UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED: September 28, 1997
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COMMISSION FILE NUMBER: 1-7553
KNIGHT-RIDDER, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 38-0723657
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(State of Incorporation) (I.R.S. Employer Identification No.)
ONE HERALD PLAZA, MIAMI, FLORIDA 33132
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(Address of principal executive offices)
(305) 376-3800
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date. Common Stock, $.02 1/12 Par Value
- - 84,443,139 shares as of November 5, 1997.
1
<PAGE>
Table of Contents for Form 10-Q
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statement of Income 3
Consolidated Balance Sheet 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
EXHIBITS 16-70
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED, IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended Four Quarters Ended
---------------------------- --------------------------- ---------------------------
September 28 September 29 September 28 September 29 September 28 September 29
1997 1996 1997 1996 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUE
Advertising
Retail $ 252,708 $ 188,534 $ 686,687 $ 571,236 $ 937,219 $ 824,512
General 59,142 46,920 172,050 144,257 226,590 194,722
Classified 258,381 197,217 712,108 590,470 894,497 763,244
----------- ----------- ----------- ----------- ----------- -----------
Total 570,231 432,671 1,570,845 1,305,963 2,058,306 1,782,478
Circulation 149,989 123,722 416,460 376,413 541,873 508,541
Other 35,149 25,471 92,357 74,349 115,847 101,031
----------- ----------- ----------- ----------- ----------- -----------
Total Operating Revenue 755,369 581,864 2,079,662 1,756,725 2,716,026 2,392,050
----------- ----------- ----------- ----------- ----------- -----------
OPERATING COSTS
Labor and employee benefits 303,440 241,498 838,298 731,252 1,083,188 997,730
Newsprint, ink and supplements 126,612 114,486 330,185 368,649 433,743 501,413
Other operating costs 167,169 121,003 446,233 363,508 569,216 505,568
Depreciation and amortization 49,265 30,353 120,249 90,181 153,665 116,862
----------- ----------- ----------- ----------- ----------- -----------
Total Operating Costs 646,486 507,340 1,734,965 1,553,590 2,239,812 2,121,573
----------- ----------- ----------- ----------- ----------- -----------
OPERATING INCOME 108,883 74,524 344,697 203,135 476,214 270,477
----------- ----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (33,762) (17,635) (72,419) (56,301) (89,255) (78,187)
Interest expense capitalized 1,041 1,819 4,189 4,398 6,188 5,180
Interest income 562 610 1,247 4,860 2,877 7,153
Equity in earnings of unconsolidated
companies and joint ventures 4,542 5,621 8,315 22,191 15,992 28,916
Minority interests in earnings of
consolidated subsidiaries (2,785) (1,888) (8,182) (5,973) (11,502) (8,318)
Other, net 47,319 242 263,870 1,006 279,565 862
----------- ----------- ----------- ----------- ----------- -----------
Total 16,917 (11,231) 197,020 (29,819) 203,865 (44,394)
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes 125,800 63,293 541,717 173,316 680,079 226,083
Income taxes 51,786 23,582 230,935 69,001 287,336 86,964
----------- ----------- ----------- ----------- ----------- -----------
Income from continuing operations 74,014 39,711 310,782 104,315 392,743 139,119
Net gain/(adjustment) on sale of
discontinued BIS operations (Note 3) 90,901 90,901 (4,646) 90,901
Loss from discontinued BIS
operations, net (Note 3) (4,355) (738) (3,089) (2,307) (6,894)
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 74,014 $ 126,257 $ 310,044 $ 192,127 $ 385,790 $ 223,126
=========== =========== =========== =========== =========== ===========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
Income from continuing operations $ 0.69 $ 0.41 $ 3.09 $ 1.06 $ 3.95 $ 1.42
Net gain/(adjustment) on sale of
discontinued BIS operations
(Note 3) 0.94 0.93 (0.05) 0.93
Loss from discontinued BIS
operations, net (Note 3) (0.04) (0.01) (0.03) (0.02) (0.08)
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 0.69 $ 1.31 $ 3.08 $ 1.96 $ 3.88 $ 2.27
=========== =========== =========== =========== =========== ===========
DIVIDENDS DECLARED
PER COMMON SHARE $ 0.20 $ 0.20 $ 0.60 $ 0.58 1/2 $ 0.60* $ 0.77
=========== =========== =========== =========== =========== ===========
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (000s) 106,660 96,385 100,707 98,115 99,364 98,104
=========== =========== =========== =========== =========== ===========
* The Board of Directors declared a $0.20 per share dividend on January 28, 1997. The quarterly dividend usually paid in January
was paid on February 24, 1997, to shareholders of record as of the close of business on February 12, 1997.
See "Notes to Consolidated Financial Statements" on page 6.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
September 28 December 29 September 29
1997 1996 1996
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash, including short-term cash invest-
ments of $50 in 1997,
December 1996, and September 1996 $ 35,849 $ 22,880 $ 22,160
Accounts receivable, net of allowances
of $16,744 in 1997, $12,685 in
December 1996 and $13,013 in
September 1996 414,323 356,079 326,924
Inventories 59,029 42,941 52,607
Prepaid Expense 29,906 90,314 13,093
Other current assets 46,268 53,513 46,474
---------- ---------- ----------
Total Current Assets 585,375 565,727 461,258
---------- ---------- ----------
INVESTMENTS AND OTHER ASSETS
Equity in unconsolidated companies
and joint ventures 194,516 330,267 330,490
Net assets of discontinued BIS operations (Note 3) 329,155 325,319 333,023
Other 176,641 135,409 163,277
---------- ---------- ----------
Total Investments and Other Assets 700,312 790,995 826,790
---------- ---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 96,622 77,526 77,606
Buildings and improvements 426,108 387,509 387,647
Equipment 1,106,912 996,703 1,007,381
Construction and equipment
installations in progress 161,553 110,590 113,111
---------- ---------- ----------
1,791,195 1,572,328 1,585,745
Less accumulated depreciation 752,253 702,141 706,984
---------- ---------- ----------
Net Property, Plant and Equipment 1,038,942 870,187 878,761
---------- ---------- ----------
EXCESS OF COST OVER NET ASSETS ACQUIRED
AND OTHER INTANGIBLES
Less accumulated amortization of
$186,176 in 1997, $153,530 in December
1996 and $148,457 in September 1996 2,327,394 636,882 630,830
---------- ---------- ----------
TOTAL $4,652,023 $2,863,791 $2,797,639
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 167,768 $ 223,962 $ 128,374
Accrued expenses and other liabilities 142,107 103,730 103,399
Accrued compensation and amounts
withheld from employees 118,255 96,426 89,720
Federal and state income taxes 46,085 62,830
Deferred revenue 91,161 70,452 71,294
Dividends payable 18,814
Short-term borrowings and current
portion of long-term debt 39,893 50,000
---------- ---------- ----------
Total Current Liabilities 605,269 544,570 474,431
---------- ---------- ----------
NONCURRENT LIABILITIES
Long-term debt 1,726,610 771,335 810,270
Deferred federal and state income taxes 341,022 142,727 125,220
Postretirement benefits other than pensions 155,355 158,820 171,279
Employment benefits and other
noncurrent liabilities 128,445 112,784 104,996
---------- ---------- ----------
Total Noncurrent Liabilities 2,351,432 1,185,666 1,211,765
---------- ---------- ----------
MINORITY INTERESTS IN
CONSOLIDATED SUBSIDIARIES 2,002 2,047 1,946
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 par value; shares authorized -
2,000,000; shares issued - 1,754,930 in 1997
and 0 in December 1996, and September 1996 1,755
Common Stock, $0.2 1/12 par value; shares
authorized - 250,000,000; shares issued -
85,863,984 in 1997, 93,340,652 in December
1996 and 94,092,701 in September 1996 1,789 1,945 1,960
Additional capital 927,638 308,320 310,150
Retained earnings 762,138 819,572 772,192
Unrealized gains on investments 1,671 25,195
---------- ---------- ----------
Total Shareholders' Equity 1,693,320 1,131,508 1,109,497
---------- ---------- ----------
TOTAL $4,652,023 $2,863,791 $2,797,639
========== ========== ==========
</TABLE>
See "Notes to Consolidated Financial Statements" on page 6.
4
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended Four Quarters Ended
---------------------- ---------------------- ---------------------
Sept 28 Sept 29 Sept 28 Sept 29 Sept 28 Sept 29
1997 1996 1997 1996 1997 1996
--------- --------- --------- ---------- --------- ----------
CASH PROVIDED BY (REQUIRED FOR) OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C> <C>
Net income $ 74,014 $ 126,257 $ 310,044 $ 192,127 $ 385,790 $ 223,126
Noncash items deducted from (included in) income:
Gains on sale/exchange of investee/subsidiary (Note 2) (43,205) (265,006) (265,006)
Net (gain)/adjustment on sale of discontinued BIS
operations (Note 3) (90,901) (90,901) 4,646 (90,901)
Depreciation 29,370 21,236 74,531 63,855 98,194 83,002
Amortization of excess of cost over
net assets acquired 15,539 4,845 32,648 14,472 37,783 18,665
Amortization of other assets 4,356 4,272 13,070 11,854 17,688 15,195
Provision for noncurrent deferred taxes 23,148 6,510 23,562 3,611 (10,901) 8,426
Distributions from investees in excess of (less than)
earnings (5,425) 1,151 (9,574) (12,291) (18,576) (33,567)
Other items, net 6,910 9,023 23,951 22,324 1,727 41,274
Change in certain assets and liabilities:
Accounts receivable (3,643) (20,425) (7,068) (25,157) (24,819) (40,561)
Inventories 3,236 23,911 (6,471) 20,809 3,194 12,432
Other current assets (5,709) 16,724 5,116 (3,762) (79,341) 21,177
Accounts payable 8,971 14,123 (83,592) 20,648 (17,989) (4,577)
Federal and state income taxes (19,926) (5,988) 46,085 (6,183) 53,240 (20,964)
Other liabilities 48,243 10,487 46,767 4,334 32,607 3,932
--------- --------- --------- --------- --------- ----------
Net Cash Provided by Operating Activities 135,879 121,225 204,063 215,740 218,237 236,659
--------- --------- --------- --------- --------- ----------
CASH PROVIDED BY (REQUIRED FOR) INVESTING ACTIVITIES
Proceeds from sale of investee 130,654 130,654
Proceeds from sale of discontinued BIS operations (Note 3) 271,859 271,859 271,859
Change in net non-current assets of discontinued BIS
operations (Note 3) (7,988) (4,161) (3,689) (3,670) 1,280 (6,120)
Acquisition of Contra Costa Newspapers, Inc. (335,755)
Proceeds from sales of securities available for sale 110,915 241,894 241,894
Additions to property, plant and equipment (22,750) (24,571) (83,411) (94,252) (102,055) (143,772)
Other items, net (892) (8,234) (3,759) 20,501 20,882 13,871
--------- --------- --------- --------- --------- ----------
Net Cash Provided by (Required for) Investing
Activities 79,285 234,893 281,689 194,438 292,655 (199,917)
--------- --------- --------- --------- --------- ----------
CASH PROVIDED BY (REQUIRED FOR) FINANCING ACTIVITIES
Proceeds from sale of commercial paper
and senior notes payable 254,937 103,356 581,653 436,979 745,684 1,013,820
Reduction of total debt (317,823) (347,247) (626,812) (640,877) (779,915) (797,427)
--------- --------- --------- --------- --------- ----------
Net Change in Total Debt (62,886) (243,891) (45,159) (203,898) (34,231) 216,393
Payment of cash dividends (21,014) (19,316) (57,990) (55,449) (76,803) (73,448)
Sale of common stock to employees 26,270 7,643 61,273 54,913 78,562 88,538
Purchase of treasury stock (146,118) (100,105) (409,844) (174,481) (457,131) (219,601)
Other items, net (4,125) (9,519) (21,063) (35,115) (7,600) (44,117)
--------- --------- --------- --------- --------- ----------
Net Cash Required for Financing Activities (207,873) (365,188) (472,783) (414,030) (497,203) (32,235)
--------- --------- --------- --------- --------- ----------
Net Increase (Decrease) in Cash 7,291 (9,070) 12,969 (3,852) 13,689 4,507
Cash and short-term cash
investments at beginning of the period 28,558 31,230 22,880 26,012 22,160 17,653
--------- --------- --------- --------- --------- ----------
Cash and short-term cash
investments at end of the period $ 35,849 $ 22,160 $ 35,849 $ 22,160 $ 35,849 $ 22,160
========= ========= ========= ========= ========= ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Non cash investing activities (Note 2)
Securities received as proceeds on the sale of investee $ 229,163 $ 229,163
Non cash financing activities (Note 2)
Issuance of preferred stock for the acquisition
of the Disney newspapers
Preferred Stock 1,755 1,755
Additional Capital 658,245 658,245
Long-term debt assumed on the acquisition
of the Disney newspapers 990,000 990,000
See "Notes to Consolidated Financial Statements" on page 6.
5
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the quarter, three quarters, and four
quarters ended September 28, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 28, 1997. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Registrant Company and Subsidiaries' annual report on
Form 10-K for the year ended December 29, 1996, and as subsequently reclassified
to reflect a discontinued segment and included in the Company's current report
on Form 8-K dated October 8, 1997.
Certain amounts in 1996 have been reclassified to conform to the 1997
presentation, see Note 3.
NOTE 2 - ACQUISITIONS AND DISPOSITIONS
On May 9, 1997, the company completed the acquisition of Media through the
merger of a wholly owned subsidiary with and into Media. Media which was
indirectly owned by The Walt Disney Company, owns four newspapers located in
Belleville, Illinois, Kansas City, Missouri, Wilkes-Barre, Pennsylvania and Fort
Worth, Texas. The company intends to continue to manage and operate Media as a
newspaper company. The four newspapers have combined daily and Sunday
circulation of 630,000 and 898,000, respectively.
The acquisition was accounted for under the purchase method. The purchase price
of $1.65 billion was allocated, based on preliminary allocations, to the
estimated fair market value of tangible and intangible net assets of Media.
Identified intangible net assets of Media were approximately $350 million. The
excess of purchase price over these net assets of Media of approximately $1.36
billion, has been recorded as goodwill and will be amortized on a straight-line
basis over 40 years.
Pursuant to the merger, the company issued 1,754,930 shares of its Series B
convertible preferred stock. Each share of preferred stock is convertible into
10 shares of Common Stock. At the effective time of the merger, Media had $990
million of bank debt which was assumed by the company.
6
<PAGE>
The proforma results of operations (as though the acquisition had occured at the
beginning of the fiscal year) for the current and prior year to date periods
ended September (in thousands of dollars, except share data) are as follows:
NINE MONTH PERIODS ENDED
------------------------
SEPTEMBER 28, 1997 SEPTEMBER 29, 1996
------------------ ------------------
Revenue $2,246,050 $2,122,575
Net earnings 308,567 178,990
Net earnings per
common and common
share equivalent $ 2.82 $ 1.55
Average common and
common equivalent
shares outstanding
(000's) 109,481 115,664
On January 10, 1997, the company closed on the sale of the company's interest in
all but one of the jointly owned cable properties with TeleCommunications, Inc.
(TCI). The sale of the remaining cable property is expected to close later.
On August 24, 1997, the company completed an exchange with the E. W. Scripps Co.
of the Daily Camera, in Boulder, Colorado, for two newspapers in California. The
company's results of operations include Boulder through August 24, and Monterey
and San Luis Obispo from that same date through September 28, 1997.
NOTE 3 - DISCONTINUED OPERATIONS
On April 4, 1997, Knight-Ridder, Inc. announced that it will divest
Knight-Ridder Information, Inc. (KRII). The announcement resulted in the former
Business Information Service (BIS) Division (except Technimetrics) being
reclassified as discontinued operations. The net non-current assets and
liabilities of the former BIS Division (except Technimetrics) have been
classified in the Consolidated Balance Sheet as net assets of discontinued BIS
operations. The accompanying Statement of Income and Statement of Cash Flows
have also been reclassified to present the former BIS Division (except
Technimetrics) as discontinued operations.
On October 2, 1997, Knight-Ridder, Inc. announced that it will sell KRII to
M.A.I.D. plc. for $420 million. The sale is expected to close in November and
result in a gain.
7
<PAGE>
<TABLE>
<CAPTION>
NOTE 4 - DEBT
(In Thousands of Dollars)
Effective Balance At
Interest ----------------------------------------------
Rate At
Sept. 28 Sept. 28 Dec. 29 Sept. 29
1997 1997 1996 1996
-------------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Commercial paper, net of discount 5.8% $ 319,658 $ 364,817 $ 353,888
Secured bank debt (a) 6.2 990,000
Debentures, net of discount (b) 10.0 198,092 197,968 197,902
Notes payable, net of discount (c) 8.5 159,573 159,445 159,402
Senior notes, net of discount (d) 6.4 99,180 99,105 99,078
--------------- -------------- -------------
Total Debt (e) 6.7 1,766,503 821,335 810,270
Less amounts classified as current 39,893 50,000
--------------- -------------- -------------
Total long-term debt 6.7% $ 1,726,610 $ 771,335 $ 810,270
=============== ============== =============
</TABLE>
(a) Represents $990 million advance under a $1.2 billion credit agreement with
a variable interest rate indexed to Libor plus 27 1/2 basis points due in
1999, see Note 2.
(b) Represents $200 million of a 20-year 9 7/8% debenture due in 2009.
(c) Represents $160 million of 8 1/2% notes subject to mandatory pro rata
amortization of 25% annually commencing in 1998 through maturity in 2001.
(d) Represents $100 million of 10 year 6.3% senior notes due in 2005.
(e) At September 28, 1997, and September 29, 1996, interest payments of $41.1
million and $53.3 million had been made for the year-to-date,
respectively.
Subsequent to September 28, 1997, the Company issued $100 million of 6.625%
notes due November 1, 2007 and $100 million of 7.15% debentures due November 1,
2027 pursuant to the indenture, dated as of November 4, 1997, between the
company and The Chase Manhattan Bank, as Trustee. The proceeds from the issuance
of this debt will be used to reduce commercial paper borrowings.
NOTE 5 - INCOME TAX PAYMENTS
Income tax payments for the three quarters ended September 28, 1997 and
September 29, 1996, were $155.7 million and $61.9 million, respectively.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
On July 13, 1995, six unions struck the Detroit Free Press, The Detroit News and
the Detroit Newspaper Agency, which operates both newspapers. Subsequently, the
unions filed numerous unfair labor practice charges against the newspapers and
the Agency. In June, 1997, after a lengthy trial, a National Labor Relations
Board Administrative Law Judge ruled that the strike was triggered by the unfair
labor practices of the Agency and The Detroit News. The Judge recommended that
the Agency and the newspapers reinstate all former strikers, displacing
permanent replacements if necessary. The Agency and the newspapers already have
filed their appeal of the decision. In the opinion of management, the ultimate
liability to the Company and its subsidiaries, if any, as a result of this and
related legal proceedings will not be material to their financial position or
results of operations.
8
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE THIRD QUARTER
THIRD QUARTER 1997 COMPARED WITH THIRD QUARTER 1996
Earnings per share from continuing operations for the third quarter of 1997 were
$.69, including a $.23 gain on the exchange with the E. W. Scripps Co. of the
Daily Camera, in Boulder, Colorado, for two newspapers in California. Excluding
that gain, the company earned $.46 a share, up $.05, or 12.2%, from the $.41
reported from continuing operations in 1996. These numbers include results from
four newspapers acquired from The Walt Disney Company on May 9, 1997. They also
include results for Boulder through August 24th, and for Monterey and San Luis
Obispo from that same date through the end of the quarter. They exclude results,
for both years, for the Business Information Services Division (except
Technimetrics), pending the sale of Knight-Ridder Information, Inc. Their
results have been reclassified as Discontinued Operations. Technimetrics'
revenue is consolidated in the "other revenue" line. Earnings per share from
continuing operations for the first three quarters of 1997 were $1.58, excluding
the $1.27 gain on the sale of cable and the $.24 gain on the Boulder/E.W.
Scripps Co. trade, up $.52, or 49.1%, from the $1.06 reported from the prior
year continuing operations.
Net income from continuing operations in the third quarter of 1997 was $74.0
million, up $34.3 million, or 86.4% from the same period last year, on an
operating revenue increase of 29.8%. Excluding the gain on the Boulder/E. W.
Scripps Co. trade, net income from continuing operations was up $9.8 million, or
24.7%. For the year-to-date, net income from continuing operations, exclusive of
one time gains, was $157.9 million, up $53.6 million, or 51.4%, from 1996, on an
operating revenue increase of 18.4%.
Operating income rose 46.1% to $108.9 million in the third quarter and rose
69.7% to $344.7 million for the year-to-date ended September 28, 1997. The
increase for both the quarter and the year-to-date was due to strong advertising
revenue and lower newsprint costs.
Certain comparisons will be provided on a proforma basis, as if we had owned the
former Disney and Scripps newspapers since January 1, 1996, and excluding
Boulder's results from both years. On this basis, operating revenue was up 6.7%
and operating profit was up $13.2 million, or 14.0% for the quarter. For the
year-to-date, operating revenue was up 6.5% and operating profit was up $115.9
million, or 42.9%.
OPERATING REVENUE
Advertising revenue increased $137.6 million, or 31.8%, over the third quarter
last year and $264.9 million, or 20.3%, for the year-to-date. On a proforma
basis excluding Boulder, advertising revenue increased 7.8% over the third
quarter last year and 7.9% for the year-to-date. This reflected improvement in
all advertising revenue categories.
9
<PAGE>
Classified advertising revenue increased $61.2 million, or 31.0%, over the third
quarter last year and $121.6 million, or 20.6%, over year-to-date 1996. On a
proforma basis excluding Boulder, classified advertising revenue increased $22.6
million, or 9.6%, over the third quarter last year. The employment category
showed the largest gain, posting a 35.6% revenue improvement. All of the 12
largest markets showed classified increases, with Philadelphia showing the
largest increase, up 15.7% from third quarter last year, followed by Charlotte,
Akron, St. Paul and Contra Costa, up 14.8%, 12.6%, 11.0% and 9.0%, respectively.
