent Subsidiary to)
conduct its businesses in the ordinary course of business in all material
respects and consistent with past practice, and Parent shall not without the
prior written consent of the Company:
(a) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, except that Parent may
continue the declaration and payment of regular quarterly cash dividends
consistent with current dividend policies regarding payout ratio (with usual
record and payment dates and in accordance with its past dividend policy);
(b) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock;
(c) purchase, redeem or otherwise acquire any shares of capital stock
or any other securities thereof or any rights, warrants or options to acquire
any such shares or other securities (except, in the case of this clause (c), for
the acquisition of shares of Parent Stock from the holder of any option
outstanding on November 13, 1997 to purchase Parent Stock, in full or partial
payment of the exercise price payable by such holder upon exercise of such
option);
(d) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents;
(e) adopt a plan of liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or reorganization;
(f) issue any shares of its capital stock at less than fair market
value as determined in good faith by Parent's board of directors (other than
pursuant to the Parent's employee benefit plans);
(g) acquire or agree to acquire any other person, by way of purchase,
merger or consolidation, or the purchase of substantially all the assets
thereof, if, in connection with such acquisition, merger or consolidation,
Parent would issue shares of Parent Stock in an aggregate amount exceeding 10%
of the aggregate amount of shares of Parent Stock outstanding on the date
hereof;
(h) take any action, or permit any subsidiary to take any action that
could be reasonably expected to prevent or materially delay Parent's, Newco
Holding's and the Merger Subs' consummation of the transactions contemplated by
this Agreement; or
(i) commit or agree to take any of the foregoing actions.
SECTION 5.03 COORDINATION OF DIVIDENDS. Each of the Company and Parent
(for itself and on behalf of Newco Holding) shall coordinate with the other the
declaration and payment of dividends in respect of Company Stock and Parent
Stock and the record dates and the payment dates relating thereto, so as to
carry out the intent of the Company and Parent that, with respect to each holder
of Company Stock or Parent Stock, such holder shall not receive two dividends,
or fail to receive one dividend, for the calendar quarter in which the
Reorganization occurs.
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ARTICLE 6
ADDITIONAL AGREEMENTS RELATING TO THE MERGERS
SECTION 6.01 PREPARATION OF FORM S-4 AND JOINT PROXY STATEMENT;
STOCKHOLDER MEETINGS.
(a) Promptly following November 13, 1997, the Company, Parent and Newco
Holding shall jointly prepare the Joint Proxy Statement and Newco Holding shall
file it with the SEC, and Newco Holding shall prepare and file with the SEC a
Form S-4 relating to Newco Holding Stock to be issued in connection with the
Mergers (the "Form S-4"), in which the Joint Proxy Statement will be included as
a prospectus. Newco Holding shall use its reasonable best efforts to have the
Form S-4 declared effective under the Securities Act as promptly as practicable
after such filing. The Company will use its reasonable best efforts to cause the
Joint Proxy Statement to be mailed to the Company's stockholders, and Parent
will use its reasonable best efforts to cause the Joint Proxy Statement to be
mailed to Parent's stockholders, in each case as promptly as practicable after
the Form S-4 is declared effective under the Securities Act. Newco Holding shall
also take any action required to be taken under any applicable state securities
laws in connection with the issuance of Newco Holding Stock in the Mergers, and
the Company shall furnish all information concerning the Company and holders of
Company Stock and rights to acquire Company Stock as may be reasonably requested
in connection with any such action. Each of Parent, Merger Subs, Newco Holding
and the Company, respectively, shall
(i) cause all information provided (and to be provided) by it
for use in the Form S-4 to be true and correct in all material
respects;
(ii) not omit from such information any material fact required
to be stated therein or necessary in order to make such information not
misleading; and
(iii) correct any information provided by it for use in the
Form S-4 which shall have become false or misleading.
(b) The Company will, as promptly as practicable following November 13,
1997, duly call, give notice of and hold a meeting of its stockholders (the
"Company Stockholder Meeting") for the purpose of approval of this Agreement and
the transactions contemplated hereby. Parent will, as promptly as practicable
following November 13, 1997, duly call, give notice of and hold a meeting of its
stockholders (the "Parent Stockholders Meeting") for the purpose of approving
the Reorganization. The Board of Directors of the Company (i) has recommended
approval of the Company Merger and this Agreement, (ii) shall include, and shall
not withdraw or modify, each such recommendation in the Joint Proxy Statement
unless under applicable law it is required to omit, withdraw or modify any such
recommendation, (iii) shall submit for approval of its stockholders the matters
to be voted upon at the Company Stockholders Meeting, (iv) shall use its best
efforts (including, without limitation, soliciting proxies for such approvals),
to the extent permitted by applicable law, to obtain such stockholder approval,
and (v) shall not take any action to nullify its resolution approving the
Company Merger and this Agreement and its submission to the Company
stockholders. The Board of Directors of Parent (i) has recommended approval of
the Parent Merger and this Agreement, (ii) shall include, and shall not withdraw
or modify, each such recommendation in the Joint Proxy Statement unless under
applicable law it is required to omit, withdraw or modify any such
recommendation, (iii) shall submit for approval of its stockholders the matters
to be voted upon at the Parent Stockholders Meeting, (iv) shall use its best
efforts (including, without limitation, soliciting proxies for such approvals),
to the extent permitted by applicable law, to obtain such stockholder approval,
and (v) shall not take any action to nullify its resolution
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approving the Parent Merger and this Agreement and its submission to the Parent
stockholders. Each of Parent and the Company will use its reasonable best
efforts to hold such meetings on the same day and as soon as practicable after
November 13, 1997.
(c) The Company will cause its transfer agent to make stock-transfer
records relating to the Company available to the extent reasonably necessary to
effectuate the intent of this Agreement.
SECTION 6.02 LETTER OF COMPANY'S ACCOUNTANTS. The Company shall use its
reasonable best efforts to cause to be delivered to Parent a letter of KPMG Peat
Marwick LLP ("KPMG"), the Company's independent public accountants, which letter
shall be addressed to Parent, dated a date within two business days before the
date on which the Form S-4 shall become effective, and in form and substance
reasonably satisfactory to Parent and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4. In connection with the
Company's efforts to obtain such letter, Parent shall provide such
representation letter as may be reasonably requested by KPMG complying with SAS
72, if then required.
SECTION 6.03 LETTER OF PARENT'S ACCOUNTANTS. Parent shall use its
reasonable best efforts to cause to be delivered to the Company a letter of
Deloitte & Touche, LLP ("Deloitte"), Parent's independent public accountants,
which letter shall be addressed to the Company, dated a date within two business
days before the date on which the Form S-4 shall become effective, and in form
and substance reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4. In connection with
Parent's efforts to obtain such letter, the Company shall provide such
representation letter as may be reasonably requested by Deloitte complying with
SAS 72, if then required.
SECTION 6.04 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) During the period prior to the Effective Time, the Company shall
(i) provide to Parent and its representatives reasonable access during normal
business hours to the Company's and the Company Subsidiaries' ("Access")
properties, books, contracts, commitments, personnel and records and (ii)
furnish promptly to Parent (A) a copy of each report, schedule, registration
statement and other document filed by the Company during such period pursuant to
the requirements of Federal or state securities laws and (B) all other
information concerning its business, properties, financial condition, operations
and personnel as Parent may from time to time reasonably request.
(b) During the period prior to the Effective Time, Parent shall (i)
provide to the Company and its representatives reasonable access during normal
business hours to its properties, books, contracts, commitments, personnel and
records and (ii) furnish promptly to the Company (A) a copy of each report,
schedule, registration statement and other document filed by Parent during such
period pursuant to the requirements of Federal or state securities laws and (B)
all other information concerning its business, properties, financial condition,
operations and personnel as the Company may from time to time reasonably
request.
(c) No investigation pursuant to this Section shall affect or be deemed
to modify any representation or warranty made by the Company, Parent, Newco
Holding or either Merger Sub hereunder. Nothing in this Section shall require
the Company or Parent to permit any inspection, or to disclose any information,
that in the reasonable judgment of the Company or Parent, as the case may be,
would result in the disclosure of any trade secrets of third parties or violate
any of its respective obligations with respect to confidentiality if the Company
or Parent, as the case may be, shall have used all reasonable
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efforts to obtain the consent of such third party to such inspection or
disclosure. All requests for information made pursuant to this Section shall be
directed to an executive officer of the Company or Parent, as the case may be,
or such Person as may be designated by any such executive officer.
(d) Parent and the Company will comply with (and will cause its
directors, officers, employees, accountants, counsel, financial advisors and
other representatives and affiliates to comply with) existing letter agreements
setting forth confidentiality arrangements among the parties (the
"Confidentiality Agreements").
SECTION 6.05 MUTUAL BEST EFFORTS.
(a) Subject to the conditions set forth in this Agreement, each party
shall use its reasonable best efforts to (and cause each person and entity under
its control to) take all actions, and assist and cooperate with each other party
in taking all actions necessary, useful or advisable to consummate and make
effective, in the most expeditious manner practicable, the Mergers and the other
transactions contemplated by this Agreement. Each party shall use its reasonable
best efforts and cooperate with each other party in (i) promptly determining
whether any filings are required to be made or consents, approvals, waivers,
permits or authorizations are required to be obtained (under any applicable law
or regulation or from any Governmental Entity or third party) in connection with
the transactions contemplated by this Agreement, and (ii) promptly making any
such filings, in furnishing information required in connection therewith and in
timely seeking to obtain any such consents, approvals, waivers, permits and
authorizations. In connection with the tax opinion referred to in Section
8.02(d), each party agrees to deliver letters of representation reasonable under
the circumstances as to its present intention and present knowledge. Parent
shall, and shall use its reasonable best efforts to cause each of its
stockholders holding shares of Parent Stock representing 5% or more of the
outstanding Parent Stock to, provide to counsel to the Company such customary
representations as shall be reasonably requested by such counsel in order for
such counsel to render an opinion that the exchange of Company Stock for Newco
Holding Stock pursuant to the Company Merger qualifies under Section 351 of the
Code.
(b) The Company shall use its reasonable best efforts to (and shall
cause each person and entity under its control to) take, and assist and
cooperate with Parent and its representatives in taking, all actions necessary,
useful or advisable (including, without limitation, providing Access to third
parties upon execution of customary confidentiality agreements), in connection
with Parent's efforts to sell the businesses referred to on Parent Disclosure
Schedule 6.05(b).
(c) Parent hereby agrees to use its reasonable best efforts to arrange
and complete the financing necessary to pay the aggregate cash portion of the
Company Merger Consideration, to pay (or provide the funds for Newco Holding to
pay) all other amounts contemplated by Article 2 when due, to refinance any
indebtedness or other obligation of the Company and its subsidiaries which may
become due as a result of this Agreement or any of the transactions contemplated
hereby, to pay all related fees and expenses and to provide for the anticipated
working capital needs of Newco Holding and its subsidiaries following the
Reorganization (the financing necessary to provide such funds being hereinafter
referred to as the "Financing"), including (i) to negotiate definitive
agreements with respect thereto and (ii) to satisfy all conditions applicable to
Parent and its subsidiaries in such definitive agreements. Parent will keep the
Company informed at all times with respect to the status of its efforts to
arrange and complete the Financing, including, without limitation, with respect
to the occurrence of any event which Parent believes may have a materially
adverse effect on the ability of Parent to obtain the Financing. In the event
Parent is unable to arrange or complete any portion of the Financing in the
manner or from the sources originally contemplated, Parent will use its
reasonable best efforts to arrange any such portion from alternative
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sources. The Company hereby agrees to use its reasonable best efforts to assist
Parent in securing the Financing.
SECTION 6.06 PUBLIC ANNOUNCEMENTS. With respect to any news release or
other public announcement or statement relating to this Agreement or any
transaction contemplated hereby (each an "Announcement"), Newco Holding, Parent
and the Company will each consult with the others before issuing such
Announcement, and will provide to them reasonable opportunity to review and
comment on such Announcement, and shall not issue such Announcement prior to
such consultation and opportunity (except as otherwise required by applicable
law).
SECTION 6.07 AFFILIATE AGREEMENTS. Prior to the Closing Date, the
Company shall deliver to Parent a letter identifying each person who is (based
on information available to the Company following due inquiry), at the time this
Agreement is submitted for Company Stockholder Approval, an "affiliate" of the
Company for purposes of Rule 145 under the Securities Act (each a "Rule 145
Affiliate"). The Company shall use its reasonable best efforts to cause each
Rule 145 Affiliate to deliver to Parent on or prior to the Closing Date a
written agreement in form customary for purposes of having each Rule 145
Affiliate comply with Rule 145.
SECTION 6.08 STOCK EXCHANGE LISTING. Parent shall cause the shares of
Newco Holding Class A Stock to be issued in the Merger and under the Stock Plans
to be approved for listing on the NYSE prior to the Closing Date, subject only
to official notice of issuance.
SECTION 6.09 DIRECTORSHIPS. On the Closing Date, the Board of Directors
of Newco Holding will elect either (i) one present member of the Company's Board
of Directors who is a member of the Cowles family as designated by the Company
after consultation with Parent or (ii) a person mutually acceptable to the
Company and Parent, to be a director of Newco Holding. With respect to the next
succeeding annual meeting of stockholders of Newco Holding, Newco Holding's
Board of Directors will cause such person or any such other Board member who is
a member of the Cowles family as designated by the persons who are members of
the Board of Directors on November 13, 1997 after consultation with Newco
Holding (or a person mutually acceptable to the Company and Newco Holding) to be
included among Newco Holding's nominees for election by the holders of Newco
Holding Class A Stock as director of Newco Holding, in each case if such person
is willing and able to serve.
SECTION 6.10 NO SOLICITATION.
(a) The Company shall not (and shall not permit any of its officers,
directors, agents, representatives or advisors to)
(i) solicit, initiate or knowingly encourage the submission of
any proposal or offer from any person relating to any (A) acquisition
of a substantial amount of assets of the Company (other than in the
ordinary course of business) or of more than 15% of all outstanding
Company Stock or more than 15% of all outstanding Company Voting Stock
or (B) tender offer or exchange offer that, if consummated, would
result in any Person beneficially owning more than 15% of all
outstanding Company Stock or more than 15% of all outstanding Company
Voting Stock, or (C) merger, consolidation, business combination, sale
of substantially all assets, recapitalization, liquidation or similar
transaction involving the Company, other than the transactions
contemplated by this Agreement (each an "Alternative Proposal") or
agree to or endorse any Alternative Proposal, or
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(ii) enter into or participate in any discussions or
negotiations regarding any Alternative Proposal, or furnish to any
other person any non-public information with respect to its business,
properties or assets, or otherwise cooperate with, or assist or
participate in, any attempt by any other person to make any Alternative
Proposal.
(b) Notwithstanding the foregoing, however, nothing herein shall
prohibit, subject to Section 6.01(b), the Company following receipt of an
Alternative Proposal from disclosing to its stockholders a position with respect
to such Alternative Proposal to the extent required by applicable law.
(c) The Company shall notify Parent promptly (and in any event no later
than 24 hours) after receipt by the Company of any Alternative Proposal or any
request for non-public information in connection with an Alternative Proposal or
for access to the Company's properties, books or records by any person or entity
that informs the Company that it is considering making an Alternative Proposal.
Such notification shall include the terms of any Alternative Proposal and the
name of any person or entity making any such proposal or requesting non-public
information or access to the Company's properties, books or records in
connection with an Alternative Proposal.
SECTION 6.11 INDEMNIFICATION. Reference is hereby made to all
provisions of the certificate of incorporation, articles of organization and
by-laws of the Company and the Company Subsidiaries which contemplate
indemnification of directors, officers and employees of the Company and the
Company Subsidiaries (the "Company Indemnification Provisions"). At all times
after the Effective Time, Newco Holding and Company Surviving Corporation shall
indemnify all present and former directors, officers and employees of the
Company and the Company Subsidiaries to the fullest extent called for by the
Company Indemnification Provisions (in each case as the Company Indemnification
Provisions exist immediately before the Effective Time and regardless of whether
any of them is subsequently amended, qualified, repealed or otherwise changed).
Newco Holding shall cause to be maintained for a period of not less than six
years after the Closing Date, the directors' and officers' liability insurance
policy currently maintained by the Company or, if not available, comparable
policies; PROVIDED, HOWEVER, that Newco Holding shall not be obligated to make
annual premium payments for such insurance to the extent that premiums exceed
200% of the annual premiums paid as of the date hereof by the Company for such
insurance (the "Current Premium"), and if such premiums for such insurance would
at any time exceed 200% of the Company's Current Premium, then Newco Holding
shall cause to be maintained policies of insurance which provide the maximum
coverage available at an annual insurance premium equal to 200% of the Current
Premium.
SECTION 6.12 CERTAIN NEWSPAPER MATTERS. Parent and Newco Holding shall
cause the Company's newspaper operations and headquarters to continue to be
located in Minneapolis, Minnesota after Closing. Parent and Newco Holding
acknowledge that it is their intention that the Company's newspaper operations
be afforded the same autonomous operating style after Closing as is afforded to
Parent's other major newspapers.
SECTION 6.13 CHARITABLE CONTRIBUTIONS. Parent and Newco Holding
understand that the Company will commit (and hereby consent to such commitment)
prior to the Closing Date to make a contribution or contributions to the Cowles
Media Foundation so that the aggregate funds of the Cowles Media Foundation are
sufficient to make contributions of $3 million per year for the ten years after
the Closing Date. The Company agrees that it will not commit to when it will
make such contributions until after the Closing. It is understood that the
Company's contribution will be made only if (i) the Cowles Media Foundation's
charter is amended to restrict contributions to 501(c)(3) organizations that are
national in scope or are in the 13-county Minneapolis/St. Paul Metropolitan
Statistical Area, such restricted
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contributions in either case to be consistent with past operations of the Cowles
Media Foundation and (ii) the Cowles Media Foundation pledges to make
contributions to such organizations in an amount equal to $3.0 million per year
for the ten years after the Closing Date (which amendment and pledge would not
be subject to modification without the approval of the Attorney General of the
State of Minnesota).
SECTION 6.14 TAX MATTERS.
(a) The Company, Newco Holding and Parent shall not take (and shall not
permit the Company Surviving Corporation or the Parent Surviving Corporation to
take) at any time any action that would cause the exchange of Company Stock for
Newco Holding Stock pursuant to the Company Merger to fail to qualify under
Section 351 of the Code.
(b) Newco Holding agrees that, during the five year period following
the Effective Time, (i) neither Parent Surviving Corporation, the Company
Surviving Corporation nor any of their respective successors shall be merged
with, consolidated with, or liquidated into, Newco Holding or any successor
thereto, and (ii) neither the Parent Surviving Corporation nor any successor
thereto shall be merged or consolidated with the Company Surviving Corporation
or any successor thereto.
SECTION 6.15 REGISTRATION OF PARENT STOCK HELD BY RULE 145 AFFILIATES.
As soon as practicable, Parent shall cause Newco Holding to execute the
Registration Rights Agreement attached hereto as Exhibit 6.15.
ARTICLE 7
EMPLOYMENT MATTERS
SECTION 7.01 CERTAIN EMPLOYMENT-RELATED DEFINITIONS.
(a) As used in this Article 7, (i) "Company" includes the Company and
each Company Subsidiary and (ii) "Company Surviving Corporation" includes the
Company Surviving Corporation and each affiliate thereof.
(b) "Represented Employee" means any person employed by the Company
immediately before Closing who is represented by a collective-bargaining
representative.
(c) "Non-Represented Employee" means any person employed by the Company
immediately before Closing who is not represented by a collective-bargaining
representative.
(d) "Employee" means any person who is a Represented Employee or a
Non-Represented Employee.
(e) "One-Year Period" means the period commencing on the Closing Date
and ending on the first anniversary of the Closing Date (except with respect to
any Company Welfare Plan, in which case such term means the period commencing on
the Closing Date and ending on the later of December 31, 1998, or 270 days after
the Closing Date).
