<PAGE> 1
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: March 30, 1997
COMMISSION FILE NUMBER: 1-7553
KNIGHT-RIDDER, INC.
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 38-0723657
---------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
ONE HERALD PLAZA, MIAMI, FLORIDA 33132
---------------------------------------------------------------
(Address of principal executive offices)
(305) 376-3800
---------------------------------------------------------------
Registrant's telephone number, including area code)
NOT APPLICABLE
---------------------------------------------------------------
(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 - 91,099,497 shares as of May 4, 1997.
1
<PAGE> 2
Table of Contents for Form 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C> <C>
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 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 12
EXHIBITS 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Statement of Income
(Unaudited, in thousands of dollars, except share data)
<TABLE>
<CAPTION>
Quarter Ended Four Quarters Ended
------------------------------- ---------------------------
Mar. 30 Mar. 31 Mar. 30 Mar. 31
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Newspapers
Advertising
Retail $193,367 $ 182,051 $ 833,084 $ 808,024
General 51,498 46,236 204,059 181,381
Classified 208,516 195,566 785,809 711,163
-------- --------- --------- ---------
Total 453,381 423,853 1,822,952 1,700,568
Circulation 126,855 126,854 501,827 499,577
Other 20,594 20,049 79,519 83,660
-------- --------- --------- ---------
Total Newspapers 600,830 570,756 2,404,298 2,283,805
Business Information Services 78,492 126,905 352,206 491,091
-------- --------- --------- ---------
Total Operating Revenue 679,322 697,661 2,756,504 2,774,896
-------- --------- --------- ---------
OPERATING COSTS
Labor and employee benefits 272,050 283,315 1,071,761 1,131,700
Newsprint, ink and supplements 93,464 126,520 439,151 478,532
Other operating costs 178,400 194,337 702,704 787,898
Depreciation and amortization 37,908 42,877 161,082 156,877
-------- --------- --------- ---------
Total Operating Costs 581,822 647,049 2,374,698 2,555,007
-------- --------- --------- ---------
OPERATING INCOME 97,500 50,612 381,806 219,889
-------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Interest expense (14,935) (19,627) (68,604) (66,798)
Interest expense capitalized 1,792 1,195 6,994 2,839
Interest income 675 2,581 5,553 9,590
Equity in earnings of unconsolidated
companies and joint ventures 868 7,755 22,981 27,465
Minority interests in earnings of
consolidated subsidiaries (2,744) (1,583) (10,580) (8,317)
Other, net 218,413 (97) 389,191 82,317
-------- ---------- --------- ---------
Total 204,069 (9,776) 345,535 47,096
-------- ---------- --------- ---------
Income before income taxes 301,569 40,836 727,341 266,985
Income taxes 126,838 17,318 308,255 111,758
-------- --------- --------- ---------
Net Income $174,731 $ 23,518 $ 419,086 $ 155,227
======== ========= ========= =========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE (1) $ 1.85 $ 0.24 $ 4.35 $ 1.57
======== ========= ========= =========
DIVIDENDS DECLARED
PER COMMON SHARE (1) $ 0.20 $0.18 1/2 $ 0.60 $ 0.74
======== ========= ========= =========
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (000s) (1) 94,683 98,946 96,354 98,992
======== ========= ========= =========
</TABLE>
(1) Amounts have been restated to reflect a two-for-one stock split in the
form of a 100% common stock dividend, effected July 31, 1996.
See "Notes to Consolidated Financial Statements".
3
<PAGE> 4
Consolidated Balance Sheet
(Unaudited, in thousands of dollars, except share data)
<TABLE>
<CAPTION>
Mar. 30 Dec. 29 Mar. 31
1997 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash, including short-term cash
investments of $50 in
1997, December 1996 and
March 1996 $ 24,552 $ 22,880 $ 39,075
Accounts receivable, net of allowances
of $13,714 in 1997, $12,685 in
December 1996 and $14,841 in
March 1996 338,760 356,079 349,136
Inventories 48,313 42,941 93,543
Prepaid expense 33,930 90,314 4,536
Other current assets 45,345 53,513 57,239
----------- ----------- -----------
Total Current Assets 490,900 565,727 543,529
----------- ----------- -----------
INVESTMENTS AND OTHER ASSETS
Equity in unconsolidated
companies and joint
ventures 197,926 330,267 324,342
Other 408,804 184,413 258,637
----------- ----------- -----------
Total Investments and
Other Assets 606,730 514,680 582,979
----------- ----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Land and improvements 77,457 77,526 80,566
Buildings and improvements 392,012 392,477 405,009
Equipment 1,091,785 1,079,593 1,223,586
Construction and equipment
installations in progress 131,723 110,590 84,629
----------- ----------- -----------
1,692,977 1,660,186 1,793,790
Less accumulated depreciation 778,794 757,722 845,109
----------- ----------- -----------
Net Property, Plant and
Equipment 914,183 902,464 948,681
----------- ----------- -----------
EXCESS OF COST OVER NET ASSETS ACQUIRED
Less accumulated amorti-
zation of $230,494 in 1997,
$223,200 in December 1996
and $213,261 in March 1996 910,538 917,439 947,475
----------- ----------- -----------
Total $ 2,922,351 $ 2,900,310 $ 3,022,664
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 136,407 $ 223,962 $ 119,057
Accrued expenses and
other liabilities 102,516 103,730 100,788
Accrued compensation and
amounts withheld from employees 87,150 96,426 82,327
Federal and state income taxes 113,649
Deferred revenue 74,632 70,452 72,856
Dividends payable 18,155
Short-term borrowings and
current portion of long-term debt 50,000 51,366
----------- ----------- -----------
Total Current Liabilities 514,354 544,570 444,549
----------- ----------- -----------
NONCURRENT LIABILITIES
Long-term debt 706,630 771,335 1,002,806
Deferred federal and
state income taxes 161,790 174,019 152,920
Postretirement benefits
other than pensions 147,906 159,267 170,427
Employment benefits and
other noncurrent liabilities 125,770 117,353 125,590
----------- ----------- -----------
Total Noncurrent Liabilities 1,142,096 1,221,974 1,451,743
----------- ----------- -----------
MINORITY INTERESTS IN
CONSOLIDATED SUBSIDIARIES 1,859 2,258 625
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.02 1/12 par
value; shares authorized -
250,000,000; shares issued -
93,330,962 in 1997,
93,340,652 in December 1996
and 98,157,386(1) in March 1996 1,944 1,945 2,044
Additional capital 303,753 308,320 327,214
Retained earnings 974,138 819,572 770,301
Unrealized (losses)/gains on
investments (15,793) 1,671 26,188
----------- ----------- -----------
Total Shareholders' Equity 1,264,042 1,131,508 1,125,747
----------- ----------- -----------
Total $ 2,922,351 $ 2,900,310 $ 3,022,664
=========== =========== ===========
</TABLE>
(1) Amounts have been restated to reflect a two-for-one stock split in the form
of a 100% stock dividend, effected July 31, 1996.
See "Notes to Consolidated Financial Statements."
4
<PAGE> 5
Consolidated Statement of Cash Flows
(Unaudited, in thousands of dollars)
<TABLE>
<CAPTION>
Quarter Ended Four Quarters Ended
--------------------------- --------------------------
Mar. 30 Mar. 31 Mar. 30 Mar. 31
1997 1996 1997 1996
----------- ----------- ----------- ----------
CASH PROVIDED BY (REQUIRED FOR) OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income $ 174,731 $ 23,518 $ 419,086 $ 155,227
Noncash items deducted from (included in) income:
Gains on sales of subsidiaries and investee (221,801) (377,687) (92,698)
Depreciation 24,779 28,695 103,200 106,926
Amortization of excess of cost over
net assets acquired 7,294 7,653 30,029 25,774
Amortization of other assets 5,835 6,529 27,853 24,177
Provision for noncurrent deferred taxes 418 5 39,273 4,509
Earnings of investees in excess of distributions (2,379) (4,051) (19,621) (20,889)
Other items, net 13,328 6,436 7,669 42,883
Change in certain assets and liabilities:
Accounts receivable 17,496 2,707 (28,119) (27,557)
Inventories (5,372) (19,928) 45,030 (43,421)
Other current assets 1,724 5,132 (91,627) 36,039
Accounts payable (88,003) (8,475) 6,723 (29,323)
Federal and state income taxes 113,649 (195) 114,816 (37,675)
Other liabilities (6,463) (23,199) 6,910 (1,634)
---------- --------- ---------- ----------
Net Cash Provided by Operating Activities 35,236 24,827 283,535 142,338
---------- --------- ---------- ----------
CASH PROVIDED BY (REQUIRED FOR) INVESTING ACTIVITIES
Proceeds from the sale of subsidiary and investee 130,654 402,513
Acquisition of Contra Costa Newspapers, Inc. (335,755)
Additions to property, plant and equipment (31,424) (44,511) (113,499) (147,585)
Other items, net 10,448 (9,517) 39,497 46,725
---------- --------- ---------- ----------
Net Cash Provided by (Required for) Investing Activities 109,678 (54,028) 328,511 (436,615)
---------- --------- ---------- ----------
CASH PROVIDED BY (REQUIRED FOR) FINANCING ACTIVITIES
Proceeds from sale of commercial paper
and senior notes payable 68,748 162,539 507,219 1,032,903
Reduction of total debt (183,453) (122,215) (854,763) (544,295)
---------- --------- ---------- ----------
Net Change in Total Debt (114,705) 40,324 (347,544) 488,608
Payment of cash dividends (18,613) (17,978) (74,897) (72,762)
Sale of common stock to employees 19,613 33,235 58,580 100,892
Purchase of treasury stock (25,733) (7,067) (240,434) (174,199)
Other items, net (3,804) (6,250) (22,274) (25,446)
---------- --------- ---------- ----------
Net Cash Provided by (Required for) Financing Activities (143,242) 42,264 (626,569) 317,093
---------- --------- ---------- ----------
Net Increase (Decrease) in Cash 1,672 13,063 (14,523) 22,816
Cash and short-term cash
investments at beginning of the period 22,880 26,012 39,075 16,259
---------- --------- ---------- ----------
Cash and short-term cash
investments at end of the period $ 24,552 $ 39,075 $ 24,552 $ 39,075
========== ========= ========== ==========
Working capital at end of the period $ (23,454) $ 98,980 $ (23,454) $ 98,980
========== ========= ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Noncash investing activities
Securities received as proceeds on the sale of Cable $ 229,163 $ 229,163
</TABLE>
See "Notes to Consolidated Financial Statements".
5
<PAGE> 6
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 and
four quarters ended March 30, 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.
Certain amounts in 1996 have been reclassified to conform to the 1997
presentation.
NOTE 2 - DEBT
<TABLE>
<CAPTION>
(In thousands of dollars)
Effective
Interest Balance At
Rate At ----------------------------------------------
Mar. 30 Mar. 30 Dec. 29 Mar. 31
1997 1997 1996 1996
-------- -------- --------- ----------
<S> <C> <C> <C> <C>
Commercial paper, net of discount 5.5% $250,002 $364,817 $ 597,990
Debentures, net of discount (a) 10.0 198,010 197,968 197,826
Notes payable, net of discount (b) 8.5 159,488 159,445 159,316
Senior notes, net of discount (c) 6.4 99,130 99,105 99,040
-------- --------- ----------
Total debt (d) 7.6 706,630 821,335 1,054,172
Less amounts classified as current 50,000 51,366
-------- --------- ----------
Total long-term debt 7.6% $706,630 $771,335 $1,002,806
======== ========= ==========
</TABLE>
(a) Represents $200 million of 20-year 9 7/8% debentures due in 2009.
(b) Represents $160 million of 8 1/2% notes subject to mandatory pro rata
amortization of 25% annually commencing in 1998 through maturity in
2001.
(c) Represents $100 million of 10-year 6.3% senior notes due in 2005.
(d) At March 30, 1997, and March 31, 1996, interest payments of $12.1
million and $14.3 million had been made for the year-to-date,
respectively.
6
<PAGE> 7
NOTE 3 - ACQUISITIONS AND DISPOSITIONS
On January 10, 1997, the company closed on the previously announced sale of
Knight-Ridder'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 April 4, 1997, Knight-Ridder, Inc. announced its agreement to acquire four
newspapers: The Kansas City Star, The Forth Worth Star Telegram, The
Belleville (Illinois) News Democrat and The Times Leader in Wilkes-Barre,
Pennsylvania from the Walt Disney Company for $1.65 billion. The transaction
will be financed through the issuance of $660 million in Knight-Ridder
convertible preferred stock and the assumption of $990 million of pre-existing
debt.
On April 4, 1997, the company announced that it intends to sell Knight-Ridder
Information, Inc., its online information service for business and professional
users. The company anticipates completing the sale in 1997.
NOTE 4 - INCOME TAX PAYMENTS
Income tax payments for the quarters ended March 30, 1997 and March 31, 1996,
were $741,000 and $3.7 million, respectively.
NOTE 5 - COMMON STOCK AND DIVIDENDS
On June 21, 1996, the Board of Directors declared a two-for-one stock split in
the form of a 100% common stock dividend. All share, per share data and
dividends declared per common share have been restated giving retroactive
effect to the two-for-one stock split effected July 31, 1996.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FIRST QUARTER
FIRST QUARTER 1997 COMPARED WITH FIRST QUARTER 1996
Earnings per share for the first quarter of 1997, excluding a one-time gain,
were $.49, up $.25 per share, or 104.2%, from the $.24 per share earned in
1996. Including a $1.36 per share gain on the sale of Knight-Ridder, Inc.'s
interest in all but one of the jointly owned cable investments with
TeleCommunications, Inc., the company earned $1.85 per share, up $1.61 from the
$.24 per share earned in the same period last year. The $.25 per share
improvement from 1996, which excludes the one-time gain, was due to: a 7.0%
increase in advertising revenue; a 31.0% decline in the average price of
newsprint; and continued improvement in Detroit, which was profitable for the
second quarter in a row.
OPERATING REVENUE
Newspaper advertising revenue increased 7.0% over the first quarter last year,
on a full-run ROP linage increase of 6.1%. This reflected improvement in all
advertising revenue categories.
Classified advertising revenue increased $13.0 million, or 6.6%, over the first
quarter last year, on a 7.1% full-run ROP linage increase. The employment
category showed the largest gain, posting a 16.0% revenue improvement, with
linage up 19.9% from 1996. Philadelphia was especially strong, with classified
revenue up 18.7% from first quarter last year.
Retail advertising revenue improved by $11.3 million, or 6.2%, over last year.
During the first quarter of 1997, ten of our 11 largest markets posted gains in
the mid single digits to high double digits. While drivers of this growth
varied a bit from market to market, it is notable that the large department
stores were strong in Miami, San Jose, Charlotte and Contra Costa.
General advertising revenue was up $5.3 million, or 11.4%, from last year.
Each of our five largest markets reflected double digit gains from first
quarter 1996.
Circulation revenue was flat with first quarter 1996, on a 1.6% decline in
average seven-day circulation, offset by a 1.6% increase in the average rate.
Other newspaper revenue increased by $545,000, or 2.7%, from the prior year.
The increase was due to growth in commercial print, special publications and
other augmentation revenue.
BIS revenue in the first quarter decreased $48.4 million, or 38.1%, reflecting
the absence of Knight-Ridder Financial (KRF), which was sold on July 26, 1996.
Excluding KRF from 1996, operating revenue was down 3.4% from the prior year due
to Knight-Ridder Information (KRII). KRII fell below expectations due primarily
to the strong dollar in 1997, which resulted in an unfavorable foreign currency
translation on revenues from European operations. The deterioration of
CompuServe as a strong vendor for KRII products also impacted its operating
results. Technimetrics had a strong first quarter.
8
<PAGE> 9
OPERATING COSTS
Labor and employee benefit costs decreased $11.3 million, or 4.0%, reflecting
the absence of KRF. Excluding KRF costs from 1996, labor and employee benefit
costs increased 2.8%, on a 0.2% increase in the workforce and a 3.9% increase
in the average wage rate.
Newsprint, ink and supplement costs decreased $33.1 million, or 26.1%, on a
31.0% decrease in the average newsprint price, offset by a 2.5% increase in
consumption.
Other operating costs declined $15.9 million, or 8.2%, from first quarter 1996,
again reflecting the absence of KRF. Excluding KRF, other operating costs rose
only 2.8% from the prior year due to good cost controls.
Depreciation and amortization decreased $5.0 million, or 11.6%, from first
quarter 1996, primarily due to the absence of KRF. Excluding KRF, depreciation
and amortization increased $1.5 million, or 4.3%, from 1996, primarily due to
reengineering initiatives and the amortization of software costs in the BIS
Division.
NON-OPERATING ITEMS
Interest expense, net of interest income and interest expense capitalized,
decreased $3.4 million from last year due to lower debt levels during the
quarter. The average debt balance for the quarter decreased $277.3 million from
the first quarter of last year, due largely to the proceeds from both the cable
sale, which closed during the first quarter of 1997 and the KRF sale which
closed in the third quarter of 1996.
Equity in earnings of unconsolidated companies and joint ventures decreased by
$6.9 million, primarily due to our newsprint mill investments which were
negatively impacted by the decline in the price of newsprint compared to the
prior year.
The "Other, net" line of the non-operating section reflects a $218.5 million
increase over 1996 as a result of the sale of Knight-Ridder'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. The
pretax and after tax gains from the sale of our cable investment were $221.8
million and $128.3 million, respectively.
The effective tax rate was 42.1%, compared with 42.4% in the first quarter of
1996. The decrease was primarily a result of a shift in income earned to
states with lower income tax rates.
OTHER
In April, severe flooding damaged the Grand Forks area, resulting in
significant property damage; however, we anticipate no significant adverse
financial impact on the Grand Forks Herald because of our insurance coverage.
On April 4, 1997, we announced our agreement to acquire four newspapers: The
Kansas City Star, The Forth Worth Star Telegram, The Belleville (Illinois) News
Democrat and The Times Leader in Wilkes-Barre, Pennsylvania from the Walt
Disney Company for $1.65 billion. The transaction will be financed through the
issuance of $660 million in Knight-Ridder convertible preferred stock and the
assumption of $990 million of pre-existing debt.
9
<PAGE> 10
During the first quarter of 1997, the company purchased 660,200 shares of
Knight-Ridder common stock. In the second quarter, through May 1st, the company
repurchased an additional 2.1 million shares and has authorization to repurchase
approximately 13 million additional shares.
LIQUIDITY
Net cash provided by operating activities increased to $35.2 million from $24.8
million in the first quarter of 1996. The increase was attributed to higher
earnings, as well as changes in several working capital components. Net cash
provided by investing activities increased $163.7 million from the first quarter
of 1996. The company received $360 million on the sale of its cable investments
in the first quarter of 1997, consisting of $131 million in cash and TCI stock
with an aggregate market value of $229 million. The TCI securities are included
on the balance sheet in "Other" (under investments and other assets). Cash and
short term cash investments were down $14.5 million from March 31, 1996, and up
$1.7 million from year end. Total debt decreased $114.7 million during the
quarter due to the use of the cable sale proceeds, and decreased $347.5 million
from March 31, 1996, due to the application of both the cable sale proceeds and
the KRF sale proceeds in the third quarter of 1996.
Total-debt-to-total-capital ratio was 35.9%, down from 42.1% at year end and
48.4% in March 1996. The company's existing indebtedness will increase as a
result of the acquisition of the four Walt Disney newspapers, but the company
intends to reduce debt levels through the proposed sale of KRII and strong cash
flow from operations. Approximately $400 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 March 30, 1997 and December 29, 1996, and 1.2:1
at March 31, 1996.
OUTLOOK FOR THE REMAINDER OF THE YEAR
As we look ahead to the second quarter and the year, we anticipate advertising
growth will be moderately above the prior year, although not as robust as in
the first quarter. While we expect some increase in the cost of newsprint
going forward, we still anticipate that the average price of newsprint for the
year will be below 1996 by about 15%.
We believe that we will be able to report record earnings for the year, despite
dilution from the Disney acquisition and excluding one-time gains.
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.
10
<PAGE> 11
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on April 15,
1997. The results of the voting with respect to matters presented at
the Annual Meeting were as follows:
(b) Election of Directors and Continuing Directors.
<TABLE>
<CAPTION>
Common Stock Voted
----------------------------------------------------------
For Against Withheld
--- ------- --------
<S> <C> <C> <C> <C>
Election of Directors for a three-year term ending 2000:
Alvah H. Chapman, Jr. 79,402,606 0 2,998,098
Peter C. Goldmark, Jr. 72,556,610 0 9,844,094
Barbara Barnes Hauptfuhrer 79,508,467 0 2,892,237
M. Kenneth Oshman 79,538,321 0 2,862,383
John L. Weinberg 78,683,711 0 3,716,993
Continuing Directors:
James I. Cash, Jr.