Year-to-date classified advertising revenue increased $67.8 million, or 9.7%,
from 1996, again due to the employment category.
Retail advertising revenue increased $64.2 million, or 34.0%, over the third
quarter last year and $115.5 million, or 20.2%, over year-to-date 1996. Retail
advertising revenue, on a proforma basis excluding Boulder, improved by $13.9
million, or 5.8%, from the third quarter 1996. During the third quarter of 1997,
all of our 12 largest markets showed year-over-year gains. While drivers of this
growth varied a bit from market to market, retail revenue was especially strong
in Contra Costa, Miami and San Jose, up 13.6%, 12.6% and 9.1 %, respectively.
Year-to-date retail revenue was up $42.3 million, or 5.9%, from 1996.
General advertising revenue increased $12.2 million, or 26.1%, over the third
quarter last year and $27.8 million, or 19.3%, over year-to-date 1996. On a
proforma basis excluding Boulder, general advertising revenue was up $4.6
million, or 8.3%, from last year. Virtually all of the strength in general
advertising was concentrated in San Jose, Philadelphia and Detroit. For the
first three quarters of 1997, general advertising revenue was up $15.3 million,
or 9.1%, from the prior year.
Circulation revenue increased $26.3 million, or 21.2%, over the third quarter
last year, on a 20.5% increase in average seven day circulation, and increased
$40.0 million, or 10.6%, for the year-to-date. On a proforma basis excluding
Boulder, circulation revenue was up $1.1 million, or 0.7%, from third quarter
1996 and up $2.3 million, or 0.5%, for the year-to-date.
Other revenue increased $9.7 million, or 38.0%, from the third quarter 1996 and
$18.0 million, or 24.2%, from year-to-date 1996. On a proforma basis excluding
Boulder, other revenue increased by $6.0 million, or 18.9% for the third quarter
and $11.6 million, or 12.7% for the year-to-date. The increase was due to
Technimetrics revenue growth of 33.1% for the quarter and 36.9% for the
year-to-date, as well as increases in alternate distribution and other
augmentation revenue.
OPERATING COSTS
Labor and employee benefit costs increased $61.9 million, or 25.6%, from the
third quarter 1996 and $107.0 million, or 14.6%, for the year-to-date. On a
proforma basis excluding Boulder, labor and employee benefit costs increased
$22.6 million, or 8.0%, above third quarter 1996. Year-to-date labor and
employee benefit costs were $52.9 million, or 6.2%, higher than 1996, on this
same basis. The increase for the quarter and year-to-date was primarily due to
volume-related labor cost increases and staffing for both our online initiatives
and other revenue-generating activities.
10
<PAGE>
Newsprint, ink and supplements increased $12.1 million, or 10.6%, from third
quarter 1996, but were down $38.5 million, or 10.4%, from year-to-date 1996. On
a proforma basis excluding Boulder, newsprint, ink and supplement costs
decreased $11.1 million, or 8.1%, on a 15.1% decrease in the average newsprint
price, offset by a 6.3% increase in consumption. These costs were down $86.2
million, or 19.2%, for the year-to-date, on a 25.9% decrease in the average
newsprint price, offset by a 5.5% increase in consumption.
Other operating costs increased $46.2 million, or 38.2%, from third quarter 1996
and $82.7 million, or 22.8%, from year-to-date 1996. On a proforma basis
excluding Boulder, other operating costs increased $18.9 million, or 12.7%, from
third quarter 1996, primarily due to increased circulation promotion and
advertising costs. Several bankruptcies also resulted in higher bad debt expense
during the quarter. Other operating costs rose $50.2 million, or 11.3%, from the
prior year-to-date, again, partly due to an increase in circulation promotion
costs and other advertising costs.
Depreciation and amortization increased $18.9 million, or 62.3%, from third
quarter 1996 and $30.1 million, or 33.3%, from year-to-date 1996. On a proforma
basis excluding Boulder, depreciation and amortization increased $4.5 million,
or 10.0%, from third quarter 1996 and $6.5 million, or 5.5 %, for the
year-to-date. The increase for the quarter and the year-to-date was largely due
to the Miami press project and the Philadelphia building renovation project.
NON-OPERATING ITEMS
Interest expense, net of interest income and interest expense capitalized,
increased $17.0 million over third quarter 1996 and $19.9 million for the
year-to-date. The increase was due to higher debt levels associated with the
Disney newspapers acquisition and share purchase. The average debt balance for
the quarter increased $879 million from the third quarter of last year.
Equity in earnings of unconsolidated companies and joint ventures were $1.1
million below third quarter 1996 and $13.9 million below the year-to-date. This
was primarily due to our newsprint mill investments which were negatively
impacted by the decline in the price of newsprint compared to the prior year.
This was partly offset by improvements in some of our other investments,
including The Seattle Times.
"Other, net" was $47.1 million above third quarter 1996 and $262.9 million above
year-to-date 1996. The quarter increase was due to the gain on the Boulder/E. W.
Scripps Co. trade, while the year-to-date increase was due primarily to the gain
on the January sale of most of our cable investment, as well as the trade.
The effective tax rate was 41.2%, compared with 37.3% in the third quarter of
1996. The increase was primarily as a result of non-deductible goodwill
amortization related to the acquisition of the Disney newspapers.
11
<PAGE>
OTHER
On November 6, 1997, the company announced that Garden State Newspapers, Inc.,
an affiliate of MediaNews Group, is purchasing the Long Beach Press-Telegram for
an undisclosed price. The Long Beach sale completes the company's plan,
announced in June, to sell five newspapers.
On October 30, 1997, the company announced that it will sell the Boca Raton
News, the Milledgeville Union-Recorder and Newberry (SC) Observer to Community
Newspaper Holdings, Inc. The undisclosed price includes a transfer to
Knight-Ridder of the Daily Sun in Warner Robins, GA and the weekly Byron
Gazette. The sale is expected to be finalized by Thanksgiving.
On October 17, 1997, the company announced that it will sell the Post-Tribune in
Gary, Indiana to Hollinger International, Inc. That sale is expected to close in
early January.
On October 2, 1997, the company announced that it will sell Knight-Ridder
Information, Inc. (KRII) to M.A.I.D. plc. for $420 million. The company
anticipates completing the sale in November.
On August 24, 1997, the company completed an exchange of newspapers in
California and Colorado with the E. W. Scripps Company. In a trade announced
July 25th, the company exchanged the Daily Camera in Boulder, Colorado for the
Monterey County Herald and San Luis Obispo Telegram in California.
On May 9, 1997, the company completed the acquisition of four newspapers owned
indirectly by The Walt Disney Company for $1.65 billion. The four newspapers are
The Kansas City Star, the Fort Worth and Arlington Star-Telegrams, the
Belleville News-Democrat and The Times Leader in Wilkes-Barre, Pennsylvania.
During the third quarter of 1997, the company purchased 2.9 million shares of
Knight-Ridder common stock, bringing to 9.3 million the number purchased in
1997. The company intends to repurchase, by the end of April 1998, at least 15
million shares, including those purchased through the end of the third quarter
of 1997.
LIQUIDITY
Net cash provided by operating activities increased to $135.9 million from
$121.2 million in the third quarter of 1996. The increase was attributed to
higher earnings from continuing operations, excluding the one-time gains. Net
cash provided by investing activities decreased $155.6 million from the third
quarter of 1996 due to the proceeds from sale of discontinued BIS operations in
the prior year quarter. Cash and short term cash investments were up $13.7
million from September 29, 1996, and up $13.0 million from year end. Total debt
decreased $62.8 million during the quarter due to the use of proceeds from the
sale of securities, and increased $956.2 million from September 29, 1996, due to
the assumption of debt from the Disney newspaper acquisition and share
repurchase.
12
<PAGE>
The total-debt-to-total-capital ratio was 51.1%, up from 42.1% at year end and
42.2% in September 1996. The company's indebtedness has increased as a result of
the acquisition of the four Disney newspapers and share repurchase, but the
company intends to reduce debt levels through the sale of KRII, the sale of the
five newspapers and strong cash flow. Approximately $329 million in aggregate
unused credit lines remained at the end of the quarter. The ratio of current
assets to current liabilities was 1.0:1 at September 28, 1997, December 29, 1996
and at September 29, 1996.
On October 10, 1997, the company filed a Registration Statement on Form S-3 with
the Securities and Exchange Commission which registered $500 million in debt
securities. Subsequently, of these $500 million in debt securities, the company
issued $100 million of 6.25% notes due November 1, 2007 and $100 million of
7.15% debentures due November 1, 2027 pursuant to the indenture, dated as of
November 4, 1997, between the company and The Chase Manhattan Bank, as Trustee.
The proceeds from the issuance of this debt will be used to reduce commercial
paper borrowings.
OUTLOOK FOR THE REMAINDER OF THE YEAR
As we look ahead to the remainder of the year, we anticipate advertising growth
will be moderately above the prior year. Although newsprint prices are expected
to rise, we will not feel any significant impact until 1998.
Although the upcoming fourth quarter presents some difficult comparisons, we
continue to anticipate an earnings increase for the year of at least 20% despite
dilution from the Disney acquisition.
Certain statements contained herein are forward looking statements. These are
based on management's current knowledge of factors affecting Knight-Ridder's
business. Actual results could differ materially from those currently
anticipated. Investors are cautioned that such forward looking statements
involve risk and uncertainty, including, but not limited to, the effects of
international, national and local economies on revenue, negotiations and
relations with labor unions, unforeseen changes to newsprint prices and interest
rates, the effects of acquisitions and dispositions, and the evolution of the
Internet.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 13, 1995, six unions struck the Detroit Free Press, The Detroit
News and the Detroit Newspaper Agency, which operates both newspapers.
Subsequently, the unions filed numerous unfair labor practice charges
against the newspapers and the Agency. In June, 1997, after a lengthy
trial, a National Labor Relations Board Administrative Law Judge ruled
that the strike was triggered by the unfair labor practices of the
Agency and The Detroit News. The Judge recommended that the Agency and
the newspapers reinstate all former strikers, displacing permanent
replacements if necessary. The Agency and the newspapers already have
filed their appeal of the decision. In the opinion of management, the
ultimate liability to the Company and its subsidiaries, if any, as a
result of this and related legal proceedings will not be material to
their financial position or results of operations.
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits Filed
No. 2.1 - Acquisition Agreement, dated as of April 4, 1997,
incorporated by reference to the Company's Form 8-K filed May 9,
1997
No. 2.2 - Acquisition and Plan of Merger, dated as of May 9, 1997,
incorporated by reference to the Company's Form 8-K filed May 22,
1997
No. 3 - Articles of Amendment to the Articles of Incorporation,
Establishing Series B Preferred Stock, incorporated by reference
to the Company's Form 10-Q filed August 14, 1997
No. 10 - Consulting Agreement, incorporated by reference to the
Company's Form 10-Q filed August 14, 1997
No. 10.1 - Stock Purchase Agreement between Knight-Ridder Business
Information Services, Inc. and M.A.I.D. plc, dated as of October
1, 1997
No. 27 - Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated October 8, 1997
Item 5. Other Events
On April 4, 1997, the company announced that it will
divest Knight-Ridder Information, Inc. (KRII). This
announcement resulted in its former Business Information
Service (BIS) segment (excluding one business called
Technimetrics) being reclassified as discontinued
operations in the quarter ended June 29, 1997. This
reclassification has been reflected in the consolidated
balance sheets of the company as of December 29, 1996,
December 31, 1995, and December 25, 1994, and the related
consolidated statements of income, cash flows and
shareholders' equity for the years then ended, included
in this Form 8-K.
On May 9, 1997, the company completed the acquisition of
ABC, Media Inc. (Media) through the merger of a wholly
owned subsidiary (Cypress Media, Inc.) with and into
Media. Media, which was indirectly owned by The Walt
Disney Company, owns four newspapers. The purchase price
was $1.65 billion. On May 22, 1997, the company filed
Form 8-K relating to the acquisition of Media excluding
related financial statements and pro forma information.
On July 22, 1997, the company filed Form 8-K/A#1
including the required financial statements and pro forma
financial information. The effects of discontinuing the
BIS segment are also reflected in the Pro Forma Condensed
Consolidated Balance Sheet as of March 30, 1997, and
notes thereto, and Pro Forma Condensed Consolidated
Statements of Income for the quarter ended March 30, 1997
and the year ended December 29, 1996, and notes thereto,
included in this Form 8-K.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KNIGHT-RIDDER, INC.
(Registrant)
Date: November 12, 1997
/s/ Gary R. Effren
--------------------------------------
Gary R. Effren
Vice President/Controller
(Chief Accounting Officer and Duly
Authorized Officer of Registrant)
15
EXHIBIT 10.1
STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 1, 1997
BETWEEN
KNIGHT-RIDDER BUSINESS INFORMATION SERVICES, INC.
AND
M.A.I.D. PLC
<PAGE>
1
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of October 1,
1997, between Knight-Ridder Business Information Services, Inc., a Delaware
corporation ("Seller"), and M.A.I.D plc, a public company incorporated under the
laws of England and Wales ("Buyer").
Buyer desires to purchase all of the outstanding shares of common
stock of Knight-Ridder Information, Inc., a California corporation ("KRII") and
all of the outstanding shares of Knight-Ridder Information A.G., a Swiss
corporation ("KRIAG") (collectively, the "Companies"), and Seller desires to
sell such shares to Buyer on the terms and conditions hereinafter set forth.
The definitions of certain defined terms used herein are set forth in
Exhibit A hereto.
Accordingly, in consideration of the premises and of the respective
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE 1
PURCHASE AND SALE OF SHARES
1.1 PURCHASE AND SALE. Upon the terms and subject to the conditions
set forth in this Agreement, Seller shall sell to Buyer, without recourse,
representation or warranty except as otherwise expressly provided herein and in
the Disclosure Letter, any Ancillary Instrument and the exhibits hereto and
thereto, and Buyer shall purchase from Seller, all of the outstanding shares of
common stock, par value $.05 per share, of KRII ("Common Stock") and all of the
outstanding shares, par value SFr. 1,000 per share, of KRIAG ("KRIAG Shares")
(such shares of Common Stock and KRIAG Shares being hereinafter collectively
referred to as the "Shares") for a purchase price of $420,000,000 (the "Base
Purchase Price"), subject to adjustment as provided in Section 1.4 (as adjusted,
the "Purchase Price").
1.2 CLOSING. Unless the parties hereto shall agree in writing upon a
different location, time or date, the closing of the sale and purchase of the
Shares (the "Closing") shall take place at the offices of Theodore Goddard, 150
Aldersgate Street, London EC1A 4EJ at 10:00 A.M. on (i) November 14, 1997 or
(ii) if the conditions required to be satisfied or waived pursuant to Articles 5
and 6 hereof (other than those requiring the delivery of a certificate or other
document, or the taking of other action, at the Closing by Buyer or Seller) have
not been satisfied or waived on such date, then on such later date which is
designated by Seller and reasonably satisfactory to Buyer and is not less than
three nor more than ten business days after
<PAGE>
2
the satisfaction or waiver of the last of the conditions required to be
satisfied or waived pursuant to Articles 5 and 6 hereof (other than those
requiring the delivery of a certificate or other document, or the taking of
other action, at the Closing by Buyer or Seller). If on any date set for the
Closing pursuant to the prior sentence or pursuant to this sentence the Closing
is not consummated because all of such conditions to the obligations of the
parties hereto have not been satisfied or waived, then Seller shall specify a
new date for the Closing in accordance with such prior sentence. The term
"Closing Date" means the date and time at which the Closing occurs.
1.3 DELIVERIES AT THE CLOSING. Subject to the conditions set forth in
this Agreement, at the Closing:
(a) Seller shall deliver to Buyer (i) certificates representing
all of the Shares accompanied by stock powers duly executed in blank, (ii)
instruments evidencing the resignation of each director of each Company and each
Company Subsidiary and each officer of each Company and each Company Subsidiary
that is also an officer of Seller except that with respect to any Company
Subsidiary that is not a Wholly-Owned Company Subsidiary, resignations of
directors or officers, as the case may be, will be delivered only as to those
directors and officers which Seller has the power to appoint and (iii) all
certificates and other instruments and documents which are expressly required
pursuant to this Agreement to be delivered by Seller to Buyer at the Closing;
and
(b) Buyer shall (i) accept and purchase the Shares from Seller
and pay and deliver to Seller the Initial Purchase Price by wire transfer of
immediately available funds to a bank account specified in writing by Seller at
least two days prior to the Closing Date and (ii) deliver to Seller all
certificates and other instruments and documents which are expressly required
pursuant to this Agreement to be delivered by Buyer to Seller at the Closing.
1.4 CLOSING NET WORKING CAPITAL ADJUSTMENT. (a) At least three
business days prior to the Closing Date, Seller shall, or shall cause the
Companies to, cause to be prepared and delivered to Buyer a schedule setting
forth, in reasonable detail, the Companies' good faith estimate of the Closing
Net Working Capital (the "Estimated Closing Net Working Capital") along with a
copy of the computations used in connection with such determination of the
Estimated Closing Net Working Capital. If the Estimated Closing Net Working
Capital is greater than $14,683,100 (the "Base Closing Net Working Capital"),
the Base Purchase Price shall be increased by the amount of such excess;
provided, however, that at the Closing, Buyer shall not be required to pay to
Seller under this sentence an amount in excess of the sum of $15 million plus
the amount of cash held by the Companies and the Company Subsidiaries as of the
Closing (it being understood and agreed that to the extent Buyer is not required
to pay to Seller at Closing any amount pursuant to the immediately preceding
proviso, such amount will be paid to Buyer within 90 days of the Closing Date
and with no adjustment at the time of payment. If the Estimated Closing Net
Working Capital is less than the Base Closing Net Working Capital, the Base
Purchase Price shall be decreased by the amount of such deficiency. Estimated
Closing Net Working Capital and Final Closing Net Working Capital shall be
calculated on a consistent basis and on a basis which is consistent with the
calculation of the Base Closing Net Working Capital including without limitation
the exceptions to GAAP (as defined in Section 2.5(a)) described in Section
1.4(a) of the Disclosure Letter. Notwithstanding anything to the contrary
contained herein except as provided in the immediately preceding sentence, the
accounting principles and
<PAGE>
3
methodologies used in the audited Financial Statements shall have no bearing to
the determination of Closing Net Working Capital.
(b) As promptly as practicable, but in no event later than 90
days, after the Closing Date, Buyer shall prepare and deliver to Seller a
schedule ("Buyer's Closing Schedule") setting forth in reasonable detail Buyer's
calculation of Closing Net Working Capital. Buyer's Closing Schedule shall also
set forth, and explain, in reasonable detail any differences between Buyer's
calculation of Closing Net Working Capital and the Estimated Closing Net Working
Capital. Any computations and workpapers used in the preparation of Buyer's
Closing Schedule shall also be provided to Seller at such time. If Buyer employs
a firm of independent accountants in connection with the preparation of Buyer's
Closing Schedule, Buyer shall cause such independent accountants to deliver to
Seller any computations and workpapers used in the preparation of Buyer's
Closing Schedule. In addition, Buyer shall make available to Seller the
appropriate personnel involved in the preparation of Buyer's Closing Schedule.
Seller will notify Buyer in writing ("Seller's Dispute Notice") within 30 days
after receiving Buyer's Closing Schedule if Seller disagrees with Buyer's
calculation of the Closing Net Working Capital as set forth in Buyer's Closing
Schedule, which notice shall set forth in reasonable detail the basis for such
disagreement, the dollar amounts involved and Seller's calculation of the
Closing Net Working Capital. Buyer will give Seller and its representatives
access during the normal business hours of Buyer and the Companies to the
personnel, books and records of the Companies and the Company Subsidiaries to
assist Seller in the preparation of Seller's Dispute Notice. If no Seller's
Dispute Notice is received by Buyer within such 30-day period, Buyer's
calculation of the Closing Net Working Capital as set forth in Buyer's Closing
Schedule shall be final and binding upon the parties hereto.
(c) Upon receipt by Buyer of Seller's Dispute Notice, Seller and
Buyer shall negotiate in good faith to resolve any disagreement with respect to
Closing Net Working Capital set forth in Seller's Dispute Notice. To the extent
Buyer and Seller are unable to agree with respect to Closing Net Working Capital
within 30 days after receipt by Buyer of Seller's Dispute Notice, Buyer and
Seller shall promptly submit their dispute to Arthur Andersen LLP or such other
mutually acceptable internationally recognized accounting firm with no material
relationship to Buyer or Seller for a binding resolution. Closing Net Working
Capital as agreed upon by Seller and Buyer, as deemed agreed upon pursuant to
the last sentence of Section 1.4(b) or as determined by such accounting firm, in
accordance herewith, shall be termed the "Final Closing Net Working Capital."
The fees and expenses of such accounting firm shall be paid one-half by Seller
and one-half by Buyer. If all items constituting the Final Closing Net Working
Capital have been agreed upon by Seller and Buyer or determined by such
accounting firm but Seller still believes that the amount of the reserve for
Taxes (other than Income Taxes) (the "Other Tax Reserve") utilized in such
determination is greater than it should be, then Seller shall nevertheless be
deemed to have agreed to such determination of Final Closing Net Working
Capital, but shall have the following rights, if timely exercised. If within 3
business days after the determination of the Final Closing Net Working Capital,
Seller notifies Buyer in writing of its continued disagreement with respect to
the amount of the Other Tax Reserve and informs Buyer of the amount (which shall
be determined by using methodologies and taking positions consistent with those
used and taken in determining the amount of the reserve for Taxes included on
the Balance Sheet (as defined in Section 2.5(a)) that Seller deems to be the
appropriate Other
<PAGE>
4
Tax Reserve (such amount being referred to as the "Seller's Other Tax Reserve"),
then for purposes of Final Closing Net Working Capital, Seller's Other Tax
Reserve rather than the Other Tax Reserve shall be utilized. In such event,
Seller shall indemnify Buyer for Losses relating to matters covered by the Other
Tax Reserve pursuant to Section 7.2, but without regard to any deductible for
any Basket Amount contemplated by Section 7.2, until the amount of such
dollar-for-dollar indemnity actually paid to Buyer equals the amount by which
the Other Tax Reserve exceeds Seller's Other Tax Reserve.