(f) With respect to any Employee, a termination of employment by the
Company Surviving Corporation shall be deemed "For Cause" if (and only if) such
termination is for (i) such Employee's
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dishonesty or willful misconduct related to the Company Surviving Corporation;
(ii) such Employee's neglect of his or her duties, if the Company Surviving
Corporation has given to such Employee written notice specifying the act or
omission constituting such neglect and such Employee has repeated such act or
omission following receipt of such notice; or (iii) such Employee's conviction
of a felony.
(g) "Involuntary Termination" with respect to any Employee shall mean
(i) any termination of employment by the Company Surviving Corporation that is
not "For Cause" and (ii) any resignation by such Employee if such resignation
occurs within 30 days following any Change in Employment Terms.
(h) "Change in Employment Terms" with respect to any Employee shall
mean (i) assignment to such Employee of material duties or responsibilities that
are substantially different in nature and scope from those in effect immediately
before Closing; (ii) any reduction of such Employee's Base Compensation so it is
lower than that in effect immediately before Closing; and (iii) any requirement
that such Employee change his or her regular workplace to a location more than
40 miles from the location of his or her regular workplace immediately before
Closing.
(i) "Base Compensation" with respect to any Employee shall mean his or
her base cash compensation as in effect immediately before Closing (but not
including any overtime, bonuses, commissions, fringe benefits or any other form
of extra or added compensation).
SECTION 7.02 BENEFIT PLANS.
(a) With respect to each Company Benefit Plan that is in effect
immediately before Closing and is not the subject of collective bargaining,
Newco Holding shall
(i) cause such Company Benefit Plan, and all of its provisions
in effect immediately before Closing (including without limitation the
eligibility provisions thereof), to remain in effect throughout the
One-Year Period; or
(ii) provide to each Non-Represented Employee, throughout the
One-Year Period, benefits that are in the aggregate no less favorable
to such Non-Represented Employee than those provided under such Company
Benefit Plan immediately before Closing.
(b) With respect to each collective bargaining agreement of the
Company, Newco Holding will cause to be provided, to each Represented Employee
covered thereby, all benefits called for by such collective bargaining
agreement, in accordance with the terms thereof as in effect from time to time.
(c) If any Employee is transferred to Newco Holding or any affiliate of
Newco Holding or becomes a participant in any employee benefit plan, program or
arrangement maintained (or contributed to) by the Company Surviving Corporation,
Newco Holding or any affiliate of either, then Newco Holding shall cause such
plan, program or arrangement to (i) treat for all purposes (except benefit
accrual under any pension plan) the prior service of such Employee with the
Company as service rendered to the Company Surviving Corporation, Newco Holding
or such affiliate, as the case may be; (ii) waive each "pre-existing condition"
or "actively at work" or similar exclusion that may otherwise be applicable to
such Employee; and (iii) give credit for expenses incurred by such Employee to
satisfy deductibles and co-insurance provisions.
(d) Newco Holding shall not (and shall not allow the Company Surviving
Corporation to) terminate, merge, amend or otherwise take any action affecting
any Company Pension Plan that is a
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Defined Benefit Pension Plan, if a consequence of such action is to permit a
reversion of assets of such Defined Benefit Pension Plan.
SECTION 7.03 SEVERANCE PAYMENTS TO NON-REPRESENTED EMPLOYEES.
(a) For each regular full-time and regular part-time Non-Represented
Employee, if
(i) his or her employment ends by Involuntary Termination
during the One-Year Period and
(ii) such Non-Represented Employee is not an "Executive" as
defined in the Company's Executive Income Continuation Policy, as
amended (the "Executive Income Continuation Policy"),
then Newco Holding shall cause the Company to pay (in a lump-sum cash payment
and within ten days following receipt of a Final Employee Release from such
Employee), the Severance Amount (as hereinafter defined) and the Medical
Allowance (as hereinafter defined).
(b) For each Non-Represented Employee, the "Severance Amount" shall be
the sum of
(i) one week of Base Compensation for each six months or
portion thereof that such Non-Represented Employee has been
continuously employed with the Company or with any business acquired by
the Company prior to Closing, PLUS
(ii) if such Non-Represented Employee has less than 40 years
of such continuous employment, 13 weeks of Base Compensation (but
application of this paragraph (b) shall not in any case cause any
Severance Amount to exceed 80 weeks of Base Compensation).
(c) To illustrate the foregoing,
(i) for a Non-Represented Employee having one year and one
month of service, the Severance Amount would be 16 weeks of Base
Compensation;
(ii) for a Non-Represented Employee having 34 years of
service, the Severance Amount would be 80 weeks of Base Compensation;
and
(iii) for a Non-Represented Employee having 42 years of
service, the Severance Amount would be 84 weeks of Base Compensation.
(d) For each Non-Represented Employee who is entitled to receive a
Severance Amount, the "Severance Period" shall be the total number of weeks of
Base Compensation included in such Severance Amount (E.G., for the three
foregoing illustrations, the Severance Period would be 16 weeks, 80 weeks and 84
weeks, respectively). For each Non-Represented Employee who receives a Severance
Amount and is a participant in one of the Company's health-insurance plans
immediately before Closing (disregarding any dental plan and any plan subject to
Section 125 of the Internal Revenue Code), the "Medical Allowance" shall be the
total of the employer share of health-insurance premiums that would have been
paid during the Severance Period for such Non-Represented Employee's coverage
under the plan in effect for him or her immediately before Closing. In the case
of a self-insured health plan, such "employer share of health-insurance
premiums" shall be equal to (i) the COBRA premium that would have been paid by
the
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Employee (assuming no employer subsidy) during the Severance Period based on the
COBRA rate in effect immediately prior to Closing (disregarding the 2%
administrative fee), MINUS (ii) any contribution such Employee was making for
such coverage immediately prior to Closing.
(e) For each Non-Represented Employee who is entitled to receive a
Severance Amount or payments under the Executive Income Continuation Policy,
Newco Holding shall cause the Company Surviving Corporation to make outplacement
assistance available in accordance with the Company's standard practices in
effect immediately before Closing, and shall consider such Non-Represented
Employee as an internal candidate for any job opening at the Company, Newco
Holding and any affiliate of either, consistent with the Company's hiring
policies in effect immediately before Closing.
(f) As a condition precedent to payment of any Severance Amount and any
Medical Allowance, Parent shall require that such Non-Represented Employee
execute (and not rescind) and deliver to the Company Surviving Corporation a
release of claims in the form of Exhibit 7.03(f). If (and only if) such
Non-Represented Employee delivers such executed release to the Company Surviving
Corporation and the time for any rescission thereof expires without any
rescission, then such release shall be a "Final Employee Release."
SECTION 7.04 OTHER EMPLOYMENT-RELATED OBLIGATIONS. Newco Holding shall
cause the Company Surviving Corporation to honor throughout the term thereof
each employment agreement that is in effect immediately before Closing (it being
understood that the Executive Income Continuation Policy of the Company shall be
deemed to be such an employment agreement to the extent benefits thereunder have
been granted prior to November 13, 1997).
SECTION 7.05 ENFORCEMENT. With respect to each Non-Represented Employee
(and his or her heirs, executors or other legal representatives) who is entitled
to any Severance Amount, Medical Allowance or other payment or benefit referred
to in this Article 7, each party to this Agreement agrees and acknowledges that
(as more fully described in Section 10.06) each person who is a member of the
Board of Directors of the Company immediately before Closing may (but shall not
be obligated to) enforce this Article 7 directly against the Company Surviving
Corporation as a direct and irrevocable third-party beneficiary of this Article
7. Except as provided in the immediately preceding sentence and in Section
10.06, no employee or former employee of the Company (or any heir, executor or
other legal representative of any such employee) or any other person shall have
any rights as a third-party beneficiary of this Agreement.
ARTICLE 8
CONDITIONS PRECEDENT TO MERGER
SECTION 8.01 CONDITIONS TO EACH PARTY'S OBLIGATION. The respective
obligation of each party to effect the transactions contemplated by this
Agreement is subject to the satisfaction or waiver, on or prior to the Closing
Date, of the following conditions:
(a) COMPANY STOCKHOLDER APPROVAL. The Company Stockholder Approval
shall have been obtained.
(b) PARENT STOCKHOLDER APPROVAL. The Parent Stockholder Approval shall
have been obtained.
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(c) STOCK EXCHANGE LISTING. The shares of Newco Holding Class A Stock
issuable under this Agreement shall have been approved for listing on the Stock
Exchange, subject only to official notice of issuance.
(d) HSR ACT. The waiting period (and each extension thereof, if any)
applicable to the Mergers under the HSR Act shall have terminated or expired.
(e) NO INJUNCTION. No temporary or permanent injunction or other order
issued by any court of competent jurisdiction prohibiting consummation of the
Mergers shall be in effect.
(f) FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be subject to any stop order (or proceeding seeking
a stop order), and any material requirements under "blue sky" and other state
securities laws governing issuance of the Newco Holding Stock shall have been
satisfied.
SECTION 8.02 CONDITIONS TO OBLIGATIONS OF PARENT. The obligations of
Parent to effect the Reorganization are further subject to the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Sections 3.01, 3.02, 3.03, 3.04(a) and 3.06, and the
first sentence of Section 3.10(a), of this Agreement shall be true and correct
in all material respects as of the date of execution of this Agreement (or
deemed date of execution to the extent provided in Section 3.23) and as of the
Closing Date (except for each representation and warranty that is expressly made
as of a specified date). The other representations and warranties of the Company
in this Agreement shall be true and correct as of the date of execution of this
Agreement (or deemed date of execution to the extent provided in Section 3.23)
and as of the Closing Date as though made on and as of the Closing Date (except
for each representation and warranty that is expressly made as of a specified
date), except to the extent the effect of breaches thereof would not have a
material adverse effect on the Company. Parent shall have received a certificate
to such effect, signed on behalf of the Company by its chief executive officer
and its chief financial officer.
(b) PERFORMANCE BY COMPANY. The Company shall have performed all of its
obligations under this Agreement required to be performed in any material
respect on or prior to the Closing Date and Parent shall have received a
certificate to such effect, signed on behalf of the Company by its chief
executive officer and its chief financial officer.
(c) CONSENTS, ETC. Parent shall have received evidence that the Company
has received such licenses, permits, consents, approvals, authorizations,
qualifications and orders of Governmental Entities and other third parties as
are necessary with respect to the Company or any Company Subsidiary in
connection with the transactions contemplated hereby (except for those the
absence of which would not have a material adverse effect on Newco Holding,
Parent or the Company or the ability to effect the Mergers).
(d) TAX OPINION. Parent shall have received an opinion of Pillsbury
Madison & Sutro LLP, counsel to Parent, or, if such firm is unwilling or unable
to render such opinion, an opinion of Fried, Frank, Harris, Shriver & Jacobson,
special counsel to the Company, dated as of the Closing Date, based upon
customary representations from the Parent, Company, and certain stockholders of
the Parent, that the Parent Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code or that the Parent Merger, either alone or
in connection with the Company Merger, will qualify as a transaction described
in Section 351 of the Code. This condition to Closing shall be deemed to be
waived
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in the event that the tax opinion is not rendered solely because such
stockholders of the Parent or Parent have failed to provide such customary
representations.
SECTION 8.03 CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of
the Company to effect the Reorganization is further subject to the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent contained in Sections 4.01, 4.02, 4.03, 4.04(a), 4.04(b), 4.06, 4.07,
4.08(d), 4.10, and 4.11 shall be true and correct in all material respects as of
the date of execution of this Agreement (or deemed date of execution to the
extent provided in Section 4.19) and as of the Closing Date (except for each
representation and warranty that is expressly made as of a specified date). The
other representations and warranties of Parent in this Agreement and the
representations and warranties of Newco Holding in this Agreement shall be true
and correct as of the date of execution of this Agreement (or deemed date of
execution to the extent provided in Section 4.19) and as of the Closing Date as
though made on and as of the Closing Date (except for each representation and
warranty that is expressly made as of a specified date), except to the extent
the effect of breaches thereof would not have a material adverse effect on
Parent or (taking into account the transactions contemplated hereby) Newco
Holding, as the case may be. The Company shall have received a certificate to
such effect, signed on behalf of Parent and Newco Holding by their respective
chief executive officers and chief financial officers.
(b) PERFORMANCE BY PARENT AND NEWCO HOLDING. Each of Parent and Newco
Holding shall have performed all of its obligations under this Agreement
required to be performed in any material respect at or prior to the Closing Date
and the Company shall have received a certificate to such effect, signed on
behalf of Parent and Newco Holding by their respective chief executive officers
and chief financial officers.
(c) CONSENTS, ETC. The Company shall have received evidence that Parent
has received such licenses, permits, consents, approvals, authorizations,
qualifications and orders of Governmental Entities and other third parties as
are necessary with respect to Parent or any Parent Subsidiary in connection with
the transactions contemplated hereby (except for those the absence of which
would not have a material adverse effect on Newco Holding, Parent or the Company
or the ability to effect the Mergers).
ARTICLE 9
TERMINATION, AMENDMENT, FEES AND EXPENSES
SECTION 9.01 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after any approval by
stockholders of the Company or of Parent:
(a) by mutual written consent of Parent and the Company; or
(b) by either Parent or the Company if any Governmental Entity shall
have issued an order, decree or ruling permanently enjoining or prohibiting the
Reorganization and such order, decree or ruling shall have become final and
nonappealable (but only if the party seeking to terminate pursuant to this
clause (b) shall have used all reasonable efforts to oppose and remove such
order, decree or ruling); or
(c) by either Parent or the Company if the Mergers shall not have been
consummated on or before May 31, 1998 (other than due to failure of the party
seeking termination to perform in all material respects
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its obligations under this Agreement required to be performed at or prior to the
Effective Time, or the failure of such party's stockholders to have approved by
such date this Agreement and the transactions to be submitted to them hereunder
for their approval); or
(d) by Parent if (i) (A) as of such time of determination, any of the
representations and warranties of the Company set forth in Sections 3.01, 3.02,
3.03, 3.04(a) or 3.06, or the first sentence of Section 3.10(a), of this
Agreement shall not be true and correct in all material respects or any of the
other representations and warranties of the Company set forth in this Agreement
shall not be true and correct, except in the case of such other representations
and warranties to the extent the effect of breaches thereof would not have a
material adverse effect on the Company, or (B) the Company or, with respect to
the Company Stockholder Approval, its stockholders, shall have failed to perform
in any material respect any material obligation or to comply in any material
respect with any material agreement or covenant of the Company to be performed
or complied with by it or, with respect to the Company Stockholder Approval, its
stockholders, under this Agreement or the Company Stockholders Voting Agreement
and, in the case of (A), such untruth or incorrectness cannot be or has not been
cured within 30 days after the giving of written notice to the Company, and, in
the case of (B), such failure cannot be or has not been cured within 15 days
after the giving of written notice to the Company or the Company stockholders,
as appropriate; or (ii) at the time of the Company Stockholders Meeting the
holders of more than 10% of the outstanding shares of Company Common Stock have
submitted valid written demands for appraisal of their respective shares
pursuant to Section 262 of the DGCL which demands have not been withdrawn at the
time of the Company Stockholder Meeting; or
(e) by the Company, if (i) as of such time of determination, any of the
representations and warranties of Parent set forth in Sections 4.01, 4.02, 4.03,
4.04(a), 4.04(b), 4.06, 4.07, 4.08(d), 4.10 or 4.11 of this Agreement shall not
be true and correct in all material respects or any of the other representations
or warranties of Parent or the representations and warranties of Newco Holding
set forth in this Agreement shall not be true and correct, except in the case of
such other representations and warranties to the extent the effect of breaches
thereof would not have a material adverse effect on Parent or (taking into
account the transaction contemplated hereby) Newco Holding, as the case may be,
or (ii) Parent, Newco Holding or either Merger Sub or, with respect to the
Parent Stockholders Voting Agreement, the stockholders of Parent, shall have
failed to perform in any material respect any material obligation or to comply
in any material respect with any material agreement or covenant of Parent, Newco
Holding or either Merger Sub or, with respect to the Parent Stockholders Voting
Agreement, the stockholders of Parent, to be performed or complied with by it
under this Agreement or the Parent Stockholders Voting Agreement and, in the
case of (i), such untruth or incorrectness cannot be or has not been cured
within 30 days after the giving of written notice to Parent, and, in the case of
(ii), such failure cannot be or has not been cured within 15 days after the
giving of written notice to Parent, or the stockholders of Parent, as
appropriate.
SECTION 9.02 EFFECT OF TERMINATION. If this Agreement is terminated
under Section 9.01, this Agreement shall immediately become void and have no
effect, without any liability or obligation on the part of Newco Holding, either
Merger Sub, Parent or the Company, other than the provisions of SECTION 3.15,
SECTION 4.12, SECTION 6.04(D), this SECTION 9.02, and SECTION 9.06. Nothing in
this Section shall relieve any party for any breach of such party's
representations, warranties, covenants or agreements in this Agreement.
SECTION 9.03 AMENDMENT. This Agreement may be amended by the parties at
any time before or after any required approval by stockholders. This Agreement
may be amended only by a writing signed on behalf of each party.
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SECTION 9.04 EXTENSION; WAIVER. At any time prior to the Effective
Time, any party may, by a writing signed on behalf of such party (a) extend the
time to perform any obligation or other act of another party, (b) waive any
inaccuracy in any representation or warranty or (c) waive compliance with any
agreement or condition in this Agreement. The failure of any party to assert any
right under this Agreement or otherwise shall not constitute a waiver of such
right.
SECTION 9.05 PROCEDURE FOR TERMINATION, AMENDMENT, ETC. A party's
termination, amendment, extension or waiver hereunder shall, in order to be
effective, require action by such party's board of directors or the duly
authorized designee of such board of directors.
SECTION 9.06 FEES AND EXPENSES.
(a) Except as provided in this Section 9.06, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses (whether or not the
Mergers are consummated); PROVIDED, HOWEVER, that Parent and the Company shall
share equally all fees and expenses, other than attorneys' fees and accountants'
fees, incurred in connection with the printing and filing of the Joint Proxy
Statement (including any preliminary materials related thereto) and the Form S-4
(including financial statements and exhibits) and any amendments or supplements
thereto.
(b) The Company shall pay to Parent a termination fee of $45 million
upon occurrence of any termination of this Agreement by Parent pursuant to
Section 9.01(c) as a result of the failure to obtain Company Stockholders
Approval or Section 9.01(d)(i) as a result of the failure of the stockholders of
the Company to comply with the Company Stockholders Voting Agreement.
(c) Parent shall pay to Company a termination fee of $45 million upon
occurrence of any termination of this Agreement by Company pursuant to Section
9.01(c) as a result of the failure to obtain Parent Stockholder Approval or
Section 9.01(e) as a result of failure by the stockholders of Parent to comply
with the Parent Stockholders Voting Agreement.
(d) Any termination fee shall be paid within five business days after
the event giving rise to the obligation to pay such fee.
(e) The fees provided for in paragraphs (b) or (c) of this Section 9.06
are not intended to be exclusive remedies with respect to the matters discussed
in such paragraphs, and no party hereto shall be precluded from seeking damages
or remedies at law or in equity as a result of any such matter.
ARTICLE 10
GENERAL PROVISIONS
SECTION 10.01 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
SECTION 10.01 shall survive the Effective Time, but shall not limit any covenant
or agreement which by its terms contemplates performance after the Effective
Time.
SECTION 10.02 NOTICES. All notices, requests, claims and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or by overnight courier
A-45
<PAGE>
to the parties at the following addresses (or at such other address for a party
as shall be specified by notice from such party):
(a) if to Parent or Newco Holding, to
McClatchy Newspapers, Inc.
2100 Q Street
Sacramento, California 95816
Attention: Gary Pruitt
President and Chief Executive Officer
with a copy to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, California 94104
Attention: Nathaniel M. Cartmell III
(b) if to the Company, to
Cowles Media Company
Fifth Floor, 329 Portland Avenue
Minneapolis, Minnesota 55415
Attention: David C. Cox
with copies to:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attention: William R. Busch, Jr.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Arthur Fleischer, Jr.