Joan Ridder Challinor
John C. Fontaine
Jesse Hill, Jr.
C. Peter McColough
Thomas L. Phillips
P. Anthony Ridder
Randall L. Tobias
Gonzalo F. Valdes-Fauli
</TABLE>
(c) Ratify the appointment of Ernst & Young LLP as independent auditors of
the company for the year 1997. There were no broker non-votes.
<TABLE>
<CAPTION>
Common Stock Voted
---------------------------------------------------
For Against Abstained
--- ------- ---------
<S> <C> <C>
82,215,680 85,221 99,803
</TABLE>
Ratify the proposal recommended by the Board of Directors to adopt a
Long-Term Incentive Plan. There were no broker non-votes.
<TABLE>
<CAPTION>
Common Stock Voted
---------------------------------------------------
For Against Abstained
--- ------- ---------
<S> <C> <C>
77,330,680 4,799,766 270,258
</TABLE>
11
<PAGE> 12
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed
No. 2 - Acquisition Agreement between ABC, Inc. and
Knight-Ridder, Inc.
No. 3(ii) - Bylaws of Knight-Ridder, Inc.
No. 10 - Knight-Ridder, Inc. Long-Term Incentive Plan
No. 27 - Financial Data Schedule
No. 99 - Additional Exhibits
(b) Reports on Form 8-K
Form 8-K dated January 10, 1997
Item 2. Disposition of Assets
Item 7. Financial Statements and Exhibits.
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: May 9, 1997 /s/ Gary R. Effren
-----------------------------------
Gary R. Effren
Vice President/Controller
(Chief Accounting Officer and Duly
Authorized Officer of Registrant)
12
<PAGE> 1
EXHIBIT 2
EXECUTION COPY
ACQUISITION AGREEMENT
dated as of
April 4, 1997
by and between
ABC, Inc.
and
Knight-Ridder, Inc.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
RECITALS .......................................................................... 1
ARTICLE I DEFINITIONS.................................................. 2
Section 1.1 Defined Terms................................................ 2
Section 1.2 Other Terms.................................................. 6
ARTICLE II THE ACQUISITION.............................................. 7
Section 2.1 The Acquisition.............................................. 7
Section 2.2 The Consideration............................................ 7
Section 2.3 The Closing.................................................. 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY...................................................... 7
Section 3.1 Organization and Qualification............................... 7
Section 3.2 Capitalization............................................... 8
Section 3.3 Authorization and Validity of Agreement...................... 8
Section 3.4 Consents and Approvals....................................... 9
Section 3.5 No Violation................................................. 9
Section 3.6 Financial Statements......................................... 9
Section 3.7 Compliance with Law; Environmental Matters................... 10
Section 3.8 Litigation................................................... 10
Section 3.9 Employee Benefit Matters..................................... 10
Section 3.10 Taxes........................................................ 11
Section 3.11 Intellectual Property........................................ 12
Section 3.12 Contracts.................................................... 12
Section 3.13 Labor Matters................................................ 12
Section 3.14 Brokers and Finders.......................................... 12
Section 3.15 Absence of Certain Changes................................... 12
Section 3.16 Assets....................................................... 12
Section 3.17 Acquisition for Investment................................... 13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
ACQUIROR..................................................... 13
Section 4.1 Organization and Qualification............................... 13
Section 4.2 Capitalization............................................... 13
Section 4.3 Authorization and Validity of Agreement...................... 14
Section 4.4 Consents and Approvals....................................... 14
Section 4.5 No Violation................................................. 15
Section 4.6 SEC Reports; Financial Statements............................ 15
</TABLE>
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Section 4.7 Compliance with Law.......................................... 15
Section 4.8 Litigation................................................... 16
Section 4.9 Employee Benefit Matters..................................... 16
Section 4.10 Taxes........................................................ 17
Section 4.11 Contracts.................................................... 18
Section 4.12 Labor Matters................................................ 18
Section 4.13 Brokers and Finders.......................................... 18
Section 4.14 Absence of Certain Changes................................... 19
ARTICLE V COVENANTS OF THE COMPANY..................................... 19
Section 5.1 Conduct of the Company....................................... 19
Section 5.2 Taxes........................................................ 21
Section 5.3 Certain Debt................................................. 21
Section 5.4 Financial Statements......................................... 21
ARTICLE VI COVENANTS OF ACQUIROR........................................ 22
Section 6.1 Conduct of Acquiror.......................................... 22
Section 6.2 Taxes........................................................ 22
Section 6.3 Company Names................................................ 24
Section 6.4 Compensation and Benefits.................................... 24
ARTICLE VII COVENANTS OF ACQUIROR AND THE COMPANY........................ 24
Section 7.1 Access to Information........................................ 24
Section 7.2 Efforts...................................................... 25
Section 7.3 Certain Filings.............................................. 25
Section 7.4 Public Announcements......................................... 25
Section 7.5 Filing of Tax Returns and Payment of Taxes................... 26
Section 7.6 Apportionment................................................ 27
Section 7.7 Cooperation and Books and Records............................ 27
Section 7.8 Notice of Audit.............................................. 27
Section 7.9 Certain Rights and Obligations Subsequent to Closing......... 27
Section 7.10 Tax Contests................................................. 30
Section 7.11 Notices of Certain Events.................................... 31
Section 7.12 Employee Benefit Plans....................................... 31
Section 7.13 Implied Warranties........................................... 31
ARTICLE VIII CONDITIONS TO THE ACQUISITION................................ 32
Section 8.1 Conditions to Obligations of Each Party to Effect the
Acquisition.................................................. 32
Section 8.2 Conditions Precedent to the Obligations of the
Company...................................................... 32
Section 8.3 Conditions Precedent to the Obligations of Acquiror.......... 34
</TABLE>
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ARTICLE IX TERMINATION................................................. 35
Section 9.1 Termination................................................. 35
Section 9.2 Effect of Termination....................................... 35
ARTICLE X MISCELLANEOUS............................................... 36
Section 10.1 Nonsurvival of Representations, Warranties and
Covenants................................................... 36
Section 10.2 Notices..................................................... 36
Section 10.3 Entire Agreement............................................ 37
Section 10.4 Assignment; Binding Effect.................................. 37
Section 10.5 Fees and Expenses........................................... 37
Section 10.6 Amendments.................................................. 38
Section 10.7 Waiver...................................................... 38
Section 10.8 Severability................................................ 38
Section 10.9 Captions.................................................... 38
Section 10.10 Counterparts................................................ 38
Section 10.11 Governing Law............................................... 38
Section 10.12 Limitations of Remedies..................................... 39
</TABLE>
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ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT ("Agreement") is made and entered into this
4th day of April, 1997, by and between ABC, Inc., a New York corporation (the
"Company"), and Knight-Ridder, Inc., a Florida corporation ("Acquiror").
RECITALS
WHEREAS, the Boards of Directors of Acquiror and the Company have
approved, and deem it advisable and in the best interests of their respective
stockholders that Acquiror acquire, and the Company divest itself of, certain
publishing businesses of the Company, which businesses are owned by ABC Media,
Inc., a New York corporation and a wholly owned subsidiary of the Company
("Media"), pursuant to the terms and conditions set forth in this Agreement; and
WHEREAS, Acquiror and the Company are unwilling to consummate
Acquiror's acquisition of all of the outstanding shares of the common stock, par
value $.01 per share, of Media (the "Media Common Stock") from the Company
unless and until Media divests itself of certain businesses and other assets
that are currently owned directly and indirectly by Fairchild Publications,
Inc., a Connecticut corporation and a wholly owned subsidiary of Media (together
with its Subsidiaries, "Fairchild") and Imprint, Inc., a Delaware corporation
and a wholly owned subsidiary of Media ("Imprint"); and
WHEREAS, the Boards of Directors of Acquiror and the Company have
approved, and deem it advisable and in the best interests of their respective
stockholders to consummate, the transactions contemplated by this Agreement; and
WHEREAS, it is the intention of the parties that, for federal income
tax purposes, (i) the distribution by Media of all of the stock of Fairchild
(which, at that time, will own all of the outstanding stock of Imprint) to the
Company will constitute a wholly tax-free distribution under Section 355 and/or
Section 361 of the Internal Revenue Code of 1986, as amended (the "Code"), with
respect to which no gain or loss is recognized and no amount will be included in
income and (ii) the exchange of all of the Media Common Stock solely in
consideration for shares of Series B Voting Preferred Stock, par value $1.00 per
share (the "Series B Preferred Stock"), of Acquiror (the "Acquisition") will
qualify as a "reorganization," with respect to which no gain or loss is
recognized, within the meaning of Section 368(a)(1)(B) of the Code; and
WHEREAS, Acquiror and the Company desire to make, and have relied upon,
certain representations, warranties, covenants and agreements in connection with
the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. When used in this Agreement, the following
terms shall have the meanings set forth in this Article I. All article and
section numbers used in this Agreement refer to articles and sections of this
Agreement unless otherwise specifically described:
"ACQUIROR BENEFIT PLANS" means all employee benefit plans and other
benefit arrangements covering employees of Acquiror, other than multiemployer
plans (as defined in Section 3(37) of ERISA).
"ACQUIROR BY-LAWS" means the by-laws of Acquiror, as amended.
"ACQUIROR CHARTER" means the Articles of Incorporation of Acquiror, as
amended.
"ACQUIROR DISCLOSURE SCHEDULE" means the Disclosure Schedule delivered
by Acquiror to the Company simultaneously with the execution and delivery of
this Agreement.
"ACQUIROR SEC DOCUMENTS" means all reports, schedules, forms,
statements and other documents required to be filed by Acquiror with the SEC
under the Securities Act and the Exchange Act since January 1, 1995.
"ADVERSE TAX DEVELOPMENT" means, on or after the date hereof, the
enactment of any legislation; the passage of any bill by either house of
Congress; the action or announcement of proposed action with respect to, or
consideration of, proposed legislation by any congressional committee or member
thereof; the introduction of legislation by any member of Congress; the
announcement by any member of Congress of an intent to introduce legislation;
the announcement by the Executive branch of an intent to propose legislation;
any announcement or notice by the IRS or the Department of Treasury, including
the issuance of any ruling or the proposal or adoption of any regulation; and
any similar action, event or development that may or will result in the
imposition of a material amount of federal income tax on the Company, Media,
Fairchild or any of their respective Subsidiaries or Affiliates in respect of
the transactions contemplated hereby.
"AFFILIATE" means, with respect to any specified Person, a person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, such specified Person, including,
without limitation, each Subsidiary. Prior to the Closing, Media and its
Subsidiaries will be Affiliates of the Company but not of Acquiror or any of its
Affiliates. Following the Closing, Media and its Subsidiaries will be Affiliates
of Acquiror but not of the Company or any of its Affiliates.
"AVERAGE TRADING PRICE" means the average of the high and low sales
prices of Acquiror Common Stock as reported on the NYSE Composite Tape on each
of the 15 consecutive trading days immediately preceding the fifth trading day
prior to the Closing Date.
"COMPANY BY-LAWS" means the by-laws of the Company, as amended.
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<PAGE> 7
"COMPANY CHARTER" means the Certificate of Incorporation of the
Company, as amended.
"COMPANY DISCLOSURE SCHEDULE" means the Disclosure Schedule delivered
by the Company to Acquiror simultaneously with the execution and delivery of
this Agreement.
"CONTRACT" means any written note, bond, mortgage, indenture, lease,
contract, agreement, obligation or commitment.
"CREDIT AGREEMENT" means the agreement relating to the indebtedness
described in Section 5.3 hereof.
"ENVIRONMENTAL LAWS" means any applicable federal, state, local or
foreign law, treaty, judicial decision, regulation, rule, judgment, order,
decree, injunction, permit or governmental restriction, each as in effect on or
prior to the Closing Date, relating to the environment, safety or health or to
any Hazardous Substance.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any entity which, together with the Company or
Acquiror, as the case may be, would be treated as a single employer under
Section 414(b) or (c) of the Code.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"FINAL DETERMINATION" means the final resolution of liability for any
Tax for a Taxable Period, including any related interest or penalties, (i) by
IRS Form 870 or 870-AD (or any successor forms thereto), on the date of
acceptance by or on behalf of the IRS, or by a comparable form under the laws of
other jurisdictions; except that a Form 870 or 870-AD or comparable form that
reserves (whether by its terms or by operation of law) the right of the taxpayer
to file a claim for refund or the right of the Taxing Authority to assert a
further deficiency shall not constitute a Final Determination; (ii) by a
decision, judgment, decree or other order by a court of competent jurisdiction,
which has become final and unappealable; (iii) by a closing agreement or
accepted offer in compromise under Section 7121 or 7122 of the Code, or
comparable agreements under the laws of other jurisdictions; (iv) by any
allowance of a refund or credit in respect of an overpayment of Tax, but only
after the expiration of all periods during which such refund may be recovered
(including by way of offset) by the Tax imposing jurisdiction; or (v) by any
other final disposition, including by reason of the expiration of the applicable
statute of limitations.
"GAAP" means United States generally accepted accounting principles.
"GOVERNMENTAL ENTITY" means any government or any court, arbitral
tribunal, administrative agency or commission or other governmental or other
regulatory authority or agency, federal, state, local or foreign.
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<PAGE> 8
"HAZARDOUS SUBSTANCE" means any substance, waste or material (including
petroleum, its derivatives, by-products and other hydrocarbons) that is listed
or defined as toxic, radioactive or hazardous by, and is regulated under, any
Environmental Law.
"INTELLECTUAL PROPERTY" means domestic and foreign patents, patent
applications, inventions, invention disclosures, trademark and service mark
applications, registered trademarks, registered service marks, copyrights,
trademarks, service marks, trade names, material trade secrets, know-how,
formulae and processes and all other similar items of intellectual property.
"INTERIM PERIOD" means, with respect to any Taxable Period that begins
on or before the Closing Date and ends after the Closing Date, the portion of
such period that ends on the Closing Date.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" means the actual knowledge of the officers of the relevant
entity.
"LIEN" means any adverse claim, restriction on voting or transfer or
pledge, lien, charge, encumbrance, defect in title, easement, covenant,
right-of-way, other matter of record and other matters subject to which the
leases of facilities are granted, or any other security interest of any kind.
"MEDIA BENEFIT PLANS" means all employee benefit plans and other
benefit arrangements covering employees of Media or its Subsidiaries, other than
multiemployer plans (as defined in Section 3(37) of ERISA).
"MEDIA BY-LAWS" means the by-laws of Media, as amended.
"MEDIA CHARTER" means the Certificate of Incorporation of Media, as
amended.
"NET WORTH AMOUNT" means the Shareholders Equity as reflected on the
Publishing Business Balance Sheet.
"NYSE" means The New York Stock Exchange, Inc.
"OTHER FILINGS" means any filings required to be filed by the Company
or Acquiror with any Governmental Entity under the Securities Act, the Exchange
Act, any stock exchange rule or any other federal, state, local or foreign laws
in connection with the transactions contemplated hereby.
"PERMIT" means any license, franchise, permit, consent, concession,
order, approval, authorization or registration from, of or with a Governmental
Entity.
"PERMITTED LIENS" means any Liens (i) reflected or referred to in the
Publishing Business Balance Sheet or the notes thereto (in the case of the
Company) or in the financial statements contained in the Acquiror SEC Documents
(in the case of Acquiror), (ii) referred to in the Company Disclosure Schedule
or the Acquiror Disclosure Schedule, as the case may be, (iii) for Taxes that
are (a) not yet due or payable or delinquent or (b) being contested in good
faith, (iv) that constitute mechanics', carriers', workers' or like liens or (v)
that, individually or
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<PAGE> 9
in the aggregate, would not have a Material Adverse Effect (as defined in
Section 3.1) on Media and its Subsidiaries, taken as a whole, or Acquiror and
its Subsidiaries, taken as a whole, as the case may be.
"PERSON" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a Governmental Entity.
"PRE-CLOSING PERIOD" means any Taxable Period, or portion thereof, that
ends on or before the Closing Date.
"PRIOR CONTRIBUTIONS" means the prior transfers of assets by Media
described in Exhibit A hereto.
"PRIOR MERGERS" means the prior transfers of assets to Media in
statutory mergers described in Exhibit B hereto.
"PRIOR TRANSACTIONS" means the Prior Mergers and the Prior
Contributions.
"PUBLISHING BUSINESS" means the businesses and operations that will be
conducted by Media and its Subsidiaries, after giving effect to the Spinoff at
the Closing Date, as set forth on Exhibit C hereto, including the online, cable
book and alternate delivery businesses relating to those businesses and
operations set forth on Exhibit C hereto.
"PUBLISHING BUSINESS BALANCE SHEET" means the pro forma unaudited
combined statements of assets and liabilities as of December 31, 1996 for the
Publishing Business.
"PUBLISHING BUSINESS FINANCIAL STATEMENTS" means the Publishing
Business Balance Sheet and the pro forma unaudited statements of combined
operating income for the year ended December 31, 1996 for the Publishing
Business.
"RETAINED LITIGATION" means the following matters: (i) Capital Cities
v. Ratcliff and Hutsell v. The Kansas City Star Company, (ii) Richard Connor v.
Philip Meeks, The Walt Disney Company, ABC, Inc., Capital Cities/ABC, Inc.,
Robert Iger and Richard Connor v. Star-Telegram Operating Ltd., Star-Telegram
Newspaper, Inc., Robert Woodworth, Wanda Williams and Wesley Turner and (iii)
Cunningham v. The Kansas City Star Company and Capital Cities/ABC, Inc.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SERIES B PREFERRED STOCK VALUE" means the product of (x) 10 and (y)
the Average Trading Price of Acquiror Common Stock. Notwithstanding the
foregoing, if the Average Trading Price (i) is less than $37.00, then Series B
Preferred Stock Value will be $370.00 or (ii) is greater than $44.75, then the
Series B Preferred Stock Value will be $447.50.
"SHORT PERIOD" means any Taxable Period that ends on the Closing Date.
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<PAGE> 10
"SPINOFF" means the distribution of all of the stock of Fairchild
(which, at that time, will own all of the stock of Imprint) by Media to the
Company in a transaction intended to qualify as a wholly tax-free distribution
under Section 355 and Section 361 of the Code.
"SUBSIDIARY" means, with respect to any Person, any corporation,
limited liability company or partnership of which such Person owns, either
directly or through its Subsidiaries or Affiliates, more than 50% of (i) the
total combined voting power of all classes of voting securities of such
corporation or (ii) the capital or profit interests therein in the case of a
partnership; provided, however, that, with respect to Media, "Subsidiary" shall
not include Fairchild or Imprint or any entity which, as of the Closing Date, is
a Subsidiary of Fairchild or Imprint.
"TAX" (including with correlative meaning, the terms "TAXES" and
"TAXABLE") means all forms of taxation, whenever created or imposed, whether
imposed by a local, municipal, state, foreign, federal or other governmental
body or authority, and, without limiting the generality of the foregoing, shall
include income, gross receipts, ad valorem, excise, value-added, sales, use,
transfer, franchise, license, stamp, occupation, withholding, employment,
payroll, property or environmental tax or premium, together with any interest,
penalty, addition to tax or additional amount imposed by any governmental body
or authority responsible for the imposition of any such tax (a "TAXING
AUTHORITY").
"TAX BENEFIT" means the amount of the reduction in the liability for
Taxes (including through recoveries of Taxes through the carryover of net
operating losses or reductions in Taxes attributable, in whole or in part, to
basis adjustments) as a result of the payment or accrual by any person of any
loss, expense, other amount or Tax.
"TAX COST" means the amount of the increase in an indemnified party's
liability for Taxes (including decreases in Tax refunds and credits) as a result
of the receipt or accrual of any indemnification for any loss, expense or Tax.
"TAXABLE PERIOD" means any taxable year or any other period that is
treated as a taxable year (including any Short Period or Interim Period) with
respect to which any Tax may be imposed under any applicable statute, rule or
regulation.
"TAX RETURN" means any return, report, statement, information statement
and the like required to be filed with any Taxing Authority.
"TERMINATION DATE" means September 30, 1997.
Section 1.2 Other Terms. Other terms may be defined elsewhere in this
Agreement and, for the purposes of this Agreement, those other terms shall have
the meanings specified in those other portions unless the context requires
otherwise. Meanings specified in this Agreement shall be applicable to both the
singular and plural forms of such terms and to the masculine, feminine and
neuter genders, as the context requires.