(d) If the Final Closing Net Working Capital exceeds the
Estimated Closing Net Working Capital, Buyer shall pay to Seller the amount of
such excess, or if the Estimated Closing Net Working Capital exceeds the Final
Closing Net Working Capital, Seller shall pay to Buyer the amount of such
excess, in either case, within five business days after the Final Closing Net
Working Capital becomes final and binding on the parties hereto by wire transfer
of immediately available funds to a bank account designated by Seller or Buyer,
as the case may be, to the other party.
(e) Buyer agrees that, from the Closing through the date on which
the Final Closing Net Working Capital becomes final and binding, it will not,
and will cause the Companies not to, take any actions with respect to any
accounting books, records, policies or procedures, including collection of
accounts receivable and settlement of current liabilities, on which the Closing
Net Working Capital is to be based that are inconsistent with the past practices
of the Companies with respect to such accounting books, records, policies or
procedure as reflected in the March 31 Balance Sheet (as defined in Section
2.5(a)).
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
Subject to Sections 7.1, 7.2(g) and 10.1, Seller represents and
warrants to Buyer as follows:
2.1 SELLER; THE COMPANIES; ORGANIZATION AND GOOD STANDING;
SUBSIDIARIES. (a) Seller is a Delaware corporation validly existing as a
corporation in good standing under the laws of the State of Delaware. KRII is a
California corporation duly incorporated and validly existing as a corporation
in good standing under the laws of the State of California and has the corporate
power to carry on its business as now being conducted. KRIAG is a corporation
duly incorporated and validly existing under the laws of Switzerland and has the
corporate power to carry on its business as now being conducted. KRII is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction where qualification as a foreign corporation is required,
except for such failures to be qualified and in good standing, if any, that when
taken together with all other such failures of KRII would not in the aggregate
have a Material Adverse Effect. Seller has previously delivered to Buyer
complete and correct copies of the articles of incorporation and by-laws (or
comparable organizational or governing instruments with different names) of each
Company, CARL Corporation, Infomart/Dialog Ltd. and KMK DigiTex Company Ltd. as
presently in effect.
<PAGE>
5
(b) Set forth in Part A of Section 2.1(b) of the Disclosure
Letter is a true and complete list of all Company Subsidiaries stating, with
respect to each Company Subsidiary, its jurisdiction of incorporation, type of
entity and equity ownership. KRIAG has no Subsidiaries. Each of the Company
Subsidiaries is duly incorporated or, if a partnership, duly organized, validly
existing and (with regard to Domestic Subsidiaries (as defined in Section
2.12(a))) in good standing under the laws of the jurisdiction of its
incorporation and has the corporate or partnership, as the case may be, power to
carry on its business as now being conducted. Each of the Company Subsidiaries
which is a Domestic Subsidiary is duly qualified to do business (with regard to
jurisdictions within the United States) and is in good standing in each
jurisdiction where qualification as a foreign corporation is required, except
for such failures to be qualified and in good standing, if any, that when taken
together with all other such failures of the Domestic Subsidiaries would not in
the aggregate have a Material Adverse Effect. All of the outstanding shares of
capital stock of the Company Subsidiaries which are corporations have been
validly authorized and issued, are fully paid and nonassessable and have not
been issued in violation of any preemptive rights or of any federal or state
securities law and, except as set forth in Part A of Section 2.1(b) of the
Disclosure Letter, are owned by KRII of record and beneficially free and clear
of any Lien other than Permitted Liens. As of the date of this Agreement, except
as set forth in Part B of Section 2.1(b) of the Disclosure Letter, neither
Company owns, directly or indirectly, any ownership, equity, profits or voting
interest in any corporation, partnership, joint venture, association, trust or
any other unincorporated organization or entity and has no agreement or
commitment to purchase any such interest.
2.2 CAPITALIZATION. The authorized capital stock of KRII and KRIAG
consists of 1,000,000 shares of Common Stock and 100 KRIAG Shares, respectively,
of which 7,375 shares and 100 shares, respectively, are issued and outstanding
and constitute the Shares, and no shares are held in the treasury of either
Company. There are no shares of Common Stock or KRIAG Shares reserved for
issuance. Seller owns all the issued and outstanding shares of Common Stock and
KRIAG Shares. The Shares have been validly authorized and issued, are fully paid
and nonassessable and have not been issued in violation of any preemptive rights
or, in the case of the Common Stock, in violation of any federal or state
securities law. Other than as contemplated hereby or as set forth in Part B of
Section 2.1(b) of the Disclosure Letter, there is no security, option, warrant,
right, call, subscription, agreement, commitment or understanding of any nature
whatsoever, fixed or contingent, that directly or indirectly (i) calls for the
issuance, sale, pledge or other disposition of any shares of capital stock or
other equity interest of either Company or any Company Subsidiary or any
securities convertible into, or other rights to acquire, any shares of capital
stock or other equity interest of either Company or any Company Subsidiary, (ii)
relates to the voting or control of such capital stock, equity interest,
securities or rights or (iii) obligates either Company or any Company Subsidiary
to grant, offer or enter into any of the foregoing.
2.3 AUTHORITY. Seller has the corporate power and corporate authority
to execute and deliver this Agreement and the Release, to perform its
obligations hereunder and thereunder and to consummate the transactions provided
for hereby and thereby, and all corporate action of Seller necessary for the
making and performance of this Agreement and the Release by Seller has been duly
taken. The execution, delivery and performance by Seller of this Agreement and
the Release do not and will not (i)(A) contravene any provisions of the articles
<PAGE>
6
of incorporation or by-laws (or comparable organizational or governing
instruments with different names) of Seller or either Company or the charter or
by-laws (or comparable organizational or governing instruments with different
names) of any Company Subsidiary, (B) except as required or otherwise
contemplated hereby and except as set forth in Section 2.3 of the Disclosure
Letter, with or without the giving of notice or the passage of time or both,
result in any breach by Seller, either Company or any Company Subsidiary of, or
default or permitted or required acceleration of performance by Seller, either
Company or any Company Subsidiary under, or the creation of any Lien upon any of
their respective assets, or the creation in favor of any third party of any
right of termination of, any mortgage, indenture, contract, agreement or other
instrument to which Seller, either Company or any Company Subsidiary is a party
or (C) assuming that the Governmental Actions/Filings referred to in this
Section 2.3 below or in Section 2.3 of the Disclosure Letter are obtained or
made, result in any violation by Seller, either Company or any Company
Subsidiary of any law, rule or regulation applicable to it, except, with respect
to sub-clauses (B) and (C), for such violations, breaches or defaults as would
not in the aggregate have a Material Adverse Effect, (ii) result in any
violation by Seller, either Company or any Company Subsidiary of any judgment,
injunction or decree of, or any license or permit issued by, any court or
governmental authority applicable to it or (iii) assuming that the notices
referred to in Section 2.3 of the Disclosure Letter are made, require any
consent or approval of, notice to or filing, registration or qualification with,
any governmental authority (a "Governmental Action/Filing") to be made or
obtained by Seller, either Company or any Company Subsidiary except (A) in
connection or compliance with the United States Hart-Scott-Rodino Antitrust
Improvement Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act"), (B) in connection with compliance with the
competition laws of any jurisdiction other than the United States and any rules
and regulations promulgated thereunder, including, without limitation, the
competition laws of the United Kingdom, (C) in connection with compliance with
any applicable non-U.S. laws on exchange control or foreign investments, (D) any
federal, state or local Tax filings, (E) any Governmental Actions/Filings that
may be required to be made as a result of (x) the specific regulatory status of
Buyer or any of its Affiliates, (y) any other facts that relate to the business
or activities in which Buyer or any of its Affiliates is engaged or (z) without
limitation of sub-clause (x) or (y), any other facts that relate to the business
or activities in which Buyer or any of its Affiliates proposes (other than,
insofar as United States Governmental Actions/Filings are concerned, by
acquiring ownership of the Companies and the Company Subsidiaries, by reference
to the Companies' and the Company Subsidiaries' activities as presently
conducted or proposed to be conducted) to be engaged, (F) any Pension Benefit
Guaranty Corporation ("PBGC") "Notice of Reportable Event" required under
Section 4043(c) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and (G) any other Governmental Actions/Filings, the failures
of which to make or obtain would not in the aggregate have a Material Adverse
Effect. This Agreement has been and, at the Closing, the Release will be duly
executed and delivered by Seller. This Agreement constitutes and, at the
Closing, the Release will constitute, the valid and binding obligations of
Seller, enforceable against Seller in accordance with their terms except that
such enforcement may be limited by any bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other laws (whether statutory, regulatory or
decisional), now or hereafter in effect, relating to or affecting the rights of
creditors generally or by equitable principles (regardless of whether considered
in a proceeding at law or in equity).
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7
2.4 OWNERSHIP OF SHARES; TITLE; MINORITY INTERESTS. Seller is the sole
record and beneficial owner of the Shares. Seller has, and shall transfer to
Buyer at the Closing, good title to the Shares free and clear of any and all
Liens except as created by this Agreement and except for restrictions imposed by
federal and state security laws. KRII owns 1,380,282 shares of Series E
Convertible Preferred Stock of Teltech Resource Network Corporation, 108,353
shares of Series A Preferred Stock of Market Intelligence Research Corporation
(doing business as Frost & Sullivan) and 900,000 shares of Common Stock of
Individual Inc. in each case free and clear of all Liens except (i) as created
by this Agreement, (ii) for restrictions imposed by federal and state securities
laws and (iii) for Liens imposed pursuant to any of the shareholder, stock
purchase and other instruments and agreements entered into by KRII in connection
with the acquisition of such shares, copies of any such material instruments and
agreements have been delivered or made available to counsel to Buyer.
2.5 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. (a) Seller has
delivered to Buyer the unaudited pro forma combined balance sheet as at March
31, 1997 of KRII and its Subsidiaries and KRIAG (the March 31, 1997 balance
sheet being the "March 31 Balance Sheet") and the audited pro forma combined
balance sheet of KRII and its Subsidiaries and KRIAG as at each of December 31,
1995 and 1996 and June 30, 1997 (the June 30, 1997 balance sheet including the
notes thereto being the "Balance Sheet") and the audited pro forma combined
income statement of KRII and its Subsidiaries and KRIAG for the years ended
December 31, 1994, 1995 and 1996 and the six months ended June 30, 1997
(collectively, the "Financial Statements"), a copy of which is attached hereto
as Exhibit B. Section 2.5(a) of the Disclosure Letter sets forth a list of all
adjustments to the Companies' and the Company Subsidiaries' 1996 financial
statements that were requested by Ernst & Young or made by Ernst & Young with
respect to the Companies and the Company Subsidiaries in connection with
preparing the 1996 audited consolidated financial statements of Seller's Parent,
other than such adjustments which individually are less than $500,000 and all of
which such nondisclosed adjustments do not exceed $1,000,000. The Financial
Statements are, in all material respects, in accordance with the books and
records regularly maintained with respect to the Companies and the Company
Subsidiaries (except as set forth in Section 1.4(a) of the Disclosure Letter)
and present fairly, in all material respects, the financial position of the
Companies and the Company Subsidiaries as at December 31, 1995 and 1996, March
31, 1997 and June 30, 1997 and the results of operations of the Companies and
the Company Subsidiaries for the years ended December 31, 1994, 1995 and 1996
and the six months ended June 30, 1997 in conformity with United States
generally accepted accounting principles consistently applied ("GAAP"), except
with respect to the March 31 Balance Sheet only, (i) that the Financial
Statements do not contain the disclosures required in notes to financial
statements and (ii) as set forth in Section 1.4(a) of the Disclosure Letter.
(b) Except as set forth in Section 2.5(b) of the Disclosure
Letter (with respect to the March 31 Balance Sheet and, as to Item 2 in Section
2.5(b) of the Disclosure Letter, with respect to the Balance Sheet) or as
reflected, reserved against or otherwise disclosed in the March 31 Balance Sheet
or the Balance Sheet, neither of the Companies nor any Company Subsidiary had,
at March 31, 1997 or June 30, 1997, any liabilities or obligations that would
have been required to be reflected in the March 31 Balance Sheet or the Balance
Sheet respectively by the Companies or the Company Subsidiaries in accordance
with GAAP.
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8
2.6 BUSINESS SINCE JUNE 30, 1997. Except as disclosed in Section 2.6
of the Disclosure Letter and except as required by or permitted under this
Agreement, since June 30, 1997 (i) the business of the Companies and the Company
Subsidiaries taken as a whole have been conducted in the ordinary course with
such exceptions as have not had a Material Adverse Effect and (ii) neither the
financial condition nor the business of the Companies and the Company
Subsidiaries taken as a whole has materially adversely changed and, to Seller's
knowledge, no event has occurred that is reasonably likely to result in Material
Adverse Effect, (iii) there has not been any damage to or destruction or loss of
any asset or property of any of the Companies or Company Subsidiaries, whether
or not covered by insurance, which has had a Material Adverse Effect, (iv) to
the date of this Agreement, neither of the Companies nor any Company Subsidiary
has terminated or received notice of termination of any data or content supply
contract, reseller contract or customer contract involving a total commitment by
either Company or any Company Subsidiary of payment in excess of $1,000,000
during 1996 or generation of revenue in excess of $1,000,000 during 1996, (v)
neither of the Companies nor any Company Subsidiary has sold, leased, licensed
or otherwise disposed of any asset or property of such company or mortgaged,
pledged or imposed any Lien on any material asset or property of such company
other than in the ordinary course of business, and other than Permitted Liens,
(vi) there has been no material change in any of the accounting methods used by
any Company or Company Subsidiary, (vii) neither of the Companies nor any
Company Subsidiary has made any loan or advance to any other Person nor incurred
or guaranteed any indebtedness for borrowed money other than advances or loans
made to employees in the ordinary course of business and loans or endorsements
made for collection in the ordinary course of business, (viii) there has been no
agreement, whether oral or written by any Company or Company Subsidiary to do
any of the foregoing matters referred to in clauses (v), (vi) or (vii), and (ix)
neither of the Companies nor any Company Subsidiary has taken any action not in
the ordinary course of business which has affected Closing Net Working Capital.
For purposes of this Section 2.6, no change shall be considered to be
"materially adverse" if such change is primarily the result of (A) circumstances
that are not likely to recur and have been substantially remedied, (B) matters
that are generally consistent with the historical experience of the Companies
and the Company Subsidiaries, (C) changes in general economic, regulatory or
political conditions, (D) this Agreement or the transactions contemplated hereby
or the announcement thereof, or (E) any distribution in cash permitted by the
last sentence of Section 4.6(a) hereof or as disclosed in Section 4.6 of the
Disclosure Letter.
2.7 COMPLIANCE WITH LAW; LITIGATION; INJUNCTIONS. Neither any Company
nor the Company Subsidiaries has been or is in violation in any respect of any
law, rule, permit, principle of common law, regulation, order, judgment or
decree applicable to it, except (i) as set forth in Part A of Section 2.7 of the
Disclosure Letter and (ii) for violations the existence of which and cost of
remedying would not in the aggregate have a Material Adverse Effect. Except for
the matters set forth in Part B of Section 2.7 of the Disclosure Letter, (i)
there is no action, suit or other proceeding pending or, to Seller's knowledge,
overtly threatened against either Company or any Company Subsidiary, at law or
in equity, before any federal, state or municipal, foreign or other government
court, administrative agency or arbitrator which is reasonably likely to have a
Material Adverse Effect, (ii) neither of the Companies nor any Company
Subsidiary is a party to, or subject to or bound by, any order, injunction or
decree of any court or governmental authority which has or reasonably likely to
have a Material Adverse Effect and (iii) to the
<PAGE>
9
knowledge of Seller, no event has occurred that is reasonably likely to give
rise to or serve as a basis for the commencement of any action, suit or other
proceeding which has or is reasonably likely to have a Material Adverse Effect.
2.8 CONTRACTS AND AGREEMENTS; DEFAULTS. Set forth in Part A of Section
2.8 of the Disclosure Letter is a list, as of the date of this Agreement, of (i)
all outstanding mortgages, indentures, notes, installment obligations or other
contracts or instruments to which either Company or any Company Subsidiary is a
party evidencing or providing for any borrowing of money by either Company other
than capitalized lease obligations and other than any such indebtedness between
Seller's Parent, Seller or any of their respective Subsidiaries (other than the
Companies and the Company Subsidiaries), on the one hand, and either Company or
any Company Subsidiary, on the other hand, (ii) all outstanding guaranties by
either Company or any Company Subsidiary of any obligation of another Person for
borrowings, excluding endorsements made for collection in the ordinary course of
business, (iii) all outstanding contracts containing non-competition covenants
of either Company or any Company Subsidiary, (iv) all outstanding real property
leases to which either Company or any Company Subsidiary is a party involving
obligations of more than $100,000 per annum, (v) the top 200 customers of the
Companies and the Company Subsidiaries during 1996 in terms of revenue generated
during 1996, which such customers had contracts with any of the Companies or the
Company Subsidiaries during 1996, (vi) each data, content supply, or reseller
contract which generated revenues during 1996 for the Companies and the Company
Subsidiaries of at least $1,000,000, and (vii) all joint venture agreements to
which any Company or any Company Subsidiary is a party, (viii) each other
outstanding contract to which either Company or any Company Subsidiary is a
party which requires or is likely to require the payment by either Company or
any Company Subsidiary, as the case may be, in any 12-month period commencing on
the date of this Agreement of an amount, or requires either Company or any
Company Subsidiary, as the case may be, to provide in any 12-month period
commencing on the date of this Agreement goods or services having a fair market
value or aggregate sales price, of more than $500,000, except (A) contracts to
provide information or other services or products offered by either Company or
any Company Subsidiary, (B) data or content supply contracts, or (C) contracts
entered into in the ordinary course of business of either Company or any Company
Subsidiary that can be terminated by either Company or any Company Subsidiary,
as the case may be, on 90 or fewer days' notice without penalty. Except as set
forth in Part B of Section 2.8 of the Disclosure Letter and with such exceptions
as would not, in the aggregate, have a Material Adverse Effect, each contract
identified or required to be identified in Part A of Section 2.8 of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms except as enforceability may be limited by any
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
laws (whether statutory, regulatory or decisional), now or hereafter in effect,
relating to or affecting the rights of creditors generally or by equitable
principles (regardless of whether considered in a proceeding at law or in
equity). Except as set forth in Part B of Section 2.8 of the Disclosure Letter
or for such breaches, defaults or events as have not had and are not reasonably
likely to have, in the aggregate, a Material Adverse Effect, (1) neither of the
Companies nor any Company Subsidiary nor, to the knowledge of Seller, any other
party to any contract to which either Company or any Company Subsidiary is a
party is in breach of or default under any such contract and (2) no event has
occurred which (after notice or
<PAGE>
10
lapse of time or both) would become a breach or default by either Company or any
Company Subsidiary, as the case may be, under any such contract.
2.9 AFFILIATED TRANSACTIONS. Section 2.9 of the Disclosure Letter sets
forth a complete and accurate (i) list of all contracts to which Seller's
Parent, Seller or any of their respective Subsidiaries (other than the Companies
and the Company Subsidiaries) or any of their directors, officers or any entity
that is directly or indirectly controlled by any such individual, on the one
hand, and either Company or any Company Subsidiary, on the other hand, is a
party involving more than $350,000 per annum and (ii) description of all
transactions involving more than $350,000 per annum that are not otherwise the
subject of the contracts described in clause (i) above between Seller's Parent,
Seller or any of their respective Subsidiaries (other than the Companies and the
Company Subsidiaries), or any of their directors, officers or any entity that is
directly or indirectly controlled by any such individual, on the one hand, and
either Company or any Company Subsidiary, on the other hand, in each case that
have been entered into, are currently in effect or that have occurred, as the
case may be, since December 29, 1995 but excluding in each case any such
contracts or transactions (A) with respect to any indebtedness between Seller's
Parent, Seller or any of their respective Subsidiaries (other than the Companies
and the Company Subsidiaries), on the one hand, and either Company or any
Company Subsidiary, on the other hand and (B) with any newspaper owned directly
or indirectly by Seller's Parent with respect to purchases of data in the
ordinary course.
2.10 EMPLOYEE BENEFITS. (a) Section 2.10(a) of the Disclosure Letter
lists (i) each "employee benefit plan," within the meaning of Section 3(3) of
ERISA and (ii) each other retirement, deferred compensation, medical, dental,
vision, disability, life insurance, flexible spending account, workers
compensation, stock option, stock purchase, severance, vacation pay or incentive
or bonus plan, fund, policy or arrangement, in the case of each of clauses (i)
and (ii) which is maintained by KRII, a Domestic Subsidiary or any of their
Affiliates and which covers current or former employees of KRII and the Domestic
Subsidiaries, other than a Foreign Plan (collectively, "Benefit Plans"). Either
Seller or KRII has delivered or made available to Buyer a copy of each Benefit
Plan or a written summary of any unwritten Benefit Plan and any summary plan
description relating to a Benefit Plan and, with respect to each Company Plan,
the most recent Internal Revenue Service ("IRS") Form 5500 and, where
applicable, the most recent IRS determination letter.
(b) Except as set forth in Section 2.10(b) of the Disclosure
Letter and with such exceptions as would not, in the aggregate, have a Material
Adverse Effect, (i) each Company Plan is in substantial compliance with all
applicable laws and regulations and has been administered substantially in
accordance with its terms; (ii) each Company Plan intended to be tax-qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code") has received a favorable determination letter from the IRS as to its
tax-qualified status under the Code and, to Seller's knowledge, there are no
existing circumstances likely to result in the revocation of any such
determination letter; and (iii) to the knowledge of Seller, there are no
actions, suits or claims pending (other than routine claims for benefits) with
respect to any Company Plan which are likely to result in the imposition of
liability on such Company Plan, KRII or any Domestic Subsidiary.
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11
(c) No Benefit Plan is a "single-employer" plan within the
meaning of Section 4001(a)(15) of ERISA (other than the Retirement Plan for
Employees of Knight-Ridder, Inc. and certain Subsidiaries) or a "multiemployer
plan" within the meaning of Section 4001(a)(3) of ERISA. Neither KRII nor any
Domestic Subsidiary is required to contribute to, or during the five-year period
ending on the Closing Date will have been required to contribute to, any
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA.