SECTION 10.03 CERTAIN DEFINITIONS. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
A-46
<PAGE>
(b) "material adverse change" or "material adverse effect" means, when
used in connection with the Company, Parent or Newco Holding, any change or
effect that, either individually or in the aggregate with all other such changes
or effects, is or would reasonably be expected to be materially adverse to the
business, assets, properties, condition (financial or otherwise) or results of
operations of such party and its subsidiaries taken as a whole;
(c) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity; and
(d) a "subsidiary" of any person means another person of which the
first person owns (directly or indirectly)
(i) an amount of voting securities or other voting interests
which is sufficient to elect at least a majority of its board of
directors or other governing body; or
(ii) if there are no voting interests, 50% or more of all
equity interests.
SECTION 10.04 INTERPRETATION. When a reference is made in this
Agreement to a Section, Exhibit or Schedule, such reference shall be to a
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the word "include," "includes" or
"including" is used in this Agreement, it shall be deemed to be followed by the
words "without limitation." Each disclosure made by the Company in any section
of this Agreement or any Company Disclosure Schedule shall be deemed to have
been made in each other section and in each other Company Disclosure Schedule in
which such disclosure would be relevant. Each disclosure made by Parent in any
section of this Agreement or any Parent Disclosure Schedule shall be deemed to
have been made in each other section and in each other Parent Disclosure
Schedule in which such disclosure would be relevant.
SECTION 10.05 COUNTERPARTS. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
party and delivered to each other party.
SECTION 10.06 ENTIRE AGREEMENT; THIRD-PARTY BENEFICIARIES. This
Agreement and the other agreements referred to herein constitute the entire
agreement (and, subject to the following sentence, supersede each prior
agreement and understanding, whether written or oral) among the parties
regarding the subject matter of this Agreement. Execution of this Agreement as
amended and restated shall not be deemed to have relieved any party from the
consequences of any breach of any representation, warranty or agreement made in
this Agreement in the form executed on November 13, 1997. This Agreement is not
intended to confer any rights or remedies on any person other than the parties
hereto, except that each person who is a member of the Board of Directors of the
Company immediately before Closing shall have the right (but shall have no
obligation) to enforce (against Newco Holding and the Company Surviving
Corporation, as applicable) the provisions of Article 2, Sections 6.09, 6.11,
6.12, 6.13 and 6.14, and Article 7 (in each case on behalf of the Company or any
person who is a stockholder or director of the Company immediately before
Closing or is contemplated to be a director of Parent under Section 6.09, or is
a Non-Represented Employee entitled to a payment or benefit under Article 7, as
applicable).
If any such person referred to in this Section obtains a final and nonappealable
order, decree, injunction or judgment against Parent or Newco Holding in
connection with any action brought seeking to enforce
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<PAGE>
any provision referred to in this Section, or settles any such action with
Parent or Newco Holding, then such person shall be entitled to reimbursement by
Newco Holding for his or her expenses (including without limitation attorneys'
fees) incurred in connection with bringing, prosecuting and settling (or
otherwise concluding) such action.
SECTION 10.07 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
any laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 10.08 ASSIGNMENT. Neither this Agreement nor any right,
interest or obligation hereunder shall be assigned, in whole or in part, by
operation of law or otherwise, by any party without the prior written consent of
each other party. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors.
SECTION 10.09 ENFORCEMENT. The parties agree that irreparable damage
would occur if any provision of this Agreement were not performed in accordance
with its terms or were otherwise breached. Each party shall be entitled to
injunctive relief to prevent any breach of this Agreement and to enforce this
Agreement specifically in any court of the State of Delaware or any court of the
United States located in the State of Delaware (in addition to any other remedy
to which such party is entitled at law or in equity). In addition, each party
hereby
(a) submits itself to the personal jurisdiction of (i) the courts of
the State of Delaware; and (ii) the United States District Court for the
District of Delaware with respect to any dispute arising out of this Agreement
or any transaction contemplated hereby to the extent such courts would have
subject matter jurisdiction with respect to such dispute;
(b) agrees that it will not attempt to deny or defeat such personal
jurisdiction or venue by motion or other request for leave from any such court;
and
(c) agrees that it will not bring any action relating to this Agreement
(or any transactions contemplated by this Agreement) in any court other than
such courts referred to above.
SECTION 10.10 SEVERABILITY. Each provision of this Agreement will be
interpreted so as to be effective and valid under applicable law, but if any
provision is held invalid, illegal or unenforceable under applicable law in any
jurisdiction, then such invalidity, illegality or unenforceability will not
affect any other provision, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been included herein.
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<PAGE>
IN WITNESS WHEREOF, Parent and the Company have caused this Agreement
to be signed by their respective duly authorized officers, all as of the date
first written above.
MCCLATCHY NEWSPAPERS, INC.
By: /S/ GARY PRUITT
-------------------------------------
Name: Gary Pruitt
Title: President and Chief Executive Officer
COWLES MEDIA COMPANY
By: /S/ DAVID C. COX
-------------------------------------
Name: David C. Cox
Title: President and Chief Executive Officer
MNI NEWCO, INC.
By: /S/ GARY PRUITT
-------------------------------------
Name: Gary Pruitt
Title: President
MNI MERGERCO, INC.
By: /S/ GARY PRUITT
-------------------------------------
Name: Gary Pruitt
Title: President
CMC MERGERCO, INC.
By: /S/ GARY PRUITT
-------------------------------------
Name: Gary Pruitt
Title: President
A-49
<PAGE>
ANNEX B
-------
STOCKHOLDERS VOTING AGREEMENT
STOCKHOLDERS VOTING AGREEMENT (this "Agreement") dated as of November
26, 1997, among COWLES MEDIA COMPANY, a Delaware corporation ("Cowles"), on the
one hand, and certain stockholders of MCCLATCHY NEWSPAPERS, INC., a Delaware
corporation ("McClatchy"), listed on Schedule A hereto (each a "Stockholder"
and, collectively, the "Stockholders"), on the other hand.
WHEREAS, this Agreement was originally executed on November 13, 1997
and as a result of the need to amend Section 5 hereof, this Agreement is being
amended and restated in its entirety as provided herein;
WHEREAS, Cowles and McClatchy propose to enter into an Agreement and
Plan of Reorganization dated as of the date hereof (as the same may be amended
or supplemented, the "Merger Agreement"; capitalized terms used but not defined
herein shall have the meanings set forth in the Merger Agreement) providing that
a wholly owned subsidiary of McClatchy ("Newco Holding") will acquire all of the
stock of each of McClatchy and Cowles through mergers of wholly owned
subsidiaries of Newco Holding with and into each of McClatchy and Cowles (the
"Reorganization"), upon the terms and subject to the conditions set forth in the
Merger Agreement;
WHEREAS, each Stockholder owns of record the number of shares of Class
B Common Stock, par value $.01 per share, of McClatchy (the "Class B Common
Stock") set forth opposite its name on Schedule A attached hereto (the "Subject
Shares");
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Cowles has required that each Stockholder enter into this Agreement.
NOW, THEREFORE, to induce Cowles to enter into, and in consideration of
its entering into, the Merger Agreement, and in consideration of the premises
and the representations, warranties and agreements contained herein, the parties
agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER. Each Stockholder
hereby, severally and not jointly, represents and warrants to Cowles as of the
date hereof in respect of itself as follows:
(a) AUTHORITY. The Stockholder has all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Stockholder (or in the case of a Stockholder which is a trust, by trustees on
behalf of such trust) and constitutes a valid and binding obligation of the
Stockholder enforceable in accordance with its terms, except that such
enforceability (i) may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to the enforcement of creditors' rights
generally and (ii) is subject to general principles of equity. The execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time or both) under any provision of, any trust agreement, loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license, judgment, order, notice,
decree, statute, law, ordinance, rule or regulation applicable to the
Stockholder or to the Stockholder's property or assets the effect of which, in
any case, would be material and adverse to the
B-1
<PAGE>
ability of the Stockholder to consummate the transactions contemplated hereby or
to comply with the terms hereof.
(b) THE SUBJECT SHARES. The Stockholder (except as set forth on
Schedule A attached hereto) is the record and beneficial owner of and has the
sole or shared right to vote the Subject Shares set forth opposite such
Stockholder's name on Schedule A attached hereto. Except for the Stockholders'
Agreement among the holders of the Class B Common Stock of McClatchy dated
September 17, 1987, none of such Subject Shares is subject to any voting trust
or other agreement, arrangement or restriction, except as contemplated by this
Agreement.
2. COVENANTS OF EACH STOCKHOLDER. Until the termination of this
Agreement in accordance with Section 7, each Stockholder, severally and not
jointly, agrees as follows:
(a) VOTE FOR THE REORGANIZATION. At any meeting of stockholders of
McClatchy called to vote upon the Reorganization and the Merger Agreement or at
any adjournment thereof or in any other circumstances upon which a vote, consent
or other approval (including by written consent) with respect to the
Reorganization and the Merger Agreement is sought, the Stockholder shall vote
(or cause to be voted), or execute a written consent in respect of, the Subject
Shares in favor of the Reorganization, the adoption by McClatchy of the Merger
Agreement and the approval of the terms thereof and each of the other
transactions contemplated by the Merger Agreement.
(b) TRANSFER OF SUBJECT SHARES. Except with respect to that number of
Subject Shares set forth next to such Stockholder's name in Schedule B which is
in excess of the number of Subject Shares set forth on Schedule B necessary to
approve the Reorganization and Merger Agreement (taking into account any and all
other Transfers, as defined below, of Subject Shares by any other Stockholder),
the Stockholder agrees not to (i) convert, transfer, sell, pledge, assign or
otherwise dispose of (including by gift) (collectively, "Transfer"), or enter
into any contract, option or other arrangement (including any profit sharing
arrangement) with respect to the Transfer of, any of the Subject Shares to any
person other than pursuant to the terms of the Reorganization or (ii) enter into
any voting arrangement, whether by proxy, power-of-attorney, voting agreement,
voting trust or otherwise.
3. FURTHER ASSURANCES. Each Stockholder will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional or
further consents, documents and other instruments as Cowles may reasonably
request for the purpose of effectively carrying out the transactions
contemplated by this Agreement.
4. ASSIGNMENT. Except as provided herein, neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties without the prior written consent of the other parties. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
5. TERMINATION. This Agreement shall terminate upon the earlier of (a)
the 18 month anniversary of the termination of the Merger Agreement (for any
reason, including any termination pursuant to Section 8.01 thereof) and (b) the
Effective Time of the Reorganization.
6. GENERAL PROVISIONS.
(a) AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
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<PAGE>
(b) NOTICE. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed) or sent by overnight courier (providing proof of delivery) to Cowles
in accordance with the notification provision contained in the Merger Agreement
and to the Stockholders at their respective addresses set forth on the books of
McClatchy (or at such other address for a party as shall be specified by like
notice).
(c) INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Wherever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation".
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties hereto and delivered to the other parties, it being
understood that each party need not sign the same counterpart.
(e) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
(including the documents and instruments referred to herein) (i) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (ii) is not intended to confer upon any person other than the parties
hereto, any rights or remedies hereunder.
(f) GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
(g) SEVERABILITY. If any term, provision, covenant or restriction
herein, or the application thereof to any circumstance, shall, to any extent, be
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions herein and
the application thereof to any other circumstances, shall remain in full force
and effect, shall not in any way be affected, impaired or invalidated, and shall
be enforced to the fullest extent permitted by law, and the parties hereto shall
reasonably negotiate in good faith a substitute term or provision that comes as
close as possible to the invalidated and unenforceable term or provision, and
that puts each party in a position as nearly comparable as possible to the
position each such party would have been in but for the finding of invalidity or
unenforceability, while remaining valid and enforceable.
7. STOCKHOLDER REPRESENTATIVES. Each Stockholder signs solely in its
capacity as the record holder and/or beneficial owner of such Stockholder's
Subject Shares and nothing contained herein shall limit or affect any actions
taken by any officer, director, partner, trustee, affiliate or representative of
a Stockholder who is or becomes an officer or a director of McClatchy in his or
her capacity as an officer or director of McClatchy and none of such actions in
such capacity shall be deemed to constitute a breach of this Agreement.
8. ENFORCEMENT. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware or in a Delaware state
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<PAGE>
court, this being in addition to any other remedy to which they are entitled at
law or in equity. In addition, each of the parties hereto (i) consents to submit
such party to the personal jurisdiction of any Federal court located in the
State of Delaware or any Delaware state court in the event any dispute arises
out of this Agreement or any of the transactions contemplated hereby, (ii)
agrees that such party will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, (iii)
agrees that such party will not bring any action relating to this Agreement or
the transactions contemplated hereby in any court other than a Federal court
sitting in the state of Delaware or a Delaware state court, (iv) waives any
right to trial by jury with respect to any claim or proceeding related to or
arising out of this Agreement or any of the transactions contemplated hereby,
and (v) appoints The Corporation Trust Company as such party's agent for service
of process in the state of Delaware.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as
of the date first written above.
COWLES MEDIA COMPANY
By /S/ JAMES J. VIERA
--------------------------------------------
Vice President and Chief
Title: FINANCIAL OFFICER
----------------------------------------
STOCKHOLDERS:
/S/ ERWIN POTTS
-----------------------------------------------
ERWIN POTTS, as Trustee of the
Trusts set forth on Schedule B
/S/ JAMES B. MCCLATCHY
-----------------------------------------------
JAMES B. MCCLATCHY, individually and as
trustee of the Trusts set forth on Schedule B
/S/ WILLIAM K. COBLENTZ
-----------------------------------------------
WILLIAM K. COBLENTZ, as Trustee
of the Trusts set forth on Schedule B
/S/ WILLIAM ELLERY MCCLATCHY
-----------------------------------------------
WILLIAM ELLERY MCCLATCHY, as Trustee
of the Trusts set forth on Schedule B
/S/ WILLIAM M. ROTH
-----------------------------------------------
WILLIAM M. ROTH, as Trustee of the
Trusts set forth on Schedule B
B-4
<PAGE>
/S/ MOLLY MALONEY EVANGELISTI
-----------------------------------------------
MOLLY MALONEY EVANGELISTI
/S/ BETTY LOU MALONEY
-----------------------------------------------
BETTY LOU MALONEY
B-5
<PAGE>
SCHEDULE A
LIST OF STOCKHOLDERS
Shares of Class B
Common Stock Owned
Name Of Record
- ---- -----------------
James B McClatchy 14,945,472(1)
William K. Coblentz 12,500,000(1)
William Ellery McClatchy 12,500,000(1)
Erwin Potts 12,500,000(1)
William M. Roth 12,500,000(1)
Molly Maloney Evangelisti 3,812,500
Betty Lou Maloney 1,850,000
(1) Includes or consists of 12,500,000 shares of Class B Common Stock held
under five separate trusts with 2,500,000 shares and different income
beneficiaries. James B. McClatchy, William Ellery McClatchy, William K.
Coblentz, William M. Roth and Erwin Potts, co-trustees, share joint
voting and investment control with respect to these trusts. Each of (i)
James B. McClatchy, (ii) William Ellery McClatchy, (iii) Charles
McClatchy, Adair McClatchy and Kevin McClatchy, (iv) Sue Maloney Stiles
and (v) Mazie Maloney have a present income interest in one of the five
trusts. Messrs. Coblentz, Roth and Potts disclaim beneficial ownership
of these shares.
B-A-1
<PAGE>
SCHEDULE B
LIST OF TRUSTS
1. Trust for the Primary Benefit of Charles K. McClatchy dated
November 15, 1974;
2. Trust for the Primary Benefit of James B. McClatchy dated
November 15, 1974;
3. Trust for the Primary Benefit of William Ellery McClatchy dated
November 15, 1974;.
4. Trust for the Primary Benefit of Martin J. and Mazie Maloney dated
November 15, 1974; and
5. Trust for the Primary Benefit of Sue Stiles dated November 15, 1974.
B-B-1
<PAGE>
ANNEX C
-------
COWLES STOCKHOLDERS VOTING AGREEMENT
COWLES STOCKHOLDERS VOTING AGREEMENT (this "Agreement") dated as of
November 13, 1997, among McClatchy Newspapers, Inc., a Delaware corporation
("McClatchy"), and the trustees (the "Voting Trustees") and certain
certificateholders (the "Certificateholders") of that certain Amended and
Restated Voting Trust Agreement effective October 30, 1996 (the "Voting Trust")
relating to shares of voting common stock, without par value (the "Voting Common
Stock"), of Cowles Media Company, a Delaware corporation (the "Company"), listed
on Schedule A attached hereto.
WHEREAS, McClatchy and the Company propose to enter into an Agreement
and Plan of Merger and Reorganization dated as of the date hereof (as the same
may be amended or supplemented, the "Merger Agreement," capitalized terms used
but not defined herein shall have the meanings set forth in the Merger
Agreement) providing that a wholly owned subsidiary of McClatchy ("Newco
Holding") will acquire all of the stock of each of McClatchy and Cowles through
mergers of wholly owned subsidiaries of Newco Holding with and into each of
McClatchy and Cowles (the "Reorganization"), upon the terns and subject to the
conditions set forth in the Merger Agreement;
WHEREAS, pursuant to the Reorganization, the Voting Common Stock will
be converted into shares of Class A common stock, par value $.01 per share (the
"Class A Common"), of Newco Holding;
WHEREAS, immediately prior to the Effective Time, McClatchy will assign
this Agreement and all of its rights, interests and obligations hereunder to
Newco Holding;
WHEREAS, the Voting Trustees possess the legal title to the shares of
Company Voting Stock subject to the Voting Trust and set forth on Schedule A
attached hereto (the "Subject Shares") and, subject to certain limitations, are
entitled to exercise all rights of every nature and kind with respect to the
Subject Shares, including the right to vote in person or by proxy or consent in
writing;
WHEREAS, the Certificateholders set forth on Schedule B are holders of
Voting Trust Certificates, as defined in the Voting Trust, and beneficially own
the number of Subject Shares set forth opposite his, her or its name on Schedule
B;
WHEREAS, the Subject Shares represent at least 50.1% of the voting
power of the issued and outstanding shares of capital stock of the Company
entitled to vote on each of the matters set forth in Section 4(c) and 4(d)
hereof; and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, McClatchy has required that each Voting Trustee and Certificateholder
enter into this Agreement.
NOW, THEREFORE, to induce McClatchy to enter into, and in consideration
of its entering into, the Merger Agreement, and in consideration of the premises
and the representations, warranties and agreements contained herein, the parties
agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE VOTING TRUSTEES. The Voting
Trustees hereby, severally and jointly, represent and warrant to McClatchy as
follows:
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(a) AUTHORITY. The Voting Trustees have all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Voting Trustees and constitutes a valid and binding obligation
of the Voting Trustees enforceable in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to the enforcement of creditors' rights
generally and is subject to general principles of equity. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time or both) under any provision of the Voting Trust, any trust agreement,
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise, license, judgment, order,
notice, decree, statute, law, ordinance, rule or regulation applicable to the
Voting Trustees or to the Subject Shares the effect of which, in any case, would
be material and adverse to the ability of the Voting Trustees to comply with the
terms hereof.
(b) THE SUBJECT SHARES. The Voting Trustees are the record owners of,
and possess the legal title to, the Subject Shares set forth on Schedule A
attached hereto, free and clear of any claims, liens, encumbrances and security
interests whatsoever, other than the encumbrance represented by the Voting Trust
and the Voting Trust Agreement and as contemplated hereunder. Upon obtaining the
affirmative vote of Certificateholders representing at least two-thirds
beneficial interest in the Subject Shares (as provided for in Sections 4(a) and
4(b) hereof), the Voting Trustees have the sole right to vote such Subject
Shares in favor of the Reorganization. Other than the Voting Trust, none of such
Subject Shares is subject to any voting trust or other agreement, arrangement or
restriction, except as contemplated by this Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE CERTIFICATEHOLDERS. Each
Certificateholder hereby, severally and not jointly, represents and warrants to
McClatchy as follows:
(a) AUTHORITY. The Certificate holder has all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Certificateholder and constitutes a valid and binding
obligation of the Certificateholder enforceable in accordance with its terms
except as such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to the enforcement of
creditors' rights generally and is subject to general principles of equity. The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time or both) under any provision of, any trust agreement, loan or
credit agreement, note bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license, judgment, order, notice,
decree, statute, law, ordinance rule or regulation applicable to the
Certificateholder or to the Subject Shares.