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ARTICLE II
THE ACQUISITION
Section 2.1 The Acquisition. Subject to the terms and conditions set
forth herein, at the Closing (as defined in Section 2.3), the Company shall
transfer, assign and deliver to Acquiror, and Acquiror shall acquire from the
Company, 1,200 shares of Media Common Stock, free and clear of all Liens,
representing all issued and outstanding shares of Media Common Stock, solely in
exchange for the Consideration (as defined below).
Section 2.2 The Consideration. The consideration for all of the issued
and outstanding shares of Media Common Stock will be solely shares of Series B
Preferred Stock (the "Consideration").
Section 2.3 The Closing. (a) The closing of the transactions
contemplated hereby (the "Closing") shall take place at the offices of the
Company, or such other place as the Company and Acquiror may mutually agree on
the second business day after the satisfaction or waiver of the last of the
conditions required to be satisfied or waived pursuant to Article VIII hereof
(other than those requiring the delivery of a certificate or other document, or
the taking of other action, at the Closing), or such other date as the Company
and Acquiror may mutually agree in writing (the "Closing Date").
(b) At the Closing, (i) the Company shall deliver stock certificates
representing all of the outstanding shares of Media Common Stock, duly endorsed
or accompanied by duly executed stock powers in blank having all necessary
transfer stamps attached thereto against payment of the Consideration by
Acquiror, (ii) Acquiror shall deliver a stock certificate or certificates
representing shares of Series B Preferred Stock with an aggregate Series B
Preferred Stock Value of $660 million and (iii) the Company, Media and Acquiror
shall execute, deliver and acknowledge, or cause to be executed, delivered and
acknowledged, such certificates and other documents related to the consummation
of the transactions contemplated hereby as may be reasonably requested by the
parties hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Acquiror as follows:
Section 3.1 Organization and Qualification. Each of the Company, Media
and Media's Subsidiaries (i) is duly incorporated or organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
organization, (ii) has the requisite corporate or partnership power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted and (iii) is in good standing and duly qualified to
do business in each jurisdiction in which the transaction of its business or the
nature of the property owned or leased by it makes such qualification necessary,
except where the failure to be so qualified and in good standing or to have such
power or authority would not have a material adverse effect on the business,
results of operations or financial condition ("Material Adverse Effect") of
Media and its Subsidiaries, taken as a whole; provided, that assets or
properties
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transferred pursuant to Section 5.1(l) hereof shall not be taken into account
for purposes of determining whether there has occurred a Material Adverse Effect
on Media and its Subsidiaries, taken as a whole. True and complete copies of the
Company Charter, the Media Charter, the articles of incorporation, certificate
of formation or limited partnership agreements, as the case may be, of Media's
Subsidiaries and the Company By-Laws, the Media By-Laws and the bylaws and
limited liability company agreements, as the case may be, of Media's
Subsidiaries, each as amended to date and currently in full force and effect,
have been made available to Acquiror. At the Closing and following the Spinoff,
the only Subsidiaries of Media will be Quad County Publishing, Inc., Star
Telegram Operating, Ltd. and ABC Media, LLC.
Section 3.2 Capitalization. (a) As of the Closing Date, the authorized
capital stock of Media will consist of 5,000 shares of Media Common Stock and
300 shares of Preferred Stock, par value $1.00, of Media (the "Media Preferred
Stock"). There are (i) 1,200 shares of Media Common Stock issued and outstanding
and no shares of Media Common Stock held in treasury, (ii) no shares of Media
Common Stock reserved for issuance pursuant to outstanding stock options and no
shares of Media Common Stock reserved for issuance in respect of future grants
of stock options and (iii) no shares of Media Preferred Stock issued and
outstanding. All outstanding shares of Media Common Stock are validly issued,
fully paid and nonassessable and are not subject to preemptive rights and have
not been issued in violation of any applicable securities laws. There are no
outstanding subscriptions, options, warrants, calls, convertible securities,
rights, commitments or any other agreements to which either the Company, Media,
any of Media's Subsidiaries or any other person is a party or by which the
Company, Media, any of Media's Subsidiaries or any other person is bound which
obligate the Company, Media or Media's Subsidiaries to (i) issue, deliver or
sell or cause to be issued, delivered or sold any additional shares of Media
Common Stock or any other capital stock of Media or capital stock of, or
membership or partnership interest in, Media's Subsidiaries or any other
securities convertible into, or exercisable or exchangeable for, or evidencing
the right to subscribe for, any such shares of Media Common Stock or any other
capital stock of Media or capital stock of, a membership or partnership interest
in, Media's Subsidiaries or (ii) purchase, redeem or otherwise acquire any
shares of Media Common Stock or any other capital stock of Media or capital
stock of, a membership or partnership interest in, Media's Subsidiaries.
(b) The Company owns of record and beneficially, directly or
indirectly, and will transfer to Acquiror at the Closing, valid, good and
marketable title to, all of the outstanding shares of, or other equity interests
in, Media free and clear of all Liens.
(c) All of the shares of capital stock, membership and partnership
interests of Media's Subsidiaries are owned directly or indirectly by Media free
and clear of all Liens, except the membership interests in ABC Media, LLC, which
shall be subject to a pledge, as described in the Credit Agreement.
Section 3.3 Authorization and Validity of Agreement. The Company has
the requisite corporate power and authority to execute and deliver this
Agreement and the Registration Rights Agreement and to consummate the
transactions contemplated hereby and thereby in accordance with the terms hereof
and thereof. The Company's Board of Directors has duly authorized the execution,
delivery and performance of each of this Agreement and the Registration Rights
Agreement by the Company, and no other corporate proceedings on the part of the
Company or its shareholder are necessary to authorize this Agreement or the
Registration Rights Agreement or the transactions contemplated hereby or
thereby. This Agreement has been,
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and at the Closing the Registration Rights Agreement will be, duly executed and
delivered by the Company and, assuming this Agreement constitutes, and at
Closing the Registration Rights Agreement will constitute, the legal, valid and
binding obligation of Acquiror, this Agreement constitutes, and at Closing, the
Registration Rights Agreement will constitute, the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
their respective terms, except as enforceability may be limited by any
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally or
by general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
Section 3.4 Consents and Approvals. Neither the execution and delivery
of this Agreement or the Registration Rights Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby and thereby
will require on the part of the Company or any of its Affiliates any consent,
approval, authorization or permit of, or filing with, or notification to, any
Governmental Entity, except (i) for any applicable filings required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) as set forth in Section 3.4 of the Company Disclosure Schedule or
(iii) where the failure to obtain such consent, approval, authorization or
permit, or to make such filing or notification, would not have a Material
Adverse Effect on Media and its Subsidiaries, taken as a whole, or prevent the
consummation of the transactions contemplated hereby and thereby.
Section 3.5 No Violation. Except as set forth in Section 3.5 of the
Company Disclosure Schedule, neither the execution and delivery of this
Agreement or the Registration Rights Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby and thereby,
will (i) conflict with or violate the Company Charter or the Media Charter or
the Company ByLaws or the Media By-Laws, (ii) result in a violation or breach
of, constitute a default (with or without notice or lapse of time, or both)
under, give rise to any right of termination, cancellation or acceleration of,
or result in the imposition of any Lien on any assets or property of the
Publishing Business pursuant to any Contract or other obligation to which the
Company, Media or its Subsidiaries is a party or by which the Company, Media,
its Subsidiaries or any of their respective assets or properties are bound,
except for such violations, breaches and defaults (or rights of termination,
cancellation or acceleration or Lien) as to which requisite waivers or consents
have been obtained or which would not have a Material Adverse Effect on Media
and its Subsidiaries, taken as a whole, or prevent the consummation of the
transactions contemplated hereby or thereby or (iii) assuming the consents,
approvals, authorizations or permits and filings or notifications referred to in
Section 3.4 and this Section 3.5 are duly and timely obtained or made, violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
the Company, Media or its Subsidiaries, or any of their respective assets or
properties, except for such conflicts, violations, breaches or defaults which
would not in the aggregate have a Material Adverse Effect on the Company, or
Media and its Subsidiaries, taken as a whole, or prevent the consummation of the
transactions contemplated hereby or thereby.
Section 3.6 Financial Statements. The Publishing Business Financial
Statements are set forth in Section 3.6 of the Company Disclosure Schedule. The
Publishing Business Balance Sheet (including any related notes and schedules
thereto) fairly presents in all material respects the combined financial
position of the Publishing Business as of its date, and the statement of
combined income included in the Publishing Business Financial Statements
(including any related notes and schedules thereto) fairly present, in all
material respects, the combined
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results of operations of the Publishing Business for the period set forth
therein, in each case in accordance with generally accepted accounting
standards. The Publishing Business Financial Statements may not necessarily be
indicative of the financial position or results of operations that would have
existed if the Publishing Business had operated as a stand-alone company.
Section 3.7 Compliance with Law; Environmental Matters. Except as set
forth in Section 3.7 of the Company Disclosure Schedule, neither Media nor any
of its Subsidiaries is in violation of any applicable statute, rule, regulation,
decree or order of any Governmental Entity applicable to Media or its
Subsidiaries, except for violations which would not have a Material Adverse
Effect on Media and its Subsidiaries, taken as a whole. Without limiting the
foregoing, except for matters which would not have a Material Adverse Effect on
Media and its Subsidiaries, taken as a whole, or as set forth in Section 3.7 of
the Company Disclosure Schedule, (i) the businesses of Media and its
Subsidiaries are being conducted in compliance with applicable Environmental
Laws and (ii) to the knowledge of the Company, Media and its Subsidiaries, there
has been no material release at any location of any Hazardous Substance
generated by the Publishing Business. Except as set forth in Section 3.7 of the
Company Disclosure Schedule or as contemplated or permitted by this Agreement,
Media and its Subsidiaries hold all Permits necessary for the conduct of their
respective businesses as now being conducted, except where the failure to hold
such Permits would not have a Material Adverse Effect on Media and its
Subsidiaries, taken as a whole.
Section 3.8 Litigation. Except as disclosed in Section 3.8 of the
Company Disclosure Schedule, there are no claims, actions, proceedings or
governmental investigations pending or, to the knowledge of the Company, Media
and its Subsidiaries threatened against Media or its Subsidiaries which, if
adversely determined, would have a Material Adverse Effect on Media and its
Subsidiaries or prevent the consummation of the transactions contemplated
hereby. Neither Media nor any of its Subsidiaries is subject to any outstanding
and unsatisfied order, writ, judgment, injunction or decree or settlement or
consent agreement by or with a Governmental Entity which would have a Material
Adverse Effect on Media and its Subsidiaries, taken as a whole, or prevent the
consummation of the transactions contemplated hereby.
Section 3.9 Employee Benefit Matters. All Media Benefit Plans are
listed in Section 3.9 of the Company Disclosure Schedule, except such Media
Benefit Plans which are not material. True and complete copies of the Media
Benefit Plans have been made available to Acquiror. To the extent applicable,
the Media Benefit Plans comply in all material respects with the requirements of
ERISA and the Code. Any Media Benefit Plan intended to be qualified under
Section 401(a) of the Code has been determined by the IRS to be so qualified, or
has been submitted to the IRS to obtain such a determination within the
applicable remedial amendment period, as defined in Treasury Regulations Section
1.401(b)-1(cc). Neither Media nor any of its Subsidiaries has any liability
under Title IV of ERISA (other than for the payment of premiums, none of which
is overdue). Neither the Company nor any of its ERISA Affiliates incurred or
expects to incur liability in connection with an "accumulated funding
deficiency" within the meaning of Section 412 of the Code, whether or not
waived. Except as set forth in Section 3.9 of the Company Disclosure Schedule,
neither Media nor any its Subsidiaries has incurred, nor does the Company expect
that any such entities will incur, any withdrawal liability with respect to a
"multiemployer plan" under Title IV of ERISA. Except as set forth in Section 3.9
of the Company Disclosure Schedule, the execution of, and performance of the
transactions contemplated in, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event under any
plan, policy, arrangement or agreement or
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any trust or loan that will or may result in any payment (whether of severance
pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any current or former employees of Media and its Subsidiaries. Neither Media
nor any of its Subsidiaries has incurred any liability or penalty under Section
4975 of the Code or Section 502(i) of ERISA with respect to any Media Benefit
Plan, except as would not have a Material Adverse Effect on Media and its
Subsidiaries, taken as a whole. Except as disclosed in Section 3.9 of the
Company Disclosure Schedule, each Media Benefit Plan has been maintained and
administered in all material respects in compliance with its terms. To the
knowledge of the Company, Media and its Subsidiaries, there are no pending, nor
has Media or its Subsidiaries received notice of any threatened, claims against
or otherwise involving any of the Media Benefit Plans, except as would not have
a Material Adverse Effect on Media and its Subsidiaries, taken as a whole. All
material contributions required to be made as of the date of this Agreement to
the Media Benefit Plans have been made or provided for.
Section 3.10 Taxes. (a) Except as disclosed in Section 3.10 of the
Company Disclosure Schedule, Media and its Subsidiaries (which, for purposes of
this Section 3.10, shall include any predecessor of Media or its Subsidiaries)
and the appropriate member of any consolidated or combined group in which any
such company is a member (or in which any such companies are required to be
included) (i) have filed all Tax Returns required to be filed by Media or its
Subsidiaries (or in which any such companies are required to be included) for
Tax years ended prior to the date of this Agreement, except for those Tax
Returns the failure of which to file would not, individually or in the
aggregate, have a Material Adverse Effect on Media and its Subsidiaries, taken
as a whole, or for which requests for extensions have been timely filed, and all
such Tax Returns are complete in all material respects, (ii) have paid or
accrued all Taxes shown to be due and payable on such Tax Returns and (iii) have
accrued all such Taxes for such periods subsequent to the periods covered by
such Tax Returns ending on or prior to the date hereof, except for Taxes that
would not, individually or in the aggregate, have a Material Adverse Effect on
Media and its Subsidiaries, taken as a whole. There are no Liens for Taxes on
the assets of Media or its Subsidiaries, except for Liens that would not,
individually or in the aggregate, have a Material Adverse Effect on Media and
its Subsidiaries, taken as a whole, and there is no pending, nor has the
Company, Media or Media's Subsidiaries received written notice of any intended,
Tax audit, examination, refund litigation or adjustment in controversy which, if
determined adversely, would, individually or in the aggregate, have a Material
Adverse Effect on Media or its Subsidiaries, taken as a whole.
(b) Neither the Company nor any Affiliate thereof has taken or has
failed to take any action within its control (or has any plan or intention to
take any action) which would prevent (i) each Prior Merger from qualifying as a
tax-free transfer under Sections 332, 351 and/or 368(a)(1) of the Code (and each
Prior Contribution from qualifying as a tax-free transfer under Sections 351 and
368(a)(2)(C) of the Code) with respect to which no gain or loss is or was
recognized, (ii) each transfer of assets from Media to Fairchild from qualifying
as a tax-free exchange under Sections 351 or 368(a)(1)(D) of the Code with
respect to which no gain or loss is recognized, (iii) the Spinoff from
qualifying as a wholly tax-free distribution under Section 355 and/or Section
361 of the Code with respect to which no gain or loss is recognized and no
amount is included in income or (iv) the Acquisition from qualifying as a
"reorganization," with respect to which no gain or loss is recognized, within
the meaning of Section 368(a)(1)(B) of the Code.
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Section 3.11 Intellectual Property. As of the Closing Date, Media and
its Subsidiaries will own or possess rights to all Intellectual Property
exclusively used in or necessary for the conduct of the Publishing Business as
now operated, except where the failure to own or possess any such Intellectual
Property would not have a Material Adverse Effect on Media and its Subsidiaries,
taken as a whole. None of the Company, Media or its Subsidiaries has received
any notice that the products of the Company relating to the Publishing Business
or the use thereof violate, infringe or otherwise conflict with the Intellectual
Property of third parties, except (i) for such violations, infringements or
conflicts that would not have a Material Adverse Effect on Media and its
Subsidiaries, taken as a whole, or (ii) as disclosed in Section 3.11 of the
Company Disclosure Schedule.
Section 3.12 Contracts. (i) None of the Company, Media, or any of its
Subsidiaries is (with or without the lapse of time or the giving of notice, or
both) in breach or default under any Contract relating to the Publishing
Business and (ii) to the knowledge of the Company, Media and Media's
Subsidiaries, none of the other parties to any Contract relating to the
Publishing Business is (with or without the lapse of time or the giving of
notice, or both) in breach or default thereunder, in each case, except for any
such breach or breaches that would not, individually or in the aggregate, have a
Material Adverse Effect on Media and its Subsidiaries, taken as a whole.
Section 3.13 Labor Matters. Except as disclosed in Section 3.13 of the
Company Disclosure Schedule, neither Media nor any of its Subsidiaries is a
party to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor union organization. There
is no unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of the Company, Media and its Subsidiaries, threatened against Media
or any of its Subsidiaries, except for any such proceeding that would not have a
Material Adverse Effect on Media and its Subsidiaries, taken as a whole.
Section 3.14 Brokers and Finders. In connection with the transactions
contemplated hereby, no broker, finder or investment bank has acted directly or
indirectly for the Company or Media, and neither the Company nor Media has
incurred any obligation to pay any brokerage, finder's or other fee or
commission to any person (the "Company Commissions"), other than Credit Suisse
First Boston Corporation and Bear, Stearns & Co. Inc., the fees and expenses of
which shall be borne by the Company.
Section 3.15 Absence of Certain Changes. Except as disclosed in Section
3.15 of the Company Disclosure Schedule or as contemplated by this Agreement,
since the date of the Publishing Business Balance Sheet, the Publishing Business
has been conducted only in the ordinary course consistent with past practice,
and there have not been any events, changes or developments which would,
individually or in the aggregate, have a Material Adverse Effect on Media and
its Subsidiaries, taken as a whole, or prevent the consummation of the
transactions contemplated hereby, other than events, changes or developments
relating to the economy in general or resulting from industry-wide developments
affecting companies in similar businesses or from the disclosure of the
transactions contemplated by this Agreement.
Section 3.16 Assets. (a) At the Closing Date, other than owned and
leased facilities addressed in paragraph (b) below, Media and its Subsidiaries
will have good title to all properties and assets reflected on the Publishing
Business Balance Sheet, in each case free and
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clear of any Liens other than Permitted Liens, except for property and assets
disposed of in the ordinary course of business since December 31, 1996.
(b) At the Closing Date, Media and its Subsidiaries will have good
title to their respective owned facilities and valid leasehold interests in
their respective leased facilities, in each case free and clear of any Liens
other than Permitted Liens.
(c) The assets and properties referred to above, except for such
changes as may occur in the ordinary course of business, constitute all such
assets and properties that are used primarily in, or that are being held
primarily for use in the operation of, the Publishing Business as currently
conducted.
Section 3.17 Acquisition for Investment. The Company is acquiring the
Series B Preferred Stock for investment and not with a present view toward, or
for sale in connection with, any distribution thereof, nor with any present
intention of distributing or selling the Series B Preferred Stock in violation
of the federal securities laws. The Company agrees that the Series B Preferred
Stock may not be sold, transferred, offered for sale, pledged, hypothecated or
otherwise disposed of (i) without registration under the Securities Act, except
pursuant to an exemption from such registration available under the Securities
Act, and (ii) except in accordance with any applicable provisions of state
securities laws.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF ACQUIROR
Acquiror hereby represents and warrants to the Company as follows:
Section 4.1 Organization and Qualification. Acquiror (i) is duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) has the requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted and (iii) is in good standing and duly qualified to
do business in each jurisdiction in which the transaction of its business or the
nature of the property owned or leased by it, makes such qualification
necessary, except where the failure to be so qualified and in good standing or
to have such power or authority would not have a Material Adverse Effect on
Acquiror and its Subsidiaries taken as a whole. True and complete copies of the
Acquiror Charter and the Acquiror By-Laws, as amended to date, and Certificate
of Incorporation and By-Laws of each of its material Subsidiaries (as such term
is used in Regulation S-X under the Securities Act), as amended to date and
currently in full force and effect, have been made available to the Company.