(d) KRII or any Domestic Subsidiary has not incurred and, as a
result of the transactions contemplated by this Agreement, will not incur any
liability to the PBGC under Sections 4062, 4063, 4064 and 4069 of ERISA with
respect to any employee benefit plan that is or ever has been subject to Title
IV of ERISA or any withdrawal liability (including any secondary or contingent
withdrawal liability) under Title IV of ERISA with respect to any plan that is
or ever was a "multiemployer plan" within the meaning of Section 4001(a)(3) of
ERISA. With respect to any employee benefit plan that is or ever has been
subject to Title IV or ERISA, no "reportable event" (as defined in Section 4043
of ERISA) for which the requirement of notice to the PBGC has not been waived
has occurred with respect to any such plan and no such plan which is subject to
Section 302 of ERISA or Section 412 of the Code has incurred any "accumulated
funding deficiency" (as defined in Section 302 of the ERISA and Section 412 of
the Code, respectively), whether or not waived in each case, which could result
in liability to KRII or a Domestic Subsidiary. No event has occurred which might
give rise to any liability of KRII or any Domestic Subsidiary to the PBGC under
Title IV of ERISA or which could reasonably be anticipated to result in any
claims being made against KRII or any Domestic Subsidiary by the PBGC in each
case, other than liability for PBGC premiums not yet due.
(e) To Seller's knowledge, as of the date of this Agreement, no
audit or investigation of any Company Plan by the IRS, the Department of Labor
or the PBGC is pending.
(f) All contributions to Company Plans that will have been
required to be made under such Company Plans (with respect to KRII and the
Domestic Subsidiaries) will have been made or accrued as of the Closing Date.
(g) Section 2.10(g) of the Disclosure Letter lists each material
Foreign Plan. Except as set forth in Section 2.10(g) of the Disclosure Letter
and with such exceptions as would not, in the aggregate, have a Material Adverse
Effect, (i) each Foreign Plan is in substantial compliance with all applicable
laws and regulations and has been administered substantially in accordance with
its terms, and (ii) all contributions to Foreign Plans that will have been
required to have been made under such Foreign Plans (with respect to KRIAG and
the Foreign Subsidiaries) will have been made or accrued as of the Closing Date.
2.11 LABOR. Set forth in Part A of Section 2.11 of the Disclosure
Letter is a complete and accurate list of the number of employees of the
Companies and the Company Subsidiaries by location as of the date indicated.
Seller has delivered or made available to Buyer accurate and complete copies of
all employee manuals and handbooks, disclosure materials, policy statements and
other materials relating to the employment of the current and former employees
of each of the Companies and the Company Subsidiaries. True and accurate copies
of all of the documents listed or required to be listed in Section 2.11 of the
Disclosure Letter have
<PAGE>
12
been delivered or made available to Buyer. Except as set forth in Part B of
Section 2.11 of the Disclosure Letter, as of the date of this Agreement, (i)
neither of the Companies nor any Company Subsidiary has any written contracts of
employment, severance and/or repatriation or oral severance or employment
arrangement with any of their respective current employees (other than
individual employment agreements between KRIAG or a Foreign Subsidiary on the
one hand and employees thereof on the other hand which do not require annual
base salary payments thereunder in excess of $100,000 or have a term in excess
of three years), (ii) no union has been certified as representing any of KRII's
or any Domestic Subsidiary's employees and (iii) neither KRII nor any Domestic
Subsidiary is a party to any collective bargaining, labor or similar agreements
with respect to its respective employees. Neither of the Companies nor any of
the Company Subsidiaries has engaged in any unfair labor practice of any nature
under the National Labor Relations Act.
2.12 TAXES. Except as set forth in Section 2.12 of the Disclosure
Letter:
(a) Seller's Parent is the common parent of the affiliated group
("Seller Parent's Affiliated Group"), as defined in Section 1504(a) of the Code,
of which KRII and the Company Subsidiaries that are organized under the laws of
the United States of America or any jurisdiction therein (such Company
Subsidiaries being referred to herein as the "Domestic Subsidiaries" and all
other Company Subsidiaries being referred to herein as the "Foreign
Subsidiaries") and treated as corporations for U.S. Federal Income Tax purposes
(the "Corporate Domestic Subsidiaries") are members. KRII and the Corporate
Domestic Subsidiaries have been included in consolidated federal Income Tax
Returns filed by Seller's Parent for all taxable years for which the statute of
limitations has not expired.
(b) The Companies, the Company Subsidiaries and any consolidated,
combined or unitary group of which either Company or any Company Subsidiary is
or was a member have timely filed all material returns and reports with respect
to Taxes ("Tax Returns") which are required to be filed, and all Taxes shown to
be due on such Tax Returns have been timely paid. On June 30, 1997, the
Companies and the Company Subsidiaries had no liability for Taxes (other than
Income Taxes imposed upon either Company or any Wholly-Owned Company Subsidiary)
that would have been required to be reflected in the Balance Sheet in accordance
with GAAP, except to the extent that such Taxes are reflected, reserved against
or otherwise disclosed in the Balance Sheet or will be paid prior to the Closing
or reflected in the calculation of Closing Net Working Capital. Neither of the
Companies nor any Company Subsidiary has in effect, as of the date of this
Agreement, any waiver or extension of any statute of limitations with respect to
Taxes.
(c) No property of either Company or any Company Subsidiary is
subject to a tax benefit transfer lease subject to the provisions of former
Section 168(f)(8) of the Internal Revenue Code of 1954.
(d) Seller is not a foreign person subject to withholding under
Section 1445 of the Code and the regulations promulgated thereunder, and, at the
Closing, Seller shall deliver to Buyer a certificate to that effect.
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13
(e) There is no agreement, plan, arrangement or other contract
covering any employee or independent contractor or former employee or former
independent contractor of either Company or any Company Subsidiary that could
give rise to the payment of any amount that could not be deductible pursuant to
Section 280G of the Code as a result of the sale of the Shares pursuant to this
Agreement.
(f) For purposes of this Agreement, "Taxes" shall mean all taxes,
including, without limitation, all net income, gross income, gross receipts,
sales, use, value-added, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, estimated, severance, stamp,
occupation, property or other taxes and customs duties of any kind whatsoever,
together with any interest, penalties and additions to tax or additional amounts
relating thereto, imposed by any governmental authority (domestic or foreign).
2.13 LICENSES. With such exceptions as are set forth in Section 2.13
of the Disclosure Letter or as are not likely to have, in the aggregate, a
Material Adverse Effect, (i) all licenses, permits, registrations or
authorizations of any governmental department or agency that are presently
required for the operation of the business conducted by the Companies and the
Company Subsidiaries taken as a whole, as presently conducted, have been duly
obtained and are in full force and effect and (ii) there is no action pending
or, to Seller's knowledge, overtly threatened against either Company or any
Company Subsidiary to terminate the rights of either Company or any Company
Subsidiary under any of such licenses, permits, registrations or authorizations.
2.14 PROPERTY. Part A of Section 2.14 of the Disclosure Letter
contains descriptions of all land and other interests in real property
(including options or other contracts to acquire such interests but excluding
leaseholds, fixtures and improvements) owned as of the date of this Agreement by
either Company or any Company Subsidiary, together with a list of all
improvements owned by either Company or any Company Subsidiary as of March 31,
1997 on such land having a depreciated book value greater than $100,000 as of
March 31, 1997. Part B of Section 2.14 of the Disclosure Letter contains a list
of all items of machinery, equipment, computers, vehicles and furniture (other
than fixtures and improvements) that were owned or leased by either Company or
any Company Subsidiary as of June 30, 1997, in each case having a depreciated
book value greater than $100,000 as of June 30, 1997 (collectively, the
"Machinery and Equipment"). The Companies and the Company Subsidiaries have good
title to each item of the Machinery and Equipment (other than items of the
Machinery and Equipment consumed or disposed of in the ordinary course of
business since June 30, 1997), free and clear of all Liens except Permitted
Liens and Liens described in Part C of Section 2.14 of the Disclosure Letter.
Since June 30, 1997, neither Company nor any Company Subsidiary has transferred
any property to Seller, Seller's Parent or any of their respective Subsidiaries
(other than the Companies and the Company Subsidiaries) except for transfers of
cash, intercompany debt and securities of the companies listed in Part D of
Section 2.14 of the Disclosure Letter.
2.15 CONDITION OF ASSETS. Except as set forth in Section 2.15 of the
Disclosure Letter, the Machinery and Equipment is in all material respects in
working condition, reasonable wear and tear and loss due to normal operations
excepted.
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2.16 INTELLECTUAL PROPERTY. (a) To Seller's knowledge, the Companies
and the Company Subsidiaries own, free and clear of all Liens other than
Permitted Liens, or have the right to use all Intellectual Property and all
Technology used or held for use in the conduct of the business of the Companies
and the Company Subsidiaries taken as a whole, as presently conducted, without
any conflict with the rights of others, in each case with such exceptions as are
not likely to have, in the aggregate, a Material Adverse Effect and subject to
limitations contained in any applicable license agreement; PROVIDED, that no
representation or warranty is made as to the extent to which ownership of any
particular Intellectual Property or Technology includes the exclusive right to
use such Intellectual Property or Technology. The Companies and the Company
Subsidiaries have taken all reasonable measures and reasonable precautions
necessary to protect the confidentiality and value of the Intellectual Property
and Technology. The term "Intellectual Property" shall mean all trademarks,
trade names, service marks, service names, logos, patents, copyrights, including
any moral right to the extent legally recognized in the applicable jurisdiction,
registrations and applications therefor and licenses or other rights in respect
thereof. The term "Technology" shall mean all trade secrets, proprietary
information, software, software tools, computer programs including object code
and available source code data and translations relating thereto (including all
current and historical data bases), research records, test information, market
surveys, marketing know-how, inventions, know-how, processes and procedures and
all design and code documentation, methodologies, processes, design information,
formulas, engineering specifications, technical data, testing procedures,
drawings and techniques and other proprietary information and material of any
kind.
(b) Section 2.16(b) of the Disclosure Letter lists all
Intellectual Property owned by either of the Companies or any Company Subsidiary
which has been duly registered and filed in the United States Patent and
Trademark Office ("PTO") and/or the Library of Congress, the states of the
United States or the corresponding offices of other jurisdictions and the
registrations with respect to such trademarks, trade names, copyrights and
patents are in full force and effect.
(c) With such exceptions as are not likely to have, in the
aggregate, a Material Adverse Effect, since January 1, 1995, neither of the
Companies nor any Company Subsidiary has received any notice from any Person
challenging the right of either Company or any Company Subsidiary to use any
Intellectual Property or Technology owned or used by or licensed to either
Company or any Company Subsidiary. With such exceptions as are not likely to
have, in the aggregate, a Material Adverse Effect, neither of the Companies nor
any Company Subsidiary has made any claim that any Person has violated or
infringed its respective rights with respect to any Intellectual Property or
Technology owned or used by or licensed to either Company or any Company
Subsidiary and, except as set forth in Section 2.16(c) of the Disclosure Letter,
there is no basis for the making of any such claim.
2.17 BANK ACCOUNTS. Section 2.17 of the Disclosure Letter correctly
sets forth, as of the date of this Agreement, a list of all banks in which
either Company or any Company Subsidiary has an account or safety deposit box
and the names of all individuals authorized to draw thereon or have access
thereto. Following the Closing, no officers of Seller or Seller's Parent that
are individuals authorized to draw on such accounts or have access to such
safety deposit boxes will draw on such accounts or access such safety deposit
boxes.
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15
2.18 BROKERS. Except for Goldman, Sachs & Co., the fees of whom will
be the sole responsibility of Seller, neither of the Companies nor Seller nor
any of their respective directors, officers, employees or Affiliates has
employed any broker or finder or has incurred or will incur any broker's,
finder's or similar fees, commissions or expenses, in each case in connection
with the transactions contemplated by this Agreement.
2.19 ENVIRONMENTAL MATTERS.
(a) To Seller's knowledge, neither of the Companies have, nor has
any Company Subsidiary, used, stored, disposed of or arranged for the use,
storage or disposal of any Hazardous Substances, other than in compliance with
applicable laws, at any real property owned or leased by the Companies or any
Company Subsidiary;
(b) Neither of the Companies have, nor has any Company
Subsidiary, received any written notice or request for information with respect
to, nor has either Company or any Company Subsidiary been designated a
potentially responsible party for remedial action or response costs in
connection with, any facility under the United States federal Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) or comparable
state statutes;
(c) There are no pending claims against either Company or any
Company Subsidiary for investigatory costs, cleanup, removal, remedial or
response costs, or natural resource damages, arising out of any release of
Hazardous Substances at any real property owned or leased by either Company or
any Company Subsidiary.
2.20 INTERCOMPANY DEBT. As of the Closing, all intercompany debt owed
by any Company or Company Subsidiary to Seller's Parent or its Subsidiaries,
other than the Companies and Company Subsidiaries (including the $303,898,700
set forth in the March 31 Balance Sheet), without any adjustment to the Final
Closing Net Working Capital, and any receivable amount owed by Seller's Parent
or its Subsidiaries, other than the Companies and Company Subsidiaries, to the
Companies or the Company Subsidiaries will have been contributed to capital or
cancelled, except to the extent that any such debt has been incurred in the
ordinary course of business and is included in the determination of Final
Closing Net Working Capital.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Subject to Sections 7.1, 7.2(g) and 10.1, Buyer hereby represents and
warrants to Seller as follows:
3.1 INCORPORATION OF BUYER. Buyer is a public company validly existing
as a corporation in good standing under the laws of England and Wales.
3.2 AUTHORITY, BINDING EFFECT. Subject to receipt of the shareholder's
approval contemplated in Section 4.9, Buyer has the corporate power and
corporate authority to execute
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16
and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions provided for hereby, and all corporate action of
Buyer necessary for the making and performance of this Agreement by Buyer has
been duly taken. The execution, delivery and performance by Buyer of this
Agreement do not and will not (i)(A) subject to obtaining the requisite
shareholder approval referred to in Section 4.9, contravene any provisions of
the Memorandum or Articles of Association of Buyer, (B) with or without the
giving of notice or the passage of time or both, result in any breach by Buyer
of, or default or permitted or required acceleration of performance by Buyer
under, or the creation of any Lien upon any of Buyer's assets, or the creation
in favor of any third party of any right of termination of, any mortgage,
indenture, contract, agreement or other instrument to which Buyer is a party or
(C) assuming that the Governmental Actions/Filings referred to in this Section
3.2 below are obtained or made, result in any violation by Buyer of any law,
rule or regulation applicable to Buyer, except, with respect to sub-clauses (B)
and (C), for such violations, breaches or defaults as would not in the aggregate
(x) result in the imposition of any liability on Seller, (y) prevent Buyer from
consummating its purchase of the Shares as contemplated by this Agreement or
impair Buyer's ability to perform its obligations hereunder or (z) have a
material adverse effect on Buyer's financial condition (clause (x), (y) or (z),
a "Buyer Adverse Effect"), (ii) result in any violation by Buyer of any
judgment, injunction or decree of, or any license or permit issued by, any court
or governmental authority applicable to Buyer or (iii) require any Governmental
Action/Filing to be made or obtained by Buyer except (A) in connection or in
compliance with the HSR Act, (B) any federal, state or local Tax filings, (C) in
connection with compliance with the competition laws of any jurisdiction other
than the United States and any rules and regulations promulgated thereunder,
including, without limitation, the competition laws of the United Kingdom, (D)
in connection with compliance with the rules of the London Stock Exchange and
the NASDAQ National Market and (E) any other Governmental Actions/Filings the
failure to make or obtain would not in the aggregate have a Buyer Adverse
Effect. Buyer is not a party to, nor subject to or bound by, any judgment,
injunction or decree of any court or governmental authority which may prevent
Buyer from consummating its purchase of the Shares as contemplated by this
Agreement. This Agreement has been duly executed and delivered by Buyer. This
Agreement constitutes the valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms except that such enforcement may be
limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other laws (whether statutory, regulatory or decisional), now or
hereafter in effect, relating to or affecting the rights of creditors generally
or by equitable principles (regardless of whether considered in a proceeding at
law or in equity).
3.3 ACQUISITION OF SHARES FOR INVESTMENT. Buyer is acquiring the
Shares for investment and not with a view toward, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the Shares. Buyer agrees that the Shares may not be sold,
transferred, offered for sale, pledged, hypothecated or otherwise disposed of
(i) without registration under the United States Securities Act of 1933, as
amended, except pursuant to an exemption from such registration available under
such Act and (ii) except in accordance with any applicable provisions of state
securities laws.
3.4 BROKERS. Except for Hoare Govett, ABN Amro, Chase Manhattan, Close
Brothers Corporate Finance Limited and NM Rothschild & Sons Limited, the fees of
whom will
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17
be the sole responsibility of Buyer, neither Buyer, nor any director, officer,
employee or Affiliate thereof, has employed any broker or finder or has incurred
or will incur any broker's, finder's or similar fees, commissions or expenses,
in each case in connection with the transactions contemplated by this Agreement.
3.5 BUYER FINANCING. If Buyer has delivered all of the financing
agreements and/or commitments referred to in Section 8.1(v), Buyer will have
sufficient funds at the Closing to enable it to pay the Initial Purchase Price
and to perform its obligations hereunder upon closing of the transactions
contemplated thereby.
ARTICLE 4
COVENANTS
4.1 ACCESS; CONFIDENTIALITY. (a) At the reasonable request of Buyer,
and upon reasonable advance notice, Seller shall from time to time prior to the
Closing give or cause to be given to the officers, employees, accountants,
counsel and other authorized representatives of Buyer (collectively, "Buyer's
Representatives") (i) full access during normal business hours to any and all
premises, properties, files, books, records, documents and other information of
the Companies and the Company Subsidiaries and (ii) all such other information
in Seller's possession otherwise exclusively concerning the assets of the
Companies and the Company Subsidiaries as Buyer may reasonably request, in each
case to the extent that Seller may do so without violating confidentiality
undertakings of Seller or any of its Affiliates. Buyer shall conduct its
investigation in a manner designed to avoid any unreasonable interference with
the operations of Seller, either Company or the Company Subsidiaries.
(b) The provisions of the confidentiality agreement, dated May
12, 1997, between Buyer and Goldman, Sachs & Co., on behalf of Seller's Parent
(the "Confidentiality Agreement"), shall survive the execution of this Agreement
and shall apply with respect to all information made available to Buyer's
Representatives pursuant to this Section 4.1.
4.2 NOTICE OF PROCEEDINGS; AGREEMENT TO DEFEND. (a) Each party to this
Agreement will notify the other promptly in writing upon (i) such party's
becoming aware of any order, judgment or decree restraining or enjoining the
consummation of this Agreement or the transactions contemplated hereby or any
complaint or overtly threatened complaint seeking such an order, judgment or
decree or (ii) such party's receiving any notice from any governmental authority
of its intention (A) to institute an investigation into, or institute a suit or
proceeding to restrain or enjoin, the consummation of this Agreement or the
transactions contemplated hereby or (B) to nullify or render ineffective this
Agreement or such transactions if consummated.
(b) In the event any Person brings a suit or claim, or commences
an action, investigation or other proceeding, which challenges the validity or
legality of this Agreement or the transactions contemplated by this Agreement or
any instrument or document contemplated hereby, the parties hereto agree to
consult and to cooperate with each other and use all reasonable efforts to
defend against such suit, claim, action, investigation or other proceeding and,
in the event an injunction or other order is issued in connection with any of
the foregoing, to
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18
use all reasonable efforts to have such injunction lifted or such order set
aside so that the transactions contemplated by this Agreement and the
instruments and documents contemplated hereby may proceed.
4.3 CONSUMMATION OF AGREEMENT. Subject to the provisions of Section
8.1 of this Agreement, each party hereto shall use all reasonable efforts to
fulfill and perform all conditions and obligations on its part to be fulfilled
and performed under this Agreement, and to cause the transactions contemplated
by this Agreement to be fully carried out. Without limiting the foregoing, Buyer
shall use all reasonable efforts to satisfy the condition set forth in Section
6.1J hereunder.
4.4 CONSENTS AND FILINGS. Each of the parties hereto shall (and shall
cause its Affiliates to) use all reasonable efforts to obtain or make, as the
case may be, as soon as possible, all Governmental Actions/Filings as may be
required to be obtained or made, as the case may be, by it (and/or any of its
Affiliates) in order to enable such party (and/or any of its Affiliates) to
perform its obligations under this Agreement.
4.5 ANNOUNCEMENTS. Neither party hereto will (and each such party will
cause its Affiliates not to) issue any press release or otherwise make any
public statement with respect to the transactions contemplated hereby without
the prior written consent of the other party, except as and to the extent that
such party or any of its Affiliates determines in good faith that it is so
obligated by law or stock exchange rules, in which case such party shall give
notice to the other party in advance of such party's or its Affiliate's intent
to make such announcement or issue such press release and the parties hereto
shall use all reasonable efforts to cause a mutually agreeable release or
announcement to be issued.
4.6 CONDUCT OF BUSINESS OF THE COMPANIES PRIOR TO THE CLOSING. (a)
Except as permitted or required by this Agreement or as set forth in Section 4.6
of the Disclosure Letter, during the period from the date of this Agreement to
the Closing, Seller shall cause the business of the Companies and the Company
Subsidiaries to be conducted only in the ordinary course. Nothing contained in
this Agreement shall be deemed to limit in any way (A) Seller's ability to cause
the Companies to make distributions in cash to Seller, (B) KRII's ability to
cause any Company Subsidiary to make distributions in cash, securities,
partnership interests and combinations thereof to KRII at any time prior to the
Closing, (C) Seller's ability to take or to cause either Company to take any
action with respect to any intercompany receivable or intercompany payable and
no such distribution or action shall constitute or be deemed to be a breach of
any provision hereof or (D) Seller's ability to cause KRIAG to be converted into
a Swiss GmbH prior to the Closing.