(b) THE SUBJECT SHARES. The Certificateholder is the beneficial owner
of the number of Subject Shares set forth opposite his, her or its name on
Schedule B attached hereto, free and clear of any claims, liens, encumbrances
and security interests whatsoever other than the Voting Trust as contemplated
hereunder. Other than the Voting Trust, none of such Subject Shares is subject
to any voting trust or other agreement, arrangement or restriction, except as
contemplated by this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF MCCLATCHY. McClatchy hereby
represents and warrants to each Voting Trustee and Certificateholder that
McClatchy has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. The execution
and
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<PAGE>
delivery of this Agreement by McClatchy, and the consummation of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action on the part of McClatchy. This Agreement has been duly executed
and delivered by McClatchy and constitutes a valid and binding obligation of
McClatchy enforceable in accordance with its terms.
4. COVENANTS OF THE VOTING TRUSTEES AND EACH CERTIFICATEHOLDER. Until
the termination of this Agreement in accordance with Section 9 hereof, the
Voting Trustees, severally and jointly, and each Certificateholder, severally
and not jointly, agree as follows:
(a) VOTE OF THE CERTIFICATEHOLDERS. Unless the Voting Trustees have
already done so, as soon as practicable after the date hereof, but in no event
later than immediately prior to any duly noticed meeting of stockholders of the
Company called to vote upon the Company Merger and the Merger Agreement or any
adjournment thereof or in any other circumstances upon which a vote, consent or
other approval (including by written consent) with respect to the Company Merger
and the Merger Agreement is sought, the Voting Trustees shall, including by
initiating a written consent solicitation, in accordance with paragraphs 6, 11
and 12 of the Voting Trust, call and duly notice a meeting of Certificateholders
for the purpose of obtaining the vote of at least two-thirds interest in the
Subject Shares (or in the case of a written consent, at least nine-tenths
interest in the Subject Shares) in favor of the Company Merger, the adoption by
the Company of the Merger Agreement and the approval of the terms thereof.
(b) CERTIFICATEHOLDERS; VOTE FOR THE COMPANY MERGER. At any duly
noticed meeting of Certificateholders called to vote upon the Company Merger and
the Merger Agreement or at any adjournment thereof or in any other circumstances
upon which a vote, consent or other approval (including by written consent) with
respect to the Company Merger and the Merger Agreement is sought, the
Certificateholders shall vote (or cause to be voted) the number of Subject
Shares set forth opposite his, her or its name on Schedule B attached hereto in
favor of the Company Merger, the adoption by the Company of the Merger Agreement
and the approval of the terms thereof. The Certificateholder hereby waives any
appraisal rights granted pursuant to Section 262 of the General Corporation Law
of the State of Delaware (the "DGCL") (or any successor provision) to which it
may otherwise be entitled as a result of the Company Merger or the other
transactions contemplated by the Merger Agreement.
(c) STOCKHOLDERS; VOTE FOR THE COMPANY MERGER. At any duly noticed
meeting of stockholders of the Company called to vote upon the Company Merger
and the Merger Agreement or at any adjournment thereof or in any other
circumstances upon which a vote, consent or other approval (including by written
consent) with respect to the Company Merger and the Merger Agreement is sought,
the Voting Trustees shall vote (or cause to be voted) the Subject Shares in
favor of the Company Merger, the adoption by the Company of the Merger Agreement
and the approval of the terms thereof.
(d) VOTE AGAINST ALTERNATIVE PROPOSALS. At any duly noticed meeting of
stockholders of the Company or at any adjournment thereof or in any other
circumstances upon which the stockholders' vote, consent or other approval is
sought, the Voting Trustees shall be present (in person or by proxy) and shall
vote (or cause to be voted) the Subject Shares against (i) any merger agreement
or merger (other than the Merger Agreement and the Company Merger),
consolidation, combination, sale of substantial assets, reorganization,
recapitalization, dissolution, liquidation or winding up of or involving the
Company (each an "Alternative Proposal") or (ii) any amendment of the Company's
certificate of incorporation or by-laws or other proposal or transaction
involving the Company or any of its subsidiaries, which amendment or other
proposal or transaction would in any manner impede, frustrate, prevent, delay or
nullify the Company Merger, the Merger Agreement or any of the other
transactions contemplated by the Merger
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Agreement or change in any manner the voting rights of any class of capital
stock of the Company. The Voting Trustees further agree not to commit or agree
to take any action inconsistent with the foregoing.
(e) TRANSFER OF SUBJECT SHARES. Except pursuant to this Agreement and
except as provided in the immediately succeeding sentence of this Section 4(e),
the Voting Trustees and Certificateholders agree not to (i) transfer, sell,
pledge, assign or otherwise dispose of (including by gift) (collectively,
"Transfer"), or enter into any contract, option or other arrangement (including
any profit sharing arrangement) with respect to the Transfer of, the Subject
Shares to any person, other than pursuant to the terms of the Company Merger, or
(ii) enter into any voting arrangement, whether by proxy, power-of-attorney,
voting agreement, voting trust or otherwise, in connection with, directly or
indirectly, any Alternative Proposal.
(f) NO SOLICITATION. During the terms of this Agreement, the Voting
Trustees and Certificateholders shall not, nor shall they permit any of their
Affiliates or any director, officer, employee, investment banker, attorney or
other advisor or representative of any of the foregoing to, (i) directly or
indirectly, solicit, initiate or knowingly encourage the submission of, any
Alternative Proposal or (ii) directly or indirectly participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or knowingly take any other action to facilitate any inquires
or the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Alternative Proposal.
(g) ASSISTANCE. Until the Company Merger is consummated or the Merger
Agreement is terminated other than pursuant to Section 9.01(c) or Section
9.01(d) of the Merger Agreement as a result of the failure to obtain Company
Stockholder Approval, the Voting Trustees and Certificateholders shall use all
reasonable efforts to assist and cooperate with the other parties to consummate
and make effective, in the most expeditious manner practicable, the Company
Merger and the other transactions contemplated by the Merger Agreement.
(h) TREATMENT OF CERTAIN CERTIFICATEHOLDER PROFITS. (i) In the event of
that the Merger Agreement shall have been terminated pursuant to Section 9.01(c)
or 9.01(d) of the Merger Agreement as a result of the failure to obtain Company
Stockholder Approval at a meeting of the shareholders of the Company called for
the purpose of obtaining such approval, each Certificateholder which failed to
comply with its voting obligations hereunder shall pay to McClatchy on demand an
amount equal to all profit (determined in accordance with Section 4(b)(ii) of
such Certificateholder from the consummation of any Alternative Proposal (an
"Alternative Transaction") within 18 months of such termination.
(ii) For purposes of this Section 4(h), the profit of any
Certificateholder from any Alternative Transaction shall equal (A) the
aggregate consideration received by such Certificateholder (or which
such Certificateholder is legally entitled to receive) pursuant to such
Alternative Transaction, valuing any non-cash consideration (including
any residual interest in the Company) at its fair market value on the
date of such consummation plus (B) the fair market value, on the date
of disposition, of all Subject Shares of such Certificateholder
disposed of after the termination of the Merger Agreement and prior to
the date of such consummation of an Alternative Transaction less (C)
the fair market value of the aggregate consideration that would have
been issuable or payable to such Certificateholder pursuant to the
Merger Agreement in effect on the date hereof, valued as of immediately
prior to the first public announcement of the termination of, or the
intention of McClatchy or the Company to terminate, the Merger
Agreement, as if the Company Merger had been consummated on the date of
such public announcement. For purposes of clause (D) above, the fair
market value of the Class A Common Stock of Newco Holding that would
have been received by the stockholders
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pursuant to the Merger Agreement as originally executed shall be deemed
to be the fair market value of the Class A Common stock, par value $.01
per share, of McClatchy.
(ii) For purposes of this Section 4(h), the fair market value
of any non-cash consideration consisting of:
(A) securities listed on a national securities exchange or
traded on Nasdaq shall be equal to the average closing price per share
of such security as reported on the composite trading system of such
exchange or by Nasdaq for the five trading days ending on the trading
day immediately prior to the date of value determination; and
(B) consideration which is other than cash or securities of
the form specified in clause (A) of this Section 4(h)(iii) shall be
determined by a nationally recognized independent investment banking
firm mutually agreed upon by the parties within 10 business days of the
event requiring selection of such banking firm; PROVIDED, HOWEVER, that
if the parties are unable to agree within two business days after the
date of such event as to the investment banking firm, then the parties
shall each select one firm, and those firms shall select a third
investment banking firm, which third firm shall make such
determination; PROVIDED FURTHER, that the fees and expenses of such
investment banking firm shall be borne equally by McClatchy, on the one
hand, and the Certificateholders which are required to pay profit to
McClatchy pursuant hereto on the other hand. The determination of the
investment banking firm shall be binding upon the parties.
(iii) Any payment of profit under this Section 4(h) shall (x)
if paid in cash, be paid by wire transfer of same day funds to an
account designated by McClatchy and (y) if paid through a mutually
agreed transfer of securities, to the extent such transfer is permitted
by applicable law and the transfer of such securities to McClatchy
would not adversely impact McClatchy, or the value of such securities,
be paid through delivery of such securities, suitably endorsed for
transfer.
5. GRANT OF IRREVOCABLE PROXY.
(a) EXISTING PROXIES REVOKED. The Voting Trustees represent that any
proxies heretofore given in respect of the Subject Shares are not irrevocable,
and that any such proxies are hereby revoked.
(b) GRANT OF IRREVOCABLE PROXY TO MCCLATCHY AND NEWCO HOLDING.
Following the receipt of the vote of the Certificateholders called for in
Section 4(b) above, upon McClatchy's or Newco Holding's request, each Voting
Trustee hereby agrees to irrevocably grant to, and appoint, McClatchy and Newco
Holding, and each of them, and any person who may hereafter be designated by
McClatchy or Newco Holding as permitted under applicable law, and each of them
individually, the Voting Trustee's proxy and attorney-in-fact (with full power
of substitution), for and in the name, place and stead of the Voting Trustee, to
vote the Subject Shares, or grant a consent or approval in respect of such
Subject Shares, in favor of or against, as the case may be, the matters set
forth in Sections 4(c) and 4(d), and to execute and deliver an appropriate
instrument irrevocably granting such proxy. The proxy granted herein shall
terminate upon any termination of this Agreement in accordance with its terms.
(c) AFFIRMATIONS. Each Voting Trustee hereby affirms that any
irrevocable proxy granted pursuant to Section 5(b) will be given in connection
with the execution of the Merger Agreement, and that such irrevocable proxy will
be given to secure the performance of the duties of the Voting Trustees under
this
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Agreement. If so granted, the Voting Trustees hereby ratify and confirm all that
such irrevocable proxy may lawfully do or cause to be done by virtue thereof.
Such irrevocable proxy, if and when executed, is intended to be irrevocable in
accordance with the provisions of Section 212(e) of the DGCL.
6. AFFILIATE LETTER, TAX CERTIFICATES. Each Voting Trustee and
Certificateholder, to the extent an Affiliate of the Company, shall execute and
deliver an Affiliate Letter contemplated by the Merger Agreement and such tax
certificates as may reasonably be requested by the Company in connection with
the rendering of the tax opinions contemplated by the Merger Agreement.
7. FURTHER ASSURANCES. Each Voting Trustee and Certificateholder will
from time to time, execute and deliver, or cause to be executed and delivered,
such additional or further consents, documents and other instruments as
McClatchy or Newco Holding may reasonably request for the purpose of effectively
carrying out the transactions contemplated by this Agreement.
8. ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties without the
prior written consent of the other parties, except that McClatchy may assign, in
its sole discretion, any or all of its rights, interest and obligations
hereunder to Newco Holding or to any direct or indirect wholly owned subsidiary
of McClatchy. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective heirs, successors and assigns.
9. TERMINATION. This Agreement shall terminate upon the earlier of (a)
the 18 month anniversary of the termination of the Merger Agreement or (b) the
Effective Time of the Company Merger; PROVIDED, HOWEVER, that unless (x) the
Company is in material breach of its material obligations under the Merger
Agreement, (y) any Voting Trustee or Certificateholder is in material breach of
its material obligations under this Agreement or (z) a meeting of the Company's
stockholders (or any adjournment thereof) has been held to consider the Company
Merger and the other transactions contemplated by the Merger Agreement and the
requisite approval of the stockholders of the Company was not obtained, this
Agreement shall terminate at the time the Merger Agreement is terminated
pursuant to Section 9.01 thereof. Notwithstanding the foregoing, Section 4(h)
shall (if operative in accordance with its terms) survive the termination of the
Merger Agreement for the period of time specified therein.
10. GENERAL PROVISIONS.
(a) AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) NOTICE. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed) or sent by overnight courier (providing proof of delivery) to
McClatchy in accordance with the notification provision contained in the Merger
Agreement and to the Voting Trustees and Certificateholders at their respective
addresses set forth on Schedule A and Schedule B attached hereto (or at such
other address for a party as shall be specified by like notice).
(c) INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Wherever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation."
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(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each of the parties and delivered to the other party, it being understood that
each party need not sign the same counterpart.
(e) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
(including the documents and instruments referred to herein) (i) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (ii) is not intended to confer upon any person other than the parties hereto
and other than Newco Holding, which is an express beneficiary of this Agreement,
any rights or remedies hereunder.
(f) GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
(g) PUBLIC ANNOUNCEMENTS. Each voting Trustee and Certificateholder
will consult with McClatchy and use reasonable efforts to agree upon the text of
any press release, before issuing any press release or otherwise making public
statements with respect to the transactions contemplated by this Agreement and
the Merger Agreement and shall not issue any such press release or make any such
public statement without McClatchy's prior consent, which consent shall not be
unreasonably withheld, except as may be required by applicable law (including
requirements of stock exchanges and other similar regulatory bodies).
(h) SEVERABILITY. If any term, provision, covenant or restriction
herein, or the application thereof to any circumstance, shall, to any extent, be
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions herein and
the application thereof to any other circumstances, shall remain in full force
and effect, shall not in any way be affected, impaired or invalidated, and shall
be enforced to the fullest extent permitted by law, and the parties hereto shall
reasonably negotiate in good faith a substitute term or provision that comes as
close as possible to the invalidated and unenforceable term or provision, and
that puts each party in a position as nearly comparable as possible to the
position each such party would have been in but for the finding of invalidity or
unenforceability, while remaining valid and enforceable.
11. VOTING TRUSTEE AND CERTIFICATEHOLDER CAPACITY. No person executing
this Agreement who is or becomes during the term hereof a director or officer of
the Company makes any agreement or understanding herein in his capacity as such
director or officer. Each Voting Trustee and Certificateholder signs solely in
his or her capacity as the record holder and beneficial owner, respectively, of
the number of Subject Shares set forth opposite his, her or its name in
Schedules A and B, respectively, and nothing herein shall limit or affect any
actions taken by a Voting Trustee or Certificateholder in his, her or its
capacity as an officer or director of the Company to the extent specifically
permitted by the Merger Agreement. Nothing in this Agreement shall be deemed to
constitute a transfer of the beneficial ownership of the Subject Shares.
12. ENFORCEMENT. The parties agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Minnesota or in a Minnesota state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
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<PAGE>
addition, each of the parties hereto (i) consents to submit to the personal
jurisdiction of any Federal court located in the State of Minnesota or any
Minnesota state court in the event any dispute arises out of this Agreement or
any of the transactions contemplated hereby, (ii) agrees that such party will
not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, (iii) agrees that such party will not
bring any action relating to this Agreement or the transactions contemplated
hereby in any court other than a Federal court sitting in the State of Minnesota
or a Minnesota state court, (iv) waives any right to trial by jury with respect
to any claim or proceeding related to or arising out of this Agreement or any of
the transactions contemplated hereby.
(Signature page follows)
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IN WITNESS WHEREOF, McClatchy has caused this Agreement to be signed by
its officer thereunto duly authorized and each Voting Trustee and
Certificateholder has signed this Agreement or has caused this Agreement to be
signed by its officer thereunto duly authorized, all as of the date first
written above.
MCCLATCHY, INC.
By: /S/ GARY PRUITT
--------------------------------------
Name: Gary Pruitt
Title: President
VOTING TRUSTEES:
/S/ ELIZABETH BALLANTINE
-----------------------------------------------
Elizabeth Ballantine
/S/ ELIZABETH BULLITT
-----------------------------------------------
Elizabeth Bullitt
/S/ JOHN COWLES, III
-----------------------------------------------
John Cowles, III
/S/ RUSSELL COWLES, II
-----------------------------------------------
Russell Cowles, II
/S/ JOE SCOFIELD
-----------------------------------------------
Joe Scofield
CERTIFICATEHOLDERS:
/S/ MORLEY COWLES BALLANTINE
-----------------------------------------------
Morley Cowles Ballantine, individually and as
trustee of the John Cowles Family Trust FBO:
Morley Cowles Ballantine (S.D.#30630)
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<PAGE>
/S/ RICHARD G. BALLANTINE
-----------------------------------------------
Richard G. Ballantine, individually and as
trustee of the John Cowles Family Trust FBO:
Morley Cowles Ballantine (S.D.#30630), the
Arthur C. Ballantine Trust FBO: Richard Gale
Ballantine, the Arthur C. Ballantine Trust FBO:
Elizabeth Ballantine, the Arthur C. Ballantine
Trust FBO: William Gay Ballantine, and the
Arthur C. Ballantine Trust FBO: Helen
Ballantine Healy
/S/ FIRST BANK OF SOUTH DAKOTA, N.A.
-----------------------------------------------
First Bank of South Dakota, N.A. as trustee of
the John Cowles Family Trust FBO: Morley Cowles
Ballantine (S.D.#30630), the Elizabeth Bates
Cowles Family Trust FBO: Sarah Cowles Doering
(S.D.#30660), Sarah Cowles Bullitt Trust for
Radcliffe College and Elizabeth Bullitt and
Others (S.D.#30500), Sarah Cowles Bullitt Trust
for Radcliffe College and Margaret Morley
Bullitt and Others (S.D.#30510), John Cowles
Family Trust FBO: John Cowles, Jr.
(S.D.#30640), and the John Cowles Family Trust
FBO: Russell Cowles, II (S.D.#30650)
/S/ ELIZABETH BALLANTINE
-----------------------------------------------
Elizabeth Ballantine, individually and as
trustee of the Arthur A. Ballantine Trust FBO:
Richard Gale Ballantine, the Arthur A.
Ballantine Trust FBO: Elizabeth Ballantine, the
Arthur A. Ballantine Trust FBO: William Gay
Ballantine, and the Arthur A. Ballantine Trust
FBO: Helen Ballantine Healy
/S/ SARAH COWLES DOERING
-----------------------------------------------
Sarah Cowles Doering (a.k.a. Sarah Cowles
Bullitt), as trustee of the Sarah Cowles
Bullitt Living Trust Agreement dated August 10,
1968 (as amended and restated) and the
Elizabeth Bates Cowles Family Trust FBO: Sarah
Cowles Doering (S.D.#30660)
/S/ ELIZABETH BULLITT
-----------------------------------------------
Elizabeth Bullitt, individually and as trustee
of the Sarah Cowles Bullitt Living Trust
Agreement dated August 10, 1968 (as amended and
restated) and the Elizabeth Bates Cowles Family
Trust FBO: Sarah Cowles Doering (S.D.#30660)
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/S/ PHILIP S. SHERBURNE
-----------------------------------------------
Philip S. Sherburne, as trustee of the Sarah
Cowles Bullitt Living Trust Agreement dated
August 10, 1968 (as amended) and restated) and
the John Cowles, III Living Trust dated January
4, 1991
/S/ MARGARET MORLEY BULLITT-JONAS
-----------------------------------------------
Margaret Morley Bullitt-Jonas, individually and
as trustee of the Sarah Cowles Bullitt Trust
for Radcliffe College and Elizabeth Bullitt and
Others (S.D.#30500) and the Sarah Cowles
Bullitt Trust for Radcliffe College and
Margaret Morley Bullitt and Others (S.D.#30510)
/S/ JOHN BULLITT
-----------------------------------------------
John Bullitt, as trustee of the Sarah Cowles
Bullitt Trust for Radcliffe College and
Margaret Morley Bullitt and Others (S.D.#30510)
/S/ JOHN COWLES, III
-----------------------------------------------
John Cowles, III, as trustee of the John
Cowles, Jr. Irrevocable Short-Term Trust dated
November 29, 1990, the John Cowles Family Trust
FBO: John Cowles, Jr. (S.D.#30640), the Sage
Fuller Cowles Irrevocable Short-Term Trust
dated November 29, 1990, and the John Cowles,
III Living Trust dated January 4, 1991
/S/ TESSA SAGE FLORES
-----------------------------------------------
Tessa Sage Flores, as trustee of the John
Cowles Family Trust FBO: John Cowles, Jr.