Section 4.2 Capitalization. (a) The authorized capital stock of
Acquiror consists of 250,000,000 shares of Acquiror common stock, par value $.02
1/12 per share (the "Acquiror Common Stock") and 20,000,000 shares of Acquiror
preferred stock, par value $1.00 per share (the "Acquiror Preferred Stock"). As
of March 30, 1997, (i) 93,330,962 shares of Acquiror Common Stock are issued and
outstanding and no shares of Acquiror Common Stock are held in treasury, (ii)
6,340,882 shares of Acquiror Common Stock are reserved for issuance pursuant to
outstanding stock options and 3,251,911 shares of Acquiror Common Stock are
reserved for
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issuance in respect of future grants of stock options and (iii) no shares of the
Acquiror Preferred Stock are issued and outstanding. All outstanding shares of
Acquiror Common Stock are validly issued, fully paid and nonassessable and are
not subject to preemptive rights. Other than as contemplated by this Agreement,
as of March 30, 1997 and as set forth in Section 4.2 of the Acquiror Disclosure
Schedule, there are no outstanding subscriptions, options, warrants, calls,
rights, commitments or any other agreements to which Acquiror is a party or by
which Acquiror is bound which obligate Acquiror to (i) issue, deliver or sell or
cause to be issued, delivered or sold any additional shares of Acquiror Common
Stock or any other capital stock of Acquiror or any other securities convertible
into, or exercisable or exchangeable for, or evidencing the right to subscribe
for, any such shares of Acquiror Common Stock or any other capital stock of
Acquiror or (ii) purchase, redeem or otherwise acquire any shares of Acquiror
Common Stock or any other capital stock of Acquiror.
(b) The shares of Acquiror Series B Preferred Stock to be issued in the
Acquisition are duly authorized and, when issued in accordance with the terms of
this Agreement against payment of the Consideration therefore, will be duly and
validly issued, fully paid, non-assessable and free of preemptive rights,
assuming that the representations and warranties of the Company contained in
Section 3.17 are true and correct in all respects at the Closing and that the
Company is an "accredited investor" (as such term is used in Regulation D under
the Securities Act).
Section 4.3 Authorization and Validity of Agreement. Acquiror has the
requisite corporate power and authority to execute and deliver this Agreement
and the Registration Rights Agreement and to consummate the transactions
contemplated hereby and thereby in accordance with the terms hereof and thereof.
The Board of Directors of Acquiror has duly authorized the execution, delivery
and performance of each of this Agreement and the Registration Rights Agreement
by Acquiror and no other corporate proceedings on the part of Acquiror are
necessary to authorize this Agreement or the Registration Rights Agreement or
the transactions contemplated hereby or thereby (including, without limitation,
the authorization and approval of the Certificate of Designations in
substantially the form attached hereto as Exhibit D and the issuance and
delivery of the Series B Preferred Stock at the Closing). This Agreement has
been, and at the Closing the Registration Rights Agreement will be, duly
executed and delivered by Acquiror and, assuming this Agreement constitutes, and
at the Closing the Registration Rights Agreement will constitute, the legal,
valid and binding obligation of the Company, this Agreement constitutes, and at
the Closing the Registration Rights Agreement will constitute, the legal, valid
and binding obligation of Acquiror, enforceable against Acquiror in accordance
with their respective terms, except as enforceability may be limited by any
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights generally or
by general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
Section 4.4 Consents and Approvals. Neither the execution and delivery
of this Agreement or the Registration Rights Agreement by Acquiror nor the
consummation by Acquiror of the transactions contemplated hereby and thereby
will require on the part of Acquiror or any of its Subsidiaries any consent,
approval, authorization or permit of, or filing with, or notification to, any
Governmental Entity, except (i) for any applicable filings required under the
HSR Act, (ii) pursuant to the applicable requirements of the Securities Act, the
Exchange Act, the NYSE, on which the Acquiror Common Stock is listed, and state
securities or "blue sky" laws, (iii) as set forth in Section 4.4 of the Acquiror
Disclosure Schedule or (iv) where the failure to obtain
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such consent, approval, authorization or permit, or to make such filing or
notification, would not have a Material Adverse Effect on Acquiror and its
Subsidiaries taken as a whole, or prevent the consummation of the transactions
contemplated hereby and thereby.
Section 4.5 No Violation. Except as set forth in Section 4.5 of the
Acquiror Disclosure Schedule, neither the execution and delivery of this
Agreement or the Registration Rights Agreement by Acquiror nor the consummation
by Acquiror of the transactions contemplated hereby or thereby will (i) conflict
with or violate the Acquiror Charter or the Acquiror By-Laws or the charter or
by-laws of any Subsidiary of Acquiror, (ii) result in a violation or breach of,
constitute a default (with or without notice or lapse of time, or both) under,
give rise to any right of termination, cancellation or acceleration of, or
result in the imposition of any Lien on any assets or property of Acquiror or
any of its Subsidiaries pursuant to any Contract or obligation to which Acquiror
or any of its Subsidiaries is a party or by which Acquiror or any of its
Subsidiaries or any of their respective assets or properties are bound, except
for such violations, breaches and defaults (or rights of termination,
cancellation or acceleration or Lien) as to which requisite waivers or consents
have been obtained or which would not have a Material Adverse Effect on Acquiror
and its Subsidiaries taken as a whole, or prevent the consummation of the
transactions contemplated hereby or thereby or (iii) assuming the consents,
approvals, authorizations or permits and filings or notifications referred to in
Section 4.4 and this Section 4.5 are duly and timely obtained or made, violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Acquiror or any of its Subsidiaries or their respective assets or properties,
except for such conflicts, violations, breaches or defaults which would not have
a Material Adverse Effect on Acquiror and its Subsidiaries taken as a whole, or
prevent the consummation of the transactions contemplated hereby or thereby.
Section 4.6 SEC Reports; Financial Statements. (a) Acquiror has filed
all Acquiror SEC Documents and such Acquiror SEC Documents, including, without
limitation, any financial statements or schedules included therein, at the time
filed, or in the case of registration statements on their respective effective
dates, (i) complied as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the rules of the
NYSE and (ii) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading.
(b) Each of the consolidated financial statements of Acquiror
(including any related notes and schedules thereto) included in the Acquiror SEC
Documents comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the period involved (except as may be indicated in such
financial statements or in the notes thereto or, in the case of unaudited
financial statements, as permitted by the requirements of Form 10-Q) and fairly
present in all material respects (subject, in the case of the unaudited
statements, to normal year-end adjustments and the absence of footnotes) the
financial position of Acquiror as of the dates thereof and the results of
Acquiror's operations and cash flows for the periods presented therein.
Section 4.7 Compliance with Law; Environmental Matters. Except as set
forth in the Acquiror SEC Documents or in Section 4.7 of the Acquiror Disclosure
Schedule, neither Acquiror nor any of its Subsidiaries is in violation of any
applicable statute, rule, regulation, decree or order of any Governmental Entity
applicable to Acquiror or any of its Subsidiaries,
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<PAGE> 20
except for violations which would not have a Material Adverse Effect on Acquiror
and its Subsidiaries taken as a whole. Without limiting the foregoing, except
for matters which would not have a Material Adverse Effect on Acquiror and its
Subsidiaries taken as a whole, or as set forth in Section 4.7 of Acquiror
Disclosure Schedule, (i) the businesses of Acquiror and its Subsidiaries are
being conducted in compliance with applicable Environmental Laws and (ii) to the
knowledge of Acquiror, there has been no material release at any location of any
Hazardous Substance generated by Acquiror or any of its Subsidiaries. Except as
set forth in the Acquiror SEC Documents or in Section 4.7 of the Acquiror
Disclosure Schedule or as contemplated or permitted by this Agreement, Acquiror
and its Subsidiaries hold all Permits necessary for the conduct of their
respective businesses as now being conducted, except where the failure to hold
such Permits would not have a Material Adverse Effect on Acquiror and its
Subsidiaries taken as a whole.
Section 4.8 Litigation. Except as disclosed in the Acquiror SEC
Documents or in Section 4.8 of the Acquiror Disclosure Schedule, there are no
claims, actions, proceedings or governmental investigations pending or, to the
knowledge of Acquiror, threatened against Acquiror or any of its Subsidiaries
which, if adversely determined, would have a Material Adverse Effect on Acquiror
and its Subsidiaries taken as a whole, or prevent the consummation of the
transactions contemplated hereby. None of Acquiror or any of its Subsidiaries is
subject to any outstanding and unsatisfied order, writ, judgment, injunction or
decree or settlement or consent agreement by or with any Governmental Entity
which would have a Material Adverse Effect on Acquiror and its Subsidiaries
taken as a whole, or prevent the consummation of the transactions contemplated
hereby.
Section 4.9 Employee Benefit Matters. To the extent applicable, the Acquiror
Benefit Plans comply in all material respects with the requirements of ERISA
and the Code. Any Acquiror Benefit Plan intended to be qualified under Section
401(a) of the Code has been determined by the IRS to be so qualified. Neither
Acquiror nor any of its ERISA Affiliates has any liability under Title IV of
ERISA (other than for the payment of premiums, none of which is overdue).
Neither Acquiror nor any of its ERISA Affiliates incurred or expects to incur
liability in connection with an "accumulated funding deficiency" within the
meaning of Section 412 of the Code, whether or not waived. Except as set forth
in Section 4.9 of the Acquiror Disclosure Schedule, neither Acquiror nor any of
its ERISA Affiliates has incurred, nor does Acquiror expect that any such
entity will incur, any withdrawal liability with respect to a "multiemployer
plan" under Title IV of ERISA. The execution of, and performance of the
transactions contemplated in, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event under
any plan, policy, arrangement or agreement or any trust or loan that will or
may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any current or former
employees of Acquiror. Acquiror has not incurred any liability or penalty under
Section 4975 of the Code or Section 502(i) of ERISA with respect to any
Acquiror Benefit Plan, except as would not have a Material Adverse Effect on
Acquiror and its Subsidiaries taken as a whole. Each Acquiror Benefit Plan has
been maintained and administered in all material respects in compliance with
its terms. To the knowledge of Acquiror, there are no pending, nor has Acquiror
received notice of any threatened, claims against or otherwise involving any of
the Acquiror Benefit Plans, except as would not have a Material Adverse Effect
on Acquiror and its Subsidiaries taken as a whole. All material contributions
required to be made as of the date this Agreement to the Acquiror Benefit Plans
have been made or provided for.
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Section 4.10 Taxes. (a) Except as disclosed in the Acquiror SEC
Documents or in Section 4.10 of the Acquiror Disclosure Schedule, Acquiror and
each of its Subsidiaries and the appropriate member of any consolidated or
combined group in which any such company is a member (or in which any such
companies are required to be included) (i) have filed all Tax Returns required
to be filed by Acquiror or any of its Subsidiaries (or in which any such
companies are required to be included) for Tax years ended prior to the date of
this Agreement, except for those Tax Returns the failure of which to file would
not, individually or in the aggregate, have a Material Adverse Effect on
Acquiror and its Subsidiaries taken as a whole, or for which requests for
extensions have been timely filed, and all such Tax Returns are complete in all
material respects, (ii) have paid or accrued all Taxes shown to be due and
payable on such Tax Returns and (iii) have accrued all such Taxes for such
periods subsequent to the periods covered by such Tax Returns ending on or prior
to the date hereof, except for Taxes that would not, individually or in the
aggregate, have a Material Adverse Effect on Acquiror and its Subsidiaries,
taken as a whole. There are no Liens for Taxes on the assets of Acquiror or any
of its Subsidiaries, except for Liens that would not, individually or in the
aggregate, have a Material Adverse Effect on Acquiror and its Subsidiaries taken
as a whole, and there is no pending, nor has Acquiror or any of its Subsidiaries
received written notice of any intended, Tax audit, examination, refund
litigation or adjustment in controversy which, if determined adversely, would,
individually or in the aggregate, have a Material Adverse Effect on Acquiror and
its Subsidiaries taken as a whole.
(b) Neither Acquiror nor any Affiliate of Acquiror has taken or has
failed to take any action within its control which would prevent (i) each Prior
Merger from qualifying as a tax-free transfer under Sections 332, 351 and/or
368(a)(1) of the Code (and each Prior Contribution from qualifying as a tax-free
transfer under Sections 351 and 368(a)(2)(C) of the Code) with respect to which
no gain or loss is or was recognized, (ii) each transfer of assets from Media to
Fairchild from qualifying as a tax-free exchange under Sections 351 or
368(a)(1)(D) of the Code with respect to which no gain or loss is recognized,
(iii) the Spinoff from qualifying as a wholly tax-free distribution under
Section 355 and/or Section 361 of the Code with respect to which no gain or loss
is recognized and no amount is included in income or (iv) the Acquisition from
qualifying as a "reorganization," with respect to which no gain or loss is
recognized, within the meaning of Section 368(a)(1)(B) of the Code.
(c) Neither Acquiror nor any of its Affiliates has any plan or
intention to cause Media, in connection with or after the Acquisition, to issue
shares of stock or options or otherwise to cause Acquiror not to be in control
(within the meaning of Section 368(c) of the Code) of Media.
(d) Neither Acquiror nor any Affiliate thereof has any plan or
intention to (i) liquidate Media or its Subsidiaries, (ii) merge Media or its
Subsidiaries into another corporation, (iii) cause Media or its Subsidiaries to
sell or otherwise dispose of its assets, except for dispositions made in the
ordinary course of business, (iv) sell or otherwise dispose of any of the Media
Common Stock acquired in the Acquisition or (v) contribute (or cause or permit
to be contributed) or otherwise transfer, including, without limitation, by any
means treated as a capital contribution or transfer for federal income tax
purposes, any assets or value (other than for cash or non-stock, non-equity
property having a like fair market value, and subject to the terms of this
Agreement and the representation letter provided in accordance with Section 6.2
hereof) to Media or any direct or indirect Subsidiary thereof (whether or not in
exchange for stock (or other equity) for federal income tax purposes).
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(e) Neither Acquiror nor any Affiliate thereof has any plan or
intention to repay (or cause or permit to be repaid) any obligations that
constitute indebtedness of Media or its Subsidiaries for federal income tax
purposes other than with (i) funds generated by the Publishing Business or (ii)
proceeds of additional obligations that constitute indebtedness of Media or any
of its Subsidiaries for federal income tax purposes (A) from unrelated parties
(which may be guaranteed by Acquiror or any Subsidiary thereof) incurred at
least 6 months after the Closing Date or (B) from related parties incurred at
least one year after the Closing Date (any such indebtedness satisfying (ii) is
referred to herein as "Qualified Indebtedness" and any such repayment satisfying
(i) or (ii) is referred to herein as a "Qualified Repayment"). In addition,
neither Acquiror nor any Affiliate thereof has any plan or intention to purchase
or otherwise acquire, within the 6 month period beginning on the day after the
Closing Date, any of the indebtedness of Media described in Section 5.3. Neither
Acquiror nor any Affiliate thereof has any plan or intention to modify (or cause
or permit to be modified), in a manner that would cause a deemed exchange for
federal income tax purposes, any of the indebtedness of Media described in
Section 5.3 hereof, except to the extent that such indebtedness, as modified,
would be Qualified Indebtedness.
(f) No liabilities of Media, its Subsidiaries or the Company or any of
its Affiliates will be assumed by Acquiror or any Affiliate thereof. For these
purposes, the guarantee by Acquiror or an Affiliate thereof of the indebtedness
described in Section 5.3 hereof (without the modification of its terms) after
the Closing Date or of Qualified Indebtedness will not constitute the assumption
of a liability.
(g) Neither Acquiror nor any of its Affiliates has directly or
indirectly negotiated or discussed with any lender or agent thereof any of the
terms and conditions relating to the indebtedness of Media described in Section
5.3 other than more than 30 days following the date of this Agreement with
respect to the possible guarantee of such indebtedness by Acquiror or any
Affiliate thereof or with respect to general discussions.
Section 4.11 Contracts. Neither Acquiror nor any of its Subsidiaries is
(with or without the lapse of time or the giving of notice, or both) in breach
or default under any Contract to which it is a party or by which it is bound and
to the knowledge of Acquiror, none of the other parties to any Contract is (with
or without the lapse of time or the giving of notice, or both) in breach or
default thereunder, in each case, except for any such breach or breaches that
would not, individually or in the aggregate, have a Material Adverse Effect on
Acquiror and its Subsidiaries taken as a whole.
Section 4.12 Labor Matters. Except as set forth in Section 4.12 of the
Acquiror Disclosure Schedule, there is no unfair labor practice or labor
arbitration proceeding pending or, to the knowledge of Acquiror, threatened
against Acquiror or any of its Subsidiaries, except for any such proceeding that
would not have a Material Adverse Effect on Acquiror and its Subsidiaries taken
as a whole.
Section 4.13 Brokers and Finders. In connection with the transactions
contemplated hereby, no broker, finder or investment bank has acted directly or
indirectly for Acquiror, and Acquiror has not incurred any obligation to pay any
brokerage, finder's or other fee or commission to any person ("Acquiror
Commissions"), other than Goldman, Sachs & Co., the fees and expenses of which
shall be borne by Acquiror.
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Section 4.14 Absence of Certain Changes. Except as disclosed in the
Acquiror SEC Documents or in Section 4.14 of the Acquiror Disclosure Schedule or
as contemplated by this Agreement, since December 29, 1996 through the date of
this Agreement, Acquiror and its Subsidiaries have conducted their respective
businesses only in the ordinary course consistent with past practices, and there
have not been any events, changes or developments which would, individually or
in the aggregate, have a Material Adverse Effect on Acquiror and its
Subsidiaries taken as a whole, or prevent the consummation of the transactions
contemplated hereby, other than events, changes or developments relating to the
economy in general or resulting from industry-wide developments affecting
companies in similar businesses or from the disclosure of the transactions
contemplated by this Agreement.
ARTICLE V
COVENANTS OF THE COMPANY
Section 5.1 Conduct of the Company. From the date of this Agreement
until the Closing Date, the Company agrees that, except as otherwise
contemplated by this Agreement or Section 5.1 of the Company Disclosure
Schedule, or as Acquiror shall otherwise consent in writing:
(a) Ordinary Course. The Publishing Business shall be conducted in the
ordinary course consistent with past practice.
(b) Employees. Media and its Subsidiaries will use reasonable efforts
to keep available the services of key employees engaged exclusively in the
Publishing Business and to preserve the relationships with key customers and
suppliers and others having significant business dealings with the Publishing
Business.
(c) Governing Documents. Media will not amend the Media Charter or the
Media By-Laws.
(d) Issuance of Securities. Media will not, and will cause its
Subsidiaries not to, issue, transfer, sell or dispose of, or authorize or agree
to the issuance, transfer, sale or disposition of (whether through the issuance
or granting of options, rights, warrants, or otherwise), any shares of capital
stock or membership interests or any voting or other securities of Media or its
Subsidiaries or any options, rights, warrants or other securities convertible
into or exchangeable or exercisable for any such shares of capital stock or
membership interests or voting or other securities of Media or its Subsidiaries
or amend any of the terms of any securities or agreements relating to such
capital stock, membership interests or voting securities outstanding on the date
hereof.
(e) No Acquisitions. Neither Media nor any of its Subsidiaries will
acquire or agree to acquire, by merging or consolidating with, or by purchasing
a substantial equity interest in or substantial portion of the assets of, any
business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to acquire any
assets, in any such case, that would be part of the Publishing Business or
otherwise remain with Media or its Subsidiaries after the Closing, except in the
ordinary course of business in an amount not to exceed, individually or in the
aggregate, $500,000.
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(f) No Dispositions. Except for Media's expected distribution of all of
the stock of Fairchild to the Company, neither Media nor any of its Subsidiaries
will sell, lease, license, encumber or otherwise dispose of or agree to sell,
lease, license, encumber or otherwise dispose of, any of the assets of the
Publishing Business other than in the ordinary course of business consistent
with past practice in an amount not to exceed, individually or in the aggregate,
$500,000.
(g) Maintenance of Properties. Except as contemplated hereby, Media and
its Subsidiaries will continue to maintain and repair all property relating to
the Publishing Business in a manner consistent in all material respects with
past practice.
(h) Benefit Plans. Except as required by law or contemplated hereby or
in the ordinary course of business consistent with past practice, neither Media
nor any of its Subsidiaries will (i) adopt any plan, arrangement or policy which
would become a Media Benefit Plan for which the Company or Media will have any
liability after the Closing or amend any such plans, to the extent such adoption
or amendment would result in an increase in the benefits payable to any current
or former employees of the Publishing Business in excess of $500,000 in the
aggregate for all such employees or (ii) enter into any collective bargaining
agreement.
(i) New Contracts. Neither Media nor any of its Subsidiaries will enter
into any Contract not terminable on 90 days' notice, other than such Contracts
which obligate Media and its Subsidiaries to pay no more than $250,000 per year
in the aggregate and other than as required by the Credit Agreement.
(j) Capital Expenditures. Neither Media nor any of its Subsidiaries
will authorize or make commitments for capital expenditures in an aggregate
amount exceeding $750,000.