(b) Seller shall ensure that the Companies and the Company
Subsidiaries will not, during the period from the date of this Agreement to the
Closing, except as set forth in Section 4.6 of the Disclosure Letter or as
permitted or required by this Agreement, without the prior written consent of
Buyer (which shall not be unreasonably withheld or delayed):
(1) sell, lease, transfer, or agree to sell, lease or transfer,
any properties or assets, except in the ordinary course of business,
without replacement thereof with a substantially equivalent asset of
substantially equivalent kind, condition and value;
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19
(2) except in the ordinary course of business or as may be
required by applicable law, enter into any contract of employment involving
annual compensation in excess of $100,000 or collective bargaining
agreement (other than contracts terminable by either of the Companies or
any Company Subsidiary without penalty immediately following the Closing)
with any employee or employees of either Company or any Company Subsidiary;
(3) except in the ordinary course of business, as may be required
by, or as a result of, applicable law or in order to replace or repair
similar assets, make, or enter into any contract directly committing either
Company or any Company Subsidiary to make, any single capital expenditure
in excess of $100,000;
(4) except as may be required by, or as a result of, applicable
law or as generally consistent with past practices, grant or agree to grant
any material increase in the rates of salaries, compensation or other
employment benefits of any class of employees of either Company or any
Company Subsidiary;
(5) incur or guarantee any indebtedness for borrowed money (other
than endorsements made for collection in the ordinary course of business),
in each case except for indebtedness for money borrowed from Seller or any
Affiliate of Seller; or
(6) Make any material change in any accounting policy.
4.7 GUARANTEED OBLIGATIONS. Buyer and KRII shall use their reasonable
best efforts to obtain the release of Seller's Parent from its obligations under
the Lease dated November 26, 1993 among Land Securities PLC, D-S Marketing
Limited and Seller's Parent (the "London Lease").
4.8 TRANSFER OF INTERESTS. Prior to Closing, Seller shall cause Ridder
Publications, Inc. to transfer its 50% general partnership interest in The
UnCover Company to KRII.
4.9 BUYER'S SHAREHOLDERS' MEETING. Buyer shall take all action
necessary, in accordance with applicable law and its Memorandum and Articles of
Association, to hold within forty-three days of the date of this Agreement an
extraordinary general meeting ("EGM") of the holders of the ordinary shares, to
vote upon this Agreement and the transactions contemplated hereby, and shall
include in a proxy circular (the "Circular") the recommendation of its Board of
Directors that the holders of the ordinary shares vote in favor of the adoption
and approval of this Agreement and the transactions contemplated hereby. Buyer
shall use its reasonable best efforts to solicit from such shareholders proxies
in favor of the resolutions required at such meeting, including, if necessary,
to the extent not prohibited by applicable law, adjourning the meeting to
solicit additional proxies, and shall use reasonable best efforts to take all
other action necessary or, in the reasonable opinion of Seller, helpful to
secure a favorable vote.
4.10 LONDON STOCK EXCHANGE LISTING. Buyer shall take all reasonable
action necessary, in accordance with applicable law and its Memorandum and
Articles of Association, to obtain approval of the London Stock Exchange of the
listing particulars relating to the
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20
transactions contemplated by this Agreement. Buyer shall use its reasonable best
efforts to obtain approval of the London Stock Exchange of the Listing
Application relating to the transactions contemplated by this Agreement.
4.11 NON-U.S. ANTITRUST. No later than three business days after the
date of this Agreement, Buyer shall have submitted a formal merger notice to the
United Kingdom's Office of Fair Trade to determine if the transactions
contemplated hereby would likely be referred for further investigation. In the
event that the transactions contemplated hereby are referred to antitrust
authorities in the United Kingdom, or any other non-U.S. jurisdiction, Buyer
shall use its reasonable efforts to overcome such referral for a period of time
of at least one month from the date of such referral.
4.12 FINANCING COMMITMENTS. As soon as practicable after receipt
thereof, Buyer will provide Seller with true and complete executed copies of its
debt and equity financing commitments.
ARTICLE 5
CONDITIONS TO THE OBLIGATIONS OF SELLER
5.1 SELLER'S CLOSING CONDITIONS. Subject to Section 5.2 hereof, the
obligations of Seller under this Agreement to effect the Closing are, at its
option, subject to the fulfillment of the following conditions prior to or at
the Closing, each of which may be waived (as conditions to its obligations) by
Seller in its absolute discretion:
A. REPRESENTATIONS, WARRANTIES, COVENANTS
(a) The representations and warranties of Buyer contained in
Article 3 of this Agreement shall be true and correct in all material respects
as though such representations and warranties were made, as written herein,
immediately prior to the Closing (except to the extent changes are permitted or
required pursuant to this Agreement); PROVIDED, HOWEVER, that if any such
representation or warranty is already qualified by materiality, for purposes of
determining whether this condition has been satisfied, such representation or
warranty as so qualified shall be true and correct in all respects without
giving effect to the materiality qualification in this Section 5.1A(a);
(b) Buyer shall have performed and complied in all material
respects with each and every covenant and agreement required by this Agreement
to be performed or complied with by it at or prior to the Closing; and
(c) Buyer shall have furnished Seller with a certificate, dated
the Closing Date and duly executed on behalf of Buyer by two authorized officers
of Buyer, to the effect that the conditions set forth in clauses (a) and (b) of
this Section 5.1A have been satisfied.
B. PROCEEDINGS. No party to this Agreement shall be subject to any
order, stay, injunction or decree of any court of competent jurisdiction
restraining or prohibiting the consummation of the transactions contemplated
hereby. Since the date of this Agreement, there
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21
shall not have been commenced against Seller, Seller's Parent or any Person
affiliated with Seller any action, suit or proceeding before any governmental
authority involving any challenge to, or seeking material damages or material
adverse equitable relief in connection with, any of the transactions
contemplated by this Agreement or that may have the effect of preventing, making
illegal or otherwise materially interfering with the transactions contemplated
by this Agreement.
C. HSR ACT. The waiting period (and any extension thereof) under the
HSR Act applicable to the transactions contemplated hereby shall have expired or
been terminated.
D. NON-U.S. FILINGS. Seller shall have received confirmation
reasonably satisfactory to it that the transactions contemplated hereby will not
be referred to the antitrust authorities in the United Kingdom or Europe or if
referred, the relevant antitrust authorities' indication that, following its
investigation, it does not intend to take further action under the relevant
antitrust laws.
E. CONSENTS AND APPROVALS. Each of the Governmental Action/Filing
listed in Section 2.3 and 3.2 of the Disclosure Letter shall have been made or
obtained and shall be in full force and effect. The shareholders of Buyer shall
have approved the transactions contemplated by the Agreement as provided in
Section 4.9.
F. OPINION. Seller shall have received an opinion dated the Closing
Date from the Director of Business Affairs substantially in the form attached
hereto as Exhibit C.
ARTICLE 6
CONDITIONS TO THE OBLIGATIONS OF BUYER
6.1 BUYER'S CLOSING CONDITIONS. Subject to Section 6.2 below, the
obligations of Buyer under this Agreement to effect the Closing are, at its
option, subject to the fulfillment of the following conditions prior to or at
the Closing, each of which may be waived (as conditions to its obligations) by
Buyer in its absolute discretion:
A. REPRESENTATIONS, WARRANTIES, COVENANTS.
(a) The representations and warranties of Seller contained in
Article 2 of this Agreement shall be true and correct in all material respects
as though such representations and warranties were made, as written herein,
immediately prior to the Closing (except to the extent changes are permitted or
required pursuant to this Agreement); PROVIDED, HOWEVER, that (i) if any such
representation or warranty is already qualified by materiality, for purposes of
determining whether this condition has been satisfied, such representation or
warranty as so qualified shall be true and correct in all respects without
giving effect to the materiality qualification in this Section 6.1A(a) and (ii)
the breach of the representations and warranties contained in Sections 2.6(ix),
2.8 (v) or 2.8 (vi) shall not constitute grounds for Buyer to assert that this
condition has not be satisfied;
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22
(b) Seller shall have performed and complied in all material
respects with each and every covenant and agreement required by this Agreement
to be performed or complied with by it at or prior to the Closing; and
(c) Seller shall have furnished Buyer with a certificate, dated
the Closing Date and duly executed on behalf of Seller by two authorized
officers of Seller, to the effect that the conditions set forth in clauses (a)
and (b) of this Section 6.1A have been satisfied.
B. PROCEEDINGS. No party to this Agreement shall be subject to any
order, stay, injunction or decree of any court of competent jurisdiction
restraining or prohibiting the consummation of the transactions contemplated
hereby. Since the date of this Agreement, there shall not have been commenced
against Buyer, or any Person affiliated with the Buyer any action, suit or
proceeding before any governmental authority involving any challenge to, or
seeking material damages or material adverse equitable relief in connection
with, any of the transactions contemplated by this Agreement or may have the
effect of preventing, making illegal or otherwise materially interfering with
the transactions contemplated by this Agreement.
C. HSR ACT. The waiting period (and any extension thereof) under the
HSR Act applicable to the transactions contemplated hereby shall have expired or
been terminated.
D. NON-U.S. FILINGS. Buyer shall have received confirmation reasonably
satisfactory to it that the transactions contemplated hereby will not be
referred to the antitrust authorities in the United Kingdom or Europe or if
referred, the relevant antitrust authorities' indication that, following its
investigation, it does not intend to take further action under the relevant
antitrust laws.
E. CONSENTS AND APPROVALS. Each of the Governmental Action/Filings
listed in Sections 2.3 and 3.2 of the Disclosure Letter shall have been made or
obtained and shall be in full force and effect. The shareholders of Buyer shall
have approved the transactions contemplated by this Agreement and shall have
passed the resolutions set out in the notice of EGM as contemplated by Section
4.9. The London Stock Exchange shall have agreed to admit the ordinary share
capital of Buyer, issued and to be issued pursuant to its equity financing in
connection with the transactions contemplated hereby to the Official List of the
London Stock Exchange (subject only to allotment) and shall have admitted the
ordinary share capital of Buyer issued and to be issued pursuant to such equity
financing to the Official List of the London Stock Exchange.
F. RELEASE. Buyer shall have received from Seller and Seller's Parent
a release (the "Release") in the form of Exhibit D.
G. OPINION. Buyer shall have received an opinion dated the Closing
Date from the General Counsel of Seller's Parent substantially in the form
attached hereto as Exhibit E.
H. DISTRIBUTIONS. All intercompany debt (including the $303,898,700
set forth in the March 31 Balance Sheet) owed by any Company or Company
Subsidiary to Seller's Parent or its Subsidiaries, other than the Companies and
the Company Subsidiaries, shall have
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23
been contributed to capital or cancelled, without any adjustment to the Final
Closing Net Working Capital, except to the extent that any such debt is incurred
in the ordinary course of business and is included in the determination of Final
Closing Net Working Capital.
I. LICENSE AGREEMENT. Seller's Parent shall have executed and
delivered a License Agreement dated June 1, 1997 between Seller's Parent and
Buyer (the "License Agreement") in the form attached hereto as Exhibit F.
J. FINANCING. Buyer shall have received simultaneously with the
Closing net proceeds under debt and equity financing agreements sufficient to
meet its cash obligations hereunder to Seller at the Closing.
ARTICLE 7
SURVIVAL; INDEMNIFICATION
7.1 SURVIVAL. Subject to this Section 7.1 and to Section 7.2, except
for the covenants contained in Sections 4.1, 4.3 and 4.4 (which shall terminate
as of the consummation of the Closing), all representations, warranties,
covenants and agreements contained in this Agreement, the Disclosure Letter or
in any schedule, exhibit, certificate, agreement, document or statement
delivered pursuant hereto (an "Ancillary Instrument" which shall not include the
Release, the License Agreement and the Guarantee Agreement) shall survive (and
not be affected in any respect by) the Closing and any investigation conducted
by any party hereto. Notwithstanding the foregoing, the representations and
warranties contained in or made pursuant to this Agreement or any Ancillary
Instrument and the covenants set forth in Section 4.6 and in each case the
related indemnity obligations set forth in Section 7.2 shall terminate on, and
no claim or action with respect thereto may be brought after, the second
anniversary of the Closing Date, except that (i) the representations and
warranties contained in Sections 2.2 and 2.4 and the related indemnity
obligations contained in Section 7.2 shall survive indefinitely and (ii) the
representations and warranties contained in Section 2.6 (ix) and the related
indemnity obligations contained in Section 7.2 shall terminate 90 days after the
Closing Date. The representations, warranties and covenants which terminate on
the second anniversary of the Closing Date or on the 90th day after the Closing
Date, as the case may be, and the liability of any party hereto with respect
thereto pursuant to this Article 7, shall not terminate with respect to any
claim, whether or not fixed as to liability or liquidated as to amount, with
respect to which the Indemnifying Party (as defined in Section 7.2(c)) has been
given written notice setting forth the facts upon which the claim for
indemnification is based and, if possible, a reasonable estimate of the amount
of the claim prior to the second anniversary of the Closing Date or on the 90th
day after the Closing Date, as the case may be.
7.2 INDEMNIFICATION. The parties hereto shall indemnify each other as
set forth below:
(a) Subject to Section 7.1 and the other provisions of this
Section 7.2, Seller hereby agrees to indemnify and hold harmless Buyer and its
directors, officers, employees, agents, consultants, advisors or other
representatives of Buyer (collectively, "Buyer Indemnified
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24
Persons") from, and to reimburse Buyer Indemnified Persons for any Losses
(including, without limitation, any reasonable Legal Expenses but excluding any
such Losses to the extent recovered by Buyer or any of its Affiliates, including
either of the Companies or any Company Subsidiary, from any third party under
any contract with such party or under any applicable insurance policy (other
than amounts so recovered as payment for the Basket Amount or for Losses above
the Cap) which arise out of (i) the breach (as of immediately prior to the
Closing) of any representation or warranty of Seller contained in this
Agreement, the Disclosure Letter or any Ancillary Instrument as though made, as
written herein, immediately prior to the Closing, except to the extent changes
are permitted or required pursuant to this Agreement (it being understood and
agreed that, notwithstanding anything to the contrary contained in this
Agreement, to determine if there had been an inaccuracy or breach of a
representation or warranty of Seller and the Losses arising from such inaccuracy
or breach, such representation and warranty, including any defined term
contained therein, other than the representation and warranty contained in
Section 2.16(c) only in so far as it relates to the matters disclosed in Section
2.16(c) of the Disclosure Letter, shall be read as if it were not qualified by
materiality, including, without limitation, qualifications indicating accuracy
in all material respects, or accuracy except to the extent the inaccuracy will
not have a Material Adverse Effect); (ii) the breach by Seller of or failure by
Seller to perform any of its covenants or agreements contained in this
Agreement, the Disclosure Letter or any Ancillary Instrument; (iii) the matters
identified in Part B of Section 2.7 of the Disclosure Letter except to the
extent covered by clause (v) below but only to the extent that the aggregate
Losses, with respect thereto, exceed $1,000,000; (iv) any claims for severance
benefits in excess of the benefits payable pursuant to the written policy set
forth in Section 9.1(f) of the Disclosure Letter brought within two (2) years of
the Closing Date by any U.S. Employee who is terminated by KRII or a Domestic
Subsidiary, other than for "cause" (as defined in Section 9.1(f)), within six
(6) months after the Closing Date; except that (aa) such indemnification
obligation shall not apply if any U.S. Employee is entitled to a greater
severance benefit than that otherwise payable pursuant to the written policy set
forth in Section 9.l(f) of the Disclosure Letter as a result of the amendment of
such policy or the adoption of a new severance policy by Buyer (or any of its
employees, agents or affiliates) or on or after the Closing by KRII (or any of
its employees, agents or affiliates), (it being understood that any payment made
by Buyer or KRII, or any of their employees, agents or affiliates, pursuant to
Section 9.1(f) or 9.1(k) shall not for this purpose be deemed to be an amendment
of the written policy set forth in Section 9.1(f) of the Disclosure Letter or
the adoption of a new severance policy); and (bb) such indemnification
obligation shall not apply to any other Losses attributable to an employee's
termination of employment on or after the Closing, including but not limited to,
any Losses attributable to any liabilities arising under the Worker Adjustment
Retraining and Notification Act (29 U.S.C. ss. 2101, ET. SEQ.) or any similar
state or local law or any claims of violation of federal, state or local
employment law (including but not limited to claims of discrimination or
wrongful discharge); or (v) the matters identified in Items 5, 8 and 9 in Part B
of Section 2.7 of the Disclosure Letter, PROVIDED, HOWEVER, that (A) Seller
shall not be responsible for any Losses with respect to the matters referred to
in clause (i) of this Section 7.2(a) and clause (ii) of this Section 7.2(a)
insofar as such Losses relate to breaches of the covenants contained in Sections
4.1(a), 4.2, 4.3 and 4.6 until the cumulative aggregate amount of such Losses
(but excluding any such Losses to the extent recovered by Buyer or any of its
Affiliates, including either of the Companies or any Company Subsidiary, from
any third party under any contract with such party or under any applicable
insurance policy as determined on the date of payment of
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25
the Indemnification Claim (other than amounts so recovered as payment for the
Basket Amount or for Losses above the Cap), exceeds $4,500,000 (the "Basket
Amount"), in which case Seller shall then be liable only for such Losses in
excess of the Basket Amount, (B) the cumulative aggregate indemnity obligation
of Seller under this Section 7.2 shall in no event exceed 50% of the Purchase
Price (the "Cap"), (C) Seller shall be liable for only 75% of all Losses
suffered by the Buyer Indemnified Persons arising out of or resulting from the
inaccuracy, breach, non-fulfillment or non-performance of any representation,
warranty, covenant or agreement if such inaccuracy, breach, non-fulfillment or
non-performance arises from events occurring after the date of this Agreement
and which inaccuracy, breach, non-fulfillment or non-performance would not have
a Material Adverse Effect and are disclosed by Seller to Buyer in an amendment
or supplement to the Disclosure Letter (including any new section thereof)
delivered at or prior to the Closing; provided, however, that this clause (C)
shall no longer be applicable from and after the time that an aggregate of
$1,500,000 of Losses have been allocated under this clause (C); (D) Seller shall
have no liability or obligation for any Loss arising out of or resulting from
the inaccuracy, breach, non-fulfillment or non-performance of any
representation, warranty, covenant or agreement if such inaccuracy, breach,
non-fulfillment or non-performance, arise from events occurring after the date
of this Agreement which inaccuracy, breach, non-fulfillment or non-performance
have or would have a Material Adverse Effect and which are disclosed by Seller
to Buyer in an amendment or supplement to the Disclosure Letter (including any
new section thereof) delivered at or prior to the Closing and Buyer shall
nevertheless consummate the Closing and (E) Buyer shall not be entitled to
indemnification under this Section 7.2(a) for any Losses to the extent a reserve
with respect to such Losses is included in or taken into account in the
calculation or determination of Final Closing Net Working Capital. As used
herein, "Legal Expenses" shall mean the fees, costs and expenses of any kind
incurred by any Person indemnified herein and its counsel in investigating,
preparing for, defending against or providing evidence, producing documents or
taking other action with respect to any threatened or asserted claim.
(b) Subject to Section 7.1 and to the other provisions of this
Section 7.2, Buyer hereby agrees to indemnify and hold harmless Seller and its
directors, officers, employees, agents, consultants, advisors, or other
representatives of Seller (collectively, "Seller Indemnified Persons") from, and
to reimburse Seller Indemnified Persons for any Losses (including, without
limitation, any reasonable Legal Expenses) but excluding any Losses to the
extent recovered by Seller or any of its Affiliates from any third party under
any contract with such party or under any applicable insurance policy, which
arise out of (i) the breach (as of immediately prior to the Closing) of any
representation or warranty of Buyer contained in this Agreement or any Ancillary
Instrument as though made, as written herein, immediately prior to the Closing,
except to the extent changes are permitted or required pursuant to this
Agreement, (ii) the breach by Buyer of or failure by Buyer to perform any of its
covenants or agreements contained in this Agreement or any Ancillary Instrument,
(iii) any failure after the Closing of either Company or any Company Subsidiary
to pay, perform or otherwise satisfy any of its respective liabilities or other
obligations, including with respect to the London Lease, (iv) any liability or
obligation of Seller's Parent under the London Lease, (v) any liability or
obligation of Ridder Publications, Inc. under (x) the Purchase Agreement dated
October 6, 1995 among Ridder Publications, Inc., KRII and Blackwell Data
Retrieval, Inc., and (y) the Assignment Agreement dated as of October 6, 1995
among Ridder Publications, Inc., Blackwell Data Retrieval, Inc., and CARL
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26
Systems Data Retrieval, Inc., (vi) any claim by any current or former employee
or their beneficiaries for any payment or benefit as a result of any action or
omission of Buyer, either Company or any Company Subsidiary occurring at the
time of, or after, the Closing, or (vii) the Circular referred to in Section 4.9
hereof.
(c) As promptly as practicable, and in any event within 30 days,
after Buyer or any of its Affiliates, on the one hand, or Seller or any of its
Affiliates, on the other hand, shall receive any notice of, or otherwise become
aware of, the commencement of any action, suit or proceeding, the assertion of
any claim, the occurrence of any event, the existence of any fact or
circumstance, or the incurrence of any Loss, for which indemnification is
provided for (assuming, only for the purposes of this Section 7.2(c) and of the
terms defined in this Section 7.2(c), that the Basket Amount was zero) by
Section 7.2(a) or (b) (an "Indemnification Event"), the party entitled to such
indemnification (an "Indemnified Party") shall give written notice (an
"Indemnification Claim") to the party from which such indemnification is (or,
under such assumption, could be) sought (an "Indemnifying Party") describing in
reasonable detail the Indemnification Event and the basis on which
indemnification is (or, under such assumption, could be) sought. If the
Indemnifying Party is not so notified by the Indemnified Party within 30 days
after the date of the receipt by the Indemnified Party or any of its Affiliates
of notice of, or of the Indemnified Party or any of its Affiliates otherwise
becoming aware of, any particular Indemnification Event, the Indemnifying Party
shall be relieved of all liability hereunder in respect of such Indemnification
Event (or the facts or circumstances giving rise thereto) to the extent that
such Indemnifying Party is prejudiced or harmed as a consequence of such failure
(and, to such extent, all Losses resulting from such Indemnification Event shall
be disregarded for purposes of determining whether the Basket Amount has been
exceeded).