(S.D.#30640)
/S/ JANE SAGE COWLES
-----------------------------------------------
Jane Sage Cowles, as trustee of the John Cowles
Family Trust FBO: John Cowles, Jr. (S.D.#30640)
/S/ CHARLES FULLY COWLES
-----------------------------------------------
Charles Fully Cowles, as trustee of the John
Cowles Family Trust FBO: John Cowles, Jr.
(S.D.#30640)
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<PAGE>
/S/ JOHN COWLES, JR.
-----------------------------------------------
John Cowles, Jr., as trustee of the John Cowles
Family Trust FBO: John Cowles, Jr. (S.D.#30640)
/S/ RUSSELL COWLES, II
-----------------------------------------------
Russell Cowles, II, as trustee of the John
Cowles Family Trust FBO: Russell Cowles, II
(S.D.#30650)
/S/ MARGUERITE COWLES
-----------------------------------------------
Marguerite Cowles, as trustee of the John
Cowles Family Trust FBO: Russell Cowles, II
(S.D.#30650)
/S/ LISA KRUIDENIER
-----------------------------------------------
Lisa Kruidenier
/S/ ANN B. BURNS
-----------------------------------------------
Ann B. Burns, as trustee of the Sarah Cowles
Bullitt Living Trust Agreement dated August 10,
1990 (as amended and restated)
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SCHEDULE A
Shares Record Holder
- ------ -------------
2,163,186 Voting Trustees of the Amended and Restated Voting
Voting Common Stock Trust Agreement effective October 30, 1996
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<PAGE>
SCHEDULE B
Shares Certificateholder
- ------ -----------------
158,988 Morley Cowles Ballantine
228,342 Morley Cowles Ballantine, Richard G. Ballantine and First Bank of
South Dakota, N.A. as trustees of John Cowles Family Trust FBO:
Morley Cowles Ballantine (S.D.#30630)
25,344 Richard G. Ballantine
3,330 Arthur C. Ballantine Trust FBO: Richard Gale Ballantine,
Elizabeth Ballantine and Richard G. Ballantine, Trustees
29,214 Elizabeth Ballantine
3,336 Arthur C. Ballantine Trust FBO: Elizabeth Ballantine, Elizabeth
Ballantine and Richard G. Ballantine, Trustees
3,330 Arthur C. Ballantine Trust FBO: William Gay Ballantine, Elizabeth
Ballantine and Richard G. Ballantine, Trustees
3,336 Arthur C. Ballantine Trust FBO: Helen Ballantine Healy, Elizabeth
Ballantine and Richard G. Ballantine, Trustees
600 Sarah Cowles Doering, Elizabeth Bullitt, Philip S. Sherburne and
Ann B. Burns, Trustees of Sarah Cowles Bullitt Living Trust
Agreement dated August 10, 1968 (as amended and restated)
232,950 Sarah Cowles Doering, Elizabeth Bullitt and First Bank of South
Dakota, N.A., Trustees of the Elizabeth Bates Cowles Family Trust
FBO: Sarah Cowles Doering (S.D.#30660)
98,286 Elizabeth Bullitt
67,956 Margaret Morley Bullitt-Jonas (a.k.a. Margaret Morley Bullitt)
28,200 Elizabeth Bullitt, Margaret Morley Bullitt, and First Bank of
South Dakota, N.A. as Trustees of Sarah Cowles Bullitt Trust for
Radcliffe College and Elizabeth Bullitt and Others (S.D.#30500)
23,250 Margaret Morley Bullitt, John Bullitt and First Bank of South
Dakota, N.A. as Trustees of Sarah Cowles Bullitt Trust for
Radcliffe College and Margaret Morley Bullitt and Others
(S.D.#30510)
246,152 John Cowles, III, Trustee of John Cowles, Jr. Irrevocable
Short-Term Trust dated November 29, 1990
217,482 John Cowles, Jr., John Cowles, III, Tessa Sage Flores, Jane Sage
Cowles, Charles Fuller Cowles and First Bank of South Dakota,
N.A. as Trustees of the John Cowles Family Trust FBO: John
Cowles, Jr. (S.D.#30640)
301,738 John Cowles, III, Trustee of the Sage Fuller Cowles Irrevocable
Short- Term Trust dated November 29, 1990
23,172 John Cowles, III and Philip S. Sherburne, Trustees of the John
Cowles, III Living Trust dated January 4, 1991
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<PAGE>
Shares Certificateholder
- ------ -----------------
228, 342 Russell Cowles, II, Marguerite A. Cowles and First Bank of South
Dakota, N.A. as Trustees of John Cowles Family Trust FBO: Russell
Cowles, II (S.D.#30650)
70,746 Lisa Kruidenier
1,994,094 - 92.18%
- ---------
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<PAGE>
ANNEX D
-------
[SALOMON BROTHERS INC LETTERHEAD]
November 13, 1997
Board of Directors
McClatchy Newspapers, Inc.
2100 Q Street
Sacramento, California 95816-6899
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, of the consideration to be paid by McClatchy
Newspapers, Inc. ("McClatchy") in its proposed acquisition of Cowles Media
Company (the "Company") pursuant to the Agreement and Plan of Merger and
Reorganization (the "Reorganization Agreement"), dated as of November 13, 1997,
by and between McClatchy and the Company.
We understand that the Reorganization Agreement provides for the merger
of a wholly owned subsidiary of a newly formed Delaware corporation ("Newco
Holding") with and into the Company (the "Company Merger"). In the Company
Merger, as set forth more fully in the Reorganization Agreement, each issued and
outstanding share of the common stock (voting and nonvoting), no par value, of
the Company ("Company Common Stock") (other than shares (a) held in treasury of
the Company, (b) owned by the Company, McClatchy or any of their respective
affiliates or (c) which are the subject of appraisal rights) shall be converted
into either (at the election of the holder of such shares subject to proration )
(i) the right to receive $90.50 in cash or (ii) a number of fully paid and
nonassessable shares of Class A common stock, par value $.01 per share, of Newco
Holding ("Newco Class A Common Stock") with a market value (determined in the
manner set forth in the Reorganization Agreement) equal to $90.50 but in no
event less than 2.68820 shares or more than 3.01667 shares. The Reorganization
Agreement further provides that in no event will fewer than 15% nor more than
25% of the outstanding shares of Company Common Stock be converted into Newco
Class A Common Stock in the Company Merger.
We further understand that the Reorganization Agreement also provides
for the merger of a second wholly owned subsidiary of Newco Holding with and
into McClatchy (the "McClatchy Merger" and, with the Company Merger, the
"Mergers"). In
D-1
<PAGE>
Board of Directors
McClatchy Newspapers, Inc.
November 13, 1997
Page 2
the McClatchy Merger, each issued and outstanding share of Class A and Class B
common stock, par value $.01 per share of McClatchy ("McClatchy Common Stock")
(other than shares (a) held in treasury of McClatchy, (b) owned by McClatchy,
the Company or any of their respective subsidiaries or (c) which are the subject
of appraisal rights) will be converted into one share of Newco Class A Common
Stock or one share of Class B common stock, par value $.01 per share, of Newco
Holding ("Newco Class B Common Stock"), respectively. We understand that Newco
Class A Common Stock and Newco Class B Common Stock have rights identical to the
Class A and Class B common stock of McClatchy, respectively.
In connection with rendering our opinion, we have reviewed (i) the
Reorganization Agreement, (ii) certain publicly available information concerning
the Company and McClatchy; (iii) certain internal information, primarily
financial in nature, including forecasts and pro forma financial information,
concerning the business and operations of the Company and McClatchy as well as
the proposed financing of the Mergers provided to us by McClatchy and the
Company respectively for purposes of our analysis; (iv) certain publicly
available information concerning the trading of, and the trading market for,
McClatchy Common Stock; (v) certain publicly available information with respect
to certain companies that we believe to be comparable to the Company and
McClatchy and the trading markets for such other companies' securities; and (vi)
certain publicly available information concerning the nature and terms of
certain other acquisition transactions that we consider relevant to our inquiry.
We have discussed the past and current business operations, financial condition
and prospects of the Company and McClatchy with certain officers and employees
of McClatchy and the Company, respectively. We have also considered such other
information, financial studies, analyses, investigations and financial, economic
and market criteria that we deemed relevant.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information reviewed by us for the purpose of this opinion and have
neither attempted to independently verify nor assumed responsibility for
verifying any of such information. With respect to the financial forecasts
(including pro forma financial information) and supporting assumptions
(including anticipated synergies and cost savings resulting from the acquisition
by McClatchy of the Company), we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the respective managements of McClatchy and the Company as to the
future financial performance of the Company and McClatchy. We express no opinion
with respect to such forecasts or the assumptions on which they were based. We
have not
D-2
<PAGE>
Board of Directors
McClatchy Newspapers, Inc.
November 13, 1997
Page 3
conducted a physical inspection of any of the properties or facilities of the
Company and McClatchy, nor have we made or obtained or assumed responsibility
for making or obtaining any independent evaluations or appraisals of any assets
(including properties and facilities) or liabilities of the Company and
McClatchy.
Our opinion is necessarily based upon conditions as they exist and can
be evaluated on the date hereof and we assume no responsibility to update or
revise our opinion based upon circumstances and events occurring after the date
hereof. Our opinion as expressed below does not imply any conclusion as to the
likely trading range for Newco Class A Common Stock following the consummation
of the Mergers, which may vary depending upon, among other factors, changes in
interest rates, dividend rates, market conditions, general economic conditions
and other factors that generally influence the price of securities. Our opinion
is limited to the fairness, from a financial point of view, of the consideration
to be paid by McClatchy in the proposed acquisition of the Company and does not
address McClatchy's underlying business decision to effect the Mergers or
constitute a recommendation concerning how holders of McClatchy Common Stock
should vote with respect to the Mergers.
We have acted as financial advisor to McClatchy in connection with the
Mergers and will receive a fee for our services, a portion of which is payable
upon the execution of the Reorganization Agreement and the remainder of which is
contingent upon consummation of the Mergers. In the ordinary course of business,
we may actively trade the securities of McClatchy and the Company for our own
account and for the accounts of customers and, accordingly, may at any a time
hold a long or short position in such securities.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the consideration to be paid by McClatchy in the proposed
acquisition of the Company is fair, from a financial point of view, to
McClatchy.
Very truly yours,
/s/ Salomon Brothers Inc
Salomon Brothers Inc
D-3
<PAGE>
ANNEX E
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[GOLDMAN, SACHS & CO. LETTERHEAD]
PERSONAL AND CONFIDENTIAL
- -------------------------
November 13, 1997
Board of Directors
Cowles Media Company
329 Portland Avenue
Minneapolis, MN 55415-1112
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to the holders of the outstanding shares of voting and non-voting Common Stock,
$0.17 stated value, (the "Shares") of Cowles Media Company (the "Company") of
the Stock Consideration and Cash Consideration (as defined below) to be received
by such holders pursuant to the Agreement and Plan of Merger and Reorganization,
dated as of November 13, 1997, between McClatchy Newspapers, Inc. ("McClatchy")
and the Company (the "Agreement"). Pursuant to the Agreement, the Company will
be merged (the "Merger") with a wholly-owned subsidiary of MNI Newco, Inc., a
newly formed holding company ("Newco") owned by McClatchy and formed for the
purpose of effectuating the transactions contemplated by the Agreement. Pursuant
to the Agreement, each holder of Shares shall be entitled to elect to receive
for each Share either cash consideration of $90.50 (the "Cash Consideration") or
that number of shares of Newco Class A Common Stock, par value $0.01, (the
"Newco Common Stock") equal to $90.50 divided by the Volume Adjusted Weighted
Average Trading Price (as defined in the Agreement) (the "Exchange Ratio"),
provided that the Exchange Ratio shall not be less than 2.68820 nor more than
3.01667 (the "Stock Consideration"); and provided, further, that if the total
number of Shares designated by holders to be exchanged for Cash Consideration or
for Stock Consideration exceeds the Maximum Cash Number or the Maximum Stock
Number, respectively (as such terms are defined in the Agreement), the elections
shall be subject to certain procedures and limitations as set forth in the
Agreement, as to which procedures and limitations we are expressing no opinion.
The Agreement also provides that simultaneously with the Merger a wholly-owned
subsidiary of Newco will be merged with McClatchy, and each holder of Class A
Common Stock and Class B Common Stock of McClatchy will be entitled to receive
for each of such shares, a corresponding share of Newco Common Stock or Newco
Class B Common Stock, as the case may be.
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company, having acted as its financial advisor in connection with, and
having participated in the negotiations leading to, the Agreement. Goldman,
Sachs & Co. may provide investment banking services to McClatchy or Newco in the
future. Goldman, Sachs & Co. provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from
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<PAGE>
Cowles Media Company
November 13, 1997
Page Two
time to time effect transactions and hold securities, including derivative
securities, of the Company or McClatchy for its own account and for the accounts
of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders of the Company for the five fiscal
years ended March 31, 1997 and Annual Reports to Stockholders and Annual Reports
on Form 10-K of McClatchy for the five years ended December 31, 1996; certain
interim reports to stockholders and Quarterly Reports of the Company and certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of McClatchy;
certain other communications from the Company and McClatchy to their respective
stockholders; and certain internal financial analyses and forecasts for the
Company and McClatchy prepared by members of their respective senior
managements. We also have held discussions with members of the senior
managements of the Company and McClatchy regarding the past and current business
operations, financial condition and future prospects of their respective
companies. In addition, we have reviewed the reported price and trading activity
for the publicly traded shares of the Company and McClatchy, compared certain
financial and stock market information for the Company and McClatchy with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the newspaper industry specifically and in other industries
generally and performed such other studies and analyses as we considered
appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and completeness
for purposes of rendering this opinion. We have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or
McClatchy or any of their subsidiaries, and we have not been furnished with any
such evaluation or appraisal. Our advisory services and the opinion expressed
herein are provided for the information and assistance of the Board of Directors
of the Company in connection with its consideration of the transaction
contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any holder of Shares should vote with respect to such
transaction. We are not expressing any opinion herein as to the prices at which
the shares of Newco Common Stock may trade if and when they are issued.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Stock
Consideration and the Cash Consideration to be received by holders of Shares
pursuant to the Agreement taken as a unitary transaction is fair from a
financial point of view to the holders of Shares.
Very truly yours,
/s/ Goldman, Sachs & Co.
- -----------------------------
(GOLDMAN, SACHS & CO.)
E-2
<PAGE>
ANNEX F
-------
SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sections 251 (other than a merger effected pursuant to
subsection (g) of section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at the
record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the holders of the surviving corporation as provided in
subsection (f) of section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares
of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger or
consolidation pursuant to sections 251, 252, 254, 257, 258, 263 and 264
of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock
or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities
exchange or designated as a national market system security on
an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
holders;
F-1
<PAGE>
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under section 253 of this title
is not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was
such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsections (b) or (c)
hereof that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such notice a
copy of this section. Each stockholder electing to demand the appraisal
of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal
of his shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A
proxy or vote against the merger or consolidation shall not constitute
such a demand. A stockholder electing to take such action must do so by
a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
section 228 or section 253 of this title, each constituent corporation,
either before the effective date of the merger or consolidation or
within ten days thereafter, shall notify each of the holders of any
class or series of stock of such constituent corporation who are
entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all
shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of
the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a
F-2
<PAGE>
constituent corporation that are entitled to appraisal rights. Such
notice may, and, if given on or after the effective date of the merger
or consolidation, shall, also notify such stockholders of the effective
date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within twenty days after the date of mailing of
such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation,
either (i) each such constituent corporation shall send a second notice
before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent
corporation that are entitled to appraisal rights of the effective date
of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection.
An affidavit of the secretary or assistant secretary or of the transfer
agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining
the stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more
than 10 days prior to the date the notice is given; provided that, if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such
F-3
<PAGE>
a duly verified list. The Register in Chancery, if so ordered by the Court,
shall give notice of the time and place fixed for the hearing of such petition
by registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the
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<PAGE>
surviving or resulting corporation a written withdrawal of his demand for an
appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
F-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL permits New McClatchy's board of directors to
indemnify any person against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him or
her in connection with any threatened, pending or completed action, suit or
proceeding in which such person is made a party by reason of his or her being or
having been a director, officer, employee or agent of New McClatchy, in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Securities Act of 1933, as amended (the "Securities Act"). The statute
provides that indemnification pursuant to its provisions is not exclusive of
other rights of indemnification to which a person may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors, or
otherwise.
Article VII of New McClatchy's Restated Certificate of Incorporation
provides for indemnification of its directors, officers, employees and other
agents to the fullest extent permitted by law.
As permitted by sections 102 and 145 of the DGCL, New McClatchy's
Restated Certificate of Incorporation eliminates a director's personal liability
for monetary damages to New McClatchy and its stockholders arising from a breach
or alleged breach of a director's fiduciary duty except for liability under
section 174 of the DGCL or liability for any breach of the director's duty of
loyalty to New McClatchy or its stockholders, for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law or
for any transaction from which the director derived an improper personal
benefit.
In addition, New McClatchy will maintain officers' and directors'
insurance covering certain labilities that may be incurred by officers and
directors in the performance of their duties.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
Exhibit
Number Description Of Document
- ------ -----------------------
2.1 Amended and Restated Agreement and Plan of Merger and Reorganization,
dated as of February 13, 1998 by and among McClatchy Newspapers,
Inc., Cowles Media Company, MNI Newco, Inc., MNI Mergerco, Inc. and
CMC Mergerco, Inc. (attached as Annex A to the Joint Proxy
Statement/Prospectus included in this Registration Statement).
3.1 Form of Restated Certificate of Incorporation of MNI Newco, Inc., a
Delaware corporation.
3.2 Bylaws of MNI Newco, Inc., a Delaware corporation.
5.1 Opinion of Pillsbury Madison & Sutro LLP.
8.1 Tax Opinion of Pillsbury Madison & Sutro LLP.
8.2 Tax Opinion of Faegre & Benson LLP.
8.3 Tax Opinion of Fried, Frank, Harris, Shriver & Jacobson.
21.1 Subsidiaries of MNI Newco, Inc.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
II-1
<PAGE>
Exhibit
Number Description Of Document
- ------ -----------------------
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Pillsbury Madison & Sutro LLP (included in Exhibits 5.1
and 8.1).
23.4 Consent of Salomon Brothers Inc.
23.5 Consent of Goldman, Sachs & Co.
23.6 Consent of Faegre & Benson LLP (included in Exhibit 8.2).
23.7 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in
Exhibit 8.3).
24.1 Powers of Attorney (see Page II-4 of this Registration Statement).
99.1 Forms of Proxy for Special Meeting of McClatchy Stockholders.
99.2 Form of Proxy for Special Meeting of Cowles Stockholders.
99.3 Form of Election form to be used in connection with the Cowles
Merger.
- ---------------
* Incorporated by reference.
(b) Financial Statement Schedules.
None
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities Act");
To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to section 13 or
section 15(d) of the Securities
II-2
<PAGE>
Exchange Act of 1934, as amended (the "ExchangeAct"), that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Joint Proxy
Statement/Prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first-class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sacramento,
State of California, on February 13, 1998.
MNI NEWCO, INC.