(k) Dividends. Neither Media nor any of its Subsidiaries will declare,
set aside or pay any dividend or other distribution or payment in respect of any
of its capital stock or otherwise, nor shall Media or its Subsidiaries, directly
or indirectly, purchase, acquire or redeem or split, combine or reclassify any
shares of its capital stock or make any commitment for any such action which
will reduce Media and its Subsidiaries's net worth as of the Closing determined
on a basis consistent with the Publishing Business Financial Statements below
the Net Worth Amount.
(l) Transfers to Fairchild and Subsidiaries. Neither Media nor any of
its Subsidiaries will transfer any assets or properties of the Publishing
Business to Fairchild or any of its Subsidiaries, which in the aggregate exceed
$100,000, other than amounts which would otherwise be allowed to be declared as
a dividend payment.
(m) Related Party Transactions. Other than pursuant to arms-length
transactions (including, without limitation, Media's investment in Walt Disney
Worldco, the transfer of that investment to Imprint and the transfer of the
stock of Imprint to Fairchild) or as otherwise permitted pursuant to this
Section 5.1, or in connection with or as contemplated by the Prior Contributions
and the Prior Mergers or as contemplated by the Credit Agreement, neither Media
nor any of its Subsidiaries will enter into any Contract or transaction with any
of their Affiliates.
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Section 5.2 Taxes.
(a) Neither the Company nor any of its Affiliates will take or cause or
permit to be taken any action within its control that would prevent (i) each
Prior Merger from qualifying as a tax-free transfer under Sections 332, 351
and/or 368(a)(1) of the Code (and each Prior Contribution from qualifying as a
tax-free transfer under Sections 351 and 368(a)(2)(C) of the Code) with respect
to which no gain or loss is or was recognized, (ii) each transfer of assets from
Media to Fairchild from qualifying as a tax-free exchange under Section 351 or
Section 368(a)(1)(D) of the Code with respect to which no gain or loss is
recognized, (iii) the Spinoff from qualifying as a wholly tax-free distribution
under Section 355 and/or Section 361 of the Code with respect to which no gain
or loss is recognized and no amount is included in income or (iv) the
Acquisition from qualifying as a "reorganization," with respect to which no gain
or loss is recognized, within the meaning of Section 368(a)(1)(B) of the Code.
(b) The Company and its Affiliates will file their respective Tax
Returns in a manner consistent with the treatment of (i) each Prior Merger as a
tax-free transfer under Section 368(a)(1) of the Code (and each Prior
Contribution as a tax-free transfer under Sections 351 and 368(a)(2)(C) of the
Code) with respect to which no gain or loss is or was recognized, (ii) each
transfer of assets from Media to Fairchild as a tax-free exchange under Section
351 or Section 368(a)(1)(D) of the Code with respect to which no gain or loss is
recognized, (iii) the Spinoff as a wholly tax-free distribution under Section
355 and/or Section 361 of the Code with respect to which no gain or loss is
recognized and, (iv) the Acquisition as a "reorganization," with respect to
which no gain or loss is recognized, within the meaning of Section 368(a)(1)(B)
of the Code.
(c) If the Company pursues an advance letter ruling from the IRS as
described in Section 6.2(c), the Company shall provide Acquiror with copies of
any materials submitted to the IRS in connection with the request (and shall
permit Acquiror to review any such materials relating to Acquiror prior to
submission) and shall keep Acquiror apprised of significant developments in the
ruling process.
Section 5.3 Certain Debt. As of the Closing Date, Media's indebtedness
for borrowed money to Citicorp USA, Inc. under the Credit Agreement dated as of
March 17, 1997 will not exceed $990,000,000.
Section 5.4 Financial Statements. From and after the date hereof, the
Company shall, and shall cause its Affiliates, officers, employees and
representatives to, cooperate with the efforts of Acquiror and Acquiror's
independent auditors to prepare such annual audited and interim unaudited
financial statements of Media and its Subsidiaries as Acquiror may reasonably
determine are necessary to satisfy the requirements of the Securities Act or the
Exchange Act (collectively, the "Securities Acts") applicable to Acquiror with
respect to the transactions contemplated hereby. Without limiting the foregoing,
the Company shall execute and deliver to Acquiror's independent auditors such
customary management representation letters as the auditors may reasonably
require as a condition to such auditors' ability to deliver a report upon the
audited financial statements of Media and its Subsidiaries for the periods for
which such financial statements are required under the Securities Acts. The
Company hereby waives such provisions of the Confidentiality Agreement as are
necessary to permit after the Closing the inclusion of Media's annual audited
and interim unaudited financial statements in any registration statement or
report (a "Securities Filing") filed by Acquiror under the Securities Act as
registrant under such Securities Filing.
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ARTICLE VI
COVENANTS OF ACQUIROR
Section 6.1 Conduct of Acquiror. From the date of this Agreement until
the Closing Date, Acquiror agrees as to itself and its Subsidiaries that it will
conduct its business in the ordinary course consistent with past practice and
shall use reasonable efforts to preserve intact its business organization and
relationships with third parties and except as otherwise contemplated by this
Agreement, or as the Company shall otherwise consent in writing:
(a) Issuance of Securities. Acquiror will not, except pursuant to
Acquiror's rights plan, stock option plans or any other benefit or pension plans
of Acquiror or any of its Subsidiaries existing on the date hereof (including
the proposed Long Term Incentive Compensation Plan) or pursuant to existing
options, warrants or rights or new options, warrants, rights or shares granted
or issued under any such plan) issue, transfer, sell or dispose of, or authorize
or agree to the issuance, transfer, sale or disposition of (whether through the
issuance or granting of options, rights, warrants or otherwise), any shares of
capital stock or any voting or other securities of Acquiror or any options,
rights, warrants or other securities convertible into or exchangeable or
exercisable for any share of capital stock or voting or other securities of
Acquiror.
(b) Dividends. Acquiror will not (i) declare, set aside or pay any
dividend or other distribution or payment in respect of any of its capital stock
or other ownership (other than regular quarterly cash dividends) or (ii)
directly or indirectly split, combine or reclassify any shares of its capital
stock or capital stock of any of its Subsidiaries, or make any commitment for
any such action.
Section 6.2 Taxes. (a) Acquiror will not, and will not permit any of
its Affiliates to, take or cause or permit to be taken any action within the
control of Acquiror or any such Affiliate that might prevent (i) each Prior
Merger from qualifying as a tax-free transfer under Sections 332, 351 and/or
368(a)(1) of the Code (and each Prior Contribution from qualifying as a tax-free
transfer under Sections 351 and 368(a)(2)(C) of the Code) with respect to which
no gain or loss is or was recognized, (ii) each transfer of assets from Media to
Fairchild from qualifying as a tax-free exchange under Section 351 or Section
368(a)(1)(D) of the Code with respect to which no gain or loss is or was
recognized, (iii) the Spinoff from qualifying as a wholly tax-free distribution
under Section 355 and/or Section 361 of the Code with respect to which no gain
or loss is or was recognized and no amount is or was required to be included in
income or (iv) the Acquisition from qualifying as a "reorganization," with
respect to which no gain or loss is recognized, within the meaning of Section
368(a)(1)(B) of the Code.
(b) Acquiror shall, and shall cause its Affiliates to, file their
respective Tax Returns (and not take any inconsistent position on audit, in any
legal proceeding or otherwise) in a manner consistent with the treatment of (i)
each Prior Merger as a tax-free transfer under Section 368(a)(1) of the Code
with respect to which no gain or loss is or was recognized (and each Prior
Contribution as a tax-free transfer under Sections 351 and 368(a)(2)(C) of the
Code with respect to which no gain or loss is or was recognized), (ii) each
transfer of assets from Media to Fairchild as a tax-free exchange under Section
351 or Section 368(a)(1)(D) of the Code with respect to which no gain or loss is
or was recognized, (iii) the Spinoff as a wholly tax-free distribution within
the meaning of Section 355 and/or Section 361 of the Code with respect to
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which no gain or loss is or was recognized, and (iv) the Acquisition as a
"reorganization," with respect to which no gain or loss is recognized, within
the meaning of Section 368(a)(1)(B) of the Code.
(c) Acquiror shall cooperate fully with the Company and its Affiliates,
as and to the extent reasonably requested by the Company, in connection with the
preparation, filing and obtaining of, at the sole election of the Company, (i)
an advance letter ruling from the IRS to the effect that (A) each Prior Merger
was a tax-free transfer under Sections 332, 351 and/or 368(a)(1) of the Code
(and each Prior Contribution was a tax-free transfer under Sections 351 and
368(a)(2)(C) of the Code), (B) each transfer of assets from Media to Fairchild
constituted a tax-free exchange under Section 351 or Section 368(a)(1)(D) of the
Code, (C) the Spinoff will qualify as a wholly tax-free distribution within the
meaning of Section 355 and/or Section 361 of the Code and/or (D) the Acquisition
will qualify as a "reorganization," with respect to which no gain or loss is
recognized, under Section 368(a)(1)(B) of the Code, (ii) an opinion of Dewey
Ballantine, special counsel to the Company, based on reasonably requested
representation letters (the form of such representation letter requested from
Acquiror is attached hereto as Exhibit E), dated as of the Closing Date, and
satisfactory to the Company in its sole discretion, regarding the federal income
tax treatment of those transactions or (iii) any combination of advance letter
ruling or opinion that the Company deems necessary or appropriate in its sole
and absolute discretion. If the Company obtains an advance letter ruling
regarding any or all of such transactions, Acquiror shall also cooperate in
assisting the Company in obtaining an opinion of Dewey Ballantine, special
counsel to the Company, based on reasonably requested representation letters
(the form of such representation letter requested from Acquiror is attached
hereto as Exhibit F) and satisfactory to the Company in its sole and absolute
discretion, to the effect that the Company is entitled to rely on that ruling.
(d) Acquiror covenants that, at the election of the Company (which
shall be evidenced by written notification sent by the Company to Acquiror
within 45 days of the date hereof, but in no event less than 15 days prior to
the Closing Date), and provided that the Company takes any actions necessary to
assure that Acquiror will not be adversely affected (e.g. obtaining necessary
consents), Acquiror will (i) take the necessary actions to consummate the
Acquisition, pursuant to the terms of this Agreement, through the statutory
merger intended to qualify as a "reorganization" with respect to which no gain
or loss is recognized, under Section 368(a)(1)(A), 368(a)(1)(B) and 368(a)(2)(E)
of a wholly-owned first-tier Subsidiary of Acquiror (that constitutes a
corporation for federal income tax purposes, is formed solely to effectuate the
Acquisition and conducts no activity that is unrelated to the Acquisition) into
Media and (ii) provide reasonable requested representations to Dewey Ballantine
(e.g., those set forth in Rev. Proc. 86-42) in addition to those contained in
the form of representation letter described in Section 6.2(c) hereof that are no
more burdensome (although greater in number) than such representations regarding
the qualification of the Acquisition as a "reorganization," with respect to
which no gain or loss is recognized, under Code Section 368(a)(1)(A) and
(a)(2)(E) (taking the Spinoff into account).
(e) For the 30 day period following the date hereof (or if shorter,
until the Closing Date), neither Acquiror nor any Affiliate thereof will have
discussions with any lender (or agent thereof) regarding the indebtedness
described in Section 5.3 hereof. Acquiror will not reach a definitive agreement
regarding any guarantee of the indebtedness of Media described in Section 5.3
hereof on or before the Closing Date. Neither Acquiror nor any Affiliate thereof
will modify (or cause or permit to be modified), in a manner that would cause a
deemed exchange
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for federal income tax purposes, any of the indebtedness of Media described in
Section 5.3 for a period of at least one year following the Closing Date except
to the extent that such indebtedness, as modified, would be Qualified
Indebtedness.
(f) At the request of the Company, Acquiror agrees to make (or cause to
be made) any election to apply to the transactions described in Section 4.10(b)
(and any other required transaction) any final regulations regarding the issues
discussed in Proposed Treasury Regulation ss. 1.368-1(f) and/or Proposed
Treasury Regulation ss. 1.368-1(d)(5).
Section 6.3 Company Names. Acquiror acknowledges that the names
Fairchild and ABC Media, whether alone or in combination with one or more other
words, are assets of the Company that were transferred to Fairchild. As promptly
as practicable after the Closing Date, but in no event more than 30 days after
the Closing Date, Acquiror shall promptly change the name on all documents,
stationery and facilities relating to the Publishing Business to a name that is
not in any way similar to Fairchild or ABC Media and all derivatives and
variations thereof and shall, following the Closing Date, cease using the
aforesaid names in connection with the corporate name, subsidiary and division
names.
Section 6.4 Compensation and Benefits. Acquiror acknowledges that Media
has entered into an agreement with The Walt Disney Company with respect to the
employee benefits of its employees. Such agreement includes an obligation to
keep in effect for the benefit of employees of the Publishing Business who are
employed after the Closing by Media and its Subsidiaries, until at least
February 9, 1998, all employee benefit plans that Media or its Subsidiaries
sponsors or participates in (including existing severance policies and programs,
but excluding stock and incentive compensation plans and those plans that are
the subject of collective bargaining) in effect on the date of this Agreement
(or any successor plans with substantially identical terms) and, with respect to
employees who are subject to collective bargaining, all benefits shall be
provided by Media to its employees in accordance with the applicable collective
bargaining agreement; provided, however, that no severance payments shall be
required to be made to any employee of the Publishing Business who is not
terminated by any entity comprising the Publishing Business. Acquiror further
acknowledges that Media may not amend, or permit the amendment of, any such plan
in a way that would materially adversely affect the rights or interests of the
plan participants or beneficiaries, except to the extent required by applicable
law or to maintain tax qualifications.
ARTICLE VII
COVENANTS OF ACQUIROR AND THE COMPANY
The parties hereto agree that:
Section 7.1 Access to Information. From the date hereof until the
Closing Date, the Company will give Acquiror, its counsel, financial advisors,
auditors, accountants and other authorized representatives reasonable access
during normal business hours and on reasonable notice to the officers,
properties, books and records of and relating to the Publishing Business, will
furnish to Acquiror, its counsel, financial advisors, auditors, accountants and
other authorized representatives such financial and operating data and other
information with respect to the Publishing Business, as such Persons may
reasonably request and will instruct its
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employees, accountants, counsel and financial advisors to cooperate with
Acquiror in its investigation of the Publishing Business. Any information
provided, or caused to be provided, by the Company pursuant to this Section 7.1
shall be subject to the terms of the Confidentiality Agreement dated February
18, 1997 (the "Confidentiality Agreement") between the Company and Acquiror.
Section 7.2 Efforts. (a) Subject to the terms and conditions of this
Agreement and applicable law, each of the parties hereto shall act in good faith
and use commercially reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated hereby
as soon as practicable, including such actions or things as the other party may
reasonably request in order to cause any of the conditions to such other party's
obligation to consummate the transactions contemplated by this Agreement to be
fully satisfied. Without limiting the foregoing, the parties shall consult and
fully cooperate with and provide assistance to each other in obtaining all
necessary consents, approvals, waivers, licenses, permits, authorizations,
registrations, qualifications or other permission or action by, and giving all
necessary notices to and making all necessary filings with and applications and
submissions to, any Governmental Entity or other person or entity as soon as
reasonably practicable after filing. Prior to making any application to or
filing with any Governmental Entity or other person or entity in connection with
this Agreement, each party shall provide the other party with drafts thereof and
afford the other party a reasonable opportunity to comment on such drafts.
(b) As soon as practicable, and in any event no later than ten (10)
business days after the date hereof, each of the parties hereto shall file any
Notification and Report Forms and related material required to be filed by it
with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the HSR Act with respect to the Acquisition
and shall promptly make any further filings pursuant thereto that may be
necessary, proper or advisable. Each of Acquiror and the Company shall furnish
to the other such information and assistance as the other shall reasonably
request in connection with the preparation of any submissions to, or agency
proceedings by, any Governmental Entity under the HSR Act, and each of Acquiror
and the Company shall keep the other promptly apprised of any communications
with, and inquiries or requests for information from, such Governmental
Entities.
Section 7.3 Certain Filings. Each of the Company and Acquiror shall
prepare and file any Other Filings required to be filed by them. The Company and
Acquiror shall cooperate with each other and provide to each other all
information necessary in order to prepare the Other Filings. The information
provided by the Company and Acquiror for use in the Other Filings shall at all
times prior to the Closing Date be true and correct in all material respects and
shall not omit to state any material fact required to be stated therein or
necessary in order to make such information not false or misleading. Each such
filing shall, when filed, comply in all material respects with applicable law.
Section 7.4 Public Announcements. Acquiror and the Company will consult
with each other before issuing any press release or making any public statement
with respect to the transactions contemplated hereby and, except as may be
required by applicable law or any listing agreement with any securities
exchange, will not issue any such press release or make any such public
statement unless the text of such statement shall first have been agreed by the
parties.
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Section 7.5 Filing of Tax Returns and Payment of Taxes.
(a) The Company shall prepare and file or cause to be filed, as the
case may be, all Tax Returns (whether separate or consolidated, combined, group
or unitary Tax Returns that include Media or its Subsidiaries) that are required
to be filed (with regard to permitted extensions) with respect to Media or its
Subsidiaries on or before the Closing Date and the Company shall pay or cause to
be paid all Taxes reported on such Tax Returns. In addition, the Company shall
prepare and file or cause to be filed, as the case may be, and pay all Taxes
with respect to, all Tax Returns (whether separate or consolidated, combined,
group or unitary Tax Returns) that include Media or its Subsidiaries that are
required to be filed (with regard to permitted extensions) on or after the
Closing Date with respect to Media or its Subsidiaries for all other Taxable
Periods that begin on or before the Closing Date; the Company shall also pay all
Taxes owed by Media and its Subsidiaries that are not required to be reflected
on Tax Returns for such Taxable Periods (e.g., property Taxes). Acquiror shall
have the right to review and approve (such approval not to be unreasonably
withheld) the portion of each Tax Return described in the preceding sentence
relating to Media or its Subsidiaries (or, at the Company's option, a proforma
return setting forth the items relating to Media or its Subsidiaries contained
in such portion) prior to filing and shall fully cooperate with the Company in
connection with the preparation and filing of each such Tax Return (including,
without limitation, supplying the Company with any and all information requested
by the Company with respect to Media or its Subsidiaries, at the expense of the
Company with respect to information for pre-Closing periods and at the expense
of Media or its Subsidiaries, as the case may be, with respect to information
for post-Closing periods). Upon the later of (i) three business days following
Acquiror's receipt of a written request therefor by the Company or (ii) fifteen
business days prior to the due date of any such payment to the relevant Taxing
Authority, Media shall pay to the Company any amounts reflected on such returns
(or proforma returns) with respect to Media and its Subsidiaries for
post-Closing Periods.
(b) Acquiror shall prepare and file, or shall cause to be prepared and
filed, all Tax Returns of or including Media or its Subsidiaries other than
those described in Section 7.5(a) above and Media or its Subsidiaries shall pay
all Taxes with respect to Media or its Subsidiaries for all Taxable Periods
covered by such Tax Returns.
(c) All transfer, documentary, sales, use, registration and other
similar Taxes (including, but not limited to, all applicable real estate
transfer or gains taxes and stock transfer Taxes), any penalties, interest and
additions to Tax relating to such Taxes and related fees incurred in connection
with the Acquisition shall be paid by Media or its Subsidiaries, except to the
extent that, under the relevant law, such Taxes, penalties, interest additions
to Tax and related fees are the sole obligation of the Company or any Affiliate
thereof other than Media (in which event the Company shall pay any such Tax,
penalties, interest, additions to Tax and related fees). Each party to this
Agreement shall cooperate in the timely making of all filings, returns, reports
and forms as may be required in connection therewith.
(d) Acquiror shall not file any amended Tax Return related to Media or
its Subsidiaries with respect to any Taxable Period that began on or before the
Closing Date. In addition, Acquiror shall prevent Media and its Subsidiaries
from carrying back any loss or other tax attribute that is attributable to a
Post-Closing Period to a Pre-Closing Period.
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(e) Neither Acquiror nor the Company shall take or advocate any
position with respect to Taxes related to Media, its Subsidiaries, the Company
or any Affiliate thereof that reasonably could be expected to adversely affect
the other party or any Affiliate thereof. Taking a position consistent with that
described in Sections 5.2(b) and 6.2(b) hereof shall not violate the preceding
sentence.
Section 7.6 Apportionment. For purposes of apportioning a Tax to any
Short Period or Interim Period, the parties hereto shall treat the Closing Date
as the last day of such Period (i.e., the parties shall "close the books" on
such date) and shall elect to do so if permitted by applicable law.