(d) If any Indemnification Event involves the claim of any third
party (a "Third-Party Claim"), the Indemnifying Party shall (whether or not the
Indemnified Party is entitled to claim indemnification under Section 7.2(a) or
(b), as the case may be) be entitled to, and the Indemnified Party shall provide
the Indemnifying Party with the right to, participate in, and assume sole
control over, the defense and settlement of such Third-Party Claim (with counsel
reasonably satisfactory to the Indemnified Party); PROVIDED, HOWEVER, that (i)
the Indemnified Party shall be entitled to participate in the defense of such
Third-Party Claim and to employ counsel at its own expense to assist in the
handling of such Third-Party Claim, and (ii) the Indemnifying Party shall obtain
the prior written approval of the Indemnified Party before entering into any
settlement of such Third-Party Claim or ceasing to defend against such
Third-Party Claim, if (x) as a result of such settlement or ceasing to defend,
injunctive or other equitable relief would be imposed against the Indemnified
Party or (y) in the case of a settlement, the Indemnified Party would not
thereby receive from the claimant an unconditional release from all further
liability in respect of such Third-Party Claim. After written notice by the
Indemnifying Party to the Indemnified Party of its election to assume control of
the defense of any such Third-Party Claim, the Indemnifying Party shall not be
liable hereunder to indemnify any Person for any Legal Expenses subsequently
incurred in connection therewith and it will be conclusively established for
purposes of this Agreement that the claims made in the Third-Party Claim at the
time of the assumption are within the scope of and subject to indemnification.
If the Indemnifying Party does not assume sole control over the defense or
settlement of such Third-Party Claim as provided in this Section 7.2(d) within a
reasonable period of time, or, after
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27
assuming such control, fails to defend against such Third-Party Claim (it being
agreed that settlement of such Third-Party Claim does not constitute such a
failure to defend), the Indemnified Party shall have the right (as to itself) to
defend and, upon obtaining the written consent of the Indemnifying Party, which
shall not be unreasonably withheld or delayed, settle the claim in such manner
as it may deem appropriate, and the Indemnifying Party shall promptly reimburse
the Indemnified Party therefor in accordance with (and to the extent provided
for (subject to, and not disregarding, the provisos to Section 7.2(a)) in)
Section 7.2(a) or (b), as appropriate. Notwithstanding the foregoing provisions
of this Section 7.2(d), the Indemnified Party shall have the right at all times
to take over and assume the control (as to itself) of the defense or settlement
of any Third-Party Claim; PROVIDED, HOWEVER, that in such event (x) the
Indemnifying Party shall cease to have any obligation under Section 7.2(a) or
(b), as the case may be, in respect of such Third-Party Claim and (y) all Losses
resulting from such Third-Party Claim will not be considered for purposes of
determining whether the Basket Amount has been exceeded. The Indemnifying Party
shall not be liable under this Section 7.2 for any settlement or compromise
effected without its consent.
(e) The Indemnified Party and the Indemnifying Party shall each
cooperate fully (and shall each cause its Affiliates to cooperate fully) with
the other in the defense of any Third-Party Claim pursuant to Section 7.2(d).
Without limiting the generality of the foregoing, each such Person shall furnish
the other such Person with such documentary or other evidence as is then in its
or any of its Affiliates' possession as may reasonably be requested by the other
Person for the purpose of defending against any such Third-Party Claim.
(f) Upon payment of any amount pursuant to any Indemnification
Claim, the Indemnifying Party shall be subrogated, to the extent of such
payment, only to the extent that such subrogation is not prohibited by contract
or otherwise, and only with regard to amounts which are not received by the
Indemnified Party as payment for the Basket Amount or for Losses above the Cap,
to all of the Indemnified Party's rights of recovery (and, if Seller is the
Indemnifying Party, the Indemnified Party shall cause Seller to be subrogated to
all of Buyer's, the Companies' or the Company Subsidiaries' rights of recovery)
against any third party with respect to the matters to which such
Indemnification Claim relates.
(g) The rights and remedies of Buyer and Seller under this
Section 7.2 are exclusive and in lieu of any and all other rights and remedies
which Buyer or Seller, as the case may be, may have against the other, under
this Agreement or otherwise, (i) with respect to (x) the inaccuracy of any
representation, warranty, certification or other statement made (or deemed made)
by Seller or Buyer in or pursuant to this Agreement, the Disclosure Letter or
any Ancillary Instrument or (y) any breach of, or failure to perform or comply
with, any covenant or agreement set forth in this Agreement or in any Ancillary
Instrument or (ii) otherwise with respect to the transactions contemplated by
this Agreement other than with respect to the License Agreement, the Release and
the Guarantee Agreement, PROVIDED, HOWEVER, that this sentence shall not limit
the rights of the parties hereto to seek specific performance of any provision
of this Agreement, including Section 9.1(d) hereof (it being further understood
and agreed that this proviso does not limit or qualify the last sentence of
Section 7.1 hereof). All claims for indemnification must be asserted, if at all,
in good faith and in accordance with the provisions of Section 7.2(c) hereof
and, to the extent applicable to such claims, within the relevant time periods
set forth in the last sentence of Section 7.1 hereof.
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28
(h) If at any time subsequent to the receipt by an Indemnified
Party of an indemnity payment hereunder, such Indemnified Party (or any
Affiliate thereof) receives any recovery, settlement or other similar payment
with respect to the Loss for which it received such indemnity payment (the
"Recovery"), such Indemnified Party shall promptly pay to the Indemnifying Party
an amount equal to the amount of such Recovery, less any expense incurred by
such Indemnified Party (or its Affiliates) in connection with such Recovery, but
in no event shall any such payment exceed the amount of such indemnity payment
and the Indemnifying Party shall not be entitled to receive any amount paid to
the Indemnified Party as payment for the Basket Amount or Losses above the Cap.
(i) Any payment made by Buyer or Seller pursuant to this Section
7.2 shall be deemed an adjustment in the Purchase Price.
(j) Notwithstanding anything herein to the contrary, this Section
7.2 shall have no application to claims for indemnification with respect to
Income Taxes, which shall be governed exclusively by Section 9.3.
ARTICLE 8
TERMINATION
8.1 TERMINATION OF AGREEMENT. This Agreement may be terminated at any
time on or prior to the Closing:
(i) by the mutual consent of Seller and Buyer;
(ii) by either party hereto, if the Closing has not taken place
by December 31, 1997;
(iii) by Buyer or Seller, if any court or governmental body of
competent jurisdiction in the United States shall have issued an order,
stay, judgment or decree, or taken any other action, permanently
prohibiting the transactions contemplated by this Agreement, and such
order, stay, judgment, decree, or other action, shall have become final and
non-appealable;
(iv) by Buyer or Seller if, within 58 days of the date of this
Agreement, Buyer's shareholders have not approved this Agreement and the
transactions contemplated hereby as contemplated by Section 4.9 hereof; or
(v) by Seller after October 17, 1997, or by Buyer, from and after
November 17, 1997, if Buyer has not delivered to Seller prior to October
17, 1997, fully executed copies of each of the debt and equity financing
agreements or commitments, each of which are irrevocable and binding
agreements and under all of which Buyer will be entitled to receive,
subject to the terms and conditions therein, net proceeds sufficient to
meet its cash obligations hereunder to Seller at Closing; provided, that
this Section 8.1(v) shall terminate upon delivery of all such fully
executed copies of such financing agreements or commitments to Seller.
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29
If Buyer or Seller shall terminate this Agreement pursuant to the foregoing
provisions of this Section 8.1, such termination shall be effected by
written notice to the other party specifying the provision pursuant to
which such termination is made.
8.2 LIABILITIES UPON TERMINATION. Except for the terms of Sections
4.1(b), 4.5, 8.2 and 10.2 hereof (and, to the extent relevant thereto, the terms
of Sections 7.2, 10.4, 10.5, 10.6, 10.7, 10.13, 10.15, 10.20 and 10.21 hereof),
which shall survive any termination of this Agreement, upon the termination of
this Agreement pursuant to Section 8.1 hereof this Agreement shall forthwith
become null and void, and no party hereto or any of its officers, directors,
employees, agents, consultants, stockholders or principals shall have any
rights, liabilities or obligations hereunder or with respect hereto; PROVIDED,
HOWEVER, that nothing contained in Section 8.1 or this Section 8.2 shall (i)
relieve any party from liability for any willful failure to comply with any
covenant or agreement contained herein (and the terms of Sections 7.2, 10.4,
10.5, 10.6, 10.7, 10.13, 10.15, 10.20 and 10.21 hereof shall apply to any such
failure) or (ii) affect the Confidentiality Agreement and the confidentiality
provisions of the Letter Agreement dated July 23, 1997 pursuant to which this
Agreement was contemplated, which shall survive any termination of this
Agreement.
If the Closing is not consummated as a result of the failure of the
condition set forth in Section 6.1J to be satisfied, within one business day
after the termination of this Agreement, Buyer will pay Seller U.K. 1.0 million
sterling by wire transfer of immediately available funds to an account specified
by Seller.
ARTICLE 9
EMPLOYEE AND CERTAIN TAX MATTERS
9.1 U.S. EMPLOYMENT AND EMPLOYEE BENEFIT PLAN MATTERS. (a) Effective
as of the Closing, Buyer shall cause KRII and the Domestic Subsidiaries to
continue the employment of all persons who are designated on the records of KRII
or any Domestic Subsidiary as of the Closing as employees, whether or not then
actively at work, including, without limitation, any employees who are on
vacation leave, leave of absence, sick leave or disability leave, but not
including any persons who are receiving long-term disability benefits as of the
Closing ("U.S. Employees"). With respect to those U.S. Employees of KRII or a
Domestic Subsidiary whose service is performed pursuant to an employment
agreement, Buyer shall cause KRII or the Domestic Subsidiary, as applicable, to
honor the terms of such employment agreements. With respect to those U.S.
Employees of KRII or a Domestic Subsidiary whose service is performed subject to
a repatriation agreement as described in Section 9.1(a) of the Disclosure
Letter, Buyer shall cause KRII or the Domestic Subsidiary, as applicable, to
honor the terms of such repatriation agreements. Buyer shall cause KRII and the
Domestic Subsidiaries to honor any re-employment rights of any current or former
employees of KRII or a Domestic Subsidiary, including, but not limited to, any
such persons who are receiving long-term disability benefits as of the Closing.
(b) Effective as of the Closing Date, all U.S. Employees shall
cease active participation in any Benefit Plan other than a Company Plan
("Seller Plans"). Except as
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30
provided in Sections 9.1(l) through (p), Seller shall be responsible for any
benefits under a Seller Plan (whether payable before or after the Closing Date)
to which any current or former employee of KRII or any Domestic Subsidiary, or a
beneficiary or dependent of any such current or former employee, became
irrevocably entitled or which commenced prior to the Closing Date.
(c) Buyer shall be responsible for any benefits payable under a
Company Plan (whether before or after the Closing) to any current or former
employee of KRII or any Domestic Subsidiary, or a beneficiary or dependent of
any such current or former employee.
(d) Each employee benefit plan, fund, policy or arrangement
established or maintained by Buyer or its Affiliates for U.S. Employees ("Buyer
Plan") shall grant credit to each U.S. Employee for all service on or prior to
the Closing Date with Seller, KRII, any Domestic Subsidiary or any predecessor
or Affiliate of any of the foregoing, for all purposes other than benefit
accrual under a "defined benefit plan", within the meaning of Section 3(35) of
ERISA; PROVIDED, that any Buyer Plan may be designed to offset, or otherwise
avoid duplication of, any benefits to which a U.S. Employee is entitled under
any comparable Benefit Plan on or prior to the Closing.
(e) Effective as of the Closing, Buyer shall establish, or shall
cause KRII or a Domestic Subsidiary, as appropriate, to establish or maintain, a
group health plan which shall cover all U.S. Employees and their family members
who immediately prior to the Closing were covered under any group health plan
maintained by Seller, KRII or a Domestic Subsidiary. Any such group health plan
established or maintained by Buyer, KRII or a Domestic Subsidiary shall (i)
waive any waiting period, (ii) waive any exclusion or limitation for preexisting
conditions which were covered (generally and/or specifically as to any
individual) under any group health plan maintained by Seller, KRII or a Domestic
Subsidiary prior to the Closing and (iii) grant credit (for purposes of annual
deductibles, copayments and out-of-pocket limits) for any covered claims
incurred or payments made prior to the Closing Date during the plan year in
which the Closing Date occurs.
(f) Buyer will pay to each U.S. Employee terminated by KRII or a
Domestic Subsidiary within six months of the Closing for reasons other than
"cause" as defined in this Section 9.1(f) as follows: (i) for those employees
for whom a severance benefit is not identified in Section 9.1(k) of the
Disclosure Letter, a severance benefit equal to one week of base pay for each
six months of service completed with KRII or a Domestic Subsidiary or their
Affiliates, up to a maximum benefit equal to two-months base pay, with a minimum
benefit equal to one-month base pay, and (ii) for those employees for whom a
severance benefit is identified in Section 9.1(k) under the Disclosure Letter, a
severance benefit equal to that identified in Section 9.1(k) of the Disclosure
Letter. For those employees paid by Buyer pursuant to clause (i), Seller will
pay to Buyer within seven days of written notice to Seller by Buyer identifying
the individuals to be severed, years of service, annual compensation, total
severance benefit paid by Buyer in accordance with this Section, and severance
benefit computed in accordance with Section 9.1(f) of the Disclosure Letter, an
amount equal to the difference between the total severance benefit determined in
accordance with this Section and the severance benefit identified in Section
9.1(f) of the Disclosure Letter, provided that such severance benefit will be
remitted by Buyer to the U.S. Employee within five days of receipt. For purposes
of this
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31
paragraph (f), "cause" shall mean such U.S. Employee's theft, fraud,
insubordination, willful and repeated neglect of duties or conviction of a
felony.
(g) Prior to the Closing or as soon as practicable after the
Closing, Seller shall cause a transfer of all assets of the Investment Savings
Plan for Employees of Knight-Ridder Information, Inc. ("KRII Savings Plan") held
under the Knight-Ridder, Inc. investment savings plan master trust to be made to
a separate trust established by KRII for the KRII Savings Plan. Such transfer
shall be made in cash, shares of Knight-Ridder, Inc. stock, and promissory notes
representing participant loans. Effective as of the Closing, KRII will continue
to sponsor and maintain the KRII Savings Plan and its related trust, and KRII
and Buyer shall be responsible for all benefits under the KRII Savings Plan, and
Seller and its Affiliates shall cease to have any liability for such benefits.
(h) Effective as of the Closing, CARL Corporation will continue
to sponsor and maintain the 401(k) Profit Sharing Plan of the CARL Corporation
("CARL Savings Plan") and its related trust, and CARL Corporation and Buyer
shall be responsible for all benefits under the CARL Savings Plan, and Seller
and its Affiliates shall cease to have any liability for such benefits.
(i) The accrued benefits of each U.S. Employee who is a
participant in the Retirement Plan for Employees of Knight-Ridder, Inc. and
Certain Subsidiaries (the "Pension Plan") shall be distributed in accordance
with the terms of the Pension Plan and applicable law. Effective as of the
Closing, Buyer, KRII or any Domestic Subsidiary shall have no obligation to make
any additional contributions to the Pension Plan nor be obligated to share in
any of the administrative expenses associated with the Pension Plan, including,
but not limited to, PBGC premiums under the terms of the Pension Plan, the
funding policy adopted under the Pension Plan, or any other agreement between
KRII and Seller.
(j) The accrued benefit of each U.S. Employee who is a
participant in the Knight-Ridder, Inc. benefit restoration plan or annual
incentive (MBO) deferral plan shall be distributed in accordance with the terms
of such plan and applicable law.
(k) Buyer shall pay the retention bonuses payable to the
individuals listed in Section 9.1(k) of the Disclosure Letter pursuant to letter
agreements with KRII or with Seller's Parent (in both cases in accordance with a
list supplied by Seller to Buyer). Seller shall reimburse Buyer for any such
payment and for any other payment (other than any amount payable pursuant to
clause (i) of Section 9.1(f) of this Agreement) required to be paid by Buyer or
KRII pursuant to the agreements referenced in Section 9.1(k) of the Disclosure
Letter within five business days after receipt of a written demand from Buyer.
(l) Seller shall be responsible for providing long-term
disability benefits to any current or former employees of KRII or any Domestic
Subsidiary who are receiving long-term disability benefits as of the Closing in
accordance with the terms of Seller's long-term disability plan. Buyer shall be
responsible for any obligation to provide long-term disability benefits on or
after the Closing to any persons who are employees of KRII or any Domestic
Subsidiary on or after the Closing, including any employees on short-term
disability leave as of the Closing and any current or former employees receiving
long-term disability benefits under
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32
Seller's long-term disability plan as of the Closing who are subsequently hired
by Buyer, KRII or a Domestic Subsidiary.
(m) Seller shall be responsible for any covered claims incurred
by any U.S. Employee under Seller's medical, dental or vision plans prior to the
Closing in accordance with the terms of such plans. Buyer shall be responsible
for any covered claims incurred by any U.S. Employee or the covered family
member of any U.S. Employee under Seller's medical, dental or vision plans after
the Closing, in accordance with the terms of such plans.
(n) Seller shall be responsible for providing continuation of
group health coverage required by Section 4980B of the Code or Sections 601
through 608 of ERISA ("COBRA") to any current or former employee of KRII or any
Domestic Subsidiary or any "qualified beneficiary" (within the meaning of
Section 4980B of the Code) of any such current or former employee who has
incurred a "qualifying event" (within the meaning of Section 4980B of the Code)
under any Seller Plan on or prior to the Closing. Buyer shall be responsible for
providing COBRA coverage to any U.S. Employee or any "qualified beneficiary" of
a U.S. Employee who incurs a "qualifying event" under any Buyer Plan or Company
Plan, whether before or after the Closing.
(o) Seller shall be responsible for providing post-retirement
medical and life insurance benefits to any employees of KRII or any Domestic
Subsidiary (and their family members) who retire prior to the Closing in
accordance with the terms of Seller's Plans.
(p) Seller shall be responsible for any workers compensation
benefits payable to U.S. Employees prior to the Closing Date. Buyer shall be
responsible for any workers compensation benefits payable to U.S. Employees on
or after the Closing Date, excluding any such benefits which are attributable to
any injury or illness which occurred or existed prior to the Closing Date.
(q) Seller shall, upon the request of Buyer, and Buyer shall,
upon the request of Seller, deliver such documents, personnel or benefit
information and other information in their respective possession, as may be
necessary or desirable from time to time for the administration, analysis and
operation of the Buyer Plans or Company Plans and Seller Plans, respectively.
Such documents and information may be provided at such times and in such form
(including any electronic media) as may reasonably be requested by either party.
9.2 FOREIGN EMPLOYMENT AND EMPLOYEE BENEFIT PLAN MATTERS. (a)
Effective as of the Closing, Buyer shall cause KRIAG and the Foreign
Subsidiaries to continue the employment of all persons who are designated on the
records of KRIAG or any Foreign Subsidiary as of the Closing as employees,
whether or not then actively at work ("Foreign Employees"). With respect to
those Foreign Employees of KRIAG or a Foreign Subsidiary whose service is
performed pursuant to an employment agreement, Buyer shall cause KRIAG or the
Foreign Subsidiary, as applicable, to honor the terms of such employment
agreements. With respect to those Foreign Employees of KRIAG or a Foreign
Subsidiary whose service is performed subject to a repatriation agreement as
described in Section 9.2(a) of the Disclosure Letter, Buyer shall cause KRIAG or
the Foreign Subsidiary, as applicable, to honor the terms of
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33
such repatriation agreements. Buyer shall cause KRIAG and the Foreign
Subsidiaries to honor any re-employment rights of any current or former Foreign
Employees.
(b) Effective as of the Closing Date, all Foreign Employees shall
cease active participation in the Knight-Ridder, Inc. employee stock purchase
plan.
(c) Buyer shall be responsible for any benefits payable under a
Foreign Plan (whether before or after the Closing) to any current or former
employee of KRIAG or any Foreign Subsidiary, or a beneficiary or dependent of
any such current or former employee.
9.3 CERTAIN TAX MATTERS. (a) Seller will cause to be duly prepared and
timely filed all consolidated, unitary, or combined federal, foreign, state and
local Income Tax Returns of any group in which Seller or any of its Affiliates
(other than either Company or any Company Subsidiary) and either Company or any
Company Subsidiary are included (any such group being referred to herein as a
"Seller Group") for all taxable periods of either Company or any Company
Subsidiary ending on or before the Closing Date. Seller's Parent will include
KRII and each Corporate Domestic Subsidiary in the Seller Parent's Affiliated
Group's consolidated federal Income Tax Returns for all taxable periods of KRII
and each Corporate Domestic Subsidiary ending on or before the Closing Date.
Seller will include (or cause to be included) the Companies and each Company
Subsidiary in any other consolidated or combined basis filing for any taxable
period of the Companies and each Company Subsidiary ending on or before the
Closing Date as Seller shall deem appropriate. Seller will (or will cause
Seller's Parent to) pay, and will indemnify and hold harmless Buyer from and
against, on a Net After-Tax Basis, any Income Taxes imposed upon any Seller
Group for any taxable period ending on or prior to the Closing Date without
regard to the limitations set forth in Article 7 and any such Loss arising with
respect thereto and such indemnification payment will not be considered for
purposes of determining whether the Basket Amount has been exceeded.
(b) Seller will cause to be prepared and filed all Income Tax
Returns other than those described in Section 9.3(a) above required to be filed
by either Company or any Wholly-Owned Company Subsidiary for taxable periods
ending on or prior to the Closing Date ("Pre-Closing Separate Returns"). Seller
will pay, and will indemnify and hold harmless Buyer from and against, on a Net
After-Tax Basis, any Income Taxes imposed on either Company or any Wholly-Owned
Company Subsidiary other than those described in Section 9.3(a) attributable to
taxable periods ending on or prior to the Closing Date without regard to the
limitations set forth in Article 7 and any such Loss arising with respect
thereto and such indemnification payment will not be considered for purposes of
determining whether the Basket Amount has been exceeded.