By /S/ GARY B. PRUITT
---------------------------------------
Gary B. Pruitt
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Gary B. Pruitt and Karole Morgan-Prager and each
of them, his or her true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments,
including post-effective amendments, to this Registration Statement, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that each of said attorneys-in-fact and
agents or their substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Gary B. Pruitt President, Chief Executive February 13, 1998
- ---------------------------- Officer and Director
Gary B. Pruitt (Principal Executive
Officer)
/s/ James P. Smith Vice President, Finance, February 13, 1998
- ---------------------------- Treasurer and Director
James P. Smith (Principal Financial
Officer)
/s/ Robert W. Berger Controller (Principal February 13, 1998
- ---------------------------- Accounting Officer)
Robert W. Berger
- ---------------------------- Director
William K. Coblentz
II-4
Signature Title Date
--------- ----- ----
/s/ Molly Maloney Evangelisti Director February 13, 1998
- -----------------------------
Molly Maloney Evangelisti
/s/ Joan F. Lane Director February 13, 1998
- ----------------------------
Joan F. Lane
/s/ R. Larry Jinks Director February 13, 1998
- ----------------------------
R. Larry Jinks
/s/ Betty Lou Maloney Director February 13, 1998
- ----------------------------
Betty Lou Maloney
/s/ James B. Mcclatchy Director February 13, 1998
- ----------------------------
James B. McClatchy
/s/ William Ellery Mcclatchy Director February 13, 1998
- ----------------------------
William Ellery McClatchy
/s/ Erwin Potts Chairman of the Board February 13, 1998
- ---------------------------- and Director
Erwin Potts
/s/ S. Donley Ritchey, Jr. Director February 13, 1998
- ----------------------------
S. Donley Ritchey, Jr.
/S/ WILLIAM M. ROTH Director February 13, 1998
- ----------------------------
William M. Roth
/s/ FRederick R. Ruiz Director February 13, 1998
- ----------------------------
Frederick R. Ruiz
II-5
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Of Document
- ------ -----------------------
2.1 Amended and Restated Agreement and Plan of Merger and Reorganization,
dated as of February 13, 1998 by and among McClatchy Newspapers,
Inc., Cowles Media Company, MNI Newco, Inc., MNI Mergerco, Inc. and
CMC Mergerco, Inc. (attached as Annex A to the Joint Proxy
Statement/Prospectus included in this Registration Statement).
3.1 Form of Restated Certificate of Incorporation of MNI Newco, Inc., a
Delaware corporation.
3.2 Bylaws of MNI Newco, Inc., a Delaware corporation.
5.1 Opinion of Pillsbury Madison & Sutro LLP.
8.1 Tax Opinion of Pillsbury Madison & Sutro LLP.
8.2 Tax Opinion of Faegre & Benson LLP.
8.3 Tax Opinion of Fried, Frank, Harris, Shriver & Jacobson.
21.1 Subsidiaries of MNI Newco, Inc.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Pillsbury Madison & Sutro LLP (included in Exhibits 5.1
and 8.1).
23.4 Consent of Salomon Brothers Inc.
23.5 Consent of Goldman, Sachs & Co.
23.6 Consent of Faegre & Benson LLP (included in Exhibit 8.2).
23.7 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in
Exhibit 8.3).
24.1 Powers of Attorney (see Page II-4 of this Registration Statement).
99.1 Forms of Proxy for Special Meeting of McClatchy Stockholders.
99.2 Form of Proxy for Special Meeting of Cowles Stockholders.
99.3 Form of Election form to be used in connection with the Cowles
Merger.
- ---------------
* Incorporated by reference.
EXHIBIT 3.1
-----------
FORM OF
RESTATED CERTIFICATE OF INCORPORATION
OF
MNI NEWCO, INC.
(EFFECTING A CHANGE OF CORPORATE NAME TO
THE MCCLATCHY COMPANY)
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
-1-
<PAGE>
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, but
without the separate vote of the holders of any other class of stock.
(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:
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<PAGE>
(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 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:
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<PAGE>
(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 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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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.
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 MNI Newco, Inc. by its duly authorized officer this _____ day of
__________, 1998.
MNI NEWCO, INC.
By ____________________________________
Gary B. Pruitt
President
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EXHIBIT 3.2
-----------
BY-LAWS
OF
MNI NEWCO, INC.
(As Amended as of February 13, 1998)
ARTICLE I
THE BOARD OF DIRECTORS
Section 1.1 AUTHORITY OF THE BOARD. The business and affairs of MNI
Newco, Inc. (herein called the "Company") shall be managed by or under the
direction of the Board of Directors (the "Board") or, if authorized by the
Board, by or under the direction of one or more committees thereof. Except as
otherwise provided by law, the Company's Certificate of Incorporation or these
By-Laws, the Board or such committee, the Board or any committee thereof may act
by unanimous written consent or, at an authorized meeting at which a quorum is
present, by the vote of the majority of the Directors present at the meeting.
Section 1.2 NUMBER OF DIRECTORS; VACANCIES. The authorized number of
Directors who shall constitute the Board shall be fixed from time to time by
resolution of the Board approved by at least a majority of the Directors then in
office, provided that no such resolution other than a resolution to take effect
as of the next election of Directors by the stockholders shall have the effect
of reducing the authorized number of Directors to less than the number of
Directors in office as of the effective time of the resolution.
Whenever there are fewer Directors in office than the authorized number
of Directors, the Board may, by resolution approved by a majority of the
Directors then in office, choose one or more additional Directors, each of whom
shall hold office until the next annual meeting of stockholders and his
successor is duly elected.
Section 1.3 AUTHORIZED MEETINGS OF THE BOARD. The Board shall have
authority to hold annual, regular and special meetings. The annual meeting of
the Board shall be held immediately following the annual meeting of the
stockholders at such place as may be determined by resolution of the Board.
Regular meetings of the Board may be held at such times and places as may be
determined from time to time by resolution of the Board. Special meetings of the
Board may be held at such times and places as may be called by the Chairman of
the Board, the Publisher, the President, or by at least three members of the
Board. A special meeting of the Board shall be an authorized meeting only if the
Directors receive reasonable notice of the time and place of the meeting;
provided, however, that one day's notice shall be conclusively reasonable.
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<PAGE>
The Chairman of the Board shall preside over all Board meetings. If the
Chairman of the Board is absent, the Publisher, President or a chairman chosen
at the meeting shall preside over the meeting.
At all meetings of the Board, a majority of the Directors then in
office shall constitute a quorum. If any meeting of the Board shall lack a
quorum, a majority of the Directors present may adjourn the meeting from time to
time, without notice, until a quorum is obtained.
Section 1.4 COMMITTEES. The Board may by resolution establish
committees of the Board with various powers, duties and rules of procedure.
Unless the Board otherwise provides, each committee shall conduct its business
in the same manner as the Board conducts its business pursuant to these By-Laws.
Any such committee shall have a secretary and report its actions to the Board.
Section 1.5 COMPENSATION. Directors who are not also employees of the
Company shall be entitled to such compensation for their service on the Board or
any committee thereof as the Board may from time to time determine.
ARTICLE II
OFFICERS
Section 2.1 DESIGNATED OFFICERS. The officers of the Company shall be
elected by, and serve at the pleasure of, the Board and shall consist of a
Chairman of the Board, a President and a Secretary, and such other officers,
including, without limitation, a Publisher, a Treasurer, a Controller, one or
more Vice Presidents, one or more Assistant Treasurers, one or more Assistant
Secretaries, and such other officers as the Board may determine as appropriate.
Section 2.2 CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the Board and shall have such other powers and
perform such other duties as may from time to time be granted or assigned to him
by the Board.
Section 2.3 PRESIDENT. The President shall be the chief executive
officer of the Company. In managing its operations, he shall report as
appropriate to the Board and shall be subject to the instructions given to him
by the Board. He shall have such other powers and perform such other duties as
may from time to time be granted or assigned to him by the Board.
Section 2.4 PUBLISHER. The Publisher shall have responsibility for
advising the Company regarding outside corporate relations and acquisitions, and
shall have such other powers and perform such other duties as may from time to
time be granted or assigned to him by the Board.
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<PAGE>
Section 2.5 VICE PRESIDENTS. In the absence of the Chairman of the
Board, the Publisher or the President, or in their inability or refusal to act,
the Vice Presidents in the order designated by the Board shall act in their
place. The Vice Presidents shall also have such other powers and perform such
other duties as may from time to time be granted or assigned to them by the
Board.
Section 2.6 TREASURER. The Treasurer shall be the chief financial
officer of the Company. He shall have custody of the Company's funds and deposit
and pay out such funds in accordance with the direction of the Board. The
Treasurer shall also have such other powers and perform such other duties as may
from time to time be granted or assigned to him by the Board.
Section 2.7 ASSISTANT TREASURERS. The Assistant Treasurers shall assist
the Treasurer in the performance of his duties and shall have such other powers
and perform such other duties as may from time to time be granted or assigned to
them by the Board.
Section 2.8 CONTROLLER. The Controller shall be the chief accounting
officer of the Company and shall have charge of the Company's books of accounts
and records. He shall also have such other powers and perform such other duties
as may from time to time be granted or assigned to him by the Board.
Section 2.9 SECRETARY. The Secretary shall keep full and complete
records of the proceedings of the Board, its committees, and the meetings of the
stockholders; keep the seal of the Company and affix it to all instruments which
may require it; have custody of and maintain the Company's stockholder records.
The Secretary shall also have such other powers and perform such other duties as
may from time to time be granted or assigned to him by the Board.
Section 2.10 ASSISTANT SECRETARIES. The Assistant Secretaries shall
assist the Secretary in the performance of his duties, and shall have such other
powers and perform such other duties as may from time to time be granted or
assigned to them by the Board.
Section 2.11 OTHER OFFICERS. Any other elected officer shall have such
powers and perform such duties as may from time to time be granted or assigned
to him by the Board.
Section 2.12 POWERS OF ATTORNEY. Whenever an applicable statute,
decree, rule or regulation requires a document to be subscribed by a particular
officer of the Company, such document may be signed on behalf of such officer by
a duly appointed attorney-in-fact, except as otherwise directed by the Board.
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<PAGE>
ARTICLE III
OFFICES
The Company shall have an office at 2100 "Q" Street, Sacramento,
California, and shall also have offices at such other places as the Board may
from time to time determine.
ARTICLE IV
STOCK AND STOCK CERTIFICATES
Section 4.1 COMMON STOCK. The Board may from time to time issue new
shares of the Company's "Class A Common Stock" up to the limit of authorized
shares of such class. The Board may also authorize the purchase on behalf of the
Company for its treasury of issued and outstanding shares of Class A or Class B
Common Stock, and the resale, assignment or other transfer by the Company of any
such treasury shares of Class A Common Stock.
Shares of Class A and Class B Common Stock shall be represented by
certificates, which shall be registered upon the books of the Company.
Section 4.2 FORM OF CERTIFICATE. Every holder of Common Stock in the
Company shall be entitled to have a certificate signed by or in the name of the
Company by the Chairman of the Board of the President and by the Secretary. All
such certificates shall bear the seal of the Company or a facsimile thereof, and
shall be countersigned by a Transfer Agent and Registrar for the Common Stock.
Certificates of Common Stock signed by the Chairman of the Board or the
President and the Secretary, if properly countersigned as set forth above by a
Transfer Agent and the Registrar, and if regular in other respects, shall be
valid, whether such officers hold their respective positions at the date of
issue or not.
Any signature or countersignature on certificates of Common Stock may
be an actual signature or a printed or engraved facsimile.
Section 4.3 LOST, STOLEN OR DESTROYED CERTIFICATES. The Company may
issue a new certificate of Common Stock in the place of any certificate issued
by it, alleged to have been lost, stolen or destroyed; and the Company may
require the owner of the lost, stolen or destroyed certificate to give the
Company or its designated representative both an affidavit or affirmation of
such loss, theft or destruction and a bond of indemnity or indemnity agreement
covering the issuance of any replacement certificate.
Section 4.4 STOCK TRANSFERS. Transfer of shares of Common Stock shall
be made on the books of the Company only upon the surrender of a valid
certificate of Common Stock endorsed by the person named in the certificate or
by an attorney lawfully constituted in
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<PAGE>
writing. The Company may impose such additional conditions to the transfer of
its stock as may be necessary or appropriate for compliance with applicable law
or to protect the Company, a Transfer Agent or the Registrar from liability with
respect to such transfer.
Section 4.5 STOCKHOLDERS OF RECORD. The Board may fix a time as a
record date for the determination of stockholders entitled to receive any
dividend or distribution declared to be payable on any shares of the Company; or
to vote upon any matter to be submitted to the vote of any stockholders of the
Company; or to be present or to be represented by proxy at any meeting of the
stockholders of the Company, which record date in the case of a meeting of the
stockholders shall be not more than sixty nor less than ten days before the date
set for such meeting; and other stockholders of record as of the record date
shall be entitled to receive such dividend or distribution, or to vote on such
matter, or to be present or represented by proxy at such meeting.
Section 4.6 REGISTERED STOCKHOLDERS. The Company shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as owner. The Company shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, except as otherwise provided by federal or
Delaware law.
ARTICLE V
MEETINGS OF STOCKHOLDERS
Section 5.1 ANNUAL MEETINGS OF STOCKHOLDERS. An annual meeting of
stockholders to elect directors and transact such other business as may properly
be presented to the meeting shall be held at the date, hour and place as the
Board may from time to time fix. At the Annual Meeting, the holders of Class A
Common Stock, voting as a separate class, shall elect that number of Directors
which constitutes twenty-five percent (25%) of the authorized number of
Directors, or if such twenty-five percent shall not be a whole number, then the
nearest higher whole number of Directors. The remaining number of authorized
Directors shall be elected by the holders of Class B Common Stock, voting as a
separate class.
Section 5.2 SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the
stockholders for any purpose or purposes, unless prohibited by law, may be
called by the Board. Notice of a special meeting of stockholders shall state the
purpose or purposes of the meeting, and no other business other than that stated
in the notice shall be considered or transacted without the unanimous consent of
all stockholders entitled to vote.
Section 5.3 NOTICES OF MEETINGS. Written notice of all meetings of the
stockholders stating the place, date and hour of the meeting, shall be mailed,
postage prepaid, not less than ten nor more than sixty days before such meeting
to each stockholder entitled to notice of, or to vote at, any meeting of
stockholders at the address of such stockholder as it appears on the records of
the Company.
-5-
<PAGE>
Section 5.4 CONDUCT OF MEETINGS. The Chairman of the Board, or such
other officer as may preside at any meeting of the stockholders, shall have
authority to establish, from time to time, such rules for the conduct of such
meeting, and to take such action, as may in his judgment be necessary or proper
for the conduct of the meeting and in the best interests of the Company and the
stockholders in attendance in person or by proxy.
Section 5.5 QUORUM FOR ACTION BY STOCKHOLDERS, VOTING. At all elections
or votes for any purpose, there must be represented a number of shares
sufficient to constitute a majority of the outstanding voting power of the
Common Stock.
For the election of directors a plurality of the votes cast by the
respective classes shall be sufficient to elect the Directors to be elected by
each such class. With respect to other matters, unless otherwise provided by
law, the Company's Certificate of Incorporation or these By-Laws, the
affirmative vote of the holders of the majority of the voting power of the
Common Stock present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Where a separate vote by class is required, the affirmative vote of the holders
of a majority of the shares of each class of stock shall be the act of such
class, except as otherwise provided by law, the Company's Certificate of
Incorporation or these By-Laws.
Section 5.6 ADJOURNMENTS. Any meeting of stockholders may adjourn from
time to time to reconvene at the same or some other place, and notice need not
be given of any such adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the reconvened
meeting the Company may transact any business which might have been transacted
at the original meeting. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the reconvened meeting, a
notice of the reconvened meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 5.7 PROXIES. Any stockholder entitled to vote at a meeting of
stockholders may be represented and have his shares voted by a proxy or proxies
appointed by an instrument in writing executed by the stockholder of record;
provided, however, that no such instrument may appoint more than three persons
to act as proxies. If an instrument shall purport to appoint more than three
persons to act as proxies, the Company shall recognize as proxies only the first
three persons listed as appointed. No such instrument shall be valid except for
the purposes expressly stated therein, and shall not be valid after the
expiration of three years from the date of its execution, unless the person
executing it specifies therein that the proxy shall continue for a longer
period. Subject to the above, any written instrument appointing a proxy or
proxies and duly executed by a stockholder of record shall, unless otherwise
limited by its terms, continue in full force and effect until a written
instrument bearing a later date is filed with the Secretary, which instrument by
its terms either revokes the earlier appointment or creates a new appointment.
-6-
<PAGE>
ARTICLE VI
CORPORATE SEAL
The Company shall not have a corporate seal.
ARTICLE VII
AMENDMENTS
These By-Laws may be amended or repealed, and new by-laws adopted, by
the Board; but the stockholders may adopt additional by-laws and may amend or
repeal any by-law whether or not adopted by them.
-7-
EXHIBIT 5.1
-----------
February 18, 1998
MNI Newco, Inc.
2100 Q Street
Sacramento, CA 95816
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We are acting as counsel for MNI Newco, Inc., a Delaware corporation
and newly formed holding company ("New McClatchy"), in connection with the
filing by New McClatchy with the Securities and Exchange Commission of a
registration statement on Form S-4 (File No. 333-42903) (the "Registration
Statement"), relating to the proposed reorganization of McClatchy Newspapers,
Inc. ("McClatchy"), whereby McClatchy will be merged into MNI Mergerco, Inc., a
Delaware corporation and wholly owned subsidiary of New McClatchy, and Cowles
Media Company, a Delaware corporation ("Cowles"), will be merged into CMC
Mergerco, Inc., a Delaware corporation and wholly owned subsidiary of New
McClatchy. Pursuant to the Amended and Restated Agreement and Plan of Merger and
Reorganization, dated as of February 13, 1998 (the "Reorganization Agreement"),
each outstanding share of McClatchy Class A Common Stock, par value $0.01 per
share, and Class B Common Stock, par value $0.01 per share, will be converted
into shares of New McClatchy Class A Common Stock, par value $0.01 per share,
and New McClatchy Class B Common Stock, par value $0.01 per share, respectively,
on the terms and subject to the conditions set forth in the Reorganization
Agreement. Further, each outstanding share of Cowles Common Stock will be
converted into $90.50 in cash, shares of New McClatchy Class A Common Stock or a
combination of cash and New McClatchy Class A Common Stock, on the terms and
subject to the conditions set forth in the Reorganization Agreement.
We are of the opinion that the shares of New McClatchy Class A and
Class B Common Stock, when issued in the manner and on the terms described in
the Registration Statement and the Reorganization Agreement, will be duly
authorized, validly issued, fully paid and nonassessable.
We are members of the Bar of the State of California and the foregoing
opinion is limited to the laws of the State of California, the federal laws of
the United States of America and the General Corporation Law of the State of
Delaware.
<PAGE>
MNI Newco, Inc.
February 18, 1998
Page 2
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Proxy Statement/Prospectus
included therein.
Very truly yours,
/s/ Pillsbury Madison & Sutro LLP
5573
EXHIBIT 8.1
-----------
February 18, 1998
McClatchy Newspapers, Inc.
2100 Q Street
Sacramento, CA 95816-6899
Ladies and Gentlemen:
With reference to the Registration Statement on Form S-4 (the
"Registration Statement") filed by MNI Newco, Inc., a Delaware corporation ("New
McClatchy"), with the Securities and Exchange Commission in connection with the
registration under the Securities Act of 1933, as amended, of shares of its
Class A common stock, par value $0.01 per share ("Class A Common Stock"), and
its Class B common stock, par value $0.01 per share ("Class B Common Stock"), to
be issued in connection with the transactions contemplated by the Amended and
Restated Agreement and Plan of Merger and Reorganization (the "Agreement") dated
as of February 13, 1998 between McClatchy Newspapers, Inc., a Delaware
corporation, and Cowles Media Company, a Delaware corporation, which Agreement
is described therein and filed as an annex to the Registration Statement, we
hereby confirm our opinions set forth under the caption "THE
REORGANIZATION--Federal Income Tax Matters" in the Registration Statement.
We hereby consent to the filing of this opinion as Exhibit 8.1 to the
Registration Statement and to the use of our name in the Registration Statement
and in the Joint Proxy Statement/Prospectus included therein.