Section 7.7 Cooperation and Books and Records. After the Closing Date,
the Company and Acquiror shall (i) provide, and shall cause each of their
Affiliates to provide, to the other party and its Affiliates (at the expense of
the requesting party) such information relating to Media or its Subsidiaries as
the Company or Acquiror may reasonably request with respect to Tax matters and
(ii) cooperate with each other in the conduct of any audit or other proceeding
with respect to any Tax involving Media or its Subsidiaries and shall retain or
cause to be retained all books and records pertinent to Media or its
Subsidiaries for each Taxable Period or portion thereof ending on or prior to
the Closing Date until the expiration of the applicable statute of limitations
(giving effect to any and all extensions and waivers).
Section 7.8 Notice of Audit. If any party to the Agreement receives any
written notice from any Taxing Authority proposing an adjustment to any Tax for
which any other party hereto may be obligated to indemnify under this Agreement,
such party shall give prompt written notice thereof to the others that describes
such proposed adjustment in reasonable detail. The failure to give such notice
shall eliminate the obligations of the other party hereunder, to the extent such
failure materially prejudices the rights of the other party to contest such Tax.
Section 7.9 Certain Rights and Obligations Subsequent to Closing.
(a) Survival of Representations, Warranties and Covenants. With respect
to all Tax matters and all matters included in any section hereof relating to
Taxes (e.g., Section 6.2), the representations, warranties, covenants,
indemnities and agreements contained herein and in any certificate, instrument
or document furnished in connection herewith relating to Taxes are and will be
deemed and construed to be continuing representations, warranties, covenants,
indemnities and agreements that shall survive (and not be affected in any
respect by) the Closing indefinitely.
(b) Indemnification by the Company and Fairchild. The Company and
Fairchild shall, jointly and severally, indemnify, defend and hold harmless
Acquiror and Media (each, an "Acquiror Indemnitee") from and against, and shall
reimburse each Acquiror Indemnitee for, all Taxes, demands, claims, actions or
causes of action, assessments, losses, damages, liabilities, costs and expenses,
including, without limitation, interest, penalties, court costs and reasonable
attorneys' fees and expenses relating thereto (including, without limitation,
reasonable expenses of investigation and reasonable attorneys' and accountants'
fees and expenses in connection with any action, suit or proceeding) (a "Loss"
or "Losses") asserted against, imposed upon or incurred by, such Acquiror
Indemnitee, directly or indirectly, resulting from (i) Retained Litigation, (ii)
Company Commissions, (iii) any unpaid Taxes of Media or its Subsidiaries (or any
predecessor of the foregoing) for any Taxable Period, or portion thereof, ending
on or before the Closing
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Date, and (iv) any Taxes for which Media or its Subsidiaries are liable because
it (or any predecessor thereof) was included in a consolidated or combined Tax
Return with the Company or any Affiliate thereof for any Taxable Period, or
portion thereof, of Media or any of its Subsidiaries (or any predecessor
thereof) ending on or before the Closing Date, provided, however, that the
Company and Fairchild shall have no indemnification obligation with respect to
any such Taxes described in (iii) or (iv) that are (except to the extent such
Taxes are subject to apportionment pursuant to the proviso in Section 7.9(c))
attributable, (i) to extraordinary (i.e., non-ordinary course of business)
transactions within the control of Acquiror or any Affiliate thereof occurring
on the Closing Date after the Closing or (ii) in whole or in part, to any breach
of any representation, warranty or covenant by Acquiror or any Affiliate
thereof, contained herein (or in any certificate, document, list, or schedule
delivered to the Company or Dewey Ballantine by Acquiror or any Affiliate
thereof relating to Taxes, including, without limitation, all provisions of the
representation letters attached hereto as Exhibits E and F); provided, however,
that the following shall be deemed not to constitute a breach of any such
representation, warranty or covenant for purposes of this Agreement and the
representation letters: (A) any Qualified Repayment, (B) any act taken by
Acquiror or any Affiliate thereof that is reasonably necessary to avoid a
default under the Credit Agreement or other Qualified Indebtedness, (C) any act
taken by Acquiror or any Affiliate thereof after September 30, 1999 which, as of
the Closing Date, neither Acquiror nor any such Affiliate had any plan or
intention to take, (D) the guarantee, after the Closing Date, of the
indebtedness described in Section 5.3 hereof or of Qualified Indebtedness or the
performance on such guarantee, and (E) any act or failure to act required
pursuant to the Credit Agreement, the Registration Rights Agreement or this
Agreement (the items described in this proviso, "Exempt Acts").
(c) Indemnification by Acquiror. Acquiror shall indemnify, defend and
hold harmless the Company and each of its Affiliates (each, a "Company
Indemnitee") from and against, and shall reimburse each Company Indemnitee for,
all Losses asserted against, imposed upon or incurred by, such Company
Indemnitee resulting, in whole or in part, from (i) any misrepresentation or
breach of warranty or covenant by Acquiror or any Affiliate thereof other than
an Exempt Act, but only to the extent such misrepresentation, warranty or
covenant is related to Taxes or contained in any section hereof relating to
Taxes, in each case, contained in this Agreement (or in any certificate,
document, list or schedule delivered by Acquiror to the Company or Dewey
Ballantine hereunder relating to Taxes, including, without limitation, all
provisions of the representation letters referred to in Section 6.2(c) and
Section 8.2(e) hereof), (ii) Acquiror Commissions, (iii) any unpaid Taxes of
Media or its Subsidiaries for any Taxable Period, or portion thereof, beginning
after the Closing Date and (iv) all Taxes attributable to any extraordinary
(i.e., non-ordinary course of business) transaction within the control of
Acquiror or any Affiliate thereof occurring on the Closing Date after the
Closing; provided, however, that the liability of the Company and Acquiror (and
the Affiliates of each of the Company and Acquiror) with respect to any Tax
described in (i) shall be equitably apportioned in the event and to the extent
that any Tax described in (i) is also attributable, in whole or in part, to any
misrepresentation or breach of warranty or covenant by the Company or any
Affiliate thereof, but only to the extent such misrepresentation, warranty or
covenant is related to Taxes or is contained in any section hereof relating to
Taxes; provided, further, that there shall be no such apportionment of liability
to the extent that the Loss would not have been suffered but for the
misrepresentation or breach of warranty, covenant or promise by Acquiror or its
Affiliates and was not attributable in whole or in part to any misrepresentation
or breach of warranty or covenant by the Company or its Affiliates related to
Taxes or contained in any Section hereof related to Taxes. Any payments to any
Company Indemnitee under Section 7.9 from Acquiror
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shall be made in voting stock of Acquiror (for federal income tax purposes)
having a value equal to the amount for which indemnification is due.
(d) Indemnification Procedures. The Company shall assume the defense of
the Retained Litigation with counsel selected by the Company. The Company shall
not be liable for legal or other expenses subsequently incurred by the Acquiror
Indemnitee in connection with the defense thereof, although each Acquiror
Indemnitee shall have the right to participate in the defense thereof and to
employ counsel, at its own expense. Notwithstanding the foregoing, the Company
shall be liable for the reasonable fees and expenses of counsel employed by any
Acquiror Indemnitee, if and only to the extent that (i) the Company has failed
to employ counsel or defend such action within a reasonable time, (ii) the
employment of counsel and the amount reimbursable thereof by the Company has
been authorized in writing by the Company or (iii) the Acquiror Indemnitees have
been advised by its counsel, reasonably satisfactory to the Company, that such
counsel believes that there exists one or more meritorious defenses available to
it which are different from or additional to that available to the Company. Each
Acquiror Indemnitee shall cooperate with the Company in the defense of the
Retained Litigation, give the Company reasonable access to all information
relevant thereto and make employees and other representatives available on a
mutually convenient basis to provide additional information and explanation of
any material provided in connection therewith. The Company shall not be
obligated to indemnify any Acquiror Indemnitee for any Losses resulting from
Retained Litigation settled or compromised without the Company's prior written
consent. Other than payment of money damages, the Company shall not, without the
prior written consent of Acquiror effect any settlement or compromise of the
Retained Litigation if such settlement or compromise imposes any equitable or
injunctive relief on Acquiror or any of its Subsidiaries, including Media and
its Subsidiaries.
(e) Indemnification and Tax Amounts. Notwithstanding any other
provision of this Agreement, any Tax or other Loss for which indemnification is
provided under this Agreement shall be (i) increased to take account of any net
Tax Cost incurred by the indemnified party (or any Affiliate thereof) arising
from the receipt or accrual of indemnity payments hereunder (i.e., grossed-up
for any Tax incurred on such increase) and (ii) reduced to take account (on a
present value basis) of any net Tax Benefit realized by the indemnified party
(or any Affiliate thereof) arising from the incurrence or payment of any such
Tax or other Loss. In addition, if a party or any Affiliate thereof that is
indemnified for any Tax or other Loss hereunder (the "First Party") realizes a
Tax Benefit as a result of a payment or accrual of the indemnified Tax or Loss
and such Tax Benefit was not previously taken into account in calculating an
indemnity payment hereunder, the First Party shall pay to the indemnifying party
the amount of such Tax Benefit when and if actually realized, together with any
additional Tax Benefit realized as a result of payment pursuant to this
sentence. In the event (and to the extent) the Company or any Affiliate thereof
bears any adverse Tax consequences as a result of the Prior Transactions, the
contributions of assets by Media to Fairchild, the Spinoff, or the Acquisition
not having the Tax consequences contemplated pursuant to Section 3.10(b), by
making a payment of Tax or otherwise bearing the economic burden thereof for
which it is not indemnified by Acquiror rather than making a payment for
indemnification, Acquiror shall also pay to the Company the amount of any Tax
Benefit realized , when and if actually realized, by the Acquiror or any of its
Affiliates as a result of such event. In addition, any indemnification payments
shall be made no later than 15 days after written notice (provided that such
payment shall not exceed the original indemnity payment made to the First Party)
of a Final Determination with respect to any Tax for which indemnification is
provided by the indemnitor.
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Section 7.10 Tax Contests. The Company and its duly appointed
representatives shall have the right to negotiate, resolve, settle or contest
any claim for Tax asserted by any Taxing Authority against the Company or any of
its Affiliates, which Affiliates include Media and its Subsidiaries for all
Pre-Closing Periods and all taxable periods that include the Closing Date,
provided, however, (i) when and if the Company becomes reasonably aware that
there is a reasonable likelihood that a Loss that a Company Indemnitee may
suffer with respect to such claim, if sustained, would be indemnifiable in whole
or in part by Acquiror or any of its Affiliates, the Company shall promptly give
Acquiror notice in writing of such claim and shall furnish Acquiror with copies
of all writings received from the relevant Taxing Authority relating to such
claim to the extent such claim or writings relate to a Tax with respect to which
the Company may seek indemnification from the Acquiror hereunder (but the
failure to do so shall relieve the Acquiror of its obligation hereunder only to
the extent such failure materially impairs its ability to participate in the
contest of such claim); (ii) the Company shall keep the Acquiror reasonably
informed of the nature of all actions taken to contest such claim, shall consult
in good faith with the Acquiror with respect to the contest of such claim and
shall permit the Acquiror to review and comment on all the portions of relevant
written submissions related to such claim; (iii) upon Acquiror's written request
and written acknowledgement that, unless it is established upon the resolution
of such claim that such Loss was in no part attributable to an indemnifiable act
or failure to act by Acquiror or any of its Affiliates, it will be liable to
indemnify the Company Indemnitee with respect to part or all of the Loss the
Company Indemnitee would suffer if such claim were sustained, Acquiror shall be
permitted at its own expense to participate in the contest of the imposition,
validity, applicability or amount of such claim and the decisions relating
thereto, including the decisions whether any action to contest such claim will
initially be by way of judicial or administrative proceedings, or both and
whether any such claim will be contested by resisting payment thereof or by
paying the same and seeking a refund thereof (but in the event of disagreement
between the parties with respect to any such decision relating to the contest of
such claim, the Company's position shall prevail provided it represents in
writing, upon Acquiror's written request, that such position is based upon
consideration in good faith and in a reasonable manner factors solely relating
to the indemnifiable claim); provided, further, that the Company shall not
settle such claim or fail to take further action with respect to such claim
without the written consent of Acquiror, which consent shall not be unreasonably
withheld. The Company and Acquiror shall each bear its own expenses incurred in
connection with the contest of any claims for Tax. The Company shall, if
requested by Acquiror in a timely written request, appeal any adverse decision
of any court with respect to a claim for Tax with respect to which the Company
may seek indemnification from Acquiror hereunder; provided, however, that the
Company shall not be obligated to make any such appeal if (i) upon written
request of the Company, Acquiror's independent tax counsel fails to provide at
Acquiror's expense a written opinion to the Company that such an appeal would
have a reasonable prospect for success or (ii) the Company provides to Acquiror
its written acknowledgement that Acquiror will be liable to indemnify the
Company for less than 50% of the dollar amount of the claims relating to the
Prior Transactions, the Spin-off, the contributions of assets by Media to
Fairchild and the transactions contemplated hereby that are then appealable by
the Company in such case and the written opinion of the Company's independent
tax counsel that there is not a reasonable prospect for success in the appeal of
the adverse decision that is the subject of Acquiror's written request; and
provided, further, that the Company shall not be obligated to appeal an adverse
decision to the Supreme Court. If the Company does not assume the defense of any
such claim for Tax asserted against Media or its Subsidiaries, Acquiror or Media
or its Subsidiaries may defend the same in such manner as it may deem
appropriate,
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including, but not limited to, settling such audit or proceeding with the
consent of the indemnitor, which consent shall not be unreasonably withheld.
Section 7.11 Notices of Certain Events. Each of Acquiror and the
Company shall promptly notify the other following the receipt of any notice or
other communication from any Governmental Entity or other person in connection
with the transactions contemplated hereby or of any action, suit, claim or
proceeding commenced or, to its knowledge threatened, against it which relates
to or seeks to prohibit the consummation of the transactions contemplated
hereby.
Section 7.12 Employee Benefit Plans. (a) The Company will retain all
liabilities and obligations for claims incurred prior to the Closing Date by
current and former employees of the Publishing Business (and their dependents)
under plans or arrangements maintained or sponsored by the Company that provide
employee welfare benefits (including, without limitation, medical, dental,
vision, life, accident, long-term disability and severance benefits) ("Welfare
Benefits"). As of the Closing Date, the Company will cause Fairchild to assume
all liabilities and obligations of Media and its Subsidiaries for the benefits
of current and former employees of the Publishing Business under the Benefit
Equalization Plan of ABC, Inc. and the Benefit Equalization Plan of ABC Media,
Inc.
(b) Acquiror acknowledges that Media and its Subsidiaries shall retain
all liabilities and obligations for (i) the Welfare Benefits of current and
former employees of the Publishing Business (and their dependents) under plans
or arrangements maintained or sponsored by Media or any of its Subsidiaries and
(ii) all retiree medical and life insurance benefits for current and former
employees of the Publishing Business.
(c) With respect to the Welfare Benefits of employees of the Publishing
Business who are receiving long-term disability benefits as of the Closing Date,
the Company and Acquiror will enter into an agreement prior to the Closing Date
establishing the terms and procedures pursuant to which Acquiror will be
reimbursed for all of the costs and expenses of such Welfare Benefits that arise
(during the period such long-term disability benefits are being received) under
plans or arrangements maintained by Media or its Subsidiaries following the
Closing Date (which plans shall be no more favorable to such disabled
participants than the applicable plans as of the Closing Date).
Section 7.13 Implied Warranties. (a) Except as expressly provided in
this Agreement, the Company has not made and is not making any representation or
warranty whatsoever to Acquiror as to Media or its Subsidiaries or their
respective businesses and shall not be liable in respect of the accuracy or
completeness of any information provided to Acquiror in connection with this
Agreement. Without limiting the foregoing, Acquiror acknowledges that Acquiror,
together with its advisors, has made its own investigation of Media and its
Subsidiaries and their respective businesses and is not relying on any implied
warranties (whether of merchantability or fitness for a particular purpose or
otherwise), or upon any representation or warranty whatsoever as to the
prospects (financial or otherwise), or the viability or likelihood of success,
of the businesses of Media or its Subsidiaries as conducted after the Closing
Date, or upon the information contained in the confidential Information
Memorandum, dated February 19, 1997, furnished by Credit Suisse First Boston
Corporation on behalf of the Company, or in any subsequent or supplemental
materials provided by the Company, except as expressly provided in this
Agreement.
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(b) Except as expressly provided in this Agreement, Acquiror has not
made and is not making any representation or warranty whatsoever to the Company
as to itself or its Affiliates or their respective businesses and shall not be
liable in respect of the accuracy or completeness of any information provided to
the Company in connection with this Agreement. Without limiting the foregoing,
the Company acknowledges that the Company, together with its advisors, has made
its own investigation of Acquiror and its Affiliates and their respective
businesses and is not relying on any implied warranties (whether of
merchantability or fitness for a particular purpose or otherwise), or upon any
representation or warranty whatsoever as to the prospects (financial or
otherwise), or the viability or likelihood of success, of the businesses of
Acquiror or its Affiliates as conducted after the Closing Date, or in any
materials provided by Acquiror, except as expressly provided in this Agreement.
ARTICLE VIII
CONDITIONS TO THE ACQUISITION
Section 8.1 Conditions to Obligations of Each Party to Effect the
Acquisition. The respective obligations of each party hereto to effect the
Acquisition shall be subject to the satisfaction at or prior to the Closing Date
of the following conditions, any or all of which may be waived in writing by the
Company or Acquiror in whole or in part, to the extent permitted by applicable
law:
(a) No Injunction. No federal or state governmental or regulatory body
or courtof competent jurisdiction shall have enacted, issued, promulgated
or enforced any statute, rule, regulation, executive order, decree,
judgment, preliminary or permanent injunction or other order which is in
effect and which prohibits, enjoins or otherwise restrains the
consummation of the Acquisition; provided, that the parties shall use
commercially reasonable efforts to cause any such decree, judgment,
injunction or order to be vacated or lifted; and
(b) HSR Act Waiting Period. Any applicable waiting period under the HSR
Act relating to the Acquisition shall have expired or terminated and no
action shall have been instituted by the Department of Justice or the
Federal Trade Commission challenging or seeking to enjoin the
consummation of the Acquisition or the Spinoff or the other transactions
contemplated hereunder, other than an action which shall have been
withdrawn or terminated.
(c) Consummation of Spinoff. The Spinoff shall have been consummated.
Section 8.2 Conditions Precedent to the Obligations of the Company. The
obligation of the Company to effect the Acquisition is also subject to the
satisfaction at or prior to the Closing Date of each of the following additional
conditions, unless waived in writing by the Company:
(a) Accuracy of Representations and Warranties. All representations and
warranties made by Acquiror herein shall be true and correct in all
material respects on and as of the Closing Date with the same force and
effect as though such representations and warranties had been made on
and as of the Closing Date, except for changes
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permitted or contemplated by this Agreement and except for
representations and warranties that are made as of a specific date or
time, which shall be true and correct in all material respects only as
of such specific date or time;
(b) Compliance with Covenants. Acquiror shall have performed
in all material respects all obligations and agreements, and complied
in all material respects with all covenants, contained in this
Agreement to be performed or complied with by it prior to or at the
Closing Date;
(c) Officer's Certificates. The Company shall have received
such certificates of Acquiror, dated the Closing Date and signed by an
executive officer of Acquiror, to evidence satisfaction of the
conditions set forth in Sections 8.2(a) and 8.2(b) as may be reasonably
requested by the Company;
(d) Consents. All consents, approvals, orders, authorizations,
registrations, declarations, and filings referred to in Section 3.4
required to be obtained or made prior to the Closing Date shall have
been made or obtained;
(e) Tax Ruling or Legal Opinion. The Company shall have
received, as contemplated by Section 6.2, (i) an advance letter ruling
from the IRS to the effect that each transfer of assets from Media to
Fairchild qualified as a tax-free exchange under Sections 351 and/or
368(a)(1)(D) of the Code with respect to which no gain or loss is
recognized, the Spinoff will qualify as a wholly tax-free distribution
within the meaning of Section 355 and/or Section 361 of the Code and
with respect to which no gain or loss is recognized no amount will be
included in income, and/or that the Acquisition will qualify as a
"reorganization," with respect to which no gain or loss is recognized,
under Section 368(a)(1)(B) of the Code that is acceptable to the
Company in its sole and absolute discretion; (ii) an opinion of Dewey
Ballantine, special counsel to the Company, based upon reasonably
requested representation letters referenced in Section 6.2(c) regarding
the federal income tax treatment of those transactions that is
acceptable to the Company in its sole and absolute discretion or (iii)
some combination of the items described in (i) and (ii) that is
acceptable to the Company in its sole and absolute discretion and (iv)
if the Company obtains an advance letter ruling regarding any such
transaction, an opinion from Dewey Ballantine, special counsel to the
Company, based upon certain reasonably requested representation letters
(a copy of the representation letter to be requested from Acquiror is
attached hereto as Exhibit F) and satisfactory to the Company in its
sole and absolute discretion, to the effect that the Company is
entitled to rely on such letter ruling; and
(f) Tax Development. The Company shall have determined, after
consultation with counsel, that there has not occurred on or after the
date of this Agreement, any Adverse Tax Development.