(c) Buyer will cause to be prepared and filed in a manner
consistent with past practice all Income Tax Returns required to be filed by
either Company or any Wholly-Owned Company Subsidiary for taxable periods ending
after the Closing Date that include the Closing Date ("Straddle Periods") and
will notify Seller of Buyer's calculation of Seller's share of the Income Taxes
of the Companies or any Wholly-Owned Company Subsidiary for any Straddle Periods
(determined in accordance with the third sentence of this Section 9.3(c));
PROVIDED, HOWEVER, that drafts of any such Income Tax Returns and such
calculations shall be provided to Seller at least sixty days prior to filing,
and such Income Tax Returns and
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34
calculations shall be subject to Seller's review and approval. Buyer and Seller
shall attempt to resolve in good faith any disagreement arising out of any
Straddle Period Income Tax Return and/or any calculation of Seller's share of
the related Income Tax liability; if any such dispute is not resolved within
thirty days prior to the deadline for filing the Income Tax Return in question,
the matter shall be submitted for binding resolution to a mutually acceptable
internationally recognized accounting firm in the relevant jurisdiction with no
material relationship to Buyer or Seller. Buyer will cause the Companies or any
Wholly-Owned Company Subsidiary to pay, and will indemnify and hold harmless
Seller and Seller's Affiliates from and against, on a Net After-Tax Basis, any
Income Taxes imposed upon either Company or any Wholly-Owned Company Subsidiary
for any such Straddle Period, except that Seller will reimburse Buyer for, and
will indemnify and hold harmless Buyer from and against, the amount of Income
Taxes attributable to the portion of any such Straddle Period ending on and
including the Closing Date (the "Pre-Closing Period") that would be reflected on
Income Tax Returns of either Company or any Wholly-Owned Company Subsidiary for
the Pre-Closing Period without regard to the limitations set forth in Article 7,
assuming that the books of the Companies and the Wholly-Owned Company
Subsidiaries were closed as of and including the Closing Date and such Income
Tax Returns were permitted in respect thereof, except that exemptions,
allowances and deductions (such as depreciation deductions) calculated on an
annual basis shall be prorated between the Pre-Closing Period and that portion
of the applicable Straddle Period remaining after the last day of such
Pre-Closing Period on a per diem basis and any such Loss arising with respect
thereto and such indemnification payment will not be considered for purposes of
determining whether the Basket Amount has been exceeded. Any Income Taxes for a
Straddle Period paid prior to the Closing shall be deducted from Seller's
liability pursuant to the immediately preceding sentence, and to the extent in
excess of Seller's liability, will be refunded to Seller by Buyer within ten
(10) days after filing the relevant Income Tax Return.
(d) Notwithstanding anything to the contrary in Section 9.3(a),
(b) or (c), Buyer will pay, and will indemnify and hold harmless Seller and
Seller's Affiliates from and against, on a Net After-Tax Basis, any Income Taxes
imposed as a result of any transaction outside the ordinary course of business
or inconsistent with past practice or any election (except as contemplated by
Section 9.3(f)) or any dividend prohibited by Section 9.3(f) effected by Buyer,
Buyer's Affiliates, either Company or any Company Subsidiary after the Closing
or any failure by Buyer to make an election required pursuant to Section 9.3(f).
Buyer further agrees not to make any change in the intercompany transfer pricing
methodologies currently utilized by the Companies and the Company Subsidiaries
for any period prior to 1998.
(e) Buyer will cause to be prepared and filed all Income Tax
Returns required to be filed by or on behalf of either Company or any Company
Subsidiary for any taxable period commencing after the Closing. Buyer will pay,
and will indemnify and hold harmless Seller and Seller's Affiliates from and
against, on a Net After-Tax Basis, any Income Taxes imposed on either of the
Companies or any Company Subsidiary with respect to any such period.
(f) Buyer and Seller's Parent will, if requested by Buyer within
15 days after the Closing, make a joint election pursuant to Sections 338(g) and
338(h)(10) of the Code (the "Election") and any comparable joint election under
United States state or local Tax laws with respect to the purchase by Buyer of
the Common Stock and the deemed purchase of the
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35
stock of each of the Corporate Domestic Subsidiaries. Seller, Buyer, and their
respective Affiliates will cooperate with each other to take all actions
necessary and appropriate (including filing Form 8023 and any other such forms,
returns, elections, schedules and other documents (collectively, "Section 338
Forms") as may be required) to effect a timely Election in accordance with the
provisions of Sections 338(g) and 338(h)(10) of the Code and the regulations
thereunder (and any similar joint election with similar effects under state or
local tax law) or any successor provisions. Buyer further agrees to make
elections under Section 338(g) of the Code with respect to the purchase of the
stock of KRIAG (assuming that KRIAG is treated as a corporation for US Tax
purposes as of the time of the Closing) and, unless Buyer agrees that none of
the Foreign Subsidiaries that are Wholly-Owned Company Subsidiaries shall pay
any dividends after the Closing and prior to January 1, 1998, with respect to
the deemed purchase of each of the Foreign Subsidiaries that are Wholly-Owned
Company Subsidiaries (the "Foreign Section 338 Elections"). With respect to the
Election, any comparable joint election under United States state or local Tax
laws, and the Foreign Section 338 Elections, Buyer and Seller and their
Affiliates shall (i) treat such elections as valid, (ii) not take any action
inconsistent with such treatment and (iii) file, or cause to be filed, all Tax
Returns in a manner consistent with such elections. Buyer and Seller shall
endeavor in good faith to agree upon the allocation of the Purchase Price
between the Common Stock and the KRIAG Shares and the "adjusted grossed-up
basis" and the "modified adjusted deemed sales price" (as such terms are defined
in Section 338 of the Code and the United States Treasury regulations
thereunder) among the assets of the Companies and the Company Subsidiaries (the
"Allocation"). If Buyer and Seller are not able to agree upon the Allocation
within 60 days after the Closing, the Allocation shall be determined by an
appraisal firm selected by Buyer within 30 days thereafter and acceptable to
Seller; if no such appraisal firm is selected within the 30 day period or if
such appraisal is not completed within 120 days after the Closing, each party
may file its Tax Returns as it deems fit. The costs and expenses for the
services of such appraisal firm shall be borne by the parties equally. The
parties hereto and their Affiliates shall reflect the Allocation in all Tax
Returns except as provided in the second preceding sentence.
(g) Seller will be entitled to retain, or receive prompt payment
from Buyer, the applicable Company or any Company Subsidiary of any refund or
credit for overpayment of Taxes for which Seller is responsible pursuant to
Section 9.3(a), (b) or (c), plus any interest received with respect thereto from
the relevant taxing authorities.
(h) Buyer will promptly notify Seller in writing upon receipt by
Buyer or any of its Affiliates (including, after the Closing, the Companies and
the Company Subsidiaries) of notice of any pending or threatened audit or
assessment with respect to Taxes for which Seller would be required to pay or
indemnify Buyer or any of its Affiliates pursuant to Section 9.3(a), (b) or (c).
Seller will have the sole right to control any audit, administrative or court
proceeding relating to Seller Group Taxes or Pre-Closing Separate Returns.
Seller will have the right to participate at its expense in any audit,
administrative or court proceeding relating to Straddle Periods, and Buyer shall
not (and shall not permit either of the Companies or any Company Subsidiary to)
settle or otherwise compromise any such proceeding without Seller's consent, not
to be unreasonably withheld.
(i) After the Closing Date, each of Buyer and Seller shall
furnish or cause to be furnished to each other, upon request, as promptly as
practicable, such information
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36
(including access to books, records and personnel) and assistance as is
reasonably requested for the preparation and filing of any Tax Return or related
document, for the preparation for any Tax audit or for the prosecution or
defense of any claim, suit or proceeding relating to Taxes.
(j) As of the Closing, the Companies and the Company Subsidiaries
will be released from any obligation with respect to any period under any Tax
sharing or Tax allocation agreements between either Company or any Company
Subsidiary, on the one hand, and Seller or Seller's Affiliates (other than the
Companies and the Company Subsidiaries), on the other.
(k) Buyer will pay or cause to be paid, and will indemnify and
hold harmless Seller from and against, any sales, use, transfer, stamp,
documentary or similar Taxes imposed upon the sale of the Shares pursuant to
this Agreement, including, without limitation, any such Taxes imposed as a
result of any deemed sale of the assets of either of the Companies or any
Company Subsidiary.
(l) Buyer hereby acknowledges that Seller makes no representation
or warranty as to the Tax consequences to Buyer of the transactions contemplated
by this Agreement or as to the existence or amount of any net operating loss or
other carryforwards of either of the Companies or any Company Subsidiary.
(m) Seller shall be subrogated to any rights of Buyer, the
Companies or the Company Subsidiaries against third parties with respect to
Income Taxes paid by Seller pursuant to this Section 9.3.
(n) Any amount paid by Seller to or on behalf of Buyer, either
Company or any Company Subsidiary, or by Buyer to Seller pursuant to the terms
of this Section 9.3 shall be treated as an adjustment to the Purchase Price.
ARTICLE 10
MISCELLANEOUS
10.1 EXCLUSIVITY OF REPRESENTATIVES. THE REPRESENTATIONS AND
WARRANTIES MADE BY SELLER AND BUYER, RESPECTIVELY, IN THIS AGREEMENT, THE
DISCLOSURE LETTER, THE ANCILLARY INSTRUMENTS AND ANY EXHIBIT HERETO AND THERETO
ARE IN LIEU OF AND ARE EXCLUSIVE OF ALL OTHER REPRESENTATIONS AND WARRANTIES,
INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF
FITNESS FOR A PARTICULAR PURPOSE AND ANY OTHER IMPLIED WARRANTIES, OF SELLER AND
BUYER, RESPECTIVELY. SELLER AND BUYER EACH HEREBY DISCLAIMS ANY SUCH OTHER OR
IMPLIED REPRESENTATIONS OR WARRANTIES, NOTWITHSTANDING THE DELIVERY OR
DISCLOSURE BY SELLER OR ANY OTHER PERSON TO BUYER OR ANY OF ITS DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES, OR BY BUYER OR ANY OTHER PERSON
TO SELLER OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR
REPRESENTATIVES,
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37
OF ANY DOCUMENTATION OR OTHER INFORMATION IN CONNECTION WITH THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
10.2 EXPENSES. Except as expressly set forth in Sections 7.2, 8.2, 9.3
and 10.14, regardless of whether the Closing occurs, each party hereto shall
bear all of its expenses incurred in connection with the transactions
contemplated by this Agreement, including, without limitation, accounting and
legal fees incurred in connection herewith. For purposes of this Section 10.2,
the fees and expenses of any Company or Company Subsidiary incurred prior to the
Closing in connection with the transactions contemplated hereby shall be borne
by Seller, unless (i) such fees and expenses are paid by any Company or Company
Subsidiary prior to Closing or (ii) such fees and expenses are included in the
determination of Final Closing Net Working Capital.
10.3 FURTHER ASSURANCES. Subject to Section 8.1 hereof, from time to
time prior to, at and after the Closing Date, without the payment of any
additional consideration except as otherwise set forth in this Agreement, each
party hereto will execute all such instruments and take all such actions as the
other party, being advised by counsel, shall reasonably request in connection
with carrying out and effectuating the intent and purpose hereof and all
transactions and things contemplated by this Agreement.
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38
10.4 NOTICES. Notices and other communications provided for herein
shall be in writing (which shall include notice by facsimile transmission) and
shall be delivered or mailed (or if by graphic scanning or other facsimile
communications equipment of the sending party hereto, delivered by such
equipment), addressed as follows:
If to Seller:
Knight-Ridder Business Information Services, Inc.
One Herald Plaza
Miami, Florida 33132-1693
Telecopier No: (305) 995-8044
Attention: Cristina L. Mendoza, Esq.
and to:
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
Telecopier No. (212) 422-4726
Attention: Garett J. Albert, Esq.
If to Buyer:
M.A.I.D plc
48 Leicester Square
London WC2H 7DB
Telecopier No. 011-44-171-839-3883
Attention: Ean Brown, Esq.
and to:
Cooley Godward LLP
One Maritime Plaza
20th Floor
San Francisco, California 94111-3580
Telecopier No.: (415) 951-3699
Attention: Gregory Smith, Esq.
<PAGE>
39
or to such other address as a party may from time to time designate in writing
in accordance with this section. All notices and other communications given to
any party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given on the date of receipt.
10.5 ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; PROVIDED, HOWEVER, that neither
this Agreement nor any of the rights, interests, or obligations hereunder may be
assigned by either of the parties hereto without the prior written consent of
the other party, except that (i) Seller may assign any or all of its rights and
obligations hereunder to Seller's Parent without the consent of Buyer and upon
such assignment and assumption Seller shall be released from all of its
obligations hereunder and (ii) Buyer may assign any or all of its rights and
obligations hereunder to a wholly-owned Subsidiary of Buyer or to the banks or
other creditors from time to time party to the Buyer's senior credit facilities
without the consent of Seller; PROVIDED, that any such assignment shall not
relieve Buyer from any liability hereunder. Any assignment in violation of this
Agreement shall be null and void ab initio.
10.6 CONSTRUCTION. (a) Unless otherwise expressly specified herein,
(i) defined terms in the singular shall also include the plural and vice versa,
(ii) the words "hereof", "herein", "hereunder" and other similar words refer to
this Agreement as a whole, (iii) Article, Section, Schedule and Exhibit
references in this Agreement are to Articles of, Sections of, Schedules to and
Exhibits to this Agreement and (iv) words of any gender (masculine, feminine,
neuter) mean and include correlative words of the other genders.
(b) The captions in this Agreement are for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.
(c) All references to "days" shall be to calendar days unless business
days are specified.
(d) Unless the context otherwise requires, (i) "or" is not exclusive
and (ii) "including" means "including but not limited to" and "including without
limitation".
(e) As used herein, the phrases "date of this Agreement" and "date
hereof" and any other phrases of similar import shall mean October 1, 1997
(regardless, with respect to representations and warranties, of the date or time
as of which such representations and warranties are made or deemed to have been
made or as of which the accuracy or inaccuracy thereof is measured or
determined).
10.7 LAW GOVERNING. THIS AGREEMENT IS INTENDED AS A CONTRACT UNDER AND
SHALL BE CONSTRUED IN ACCORDANCE WITH THE LOCAL LAW OF THE STATE OF NEW YORK,
INCLUDING WITHOUT LIMITATION AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY,
ENFORCEABILITY AND PERFORMANCE.
10.8 WAIVER OF PROVISIONS. The provisions, terms, covenants,
representations, warranties and conditions of this Agreement may be waived only
by a written instrument
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40
executed by the party hereto waiving compliance. The failure of any party hereto
at any time or times to require performance of any provision of this Agreement
shall in no manner affect the right of such party at a later date to enforce the
same. No waiver by any party hereto of any condition or the breach of any
provision, term, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances shall
be deemed to be or construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
10.9 COUNTERPARTS. This Agreement may be executed in several
counterparts, and all counterparts so executed shall constitute one agreement,
binding on the parties hereto, notwithstanding that such parties are not
signatory to the same counterpart.
10.10 ENTIRE AGREEMENT. This Agreement, the Disclosure Letter, the
Ancillary Instruments and the exhibits hereto and thereto, constitute the entire
agreement between the parties and their officers, directors and affiliates and
supersede and cancel any and all prior agreements between them relating to the
subject matter hereof, including the Letter Agreement dated July 23, 1997
pursuant to which this Agreement was contemplated except for the confidentiality
provisions thereof but excluding the Confidentiality Agreement (which shall
remain in full force and effect), and may not be amended or modified except by a
written agreement signed by Buyer and Seller.
10.11 ACCESS TO BOOKS AND RECORDS. (a) After the Closing, Buyer shall,
upon Seller's request from time to time, and upon reasonable notice, in
connection with the preparation by Seller or its Affiliates of Tax returns and
for such other purposes as Seller shall reasonably request, (i) (A) provide to
the officers and other authorized representatives of Seller and its Affiliates
timely and full access, during normal business hours, to any and all premises,
properties, files, books, records, documents and other information of the
Companies and the Company Subsidiaries, (B) cause its officers and the officers
of the Companies and the Company Subsidiaries to furnish to Seller and its
authorized representatives copies of any and all financial, technical and
operating data and other information pertaining to the Companies and the Company
Subsidiaries and (C) make available to Seller and its authorized representatives
personnel of Buyer, the Companies and the Company Subsidiaries to consult with
Seller and its authorized representatives and (ii) make available for inspection
and copying by Seller at Seller's expense true and complete copies of any
documents relating to the foregoing. In exercising their rights under the
foregoing provisions of this Section 10.11(a), Seller and its representatives
shall not interfere with Buyer's, the Companies' or any Company Subsidiary's
normal operations, and as applicable, shall enter into any such confidentiality
agreement as the party providing the information shall reasonably require. Buyer
shall cause the Companies and the Company Subsidiaries to retain the files,
books, records and documents of the Companies and the Company Subsidiaries for
at least six years after the Closing Date. Thereafter, Buyer shall give Seller
at least 60 business days prior written notice of the proposed destruction of
any such files, books, records or documents and, at the request and expense of
Seller, shall deliver to Seller any of such files, books, records or documents
that Seller may request.
(b) After the Closing, Seller shall, upon Buyer's request from
time to time, and upon reasonable notice, in connection with the preparation by
Buyer or its Affiliates of Tax returns and for such other purposes as Buyer
shall reasonably request, (i) (A) provide to the
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41
officers and other authorized representatives of Buyer and its Affiliates timely
and full access, during normal business hours, to any and all premises,
properties, files, books, records, documents and other information of the
Companies and the Company Subsidiaries that are in the possession of Seller's
Parent or Seller insofar as it relates to the period prior to the Closing, (B)
cause its officers to furnish to Buyer and its authorized representatives copies
of any and all financial, technical and operating data and other information
pertaining to the Companies and the Company Subsidiaries that are in the
possession of Seller's Parent or Seller insofar as it relates to the period
prior to the Closing and (C) make available to Buyer and its authorized
representatives personnel of Seller to consult with such representatives with
respect to such matters and (ii) make available for inspection and copying by
Buyer at Buyer's expense true and complete copies of any documents relating to
the foregoing. In exercising their rights under the foregoing provisions of this
Section 10.11(b), Buyer and its representatives shall not interfere with
Seller's or Seller's Parent's normal operations, and as applicable, shall enter
into any such confidentiality agreement as the party providing the information
shall reasonably require. Seller shall retain any files, books, records and
documents of the Companies and the Company Subsidiaries which are in its
possession on the Closing Date for at least six years after the Closing Date.
Thereafter, Seller shall give Buyer at least 60 business days prior written
notice of the proposed destruction of any such files, books, records or
documents and, at the request and expense of Buyer, shall deliver to Buyer any
of such files, books, records or documents that Buyer may request.
10.12 DISCLOSURE LETTER. (a) Disclosure of any fact or item in the
Disclosure Letter referenced by a particular paragraph or section of the
Agreement shall, if it is obvious on the face of such disclosure that the
existence of the fact or item or its contents is reasonably related on its face
to any other paragraph or section, be deemed to be disclosed with respect to
that other paragraph or section. Neither the specification (directly or
indirectly by reference to a defined term hereof) of any dollar amount in the
representations and warranties set forth in Article 2 or the indemnification
provisions of Article 7 nor the inclusion of any items in the Disclosure Letter
shall be deemed to constitute an admission by Seller or Buyer, or otherwise
imply, that any such amount or such items so included are material for the
purposes of this Agreement. The inclusion of, or reference to, any item within
any particular section of the Disclosure Letter does not constitute an admission
by either Seller or Buyer that such item meets any or all of the criteria set
forth in this Agreement for inclusion in such section of the Disclosure Letter.
(b) At or prior to the Closing, Seller shall have the right to
deliver amendments or supplements to the Disclosure Letter (including without
limitation additions of new sections thereof) for review and either approval
thereof or rejection thereof by Buyer, which approval shall not be unreasonably
withheld in the event such amendments and supplements are not individually or in
the aggregate material. To the extent that Buyer approves any such amendment or
supplement to the Disclosure Letter, the indemnification provisions set forth in
Section 7.2(a) hereof shall not apply to any Loss or Legal Expenses arising out
of, based upon or resulting from any matters that have been disclosed in such
amendments or supplements to the Disclosure Letter, except as otherwise provided
in Section 7.2(a) hereof. Any amendments or supplements to the Disclosure Letter
will be delivered sufficiently in advance of the Closing to allow Buyer to
review the contents thereof.
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42
10.13 SUBMISSION TO JURISDICTION; WAIVERS. (a) Each party to this
Agreement hereby irrevocably and unconditionally:
(1) (i) agrees that any suit, action or proceeding instituted
against it by the other with respect to this Agreement or any Ancillary
Instrument may be instituted, and that any suit, action, or proceeding by
it against the other with respect to this Agreement or any Ancillary
Instrument shall be instituted, only in the Supreme Court of the State of
New York, County of New York or the U.S. District Court for the Southern
District of New York (and appellate courts from any of the foregoing) as
the party instituting such suit, action or proceeding may in its sole
discretion elect, (ii) consents and submits, for itself and its property,
to the jurisdiction of such courts for the purpose of any such suit, action
or proceeding instituted against it by the other and (iii) agrees that a
final judgment in any such suit, action or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment or in
any other manner provided by law;
(2) agrees that service of all writs, process and summonses in
any suit, action or proceeding pursuant to Section 10.13(a)(1) may be
effected by the mailing of copies thereof by registered or certified mail,
postage prepaid, to Buyer or Seller, as the case may be, at its address for
notices pursuant to Section 10.4 hereof (with copies to such other Persons
as specified therein), such service to become effective 15 days after such
mailing; PROVIDED, that nothing contained in this Section 10.13(a)(2) shall
affect the right of Buyer or Seller, as the case may be, to serve process
in any other manner permitted by law;
(3) (i) waives any objection which it may now or hereafter have
to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement or any Ancillary Instrument brought in any court
specified in Section 10.13(a)(1), (ii) waives any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum and (iii) agrees not to plead or claim either of the
foregoing; and
(4) WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY
DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT AND AGREES THAT ANY
SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
(b) Without limitation of Section 10.13(a)(2), Buyer hereby
irrevocably appoints CT Corporation, 1633 Broadway, New York, NY 10019 as its
agent upon which process may be served in any suit, action or proceeding which
may be instituted by Seller in any court specified in Section 10.13(a)(1) with
respect to this Agreement or any Ancillary Instrument. Without limitation of
Section 10.13(a)(2), service of process upon such agent at the office of such
agent at CT Corporation, 1633 Broadway, New York, NY 10019, and written notice
of such service to Buyer as provided by Section 10.4 hereof, shall be deemed in
every respect effective service of process upon Buyer in any such suit, action
or proceeding. Buyer hereby agrees to take any and all action, including the
execution and filing of any and all
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43
documents and instruments, as may be necessary to continue such designation and
appointment of such agent.