Very truly yours,
/s/ PILLSBURY MADISON & SUTRO LLP
[LETTERHEAD OF FAEGRE & BENSON LLP]
February 19, 1998
Cowles Media Company
329 Portland Avenue
Minneapolis, MN 55415
Ladies and Gentlemen:
We have acted as counsel to Cowles Media Company ("Cowles"), a Delaware
corporation, in connection with the transactions described in the Agreement and
Plan of Merger and Reorganization dated as of November 13, 1997, between Cowles
and McClatchy Newspapers, Inc. ("McClatchy"), also a Delaware corporation, as
amended and restated as of February 13, 1998 (the "Agreement"). In addition to
Cowles and McClatchy, the parties to the Agreement include MNI Newco, Inc. ("New
McClatchy"), and two wholly-owned subsidiaries of New McClatchy, CMC Mergerco,
Inc. ("CMC Merger Sub") and MNI Mergerco, Inc. ("MNI Merger Sub"). Each of New
McClatchy, CMC Merger Sub and MNI Merger Sub is a Delaware corporation. Pursuant
to the Agreement, at the Effective Time, CMC Merger Sub shall be merged with and
into Cowles (the "Cowles Merger"), with Cowles being the surviving corporation,
and MNI Merger Sub shall be merged with and into McClatchy, with McClatchy being
the surviving corporation.
New McClatchy has filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act") a
registration statement on Form S-4 (the "Registration Statement") with respect
to the common stock of New McClatchy to be issued to the Cowles shareholders in
the Cowles Merger in exchange for their common stock in Cowles (the "Cowles
Common Stock"). In addition, McClatchy and Cowles have prepared a Joint Proxy
Statement/Prospectus dated February 19, 1998 (the "Proxy Statement/Prospectus"),
which is contained in and made a part of the Registration Statement.
In rendering the opinion set forth below, we have reviewed and relied
upon the accuracy of the facts stated in the Proxy Statement/Prospectus
(including Appendices thereto) and such other materials as we have deemed
necessary or appropriate as a basis for our opinion, including certificates
received from both Cowles and McClatchy, as described in the Proxy
Statement/Prospectus.
<PAGE>
February 19, 1998
Page 2
Based upon and subject to the foregoing, we confirm to you that the
discussion of the material United States Federal income tax consequences under
the caption "THE REORGANIZATION -- Federal Income Tax Matters" (the "Tax
Section") reflects our opinion regarding the Federal income tax consequences of
the Cowles Merger to the holders of Cowles Common Stock. Our opinion is subject
to the qualifications, assumptions and limitations set forth therein, and no
opinion is expressed regarding matters not referred to therein.
This opinion is being furnished in connection with the Proxy
Statement/Prospectus. It is expressed solely for the benefit of Cowles and
holders of Cowles Common Stock and may not be relied upon in any manner or for
any purpose by any other person.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the references to this firm in the Tax Section. In
giving this consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Faegre & Benson LLP
Faegre & Benson LLP
[LETTERHEAD OF FRIED, FRANK]
February 19, 1998
Cowles Media Company
329 Portland Avenue
Minneapolis, MN 55415
Ladies and Gentlemen:
We are acting as counsel to Cowles Media Company ("Cowles") in
connection with the merger of a newly-formed subsidiary of MNI Newco, Inc. ("New
McClatchy") with and into Cowles, with Cowles being the surviving corporation
(the "Cowles Merger"), pursuant to an Agreement and Plan of Merger and
Reorganization, dated as of November 13, 1997, between McClatchy Newspapers,
Inc. ("McClatchy") and Cowles as amended and restated as of February 13, 1998
(the "Reorganization Agreement").
New McClatchy has filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act"), a
registration statement on Form S-4 (the "Registration Statement") with respect
to the common stock of New McClatchy to be issued to the Cowles shareholders in
the Cowles Merger in exchange for their common stock in Cowles (the "Cowles
Common Stock"). In addition, McClatchy and Cowles have prepared, and we have
reviewed, a Joint Proxy Statement/Prospectus, dated February 19,
1998, which is contained in and made a part of the Registration Statement (the
"Proxy/Prospectus"), and the Appendices thereto including the Reorganization
Agreement. In rendering the opinion set forth below, we have relied upon the
facts stated in the Proxy/Prospectus and upon such other documents as we have
deemed appropriate, including the representations of McClatchy and Cowles, and
the assumptions, referred to in the Proxy/Prospectus.
Based upon and subject to the foregoing, we hereby confirm that the
discussion set forth in the Proxy/Prospectus under the caption "The
Reorganization--Federal Income Tax Matters" (the "Tax Section") reflects our
opinion regarding the federal income tax consequences of the Cowles Merger to
the holders of the outstanding Cowles Common Stock, subject to the
qualifications, assumptions, and limitations set forth therein. No opinion is
expressed on any matters other than those specifically referred to herein.
<PAGE>
Cowles Media Company
Page 2
The opinion expressed herein is solely for the benefit of Cowles and
the holders of outstanding shares of the Cowles Common Stock and may not be
relied upon in any manner or for any purpose by any other person or entity.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm in the Tax Section. In
giving this consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ Fried, Frank, Harris, Shriver & Jacobson
Fried, Frank, Harris, Shriver & Jacobson
EXHIBIT 21.1
------------
SUBSIDIARIES OF MNI NEWCO, INC.
MNI Mergerco, Inc.
CMC Mergerco, Inc.
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration
Statement No. 333-42903 of MNI Newco, Inc. on Form S-4 of our report dated
February 6, 1997, appearing in the Annual Report on Form 10-K of McClatchy
Newspapers, Inc. for the year ended December 31, 1996 and to the references to
us under the headings "Summary Historical Consolidated Financial Data of
McClatchy" and "Experts" in the Joint Proxy Statement/Prospectus, which are a
part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Sacramento, California
February 16, 1998
EXHIBIT 23.2
------------
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Cowles Media Corporation
We consent to the use of our report included herein and to the references to our
firm under the headings "Summary Historical Consolidated Financial Data of
Cowles" and "Experts" in the Joint Proxy Statement/Prospectus.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 17, 1998
CONSENT OF SALOMON BROTHERS INC
We hereby consent to the use of our name and to the description of our opinion
letter dated November 13, 1997, under the caption "The Reorganization -- Opinion
of McClatchy's Financial Advisor" of, and to the inclusion of such opinion
letter as Annex D to, the Joint Proxy Statement of McClatchy Newspapers, Inc.
and Cowles Media Company/Prospectus of MNI Newco, Inc., which Joint Proxy
Statement/Prospectus is part of the Registration Statement on Form S-4 of MNI
Newco, Inc. By giving such consent we do not thereby admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "expert" as used in, or that we come within the category of persons
whose consent is required under, the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
SALOMON BROTHERS INC
By: /s/ Wesley C. Walraven
------------------------------------
Wesley C. Walraven
Managing Director
[GOLDMAN, SACHS & CO. LETTERHEAD]
PERSONAL AND CONFIDENTIAL
February 17, 1998
Board of Directors
Cowles Media Company
329 Portland Avenue
Minneapolis, MN 55415-1112
Attention: Registration Statement of MNI Newco, Inc. relating to Common Stock
being registered in connection with the Agreement & Plan of Merger
and Reorganization, dated as of November 13, 1997, between
McClatchy Newspapers, Inc. and Cowles Media Company
------------------------------------------------------------------
Ladies and Gentlemen:
Reference is made to our opinion letter, dated November 13, 1997, with respect
to the fairness from a financial point of view to the holders of the outstanding
shares of voting and non-voting Common Stock, $0.17 stated value, (the "Shares")
of Cowles Media Company (the "Company") of the Stock Consideration and Cash
Consideration (as defined below) to be received by such holders pursuant to the
Agreement and Plan of Merger and Reorganization, dated as of November 13, 1997,
between McClatchy Newspapers, Inc. ("McClatchy") and the Company (the
"Agreement"). Pursuant to the Agreement, the Company will be merged (the
"Merger") with a wholly-owned subsidiary of MNI Newco, Inc., a newly formed
holding company ("Newco") owned by McClatchy and formed for the purpose of
effectuating the transactions contemplated by the Agreement. Pursuant to the
Agreement, each holder of Shares shall be entitled to elect to receive for each
Share either cash consideration of $90.50 (the "Cash Consideration") or that
number of shares of Newco Class A Common Stock, par value $0.01, (the "Newco
Common Stock") equal to $90.50 divided by the Volume Adjusted Weighted Average
Trading Price (as defined in the Agreement) (the "Exchange Ratio"), provided
that the Exchange Ratio shall not be less than 2.68820 nor more than 3.01667
(the "Stock Consideration"); and provided, further, that if the total number of
Shares designated by holders to be exchanged for Cash Consideration or for Stock
Consideration exceeds the
<PAGE>
Cowles Media Company
February 17, 1998
Page 2
Maximum Cash Number or the Maximum Stock Number, respectively (as such terms are
defined in the Agreement), the elections shall be subject to certain procedures
and limitations as set forth in the Agreement, as to which procedures and
limitations we are expressing no opinion. The Agreement also provides that
simultaneously with the Merger a wholly-owned subsidiary of Newco will be merged
with McClatchy, and each holder of Class A Common Stock and Class B Common Stock
of McClatchy will be entitled to receive for each of such shares, a
corresponding share of Newco Common Stock or Newco Class B Common Stock, as the
case may be.
The foregoing opinion letter is provided for the information and assistance of
the Board of Directors of the Company in connection with its consideration of
the transaction contemplated therein and is not to be used, circulated, quoted
or otherwise referred to for any other purpose, nor is it to be filed with,
included in or referred to in whole or in part in any registration statement,
proxy statement or any other document, except in accordance with our prior
written consent. We understand that Newco has determined to include our opinion
in the above-referenced Registration Statement.
In that regard, we hereby consent to the references to the opinion of our Firm
under the captions "SUMMARY -- The Reorganization -- Opinions of Financial
Advisors," "THE REORGANIZATION -- Background of the Cowles Merger,"
"--Recommendation of the Cowles Board and Reasons for the Cowles Merger," and
"--Opinion of Cowles' Financial Advisor" and to the inclusion of the foregoing
opinion in the Joint Proxy Statement/Prospectus included in the above-mentioned
Registration Statement. In giving such consent, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
- ---------------------------
(GOLDMAN, SACHS & CO.)
EXHIBIT 99.1
------------
McCLATCHY NEWSPAPERS, INC.
CLASS A COMMON PROXY
Proxy Solicited by the Board of Directors
for the Special Meeting of Stockholders to be held on March 19, 1998.
The undersigned hereby appoints Gary Pruitt and Karole Morgan-Prager, or either
of them, as Proxies, each with the power to appoint his or her substitute, and
hereby authorizes them to represent and to vote, as designated herein, all the
shares of the Class A Common Stock of McClatchy Newspapers, Inc. that the
undersigned is entitled to vote at the Special Meeting of Stockholders to be
held on March 19, 1998, or any postponement or adjournment thereof.
This proxy when properly executed will be voted as directed by the undersigned
stockholder. IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR
PROPOSAL 1.
- -----------------------------------------
COMMENTS/ADDRESS CHANGE: PLEASE MARK | (Continued and to be dated and signed,
COMMENT/ADDRESS CHANGE ON REVERSE SIDE | on other side)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
1. Approval and adoption of the Amended and Restated Agreement and Plan of
Merger and Reorganization (the "Reorganization Agreement"), dated as of
February 13, 1998, between (among others) McClatchy Newspapers, Inc.
("McClatchy") and Cowles Media Company, a Delaware corporation
("Cowles"), and the transactions contemplated thereby (the
"Reorganization"). In connection with the Reorganization, (i) MNI Newco,
Inc., a Delaware corporation and newly formed holding company of
McClatchy ("New McClatchy"), will be renamed "The McClatchy Company,"
(ii) McClatchy will be merged (the "McClatchy Merger") with a wholly
owned subsidiary of New McClatchy and each outstanding share of McClatchy
Class A Common Stock and Class B Common Stock will be converted into
shares of New McClatchy Class A Common Stock and Class B Common Stock,
(subject to the right of holders of McClatchy Class B Common Stock to
exercise appraisal rights), respectively, and (iii) Cowles will be merged
into another wholly owned subsidiary of New McClatchy and, subject to
certain exceptions, each outstanding share of Cowles common stock will be
converted into $90.50 in cash, shares of New McClatchy Class A Common
Stock (based upon an exchange ratio set forth in the Reorganization
Agreement) or a combination of cash and New McClatchy Class A Common
Stock. As a result of the Reorganization, McClatchy and Cowles will
become wholly owned subsidiaries of New McClatchy.
|_| FOR |_| AGAINST |_| ABSTAIN
COMMENTS/ADDRESS CHANGE |_|
Please mark the box if you have
written comments/address change
on the reverse side.
Please sign exactly as name appears on your stock certificate. When shares are
held by joint tenants, both should sign. When signing as attorney, as executor,
administrator,trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Dated: ________________________________, 1998
- ---------------------------------------------
Signature
- ---------------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
McCLATCHY NEWSPAPERS, INC.
YOUR VOTE IS IMPORTANT TO THE COMPANY
PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THIS SHEET
AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE
<PAGE>
McCLATCHY NEWSPAPERS, INC.
CLASS B COMMON PROXY
Proxy Solicited by the Board of Directors
for the Special Meeting of Stockholders to be held on March 19, 1998.
The undersigned hereby appoints Gary Pruitt and Karole Morgan-Prager, or either
of them, as Proxies, each with the power to appoint his or her substitute, and
hereby authorizes them to represent and to vote, as designated herein, all the
shares of the Class B Common Stock of McClatchy Newspapers, Inc. that the
undersigned is entitled to vote at the Special Meeting of Stockholders to be
held on March 19, 1998, or any postponement or adjournment thereof.
This proxy when properly executed will be voted as directed by the undersigned
stockholder. IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR
PROPOSAL 1.
- -----------------------------------------
COMMENTS/ADDRESS CHANGE: PLEASE MARK | (Continued and to be dated and signed,
COMMENT/ADDRESS CHANGE ON REVERSE SIDE | on other side)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
1. Approval and adoption of the Amended and Restated Agreement and Plan of
Merger and Reorganization (the "Reorganization Agreement"), dated as of
February 13, 1998, between (among others) McClatchy Newspapers, Inc.
("McClatchy") and Cowles Media Company, a Delaware corporation
("Cowles"), and the transactions contemplated thereby (the
"Reorganization"). In connection with the Reorganization, (i) MNI Newco,
Inc., a Delaware corporation and newly formed holding company of
McClatchy ("New McClatchy"), will be renamed "The McClatchy Company,"
(ii) McClatchy will be merged (the "McClatchy Merger") with a wholly
owned subsidiary of New McClatchy and each outstanding share of McClatchy
Class A Common Stock and Class B Common Stock will be converted into
shares of New McClatchy Class A Common Stock and Class B Common Stock,
(subject to the right of holders of McClatchy Class B Common Stock to
exercise appraisal rights), respectively, and (iii) Cowles will be merged
into another wholly owned subsidiary of New McClatchy and, subject to
certain exceptions, each outstanding share of Cowles common stock will be
converted into $90.50 in cash, shares of New McClatchy Class A Common
Stock (based upon an exchange ratio set forth in the Reorganization
Agreement) or a combination of cash and New McClatchy Class A Common
Stock. As a result of the Reorganization, McClatchy and Cowles will
become wholly owned subsidiaries of New McClatchy.
|_| FOR |_| AGAINST |_| ABSTAIN
COMMENTS/ADDRESS CHANGE |_|
Please mark the box if you have
written comments/address change
on the reverse side.
Please sign exactly as name appears on your stock certificate. When shares are
held by joint tenants, both should sign. When signing as attorney, as executor,
administrator,trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Dated: ________________________________, 1998
- ---------------------------------------------
Signature
- ---------------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
McCLATCHY NEWSPAPERS, INC.
YOUR VOTE IS IMPORTANT TO THE COMPANY
PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THIS SHEET
AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE
EXHIBIT 99.2
-------------
COWLES MEDIA COMPANY
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR SPECIAL MEETING OF STOCKHOLDERS
MARCH 19, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints John Cowles III, David C. Cox and James J.
Viera, or any of them, proxies of the undersigned, with full power of
substitution, to vote all shares of Voting Common Stock of Cowles Media Company
that the undersigned would be entitled to vote at the Special Meeting of
Stockholders of the Company to be held on March 19, 1998, or any adjournment
thereof, as specified below:
VOTING COMMON STOCK: ____________________________ SHARES
- -------------------------------------------------------------------------------
APPROVAL AND ADOPTION OF THE AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION DATED AS OF FEBRUARY 13, 1998 BETWEEN MCCLATCHY NEWSPAPERS,
INC. AND COWLES MEDIA COMPANY
|_| FOR |_| AGAINST |_| ABSTAIN
IF NO SPECIFICATION IS MADE, THIS PROXY
WILL BE VOTED FOR THE ABOVE PROPOSAL.
(PLEASE SIGN AND DATE BELOW)
Dated _______________________, 1998 ---------------------------------------
(Signature)
---------------------------------------
(Signature)
INSTRUCTION: Please sign as name or
names appear hereon. Joint owners should
each sign personally. Executors,
administrators, trustees, guardians and
others should indicate the capacity in
which they sign.
PLEASE SIGN, DATE AND RETURN THIS PROXY
PROMPTLY IN THE ENCLOSED PROXY ENVELOPE.
FORM OF ELECTION
Each Stockholder may make an election under the Amended and Restated
Agreement and Plan of Merger and Reorganization dated as of February 13, 1998
(the "Reorganization Agreement"), with respect to shares of common stock
("Cowles Shares") of Cowles Media Company, a Delaware corporation ("Cowles"). To
make the election, the Stockholder must do each of the following:
1. Complete this Form of Election in its entirety (includes all
attached pages).
2. Deliver all stock certificates representing Cowles Shares
("Certificates") as follows:
(a) all Certificates must be attached to this Form of
Election; OR
(b) Stockholder may attach an appropriate written
guarantee of delivery of Stockholder's Certificates
("Guarantee") from a firm that is a member of a
registered national securities exchange or of the
National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office in
the United States, but all Certificates must in fact
be delivered to ChaseMellon Shareholder Services,
L.L.C. ("ChaseMellon" and sometimes referred to as
the "Exchange Agent") at ChaseMellon's address listed
below within five New York Stock Exchange trading
days after delivery of such Guarantee.
3. Send the completed Form of Election, Certificates (or
Guarantee, if applicable) and any other necessary documents to
one of the following addresses:
<TABLE>
To: ChaseMellon Shareholder Services, L.L.C.
<CAPTION>
If by Mail: If by Hand: If by Overnight Delivery:
---------- ---------- ------------------------
<S> <C> <C>
P.O. Box 3301 120 Broadway, 13th Floor 85 Challenger Rd.-Mail Drop-Reorg
South Hackensack, NJ 07606 New York, NY 10271 Ridgefield Park, NJ 07660
Attn: Reorganization Attn: Reorganization Attn: Reorganization
Department Department Department
</TABLE>
THE ELECTION WILL NOT BE CONSIDERED UNLESS THIS FORM OF ELECTION (PROPERLY
COMPLETED) AND ALL ATTACHMENTS ARE RECEIVED BY CHASEMELLON BY 5:00 P.M., NEW
YORK CITY TIME, ON MARCH 17, 1998 (THE "ELECTION TIME"). THE DETERMINATION OF
CHASEMELLON AS TO WHETHER OR NOT AN ELECTION HAS BEEN PROPERLY MADE OR REVOKED,
AND WHEN SUCH ELECTION OR REVOCATION WAS RECEIVED, WILL BE BINDING. After you
have reviewed this Form of Election and the Supplemental Instructions included
herein, if you should have any questions about this Form of Election, please
call Sherburne & Coughlin, Ltd. at (612) 338-3255 or Georgeson & Company Inc. at
(800) 223-2064 or (212) 440-9800.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
ELECTION
(THE ELECTION WILL BE GRANTED UNLESS PRORATION IS NECESSARY.
SEE JOINT PROXY STATEMENT/PROSPECTUS FOR A DISCUSSION OF PRORATION.)