(g) Registration Rights Agreement. Acquiror shall have
delivered to the Company a Registration Rights Agreement, in the form
attached hereto as Exhibit G (the "Registration Rights Agreement"),
duly executed by Acquiror.
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Section 8.3 Conditions Precedent to the Obligations of Acquiror. The
obligation of Acquiror to effect the Acquisition is also subject to the
satisfaction at or prior to the Closing Date of each of the following additional
conditions, unless waived in writing by Acquiror:
(a) Accuracy of Representations and Warranties. All representations
and warranties made by the Company herein shall be true and correct in
all material respects on and as of the Closing Date, with the same force
and effect as though such representations and warranties had been made on
and as of the Closing Date, except for changes permitted or contemplated
by this Agreement and except for representations and warranties that are
made as of a specific date or time, which shall be true and correct in
all material respects only as of such specific date or time;
(b) Compliance with Covenants. The Company shall have performed in all
material respects all obligations and agreements, and complied in all
material respects with all covenants, contained in this Agreement to be
performed or complied with by it prior to or at the Closing Date;
(c) Consents. All consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in Section 4.4
required to be made or obtained prior to the Closing Date shall have been
made or obtained;
(d) Officer's Certificates. Acquiror shall have received such
certificate of the Company, dated the Closing Date, signed by an
executive officer of the Company to evidence satisfaction of the
conditions set forth in Sections 8.3(a) and 8.3(b) as may be reasonably
requested by Acquiror; and
(e) Media Benefit Plan. A defined benefit pension plan shall be
sponsored by Media (the "Media Plan") covering all participants (and
their beneficiaries) under the Times Leader Pension Plan (the "TL Plan")
and the ABC Publishing Pension Plan (the "Publishing Plan") who were
employed with the Publishing Business prior to the Closing Date, other
than retirees in pay status under the Publishing Plan (the "Transferring
Participants"). The terms of the Media Plan shall be consistent with the
obligations of Media under the agreement referred to in Section 6.4
hereof. The Media Plan shall have the liability for all vested and
unvested accrued benefits of the Transferring Participants under the TL
Plan and the Publishing Plan as of the time the Media Plan is
established, and shall hold assets in trust having a value at least equal
to the actuarial accrued liability under the Media Plan for the
Transferring Participants, determined based on the applicable actuarial
assumptions and methods set forth in the January 1, 1996 actuarial
valuation report for the Publishing Plan prepared by Watson Wyatt Co.
(f) Registration Rights Agreement. The Company shall have delivered
to Acquiror the Registration Rights Agreement, duly executed by the
Company.
(g) Intercompany Accounts. Except as otherwise expressly provided
herein, the Company shall have paid all indebtedness and other amounts
owed by the Company and its Affiliates to Media and its Subsidiaries and
Media and its Subsidiaries shall have paid all indebtedness and other
amounts owed by Media and its Subsidiaries to the Company and its
Affiliates (other than Media and its Subsidiaries), in each case other
than ordinary course accounts payable for goods and services.
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(h) Lien on Assets. Neither Media nor any Subsidiaries of Media shall
be obligated under the Credit Agreement or any related document to
grant a Lien or security interest or take any action to perfect any Lien
or security interest, other than actions required to perfect or continue
the perfection of a Lien or security interest in assets in which such
Lien or security interest was granted prior to the Closing Date and
steps were taken to perfect such Lien or security interest prior to the
Closing Date but such actions to perfect such Lien or security interest
were defective or wrong or suffer from other deficiencies, or additional
actions are required to perfect such Lien or security interest due to a
change in facts or a change in law.
ARTICLE IX
TERMINATION
Section 9.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing Date:
(a) by mutual written consent of the Company and Acquiror;
(b) by either the Company or Acquiror, if (i) any federal or state
court of competent jurisdiction or other federal or state governmental
or regulatory body shall have issued any judgment, injunction, order or
decree prohibiting, enjoining or otherwise restraining the transactions
contemplated by this Agreement and such judgment, injunction, order or
decree shall have become final and nonappealable (provided, that the
party seeking to terminate this Agreement pursuant to this paragraph (b)
shall have used commercially reasonable efforts to remove such judgment,
injunction, order or decree) or (ii) any statute, rule, regulation or
executive order promulgated or enacted by any federal or state
governmental authority after the date of this Agreement which prohibits
the consummation of the Acquisition shall be in effect;
(c) by the Company, if either (i) Acquiror fails to perform any
material covenant in this Agreement when performance thereof is due
and does not cure the failure within twenty (20) business days after the
Company delivers written notice thereof or (ii) any condition in Section
8.1 or 8.2 has not been satisfied or waived prior to the Termination
Date; provided, however, that the Company cannot terminate this Agreement
under this Section 9.1(c) if it is in material breach of its obligations
hereunder; or
(d) by Acquiror, if either (i) the Company fails to perform any
material covenant in this Agreement when performance thereof is due and
does not cure the failure within twenty (20) business days after Acquiror
delivers written notice thereof or (ii) any condition in Section 8.1 or
8.3 has not been satisfied or waived prior to the Termination Date;
provided, however, that Acquiror cannot terminate this Agreement under
Section 9.1(d) if it is in material breach of its obligations hereunder.
Section 9.2 Effect of Termination. (a) In the event of any termination
of this Agreement pursuant to Section 9.1 hereof, this Agreement forthwith shall
become void and of no further force or effect, and no party hereto (or any of
its Affiliates, directors, officers, agents or representatives) shall have any
liability or obligation hereunder, except in any such case (i) in accordance
with the expense provisions of Section 10.5, the confidentiality provisions of
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Section 7.1 and Section 9.2(b), which shall survive any such termination and
(ii) to the extent such termination results from the breach by such party of any
of its representations, warranties, covenants or agreements contained in this
Agreement.
(b) If this Agreement is terminated by the Company or Acquiror due to
the failure to satisfy the conditions set forth in Section 8.2(e) or Section
8.2(f), then the Company agrees that for a period of 30 days from the date of
any such termination, (i) the Company will negotiate exclusively with Acquiror
to reach an alternative arrangement to consummate the sale of the Publishing
Business to Acquiror on a taxable basis, and (ii) none of the Company or any of
its Affiliates nor any officer, director, employee, representative or agent of
the Company shall, directly or indirectly, solicit or initiate or participate in
any way in discussions or negotiations with or enter into any agreement with any
Person or group of Persons (other than Acquiror) concerning any proposal or
offer (including, without limitation, any proposal or offer to the Company's or
its Affiliates' stockholders) with respect to a merger, acquisition,
consolidation or similar transaction involving, purchase of, directly or
indirectly, any interest in the Publishing Business.
ARTICLE X
MISCELLANEOUS
Section 10.1 Nonsurvival of Representations, Warranties and Covenants.
None of the representations, warranties, covenants or agreements contained in
this Agreement or in any certificate or other instrument delivered pursuant to
this Agreement shall survive the Closing Date other than (i) any representation,
warranty, covenant or agreement with respect to Taxes (and in any schedule,
certificate, or other document delivered herewith relating to Taxes, including,
without limitation, Exhibits E and F hereto), which shall survive indefinitely
and (ii) any covenant or agreement of the parties hereto which by its terms
contemplates performance after the Closing Date, including the indemnitees
provided in Section 7.9 hereof and the covenants set forth in Section 7.12
hereof.
Section 10.2 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered, mailed or transmitted, and shall be
effective upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) or sent by fax (with
immediate confirmation) or nationally recognized overnight courier service, as
follows:
(a) if to Acquiror, to:
Knight-Ridder, Inc.
One Herald Plaza
Miami, Florida 33132
Attn: Cristina L. Mendoza, Esq.
Fax: (305) 995-8044
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with a copy to:
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
Attn: Garett J. Albert, Esq.
Fax: (212) 422-4726
(b) if to the Company, to:
ABC, Inc.
77 West 66th Street
New York, New York 10023
Attn: General Counsel
Fax: 212-456-6908
with a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
Attn: Morton A. Pierce, Esq.
Fax: (212) 259-6640
or to such other Person or address or facsimile number as any party shall
specify by like written notice to the other parties hereto (any such notice of a
change of address to be effective only upon actual receipt thereof).
Section 10.3 Entire Agreement. This Agreement (including the schedules,
exhibits and other documents referred to herein), together with the
Confidentiality Agreement referred to in Section 7.1, constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior written or oral and all contemporaneous oral agreements
and understandings between any of the parties hereto with respect to the subject
matter hereof. Notwithstanding the foregoing, the Confidentiality Agreement
shall terminate automatically on the Closing Date solely with respect to
information relating to Media.
Section 10.4 Assignment; Binding Effect. Neither this Agreement nor any
of the rights, benefits or obligations hereunder may be assigned, in whole or in
part, by either party (whether by operation of law or otherwise) without the
prior written consent of the other party hereto. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
on any person, other than the parties or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
Section 10.5 Fees and Expenses. Except as otherwise provided herein,
all costs and expenses incurred by Acquiror or the Company in connection with
this Agreement and the
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<PAGE> 42
transactions contemplated hereby (including, without limitation, fees and
disbursements of counsel, financial advisors and accountants) shall be borne by
the party which incurs such cost or expense, except that all costs and expenses
incurred by Media or its Subsidiaries in connection with (i) this Agreement and
the transactions contemplated hereby and (ii) the borrowing contemplated by
Section 5.3 hereof that do not exceed $2 million plus legal and accounting fees
incurred prior to the Closing Date (collectively, the "Fees") shall be paid by
Media, but shall not reduce the net worth of Media below the Net Worth Amount,
and, to the extent such net worth would be less than the Net Worth Amount, the
Fees shall be funded by Fairchild.
Section 10.6 Amendments. This Agreement may be amended by the parties
at any time prior to the Closing Date; provided, that this Agreement may not be
amended or modified except by an instrument in writing signed on behalf of each
of the parties hereto.
Section 10.7 Waivers. At any time prior to the Closing Date, the
Company, on the one hand, or Acquiror, on the other hand, may, to the extent
legally allowed, (a) extend the time specified herein for the performance of any
of the obligations or other acts of the other, (b) waive any inaccuracies in the
representations and warranties of the other contained herein or in any document
delivered pursuant hereto or (c) waive compliance by the other with any of the
agreements or covenants of such other party or parties (as the case may be)
contained herein. Any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of the party or parties to be bound
thereby. No such extension or waiver shall constitute a waiver of, or estoppel
with respect to, any subsequent or other breach or failure to strictly comply
with the provisions of this Agreement. The failure of any party to insist on
strict compliance with this Agreement or to assert any of its rights or remedies
hereunder or with respect hereto shall not constitute a waiver of such rights or
remedies.
Section 10.8 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated thereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the fullest
extent possible.
Section 10.9 Captions. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 10.10 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
Section 10.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to any applicable principles of conflicts of law.
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Section 10.12 Limitations of Remedies. Neither party hereto shall be
liable to the other for indirect, special, incidental, consequential or punitive
damages claimed by such other party resulting from such first party's breach of
its obligations, agreements, representations or warranties hereunder, provided,
that nothing hereunder shall preclude any recovery by an indemnified party
against an indemnifying party for third party claims.
* * *
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<PAGE> 44
IN WITNESS WHEREOF, the parties have executed this Acquisition
Agreement as of the date first above written.
ABC, INC.
By: /s/ Stephen B. Burke
--------------------------------
Stephen B. Burke
Executive Vice President
KNIGHT-RIDDER, INC.
By: /s/ Christina L. Mendoza
-------------------------------
Cristina L. Mendoza
Vice President and
General Counsel
<PAGE> 1
EXHIBIT 3(ii)
BYLAWS
OF
KNIGHT-RIDDER, INC.
(As Amended Through January 28, 1997)
ARTICLE I
Shareholders
SECTION 1 - ANNUAL MEETING: The annual meeting of the shareholders of
the Company for the election of directors and for the transaction of such other
business as may properly come before the meeting, shall be held at the
principal office of the Company or at such other place as may be designated by
the Board of Directors and specified in the notice of such meeting, at such
time and upon such date during the months of April or May in each year as the
Board of Directors may determine.
SECTION 2 - SPECIAL MEETING: Special meetings of the shareholders of
the Company may be held on any business day, when called by the Chairman of the
Board, the Vice Chairman of the Board, the President, or a Vice President, or by
the Board acting at a meeting, or by a majority of the directors acting without
a meeting, or by persons who hold ten percent (10%) of all shares outstanding
and entitled to vote thereat. Upon request in writing, delivered either in
person or by registered mail to the Chairman of the Board, the Vice Chairman of
the Board, the President, or the Secretary, by any persons entitled to call a
meeting of shareholders, which request shall state the objects for which the
meeting is to be called, and the business considered and transacted at any such
meeting called on the request of shareholders shall be confined to the objects
stated in such request, such officer shall forthwith cause to be given to the
shareholders entitled thereto notice of a meeting to be held on a date not less
than ten (10) nor more than sixty (60) days after the receipt of such request,
as such officer may fix. If such notice is not given within fifteen (15) days
after the delivery or mailing of such request, the persons calling the meeting
may fix the time of the meeting and give notice thereof in the manner provided
by law or as provided in these Bylaws, or cause such notice to be given by any
designated representative. Each special meeting shall be called to convene
between 9:00 o'clock A.M. and 4:00 o'clock p.m. and shall be at the principal
office of the Company in Miami, Florida, unless the same is called by the
directors, acting with or without a meeting, in which case such meeting may be
held at any place either within or without the State of Florida designated by
the directors and specified in the notice of such meeting.
<PAGE> 2
SECTION 3 - NOTICE OF MEETINGS: Not less than ten (10) nor more than
sixty (60) days before the date fixed for a meeting of shareholders, written
notice stating the time, place and purposes of such meeting shall be given by
or at the direction of the Secretary or an Assistant Secretary, or any other
person or persons required or permitted by law to give such notice. The notice
shall be given by personal delivery or by first-class mail to each shareholder
entitled to notice of the meeting who is of record as of the day preceding the
day on which notice is given or, if a record date therefor is duly fixed, of
record as of said date, if mailed, the notice shall be addressed to the
shareholders at their respective addresses as they appear on the records of the
Company. Notice of the time, place and purpose of any meeting of shareholders
may be waived in writing, either before or after the holding of such meeting by
any shareholder, which writing shall be filed with or entered upon the records
of the meeting.
SECTION 4 - QUORUM; ADJOURNMENT: Except as may be otherwise provided
by law or by the Articles of Incorporation, at any meeting of the shareholders,
the holders of shares entitling them to exercise a majority of the voting power
of the Company present in person or by proxy shall constitute a quorum for such
meeting; provided, however, that no action required by law, the Articles, or
these Bylaws to be authorized or taken by a designated proportion of the shares
of the Company may be authorized or taken by a lesser proportion; and, provided
further, that the holders of a majority of the voting shares represented
thereat, whether or not a quorum is present, may adjourn such meeting from time
to time; if any meeting is adjourned, notice of such adjournment need not be
given if the time and place which is adjourned are fixed and announced at such
meeting unless a new record date is established, in which event a new notice for
the adjourned meeting shall be given in accordance with Section 3 of this
Article.
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<PAGE> 3
SECTION 5 - PROXIES: Any shareholder entitled to vote or express his
consent or dissent at a meeting of the shareholders may do so in person or may
be represented by proxy, appointed by an instrument in writing, signed by the
shareholder or by his duly authorized attorney-in-fact.
SECTION 6 - APPROVAL AND RATIFICATION OF ACTS OF OFFICERS AND BOARD:
Except as otherwise provided by the Articles of Incorporation or by law, any
contract, act, or transaction, prospective or past, of the Company, or of the
Board, or of the officers may be approved or ratified by the affirmative vote at
a meeting of the shareholders of the holders of shares entitling them to
exercise a majority of the voting power of the Company, and such approval or
ratification shall be as valid and binding as though affirmatively voted for by
every shareholder of the Company."
SECTION 7 - NOTIFICATION OF SHAREHOLDER BUSINESS: All business
properly brought before an annual meeting shall be transacted at such meeting.
Business shall be deemed properly brought only if it is (i) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (ii) otherwise properly brought before the meeting by
or at the direction of the Board of Directors or (iii) brought before the
meeting by a shareholder of record entitled to vote at such meeting if written
notice of such shareholder's intent to bring such business before such meeting
is delivered to, or mailed, postage prepaid, and received by, the Secretary of
the Company at the principal office of the Company in Miami, Florida not later
than one hundred twenty (120) days prior to the anniversary date of the
Company's proxy statement relating to the immediately preceding annual meeting.
Each notice given by such shareholder shall set forth: (A) a brief description
of the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting; (B) the name and address of the
shareholder who intends to propose such business; (C) a representation that the
shareholder is a holder of record of stock of the Company entitled to vote at
such meeting (or if the record date for such meeting is subsequent to the date
required for such shareholder notice, a representation that the shareholder is
a holder of record at the time of such notice and intends to be a holder of
record on the record date for such meeting), setting forth the number and class
of shares so held, and intends to
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<PAGE> 4
appear in person or by proxy at such meeting to propose such business; and (D)
any material interest of the shareholder in such business. The Chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Section 7; and, if the Chairman should so determine and
declare, any such business not properly brought before the meeting shall not be
transacted.
ARTICLE II
Shares
SECTION 1 - FORM OF CERTIFICATES AND SIGNATURES: The shares of the
Company shall be represented by certificates unless the Board shall by
resolution provide that some or all of any class or series of stock shall be
uncertified shares Any such resolution shall not apply to shares represented by
a certificate until the certificate is surrendered to the company.
Notwithstanding the adoption of any resolution providing for uncertificated
shares, each holder of shares is entitled to one or more certificates, signed
by the Chairman of the Board, the Vice Chairman of the Board, the President or a
Vice President and by the Secretary or an Assistant Secretary of the Company,
which shall certify the number and class of shares held by him in the company,
but no certificate for shares shall be executed or delivered until such shares
are fully paid. When such a certificate is countersigned by an incorporated
transfer agent or registrar, the signature of any of said officers of the
Company may be facsimile, engraved, stamped or printed. In case any officer who
signed or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the corporation with the same effect as if he were such officer at the
date of its issuance.
SECTION 2 - TRANSFER OF SHARES: Shares of the Company shall be
transferable upon the books of the Company by the holders thereof, in person,
or by a duly authorized attorney, and, where represented by certificates,
upon surrender and cancellation of certificates for a like number of shares of
the same class or series, with duly executed assignment and power of transfer
endorsed thereon or attached thereto, and with such proof of the
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<PAGE> 5
authenticity of the signatures to such assignment and power of transfer as the
Company or its agents may reasonably require.
SECTION 3 - LOST, STOLEN, OR DESTROYED CERTIFICATES: The Company may
issue a new certificate for shares in place of any certificate theretofore
issued by it and alleged to have been lost, stolen, or destroyed or claimed as
abandoned property by an appropriate governmental representative and the Board
may, in its discretion, require the owner or high legal representatives, to give
the Company a bond continuing such terms as the Board may require to protect the
Company or any person injured by the execution and delivery of a new
certificate.
SECTION 4 - TRANSFER AGENTS AND REGISTRARS: The Board may appoint, or
revoke the appointment of, transfer agents and registrars and may require all
certificates for shares to bear the signatures of such transfer agents and
registrars, or any of them. The Board shall have the authority to make all
such rules and regulations as it may deem expedient concerning the issue,
transfer, and registration of certificates for shares of the Company.