10.14 COOPERATION. From and after the Closing, Buyer will cooperate
with Seller in the investigation, defense or prosecution of any action, suit,
proceeding or other litigation, at law or in equity, which is pending or
threatened against Seller or any of its Affiliates and which relates to either
Company or any Company Subsidiary. Without limiting the generality of the
foregoing, Buyer will make available employees of the Companies and the Company
Subsidiaries to give depositions or testimony and will furnish all documentary
or other evidence in each case as Seller may reasonably request. Seller shall
reimburse Buyer for all reasonable and necessary out-of-pocket expenses incurred
in connection with the performance of its obligations under this Section 10.14.
10.15 NO THIRD PARTY BENEFICIARY. This Agreement is for the sole
benefit of the parties hereto and their respective successors and permitted
assigns and nothing herein, express or implied, is intended to or shall confer
upon any other Person any legal or equitable right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
10.16 TRANSITIONAL ARRANGEMENTS. Seller and/or its Subsidiaries have
certain commercial arrangements and understandings with KRII. Seller agrees that
if the Closing occurs it shall (or it shall cause its appropriate Subsidiary, as
the case may be), and Buyer agrees that if the Closing occurs it shall cause
KRII, to continue the commercial arrangements and understandings described in
Section 10.16 of the Disclosure Letter for the periods specified in Section
10.16 of the Disclosure Letter. The terms of such continued commercial
arrangements shall be as prevail as of the date hereof, except as otherwise
specified in Section 10.16 of the Disclosure Letter.
10.17 USE OF KNIGHT-RIDDER'S NAMES AND LOGOS BY BUYER, THE COMPANY OR
THEIR AFFILIATES; CHANGE OF CORPORATE NAME. It is expressly agreed that Buyer is
not purchasing or acquiring any right, title or interest in the name of Seller's
Parent or Seller or any trade names, trademarks, identifying logos or service
marks employing the words "Knight-Ridder, Inc." or any part or variation
thereof, including, without limitation, the name "Knight-Ridder", "KRII", "KRI",
"KR" or any confusingly similar trade name, trademark or logo (collectively, the
"Seller's Trademarks and Logos"). Buyer agrees that neither it nor the Companies
nor the Company Subsidiaries nor any of their respective Affiliates shall make
any use of the Seller's Trademarks and Logos from and after the Closing Date,
except that the Companies and the Company Subsidiaries may continue to use
materials containing Seller's Trademarks and Logos for the period after the
Closing permitted under this Section 10.17. To this end, at or prior to the
Closing, Seller will cause a resolution of the Board of Directors and the sole
shareholder of each of KRII and KRIAG to be passed resolving that, effective
upon the consummation of the Closing, the corporate name of Knight-Ridder
Information, Inc. be changed to a name selected by Buyer (which will exclude
Seller's Trademarks and Logos) and provided to Seller within ten business days
of this Agreement and the corporate name of Knight-Ridder Information A.G. be
changed to a name selected by Buyer (which will exclude Seller's Trademarks and
Logos) and provided to Seller within ten business days of this Agreement,
respectively and Buyer will cooperate with Seller and take any action prior to
or after the Closing required to effect any such
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44
change of name, including, without limitation, any filings with the Secretary of
State of California, any filings in the Swiss jurisdiction in which KRIAG is
organized and any filings in any jurisdiction in which KRII or KRIAG is
qualified to do business. In addition, KRII will cause a resolution of the Board
of Directors and the sole shareholder of each of the Company Subsidiaries, which
has in its corporate name a Seller's Trademark and Logo, to be passed resolving
that, effective upon the consummation of the Closing, the corporate name of each
such Company Subsidiary be changed to a name selected by Buyer which will
exclude Seller's Trademarks and Logos and Buyer will cooperate with KRII and
take any action prior to or after the Closing required to effect any such change
of name, including, without limitation, any filings with the jurisdiction of
organization of each such Company Subsidiary and any filings in any jurisdiction
in which each such Company Subsidiary is qualified to do business. Furthermore,
Buyer shall cause the Companies and the Company Subsidiaries, as promptly as
practicable but in no event later than 120 days following the Closing Date, to
remove, strike over or otherwise obliterate all Seller's Trademarks and Logos
from all materials constituting their properties and assets, including, without
limitation, any business cards, schedules, stationery, displays, signs,
promotional materials, manuals, forms and other materials, if such materials are
distributed or made available or proposed to be distributed or made available to
third parties. Buyer shall, with reasonable promptness, cause the Companies and
the Company Subsidiaries to prepare their own stock of business cards,
schedules, stationery, displays, signs, promotional materials, manuals, forms
and other materials to replace those materials included in their properties and
assets and will not reprint any materials which are distributed or made
available to third parties and which contain Seller's Trademarks and Logos,
except as set forth in the following sentence. Notwithstanding anything herein
to the contrary, until December 31, 1998, Buyer and any Company or Company
Subsidiary shall have the right to use Seller's name on any materials if it is
indicating that a Company or Company Subsidiary or product was formerly known
as, formerly owned by, or formerly provided by Seller's Parent, Seller or the
Companies and the Company Subsidiaries prior to the Closing Date, provided, that
Buyer hereby agrees to indemnify and hold Seller harmless from any and all
Losses related to such use of Seller's name.
10.18 USE OF SELLER'S TRADEMARKS AND LOGOS. From and after the Closing
Date, Buyer will use its best efforts to cause any Person (other than Seller and
its Affiliates) with whom Buyer has a contractual relationship, including
without limitation the parties to the contracts set forth in Section 2.8 of the
Disclosure Letter, to cease using Seller's Trademarks and Logos as promptly as
practical after the Closing.
10.19 INSURANCE. Buyer acknowledges that all insurance policies
maintained by Seller and its Affiliates with respect to the Companies, the
Company Subsidiaries and/or their respective assets will be terminated effective
on the Closing Date.
10.20 NO PRESUMPTION. With regard to each and every term and condition
of this Agreement and any and all agreements and instruments subject to the
terms hereof or referred to herein, the parties hereto understand and agree that
the same have or has been mutually negotiated, prepared and drafted, and if at
any time the parties hereto desire or are required to interpret or construe any
such term or condition or any agreement or instrument subject hereto, no
consideration shall be given to the issue of which party hereto actually
prepared, drafted or requested any term or condition of this Agreement or any
agreement or instrument subject hereto.
<PAGE>
44
10.21 SEVERABILITY. To the fullest extent that they may effectively do
so under applicable law, the parties hereto hereby waive any provision of law
which renders any provision of this Agreement invalid, illegal or unenforceable
in any respect. Such parties further agree that any provision of this Agreement
which, notwithstanding the preceding sentence, is rendered or held invalid,
illegal or unenforceable in any respect in any jurisdiction shall be
ineffective, but such ineffectiveness shall be limited as follows: (i) if such
provision is rendered or held invalid, illegal or unenforceable in such
jurisdiction only as to a particular Person or Persons or under any particular
circumstance or circumstances, such provision shall be ineffective, but only in
such jurisdiction and only with respect to such particular Person or Persons or
under such particular circumstance or circumstances, as the case may be; (ii)
without limitation of clause (i), such provision shall in any event be
ineffective only as to such jurisdiction and only to the extent of such
invalidity, illegality or unenforceability, and such invalidity, illegality or
unenforceability in such jurisdiction shall not render invalid, illegal or
unenforceable such provision in any other jurisdiction; and (iii) without
limitation of clause (i) or (ii), such ineffectiveness shall not render invalid,
illegal or unenforceable this Agreement or any of the remaining provisions
hereof. Without limitation of the preceding sentence, (A) it is the intent of
the parties hereto that, in the event that in any court proceeding, such court
determines that any provision of this Agreement is illegal, invalid or
unenforceable in any jurisdiction to any extent, such court shall have the power
to, and shall, (1) modify such provision (including by limiting the Persons
against whom, or the circumstances under which, such provision shall be
effective in such jurisdiction) for purposes of such proceeding to the minimum
extent necessary so that such provision, as so modified, may then be enforced in
such proceeding and (2) enforce such provision, as so modified pursuant to
clause (1), in such proceeding and (B) upon any determination that any provision
of this Agreement is invalid, illegal or unenforceable, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of such parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated hereby be consummated as originally
contemplated to the greatest extent possible. Nothing in this Section 10.21 is
intended to, or shall, (x) limit the ability of any party hereto to appeal any
court ruling or the effect of any favorable ruling on appeal or (y) limit the
intended effect of Section 10.7 or 10.13.
10.22 AFFILIATES; SUBSIDIARIES. References in this Agreement to
"Affiliates" or "Subsidiaries" of a specified Person refer to, and include, only
other Persons which from time to time constitute "Affiliates" or "Subsidiaries",
as the case may be, of such specified Person, and do not include, at any
particular time, other Persons that may have been, but at such time have ceased
to be, "Affiliates" or "Subsidiaries", as the case may be, of such specified
Person.
10.23 GUARANTEE AGREEMENT. Simultaneous with the execution and
delivery hereof by the parties hereto, Seller's Parent and Buyer are executing a
guarantee agreement (the "Guarantee Agreement") in the form of Exhibit G.
10.24 PURCHASE PRICE RENEGOTIATION. Buyer agrees that it will not
attempt to renegotiate the Purchase Price.
10.25 NON-SOLICITATION: For a period of six months from the Closing
Date, Seller and Seller's affiliates shall not solicit or hire any of the
employees of the Companies and the Companies Subsidiaries as of the Closing Date
(other than those employees who are
<PAGE>
46
terminated by Buyer). The foregoing limitation shall not prohibit general
advertising for positions available at Seller or Seller's Affiliates or the
solicitation or hiring of any such employee of the Companies or any Company
Subsidiary that is terminated by the Companies or any Company Subsidiary.
<PAGE>
47
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
KNIGHT-RIDDER BUSINESS INFORMATION SERVICES, INC.
By: /s/ Alan Silverglat
----------------------------------------------
Alan Silverglat
Title: Assistant Treasurer
M.A.I.D. plc
By: /s/ Dan Wagner
----------------------------------------------
Dan Wagner
Title: Chief Executive
<PAGE>
EXHIBIT A
1. For purposes of the Agreement to which this Exhibit A is attached
(the "Agreement"), the following terms shall have the following meanings:
"AFFILIATE" means, as to any specified Person, any other Person which,
directly or indirectly, controls, is controlled by or is under common control
with, such specified Person. For the purposes of this definition, "control"
means the possession of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"CLOSING NET WORKING CAPITAL" means the Net Working Capital of the
Companies and the Company Subsidiaries taken as a whole as of the opening of
business on the Closing Date and there shall be no reserves for Seller Plans
against Net Working Capital.
"COMPANY PLAN" means any Benefit Plan established or maintained solely
by KRII and/or any Domestic Subsidiary for the benefit of current or former
employees of KRII and/or any Domestic Subsidiary (including, but not limited to,
coverage under any health maintenance organization offered only to current or
former employees of KRII and/or any Domestic Subsidiary).
"COMPANY SUBSIDIARY" means a Subsidiary of KRII and shall also include
each of KMK DigiTex Company Ltd. and Infomart/DIALOG Ltd.
"DISCLOSURE LETTER" means the Disclosure Letter, dated the date of the
Agreement, delivered to Buyer, as from time to time amended and/or supplemented
in accordance with Section 10.12(b) of the Agreement.
"DOLLAR" or "$" means a dollar or other equivalent unit in such coin
or currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts.
"FOREIGN PLAN" means any employee benefit plan or program which is
maintained by KRIAG or a Foreign Subsidiary and which covers current or former
employees of KRIAG or any Foreign Subsidiary other than (i) any such plan or
program mandated by applicable law or (ii) a Seller Plan.
"HAZARDOUS SUBSTANCES" means any substance defined as a hazardous
substance under section 101 of CERCLA, 42 U.S.C. ss. 9601, or any other toxic or
harmful chemical regulated under United States federal, state or local law.
"INCOME TAX RETURNS" means Tax Returns relating to Income Taxes.
"INCOME TAXES" means Taxes in the nature of income or franchise taxes,
including interest, penalties and additions to tax with respect thereto.
<PAGE>
2
"INITIAL PURCHASE PRICE" means the Base Purchase Price as adjusted in
accordance with Section 1.4(a) of the Agreement.
"KNOWLEDGE OF SELLER" or "SELLER'S KNOWLEDGE" (or words of similar
import) means the actual knowledge of any of the officers or directors of Seller
or Seller's Affiliates.
"LIEN" means any lien (including any Tax lien), mortgage, security
interest, defect in title or encumbrance.
"LOSSES" means all losses, damages, liabilities and claims, and fees,
costs and expenses of any kind related thereto whether or not involving a
third-party claim calculated on a Net After-Tax Basis. Notwithstanding anything
to the contrary contained in the Agreement, Losses shall not include punitive
damages unless such Person had punitive damages assessed or asserted against it.
"MATERIAL ADVERSE EFFECT" means (i) a material adverse effect on the
financial condition or business of the Companies and the Company Subsidiaries
taken as a whole or (ii) an effect that will (x) prevent Seller from
consummating the sale of the Shares to Buyer as contemplated by the Agreement or
(y) require Buyer to divest itself of the Shares.
"NET AFTER-TAX BASIS" means, with respect to the calculation of any
indemnification payment owed to any party pursuant to the Agreement, calculation
thereof in a manner taking into account any Taxes owing by the indemnified party
or its Affiliates as a result of receipt or accrual of the indemnity payment and
any savings in Taxes realized by the indemnified party or its Affiliates as a
result of the indemnified liability.
"NET WORKING CAPITAL" shall mean, as of any date of determination, (i)
the sum of (A) cash, (B) accounts receivable less allowance for bad debt, and
(C) other current assets minus (ii) the sum of (A) the current portion of
accounts payable and other accruals, (B) the current portion of payroll and
related expenses, (C) customer advances, and (D) other current liabilities
(other than liabilities for Income Taxes and any intercompany debt), in each
case calculated in the same manner and using the same methods as for the
respective line items on the March 31 Balance Sheet, including the exceptions to
GAAP listed in Section 1.4(a) of the Disclosure Letter. If necessary, the
determination of Base Working Capital will be adjusted from $14,683,100 to
reflect the preceding clause (ii)(C).
"PERMITTED LIENS" means (i) Liens for Taxes not yet due and payable,
that are payable without penalty or that are being contested in good faith, in
each case for which adequate reserves have been established, (ii) Liens arising
or resulting from any action taken by Buyer or any of its Affiliates, (iii)
Liens created by, arising out of or specifically permitted by the Agreement,
(iv) Liens identified in any Section of the Disclosure Letter, (v) with respect
to real property or interests therein, any defects or irregularities in title,
(vi) materialmen's, mechanics', workmen's, repairmen's, employees' or other like
Liens arising in the course of construction or in the ordinary course of
operations or maintenance in each such case securing obligations which are not
delinquent or are being contested in good faith and for which adequate reserves
have been taken or securing obligations which are bonded in a reasonable manner,
(vii) zoning restrictions, easements, licenses or other restrictions on the use
of real property or other minor irregularities in
<PAGE>
3
title thereto or encumbrances thereon, so long as the same do not, individually
or in the aggregate, materially interfere with or impair the use of such real
property in the manner normally used, (viii) Liens arising out of judgments or
awards with respect to which at the time an appeal or proceeding for review is
being prosecuted in good faith if adequate reserves with respect thereto have
been established and are being maintained and with respect to which there shall
have been secured a stay of execution pending such appeal or proceeding for
review and (ix) such other Liens as would not have a Material Adverse Effect.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization or government or any agency or political
subdivision thereof.
"SELLER'S PARENT" means Knight-Ridder, Inc., a Florida corporation.
"SUBSIDIARY" means, with respect to any specified Person, any other
corporation, partnership, joint venture, association or other entity in respect
of which such specified Person directly, or indirectly through one or more other
Subsidiaries, both (i) owns not less than a majority of the overall economic
equity and (ii) has the power to elect a majority of the board of directors (or
individuals serving a function similar to that of a board of directors of a
corporation).
"WHOLLY-OWNED COMPANY SUBSIDIARY" means any Subsidiary of KRII that is
directly or indirectly wholly-owned by KRII.
<PAGE>
4
2. The following terms are defined in the sections of the Agreement
indicated:
DEFINED TERM SECTION
- ----------------------------------------- --------------
"Agreement" Party Recitals
"Allocation" 9.3(f)
"Ancillary Instrument" 7.1
"Balance Sheet" 2.5(a)
"Base Closing Net Working Capital" 1.4(a)
"Base Purchase Price" 1.1
"Basket Amount" 7.2(a)
"Benefit Plans" 2.10(a)
"Buyer's Closing Schedule" 1.4(b)
"Buyer's Representatives" 4.1(a)
"Buyer" Party Recitals
"Buyer Adverse Effect" 3.2
"Buyer Indemnified Persons" 7.2(a)
"Buyer Plan" 9.1(d)
"Cap" 7.2(a)
"CARL Savings Plan" 9.1(h)
"cause" 9.1(f)
"Circular" 4.9
"Closing" 1.2
"Closing Date" 1.2
"COBRA" 91.(o)
"Code" 2.10(b)
"Common Stock" 1.1
"Companies" Party Recitals
"Confidentiality Agreement" 4.1(b)
"Corporate Domestic Subsidiaries" 2.12(a)
"Date hereof" 10.6(e)
"Date of this Agreement" 10.6(e)
"DOJ" 4.4
"Domestic Subsidiaries" 2.12(a)
"EGM" 4.9
"Election" 9.3(f)
"ERISA" 2.3
"Estimated Closing Net Working Capital" 1.4(a)
"Final Closing Net Working Capital" 1.4(c)
"Financial Statements" 2.5(a)
<PAGE>
5
DEFINED TERM SECTION
- ----------------------------------------- --------------
"Foreign Employees" 9.2(a)
"Foreign Section 338 Elections" 9.3(f)
"Foreign Subsidiaries" 2.12(a)
"FTC" 4.4
"GAAP" 2.5(a)
"Governmental Action/Filing" 2.3
"Guarantee Agreement" 10.23
"HSR Act" 2.3
"Indemnification Claim" 7.2(c)
"Indemnification Event" 7.2(c)
"Indemnified Party" 7.2(c)
"Indemnifying Party" 7.2(c)
"Intellectual Property" 2.16(a)
"IRS" 2.10(a)
"KRIAG" Party Recitals
"KRIAG Shares" 1.1
"KRII" Party Recitals
"KRII Savings Plan" 9.1(g)
"Legal Expenses" 7.2(a)
"License Agreement" 6.1I
"London Lease" 4.7
"Machinery and Equipment" 2.14
"March 31 Balance Sheet" 2.5(a)
"Other Tax Reserve" 1.4(c)
"PBGC" 2.3
"Pension Plan" 9.1(i)
"Pre-Closing Period" 9.3(c)
"Pre-Closing Separate Returns" 9.3(b)
"PTO" 2.16(b)
"Purchase Price" 1.1
"Recovery" 7.2(h)
"Release" 6.1F
"Section 338 Forms" 9.3(f)
"Seller's Dispute Notice" 1.4(b)
"Seller's Other Tax Reserve" 1.4(c)
"Seller's Trademarks and Logos" 10.17
"Seller" Party Recitals
"Seller Group" 9.3(a)
"Seller Indemnified Persons" 7.2(b)
<PAGE>
6
DEFINED TERM SECTION
- ----------------------------------------- --------------
"Seller Parent's Affiliated Group" 2.12(a)
"Seller Plans" 9.1(b)
"Shares" 1.1
"Straddle Periods" 9.3(c)
"Tax Returns" 2.12(b)
"Taxes" 2.12(f)
"Technology" 2.16(a)
"Third-Party Claim" 7.2(d)
"U.S. Employees" 9.1(a)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME, THE CONSOLIDATED BALANCE SHEET, THE
CONSOLIDATED STATEMENT OF CASH FLOWS AND THE NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000205520
<NAME> KNIGHT-RIDDER, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-28-1997
<EXCHANGE-RATE> 1
<CASH> 35,849
<SECURITIES> 0
<RECEIVABLES> 431,067
<ALLOWANCES> 16,744
<INVENTORY> 59,029
<CURRENT-ASSETS> 585,375
<PP&E> 1,791,195
<DEPRECIATION> 752,253
<TOTAL-ASSETS> 4,652,023
<CURRENT-LIABILITIES> 605,269
<BONDS> 1,446,846
0
1,755
<COMMON> 1,789
<OTHER-SE> 1,689,776
<TOTAL-LIABILITY-AND-EQUITY> 4,652,023
<SALES> 2,079,662
<TOTAL-REVENUES> 2,079,662
<CGS> 330,185<F1>
<TOTAL-COSTS> 1,734,965
<OTHER-EXPENSES> (197,020)<F2>
<LOSS-PROVISION> 16,605
<INTEREST-EXPENSE> 72,419
<INCOME-PRETAX> 541,717
<INCOME-TAX> 230,935
<INCOME-CONTINUING> 310,782
<DISCONTINUED> (738)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 310,044
<EPS-PRIMARY> 3.08
<EPS-DILUTED> 3.08
<FN>
<F1> COST OF GOODS SOLD CONSISTS OF NEWSPRINT, INK, AND SUPPLEMENTS.
<F2> OTHER EXPENSES CONSISTS OF ALL NON-OPERATING INCOME AND COSTS, NET,
EXCLUDING INCOME TAXES. AMOUNT INCLUDES INTEREST EXPENSE, NET OF INTEREST
INCOME AND OTHER NON-OPERATING COSTS, NET OF NON-OPERATING INCOME.
</FN>
</TABLE>