<S> <C>
1. Total number of Cowles Shares that Stockholder owns................. ---------------------
2. Total number of Cowles Shares to be converted into New McClatchy
Class A Common Stock (a "Stock Election")........................... ---------------------
3. Total number of Cowles Shares to be converted into cash
(a "Cash Election") (the sum of 2 plus 3 must equal 1).............. ---------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
PLEASE READ AND COMPLETE THE REMAINING PAGES, ALL OF WHICH ARE INCLUDED
IN THE TERMS, CONDITIONS AND REQUIREMENTS OF THIS FORM OF ELECTION
- --------------------------------------------------------------------------------
ATTENDANCE AT SPECIAL MEETING OF STOCKHOLDERS
- --------------------------------------------------------------------------------
[ ] Please check this block only if you are planning to attend the Special
Meeting of Stockholders.
- --------------------------------------------------------------------------------
BY DELIVERING CERTIFICATE(S) WITH THIS FORM OF ELECTION, THE REGISTERED HOLDER
OF SUCH CERTIFICATE(S) RELEASES COWLES, McCLATCHY, CHASEMELLON AND THEIR
RESPECTIVE AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ADVISORS AND
REPRESENTATIVES, AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, FROM ANY AND ALL
CLAIMS ARISING FROM OR IN CONNECTION WITH THE PURCHASE OR OWNERSHIP OF SUCH
COWLES SHARES OR THE EXCHANGE OF SUCH COWLES SHARES PURSUANT TO THE
REORGANIZATION AGREEMENT.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
BOX A
DESCRIPTION OF CERTIFICATES ATTACHED
(SEE SUPPLEMENTAL INSTRUCTION 4)
- -----------------------------------------------------------------------------------------------------------------------
CERTIFICATE NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) TOTAL NUMBER OF
NUMBER (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON EACH SHARES REPRESENTED BY
CERTIFICATE(S) REPRESENTING COWLES SHARES) CERTIFICATE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
BOX B
[ ] LOST, STOLEN OR DESTROYED CERTIFICATE
If any Certificate you own has been lost, stolen or destroyed, check this box
and see Supplemental Instruction 7 herein. Please fill out the remainder of this
Form of Election and indicate here the number of each lost, stolen or destroyed
Certificate and the number of Cowles Shares represented by such Certificate:
_____________________________________________________________________________
_____________________________________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOX C
CITIZENSHIP OF HOLDER OF COWLES SHARES
(SEE SUPPLEMENTAL INSTRUCTION 11)
- --------------------------------------------------------------------------------
The Stockholder hereby represents that the Cowles Shares surrendered herewith
are owned by:
[ ] a U.S. Citizen or other U.S. Person; or [ ] a Foreign Person.
- --------------------------------------------------------------------------------
The Stockholder hereby represents and warrants that the Stockholder has
full power and authority to complete and deliver this Form of Election and to
surrender the Certificate(s), free and clear of any liens, claims, charges or
encumbrances whatsoever. The Stockholder, upon request, shall execute and
deliver any and all additional documents deemed by the Exchange Agent to be
necessary or desirable to complete the transfer, cancellation and retirement of
the Certificate(s).
<TABLE>
<CAPTION>
- ------------------------------------------------------------------ ---------------------------------------------------
BOX D
STOCKHOLDER SIGNATURES
EACH STOCKHOLDER MUST SIGN HERE, IN SIGNATURE GUARANTEE
ADDITION TO THE SIGNATURES REQUIRED (COMPLETE THIS SIDE OF BOX D
ELSEWHERE ON THIS FORM OF ELECTION ONLY IF REQUIRED--SEE SUPPLEMENTAL
(SEE SUPPLEMENTAL INSTRUCTION 5) INSTRUCTIONS 6 AND 9)
<S> <C>
- ------------------------------------------------------------------ (Note: A notarization by a notary public is not
acceptable)
- ------------------------------------------------------------------
FOR USE BY ELIGIBLE
- ------------------------------------------------------------------ INSTITUTIONS ONLY
- ------------------------------------------------------------------ PLACE MEDALLION GUARANTEE
(SIGNATURE(S) OF HOLDER(S)) IN SPACE BELOW
NAME(S):
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
(PLEASE PRINT)
- ------------------------------------------------------------------
(AREA CODE AND TELEPHONE NUMBER)
DATED:
-----------------------------------------------------------
BOX D MUST BE SIGNED BY REGISTERED HOLDER(S) EXACTLY AS THE NAME(S)
APPEAR(S) ON CERTIFICATE(S) OR BY PERSON(S) AUTHORIZED TO BECOME
REGISTERED HOLDER(S) BY CERTIFICATES AND DOCUMENTS ATTACHED HERETO.
IF SIGNATURE IS BY ATTORNEY OR GUARDIAN OR OTHER ACTING IN
FIDUCIARY CAPACITY, PLEASE STATE FULL TITLE.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
BOX E
GUARANTEE OF DELIVERY
(TO BE USED ONLY IF CERTIFICATE(S) ARE NOT SURRENDERED WITH THIS FORM OF ELECTION)
<S> <C>
The signatory is:
- -a member of a national securities exchange, ------------------------------------------------
- -a member of the National Association of Securities (Firm--Please Print)
Dealers, Inc., or
- -a commercial bank or trust company in the United ------------------------------------------------
States; (Authorized Signature)
and guarantees to deliver to the Exchange Agent the
Certificate(s) representing Cowles Shares to which this Form ------------------------------------------------
of Election relates, duly endorsed in blank or otherwise in
a form acceptable for transfer on the books of Cowles, no ------------------------------------------------
later than five New York Stock Exchange trading days after
delivery of this Guarantee of Delivery. ------------------------------------------------
(Address, Including Zip Code)
------------------------------------------------
(Area Code and Telephone Number)
------------------------------------------------
(Contact Name)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------- --------------------------------------------------------
BOX F BOX G
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE SUPPLEMENTAL INSTRUCTIONS 6 AND 9 HEREIN) (SEE SUPPLEMENTAL INSTRUCTION 6 HEREIN)
To be completed ONLY if the new stock certificate To be completed ONLY if the new stock certificate
representing a Stock Election is to be registered in representing a Stock Election is to be registered in
the name of, or a check is to be made payable to, the name of, or a check is to be made payable to, the
someone other than the registered holder(s) of the registered holder(s) of the Cowles Shares, BUT is to
Cowles Shares. be sent to someone other than the registered
holders(s) or to an address other than the address of
the registered holder(s).
<S> <C>
Name
--------------------------------------------------
(Please Print) Mail certificate and/or check to:
Address
----------------------------------------------
Name
- ------------------------------------------------------ ---------------------------------------------------
(City) (State) (Zip Code) (Please Print)
Address
- ----------------------------------------------------- ------------------------------------------------
(SOCIAL SECURITY OR EMPLOYER IDENTIFICATION
NUMBER) --------------------------------------------------------
(SEE SUBSTITUTE FORM W-9 BELOW) (City) (State) (Zip Code)
- ----------------------------------------------------- --------------------------------------------------------
</TABLE>
TAX INFORMATION
To comply with Federal tax requirements, each holder of Cowles Shares
is to provide to the Exchange Agent his or her correct Taxpayer Identification
Number (I.E., Social Security Number or Employer Identification Number) and to
certify whether he or she is subject to backup Federal income tax withholding by
completing and signing the Substitute Form W-9 below, or, in the case of Foreign
Persons (as defined in Supplemental Instruction 11), the Substitute Form W-8
below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE PART I: Please provide your Taxpayer
FORM W-9 Identification Number in the area at the ________-_______-__________
DEPARTMENT OF THE TREASURY, right and certify by signing and dating Social Security Number
INTERNAL REVENUE SERVICE below. (If you are awaiting your
Taxpayer Identification Number, leave OR
that area blank and check the box in _____-______________________
Part III.) Employer Identification Number
--------------------------------------------------------------------------------
PART II: For payees exempt from backup withholding, see Supplemental
Instruction 12 and complete as instructed therein.
--------------------------------------------------------------------------------
PART III: Awaiting Taxpayer Identification Number [ ]
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION. Under penalty of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number,
OR
A Taxpayer Identification Number has not been issued to me and either (a)
I have mailed or delivered an application to receive a Taxpayer
Identification Number to the appropriate Internal Revenue Service ("IRS")
or Social Security Administration office or (b) I intend to mail or
deliver an application in the near future, and
(2) I am not subject to backup withholding either because I have not been
notified by the IRS that I am subject to backup withholding or the IRS
has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS. You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding. However, if
after being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2).
Signature Date
----------------------------------------- ---------------------
IF YOU CHECKED THE BOX IN PART III OF THIS SUBSTITUTE FORM W-9,
YOU MUST SIGN AND DATE THE FOLLOWING CERTIFICATION:
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me, and that I mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate IRS Center or
Social Security Administration Office (or I intend to mail or deliver an
application in the near future). I understand that if I do not provide a
Taxpayer Identification Number to the payer, 31% of all payments shall be
withheld until I provide a Taxpayer Identification Number to the payer and that,
if I do not provide my Taxpayer Identification Number within sixty (60) days,
such retained amounts shall be remitted to the IRS as backup withholding and 31%
of all reportable payments made to me thereafter will be withheld and remitted
to the IRS until I provide a Taxpayer Identification Number.
Signature Date
----------------------------------------- ---------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------ -----------------------------------------------------------------------
<S> <C>
SUBSTITUTE Under penalties of perjury, I certify that:
FORM W-8
DEPARTMENT OF THE TREASURY, [ ] For INTEREST PAYMENTS, I am not a U.S. citizen or resident
INTERNAL REVENUE SERVICE (or I am filing for a foreign corporation, partnership,
estate or trust);
CERTIFICATE OF FOREIGN HOLDERS WHO ARE
INDIVIDUALS [ ] For DIVIDENDS, I am not a U.S. citizen or resident (or I am
filing for a foreign corporation, partnership, estate or
trust); AND
[ ] For BROKER TRANSACTIONS or BARTER EXCHANGES, I am an exempt
foreign person.
-----------------------------------------------------------------------
Signature Date
----------------------------------------------------- ------------------------------------------------
Print Name
-----------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THE SUBSTITUTE FORM W-9, OR, IF A FOREIGN
PERSON, THE SUBSTITUTE FORM W-8, MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY
CASH PAYMENTS MADE TO YOU PURSUANT TO THE REORGANIZATION AGREEMENT. FOR
ADDITIONAL DETAILS, PLEASE REVIEW SUPPLEMENTAL INSTRUCTIONS 11, 12 AND 13.
================================================================================
TAX BASIS INFORMATION
Please provide the total tax basis you have in all Cowles Shares
delivered pursuant to this Form of Election or, if such information is
maintained for you by Sherburne & Coughlin, Ltd., please indicate below your
authorization for Sherburne & Coughlin, Ltd. to provide tax basis information to
McClatchy Newspapers, Inc. (Tax basis information provided herein will have no
effect upon your election to receive stock and/or cash).
Total tax basis in all Cowles Shares delivered pursuant to this Form of
Election:
----------------------------------------------------------------------
I hereby authorize Sherburne & Coughlin, Ltd. to provide tax basis
information respecting my Cowles Shares to McClatchy Newspapers, Inc.
-----------------------------------------
Signature
================================================================================
SUPPLEMENTAL INSTRUCTIONS TO FORM OF ELECTION
1. TERMINATION. If the actions described in the Reorganization Agreement are not
consummated or are abandoned, all Forms of Election will be void and will have
no further effect. The Exchange Agent will promptly return the Certificate(s)
submitted to the person who submitted such Certificate(s).
2. RECEIPT OF STOCK CERTIFICATES OR CASH PAYMENTS. The Exchange Agent will issue
a single stock certificate representing a Stock Election (if any) and/or a
single check for a Cash Election (if any). As soon as practicable after the
Effective Time of the Mergers, the Exchange Agent will mail such stock
certificate and/or such check to the holder of Cowles Shares at the address
listed in BOX A (provided Stockholder has not completed either BOX F or BOX G,
thereby directing alternative payment or delivery instructions).
3. EXECUTION AND DELIVERY. The method of delivery of all documents is at the
option and risk of the holder of Cowles Shares. If sent by mail, it is strongly
suggested that mailing be by registered mail with return receipt requested. The
delivery will be deemed to have occurred only when actually RECEIVED by the
Exchange Agent at any of its addresses listed above. The risk of loss of
documents will pass only after the Exchange Agent has actually received them.
4. INADEQUATE SPACE. If there is insufficient space on this Form of Election to
list all Certificates being submitted to the Exchange Agent, please attach
additional sheets. Label each additional sheet with the name(s) of the holder.
5. SIGNATURES. The signature (or signatures, in the case of any Certificate
owned by two or more joint holders) on this Form of Election should correspond
exactly with the name(s) as written on the face of the Certificate(s) unless the
Cowles Shares described on this Form of Election have been assigned by the
registered holder(s), in which event this Form of Election should be signed in
exactly the same form as the name of the last transferee indicated on the
transfers attached to or shown on the Certificate(s).
If a Certificate is owned of record by two or more persons, ALL such
persons must sign this Form of Election.
If this Form of Election is signed by a person or persons other than the
registered owners of the Certificates listed, the Certificate(s) must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered owner(s) appear on the Certificate(s).
If this Form of Election or any Certificate(s) or stock power(s) is signed
by a trustee, executor, administrator, guardian, officer of a corporation,
attorney-in-fact or any other person acting in a representative or fiduciary
capacity, the person signing must give such person's full title in such capacity
and appropriate evidence of authority to act in such capacity must be forwarded
with this Form of Election.
6. GUARANTEE OF SIGNATURES. A signature guarantee is not required on this Form
of Election if both (i) this Form of Election is signed by the registered
holder(s) of Cowles Shares delivered with this Form, AND (ii) neither BOX F nor
BOX G is completed. OTHERWISE, all signatures on this Form of Election must be
guaranteed by a firm which is a bank (not a savings bank or a savings & loan
association), broker, dealer, credit union, a member of a national securities
exchange, a member of the National Association of Securities Dealers, Inc. or
trust company or other entity in the United States that is a member in good
standing of the Securities Transfer Agent's Medallion Program (each, an
"Eligible Institution").
7. LOST, STOLEN OR DESTROYED CERTIFICATE. If your Certificate(s) has been lost,
stolen or destroyed, please check the box in BOX B of this Form of Election, and
forms for replacement will be sent to you with instructions as to steps you must
take to receive a certificate representing shares of New McClatchy Class A
Common Stock and/or a check under the Reorganization Agreement. You will be
required to complete additional documents and pay for an indemnity bond covering
the lost Certificate(s). The cost of the bond will be based on the value of the
Cowles Shares represented by the lost Certificate(s). IF YOU HAVE NOT COMPLETED
THIS FORM OF ELECTION, COMPLIED WITH THE PROCEDURES FOR REPLACING A LOST, STOLEN
OR DESTROYED CERTIFICATE AND PAID FOR THE INDEMNITY BOND PRIOR TO THE ELECTION
TIME SET FORTH ON THE FIRST PAGE OF THIS FORM OF ELECTION, YOU WILL BE DEEMED
NOT TO HAVE MADE EITHER A STOCK ELECTION OR A CASH ELECTION WITH RESPECT TO
COWLES SHARES REPRESENTED BY SUCH CERTIFICATE. PLEASE DIRECT ANY QUESTIONS
REGARDING A LOST, STOLEN OR DESTROYED CERTIFICATE TO SHERBURNE & COUGHLIN, LTD.
AT (612) 338-3255.
8. DETERMINATION OF PROPER ELECTION AND DELIVERY OF CERTIFICATES. Exchange Agent
will have the discretion to reasonably determine whether a Form of Election has
been properly completed, signed and submitted, modified or revoked, and to
disregard immaterial defects, and to determine all questions as to validity,
form and eligibility of any delivery of Certificates. The Exchange Agent
reserves the right to waive any irregularities or defects in the delivery of any
Certificates; however, a delivery will not be deemed to have been made until all
irregularities have been cured or waived. The decision of the Exchange Agent in
such matters shall be conclusive and binding. Neither Cowles nor the Exchange
Agent will be under any obligation to notify any person of any defect in a Form
of Election, and neither Cowles nor the Exchange Agent shall incur any liability
for failure to give any such notice. The Exchange Agent shall also make all
computations contemplated by the Reorganization Agreement and all such
computations shall be conclusive and binding on the holders of Cowles Shares. No
alternative, conditional or contingent Stock Election or Cash Election will be
accepted. If the Exchange Agent reasonably determines that any purported Stock
Election or Cash Election was not properly made, such purported Stock Election
or Cash Election shall be deemed to be of no force and effect and the holder of
Cowles Shares making such purported Stock Election or Cash Election shall, for
purposes hereof, be deemed to have not made a Stock Election or Cash Election.
9. NEW CERTIFICATES AND CHECKS IN DIFFERENT NAME; STOCK TRANSFER TAXES. If a new
certificate is to be registered in, or a check is to be made payable to the
order of, a name(s) different than the exact name(s) that appears on the
Certificate(s) that Stockholder submits with this Form of Election, then, in
addition to endorsing the Certificate(s), Stockholder must complete BOX F and
have an Eligible Institution guarantee the signatures on this Form of Election
in BOX D. (See Supplemental Instruction 6)
If a new certificate representing New McClatchy Class A Common Stock is to
be registered in, or a check is make payable to the order of, a name(s) other
than exactly the same name(s) that is on the Certificate(s) that Stockholder
submits with this Form of Election, then Stockholder must submit with this Form
of Election evidence of payment of any applicable stock transfer tax or proof of
an exemption from such a tax.
10. APPRAISAL RIGHTS. Holders of Cowles Shares who have demanded appraisal
rights pursuant to the Delaware General Corporation Law should not complete this
Form of Election. Cowles will regard any holder of Cowles Shares who has
delivered a written demand for appraisal and who delivers a Form of Election as
having withdrawn such demand for appraisal.
11. CITIZENSHIP OF HOLDER OF COMMON STOCK. The term "U.S. Person" means any U.S.
citizen and any person that is not a Foreign Person. The term "Foreign Person"
means any foreign corporation, nonresident alien individual, nonresident
fiduciary of a foreign estate or trust, or a foreign partnership (in each case
with respect to the United States, its territories and possessions, and all
areas subject to its jurisdiction).
12. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9--U.S. PERSONS.
Under the "backup withholding" provisions of Federal tax law, the Exchange Agent
may be required to withhold 31% any payments made to holders of Cowles Shares.
To prevent backup withholding, each holder of Cowles Shares should complete and
sign the Substitute Form W-9 included in this Form of Election and either: (a)
provide the correct Taxpayer Identification Number and certify, under penalty of
perjury, that it is correct (or that such holder is awaiting a Taxpayer
Identification Number), and that (i) the holder has not been notified by the
Internal Revenue Service ("IRS") that the holder is subject to backup
withholding, or (ii) the IRS has notified the holder of Cowles Shares that the
holder is no longer subject to backup withholding; or (b) provide an adequate
basis for exemption. If the box in Part III of the Substitute Form W-9 is
checked, the Exchange Agent may withhold 31% of cash payments during the 60-day
period following execution of the Substitute Form W-9. If the holder furnishes
the Exchange Agent with his or her Taxpayer Identification Number within such
60-day period, the Exchange Agent shall pay such withheld amounts and no further
amounts shall be withheld. However, if the holder has not provided the Exchange
Agent with such Taxpayer Identification Number within such 60-day period, the
Exchange Agent shall remit such withheld amounts to the IRS and shall withhold
31% of all subsequent payments until the holder furnishes a Taxpayer
Identification Number to the Exchange Agent. In general, if a holder of Cowles
Shares is an individual, the TIN is the Social Security number of such
individual. Certain holders (including, among others, corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order to satisfy the Exchange Agent that a foreign individual
qualifies as an exempt recipient, such holder of Cowles Shares may complete and
submit the Substitute Form W-8 included in this Form of Election.
13. FOREIGN PERSONS. Withholding of U.S. tax at the rate of 31% from any
distributions to a foreign owner may be required unless the Substitute Form W-8
is properly completed and signed.