SECTION 5 - FIXING A RECORD DATE: For any lawful purpose, including
without limitation, the determination of the shareholders who are entitled to:
(1) Receive notice of or to vote at a meeting of shareholders,
(2) Receive payment of any dividend or distribution,
(3) Receive or exercise rights of purchase of or subscription for,
or exchange or conversion of, shares or other securities,
subject to contract rights with respect thereto, or
(4) Participate in the execution of waivers or releases,
the Board may fix a record date which shall not be more than sixty (60) days
(nor less than ten (10) days in the case provided by the clause (1) above)
preceding the date of the meeting of shareholders or the date fixed for the
payment of any dividend or distribution, or the date fixed for the receipt or
the exercise of
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<PAGE> 6
rights, as the case may be. The record date for the purpose of the
determination of the shareholders who are entitled to receive notice of or to
vote at a meeting of shareholders shall continue to be the record date for all
adjournments of such meetings, unless the Board or the persons who shall have
fixed the original record date shall, subject to the limitations set forth in
this Article, fix another date and, in case a new record date is so fixed,
notice thereof and of the date to which the meeting shall have been adjourned
shall be given to shareholders of record as of such date in accordance with the
same requirements as those applying to a meeting newly called.
SECTION 6 - CONTROL SHARE REDEMPTION: The Company is authorized to
redeem control shares acquired in a control-share acquisition to the fullest
extent permitted by Section 607.109 of the Florida General Corporation Act as
the same now exists or as it may be hereafter amended from time to time. Any
such redemption shall be made at the direction of, and in the manner prescribed
by, the Board of Directors. For purposes of this Section 6, the terms 'control
shares' and 'control-share acquisition' shall have the meanings ascribed to
them by Section 607.109 of the Florida General Corporation Act.
ARTICLE III
Board of Directors
SECTION I - AUTHORITY: Except where the law, the Articles of
Incorporation, or these Bylaws require action to be authorized or taken by the
shareholders, all of the authority of the Company shall be exercised by the
directors.
SECTION 2 - NUMBER OF; QUALIFICATIONS: The Board of Directors of the
Company shall consist of such number of directors as may be determined from time
to time by resolution adopted by the Board of Directors, except that such number
shall not be less than (10) nor more than twenty (20); no reduction in the
number of directors shall of itself have the effect of shortening the term of an
incumbent member.
SECTION 3 - ELECTION OF DIRECTORS; VACANCIES: The directors shall be
elected at each annual meeting of shareholders or at a special meeting called
for the purpose of electing directors. At a meeting of shareholders, at which
directors are to be elected,
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<PAGE> 7
only persons nominated as candidates shall be eligible for election as
directors, and the candidates receiving the greatest number of votes shall be
elected. In the event of the occurrence of any vacancy or vacancies in the
Board, however caused, the remaining directors, though less than a majority of
the whole authorized number of directors, may, by the vote of a majority of
their number, fill any such vacancy for the unexpired term.
SECTION 4 - NOTIFICATION OF NOMINATIONS: Subject to the rights of the
holders of any one or more series of Preference Stock then outstanding,
nominations for the election of directors may be made by the Board of Directors
or by any shareholder entitled to vote for the election of directors. Any
shareholder entitled to vote for the election of directors at an annual meeting
or a special meeting called for the purpose of electing directors may nominate
persons for election as directors at such meeting only if written notice of
such shareholder's intent to make such nomination is delivered to, or mailed,
postage prepaid, and received by, the Secretary of the Company at the principal
office of the Company in Miami, Florida not later than (i) in the case of an
annual meeting, one hundred twenty (120) days prior to the anniversary date of
the Company's proxy statement relating to the immediately preceding annual
meeting and (ii) in the case of a special meeting, the close of business on the
tenth day following the date on which the Company first makes public disclosure
of the date of the special meeting. Each notice given by such shareholder
shall set forth: (A) the name and address of the shareholder who intends to
make the nomination and of the person or persons to be nominated; (B) a
representation that the shareholder is a holder of record of stock of the
Company entitled to vote at such meeting (or if the record date for such
meeting is subsequent to the date required for such shareholder notice, a
representation that the shareholder is a holder of record at the time of such
notice and intends to be a holder of record on the record date for such
meeting), setting forth the number and class of shares so held, and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (C) a description of all arrangements or
understandings between the shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (D) such other information
regarding each nominee proposed by such shareholder as would have been required
to be included in a proxy
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<PAGE> 8
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had each nominee been nominated, or intended to be nominated, by the
Board of Directors; and (E) the consent of each nominee to serve as a director
of the Company if so elected. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the provisions of this Section 4; and, if the Chairman should
so determine and declare, the defective nomination shall be disregarded.
SECTION 5 - TERM OF OFFICE; RESIGNATIONS: Directors shall hold office
until the next annual meeting of shareholders and until their successors are
elected and qualified, or until their earlier resignation, removal from office,
or death. Any director may resign at any time, by oral statement to that
effect made at a meeting of the Board or in a writing to that effect delivered
to the Secretary, such resignation to take effect immediately or at such other
time as the director may specify.
SECTION 6 - MEETINGS: Immediately after each annual meeting of the
shareholders, the newly elected directors shall hold an organization meeting
for the purpose of electing officers and transacting any other business. Other
meetings of the Board may be held at any time within or without the State of
Florida in accordance with the resolutions or other action by the Board. The
Secretary shall give written notice of the time and place of all meetings of
the Board of Directors, other than the organization meetings, to each member of
the Board at least two (2) days before the meeting.
SECTION 7 - QUORUM; ADJOURNMENT: A quorum of the Board shall consist
of a majority of the directors then in office; provided that a majority of the
directors present at a meeting duly held, whether or not a quorum is present,
may adjourn such meeting from time to time; if any meeting is adjourned, notice
of adjournment need not be given if the time and place to which it is adjourned
are fixed and announced at such meeting. At each meeting of the Board at which
a quorum is present, all questions and business shall be determined by a
majority vote of those present except as in these Bylaws otherwise expressly
provided.
SECTION 8 - APPOINTMENT OF COMMITTEES: The Board of Directors may
appoint such committees, in addition to the
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<PAGE> 9
Executive Committee, as it may consider proper, and such committees shall
exercise such powers and duties as the Board from time to time may prescribe,
subject to the Articles of Incorporation, these Bylaws, and applicable law.
SECTION 9 - CONTRACTS: No contracts or other transaction between the
Company and one or more of its directors or any other corporation, firm,
association, or entity shall be made void or voidable by the fact that
directors of the Company are financially interested in, or are directors or
officers of such other corporation, firm, association, or entity if, at the
meeting of the Board, or of the committee of the Company making, authorizing,
or confirming such contract or transaction, the fact of such relationship or
interest is disclosed or known to the Board of Directors or committee which
authorizes, approves, or ratifies such contract or transaction by a vote or
consent sufficient for the purpose without counting the vote or consent of such
interested director; or, if the fact of such relationship or interest is
disclosed or known to shareholders entitled to vote and they authorize,
approve, or ratify such contract or transaction by vote; or, the contract or
transaction is fair and reasonable as to the Company at the time it is
authorized by the Board, committee, or the shareholders. The interested
director or directors may be counted in determining the presence of a quorum at
a meeting of the Board of Directors or committee thereof which authorizes,
approves, or ratifies such contract or transaction.
ARTICLE IV
Executive Committee
SECTION 1 - MEMBERSHIP; APPOINTMENT: The Board may appoint not less
than three (3) directors, one of whom shall be the Chief Executive Officer, who
together shall constitute the Executive Committee. The directors may appoint
one or more directors as alternate members of the Committee, who may take the
place of any absent member or members at any meeting of the Committee. Vacancies
in the Executive Committee may be filled at any meeting of the Board.
SECTION 2 - POWERS; DUTIES: The Executive Committee shall advise with
and aid the officers of the Company in all matters concerning its interests and
the management of its business. When the Board is not in session, the
Executive Committee shall have
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and may exercise all the powers of the Board, so far as such may be delegated
legally, with reference to the conduct of the business of the Company, except
that the Executive Committee shall not take any action to:
(a) Approve or recommend to shareholders actions or proposals
required by law to be approved by shareholders.
(b) Designate candidates for the office of director, for purposes
of proxy solicitation or otherwise.
(c) Fill vacancies on the Board of Directors or any committee
thereof.
(d) Amend the Bylaws.
(e) Authorize or approve the reacquisition of shares unless
pursuant to a general formula or method specified by the Board
of Directors.
(f) Authorize or approve the issuance or sale of, or any contract
to issue or sell, shares or designate the terms of a series of
a class of shares, except that the Board of Directors having
acted regarding general authorization for the issuance or sale
of shares, or any contract therefor, and, in the case of a
series, the designation thereof, may pursuant to a general
formula or method specified by the Board by resolution or by
adoption of a stock option or other plan, authorize the
Executive Committee to fix the terms of any contract for the
sale of the share and to fix the terms upon which such shares
may be issued or sold, including, without limitation, the
price, the rate or manner of payment of dividends, provisions
for redemption, sinking fund, conversion, and voting or
preferential rights, and provisions for other features of a
class of shares, or a series of a class of shares, with full
power in such committee to adopt any final resolution setting
forth all the terms thereof and to authorize the statement of
the terms of a series for filing with the Department of State
under the applicable law.
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SECTION 3 - MEETINGS: Regular meetings of the Executive Committee may
be held without call or notice at such times and places as the Executive
Committee from time to time may fix. Other meetings of the Executive Committee
may be called by any member thereof either by oral, telegraphic or written
notice not later than the day prior to the date set for such meeting. Such
notice shall state the time and place of the meeting and if by telegraph or in
writing shall be addressed to each member at his address as shown by the
records of the Secretary. Upon request by any member, the Secretary shall give
the required notice calling the meeting.
SECTION 4 - QUORUM: At any meeting of the Executive Committee, three
(3) members shall constitute a quorum. Any action of the Executive Committee to
be effective must be authorized by the affirmative vote of a majority of the
members thereof present and, in any event, shall require not less than three (3)
affirmative votes.
SECTION 5 - RECORD OF MEETINGS: The Executive Committee shall appoint
its Secretary who shall keep the minutes of the meetings of the Executive
Committee and cause them to be recorded in a book kept at his office for that
purpose. These minutes shall be presented to the Board from time to time for
their information.
ARTICLE V
Officers
SECTION 1 - ELECTION AND DESIGNATION OF OFFICERS: The executive
officers of the Company shall be a Chairman of the Board, a Vice Chairman of
the Board, a President, one or more Vice Presidents, a Secretary, a Treasurer
and Controller, all of whom shall be elected by the Board at its annual
meeting. The Chairman of the Board, the Vice Chairman of the Board or the
President shall be the Chief Executive Officer of the Company as shall be
determined by the Board of Directors from time to time. There may also be one
or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers, and
such other officers as may from time to time be elected by the Board. The
Chairman of the Board, the Vice Chairman of the Board and the President shall
be directors, but no one of the other officers need be a director. Any two (2)
or more
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such offices may be held by the same person, but no officer shall execute,
acknowledge, or verify any instrument in more than one capacity, if such
instrument is required to be executed, acknowledged, or verified by two (2) or
more officers.
SECTION 2 - TERM OF OFFICE; VACANCIES: The officers of the Company
shall hold office until the next organization meeting of the Board and until
their successors are elected, except in case of resignation, death, or removal.
The Board, without prejudice to the contract rights of such officer, may remove
any officer at any time with or without cause by a two-thirds (2/3) vote of the
members of the Board then in office. The Board may fill any vacancy in any
office occurring from whatever reason, may delegate to one (1) or more officers
any of the duties of any officer or officers and prescribe the duties of any
officer.
SECTION 3 - CHIEF EXECUTIVE OFFICER - DUTIES: The Chief Executive
Officer of the Company shall have general charge of the business affairs, and
property of the Company and control over its officers, agents, and employees.
He shall, in general, perform all duties and have all powers incident to the
position of Chief Executive Officer and shall perform such other duties and have
such other powers as from time to time may be prescribed to him by these Bylaws
or by the Board of Directors.
SECTION 4 - CHAIRMAN OF THE BOARD - DUTIES: The Chairman of the Board
shall preside at all meetings of the shareholders and of the Board and shall
have such duties and powers as may be prescribed for him from time to time by
the Board of Directors.
SECTION 5 - VICE CHAIRMAN OF THE BOARD - DUTIES: The Vice Chairman of
the Board shall perform such duties as may be prescribed for him from time to
time by the Board of Directors or by the Chief Executive Officer of the Company.
SECTION 6 - PRESIDENT - DUTIES: The President shall perform such
duties as may be prescribed for him from time to time by the Board of Directors
or by the Chief Executive Officer of the Company.
SECTION 7 - VICE PRESIDENT - DUTIES: Each Vice President shall have
the powers and duties incident to that office and shall have such other duties
as may be prescribed from time to time by
12
<PAGE> 13
the Board of Directors or Chief Executive Officer. In case of the absence or
disability of the President, or when circumstances prevent the President from
acting, a Vice President of the Company shall perform all the duties and
possess all the authority of the President, and shall have priority in the
performance of such duties and exercise of such authority in the order of their
election by the Board. Each Vice President may sign and execute on behalf and
in the name of the Company bonds, contracts, instruments and documents
authorized by the Board.
SECTION 8 - SECRETARY - DUTIES: The Secretary shall attend all
meetings of the shareholders and of the Board, and act as Secretary thereof and
shall keep the minutes thereof in books of the Company provided for that
purpose, and when required he shall perform like duties for the standing
committees, if any, elected or appointed by the Board; he shall see that proper
notice, when required, is given of all meetings of the shareholders and of the
Board; he may sign with the Chairman of the Board, Vice Chairman of the Board,
the President or any Vice President on behalf and in the name of the Company
all contracts and other instruments authorized by the Board or the Executive
Committee; he may sign or his facsimile signature may be used to sign
certificates for shares of the capital stock of the Company; he shall keep in
safe custody the seal of the Company and whenever authorized by the Board or
the Executive Committee, shall attest and affix the seal to any contract or
other instrument requiring the same; he shall keep in safe custody all
contracts and such books, records and other papers as the Board of the
Executive Committee may direct, all of which shall, at all reasonable times, be
open to the examination of any director, upon application at the office of the
Company during business hours, and he shall in general perform all the duties
usually incident to the office of Secretary, subject to the control of the
Board and the Executive Committee.
SECTION 9 - TREASURER - DUTIES: The Treasurer shall have the care and
custody of all funds and securities of the Company and deposit such funds in the
name of the Company in such bank or banks as the Board or the Executive
Committee may designate. The Treasurer is authorized to sign all checks,
drafts, notes, bills of exchange, orders for the payment of money and any
negotiable instruments of the Company, but no instruments shall be signed in
blank. The Treasurer shall disburse the funds of the Company as may be ordered
by the Board, the Executive Committee, or the Chief
13
<PAGE> 14
Executive Officer. The Treasurer shall give such bonds for the faithful
performance of his duties as the Board or the Executive Committee or the Chief
Executive Officer may determine, and shall perform such other duties as may be
incident to the office of Treasurer.
SECTION 10 - CONTROLLER - DUTIES: The Controller shall keep or cause to
be kept books, records and accounts, which, in reasonable detail, accurately
and fairly reflect the transactions and disposition of the assets of the
Company in conformity with accepted methods of recording economic events and in
conformity with generally accepted accounting principles. The Controller shall
prescribe policies and procedures necessary to devise and maintain adequate
systems of internal accounting controls. The Controller shall at all
reasonable times exhibit the books and accounts to any director, and also,
provided the Board or Executive Committee or the Chief Executive Officer so
orders, to any shareholder of the Company upon application at the office of the
Company by such shareholder during business hours; and the Controller shall
give such bond for the faithful performance of his duties as the Board or the
Executive Committee or the Chief Executive Officer may determine, and shall
perform such other duties as may be incident to the office of the Controller.
SECTION 11 - OTHER OFFICERS - DUTIES: The Assistant Secretaries, the
Assistant Treasurers and Assistant Controllers, if any, in addition to such
authority and duties as the Board may determine shall have such authority and
perform such duties as may be directed by their respective principal officers.
ARTICLE VI
Compensation
The Board, by the affirmative vote of a majority of the directors in
office, and irrespective of any personal interest of any of them, shall have
authority to establish reasonable compensation which may include pension,
disability and death benefits, for services to the Company by directors and
officers or to delegate such authority to one or more officers and directors.
14
<PAGE> 15
ARTICLE VII
Indemnification
The Company shall indemnify any person who is made, or threatened to be
made, a party to, or is otherwise involved in, any action, suit or other type
of proceeding (whether civil, criminal, administrative or investigative, and
whether formal or informal) by reason of the fact that he is or was a director
or officer of the Company or, at the request of the Company, is or was serving
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise in any capacity, to the fullest extent permitted by the
laws of Florida as from time to time in effect. The Company may, if it so
determines in a specific case, indemnify other employees or agents of the
Company in the same manner and to the same extent.
Expenses (including counsel fees) incurred by an officer or director in
defending any pending, threatened, or completed action, suit or other type of
proceeding (whether civil, criminal, administrative or investigative, and
whether formal or informal) shall be paid by the Company in advance of the
determination of such officer's or director's entitlement to indemnification
promptly upon receipt of an undertaking by or on behalf of such officer or
director to repay amounts so advanced in the event and to the extent that such
officer or director is ultimately found not to be entitled to indemnification
by the Company as authorized by this Article. Such amounts incurred by other
employees and agents may be so paid in advance upon such terms and conditions,
if any, as the Board of Directors deems appropriate. The Board of Directors
may, upon approval of such officer or director, authorize the Company's counsel
to represent such officer or director, in any action, suit or proceeding,
whether or not the Company is a party thereto.
All rights to indemnification and advances under this Article shall be
deemed to be a contract between the Company and each director, officer,
employee or agent of the Company who serves or served in such capacity at any
time while this Article is in effect. Any repeal or modification of this
Article or any repeal or modification of relevant provisions of the Florida
General Corporation Law or any other applicable laws shall not in any way
diminish any rights to indemnification and to such advances of such director,
officer, employee or agent or the obligations of
15
<PAGE> 16
the Company arising hereunder. The provisions of this Article shall inure to
the benefit of heirs, executors, administrators and personal representatives of
those entitled to indemnification and to such advances and shall be binding
upon any successor to the Company to the fullest extent permitted by the laws
of Florida as from time to time in effect. The indemnification and advancement
of expenses provided by this Article shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement may be entitled
under Florida law or any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise.
Any indemnification or advance required by this Article VII shall be made
promptly, and in any event within 30 days, upon the written request of the
indemnified party. The right to indemnification or advances as granted by this
Article shall be enforceable by the indemnified party in any court of competent
jurisdiction if the Company denies such request, in whole or in part, or if no
disposition thereof is made within 30 days. The indemnified party's costs and
expenses incurred in connection with successfully establishing a right of
indemnification or advances, in whole or in part, in any such action shall also
be indemnified by the Company.
ARTICLE VIII
Execution of Contracts,
Vouchers, and Negotiable Instruments
The Board or the Executive Committee may authorize any of the officers
of the Company or any other person or persons, either singly or with another
such officer or person as said Board or Committee may direct, to sign, on
behalf and in the name of the Company, contracts, indentures, deeds,
conveyances, leases, declarations, communications and other instruments and
documents, and the Board or the Executive Committee may authorize any of the
officers of the Company or any other person or persons, either singly or with
another such officer or person as said Board or Committee may direct, to sign,
on behalf and in the name of the Company, manually or by facsimile signature,
checks, drafts, notes, bonds, debentures, bills of exchange and orders for the
payment of money. In case any of the officers of the Company who shall have
signed, or whose facsimile signature or signatures shall have been used, as
aforesaid, upon any such document,
16
<PAGE> 17
instrument or security shall cease to be such officer of the Company before
such document, instrument or security shall have been delivered or issued, such
document, instrument or security, upon due delivery or issuance thereof, shall
be valid and effective as though the person or persons who signed or whose
facsimile signature or signatures were used upon such document, instrument, or
security had not ceased to be such officer of the Company.
ARTICLE IX
Authority to Transfer and Vote Securities
The Chairman of the Board, the Vice Chairman of the Board, the
President, and each Vice President of the Company are each authorized to sign
the name of the Company and to perform all acts necessary to effect a transfer
of any shares, bonds, other evidences of indebtedness or obligations,
subscription rights, warrants, and other securities of another corporation
owned by the Company and to issue the necessary powers of attorney for the
same; and each such officer is authorized, on behalf of the Company, to vote
such securities, to appoint proxies with respect thereto, and to execute
consents, waivers, and releases with respect thereto, or to cause any such
action to be taken.
ARTICLE X
Amendments
Except as otherwise provided by law, the Bylaws of the Company may be
adopted, altered, amended, or repealed by the Board of Directors, provided,
however, the shareholders may repeal, alter, or amend Bylaws adopted by the
Board of Directors, may adopt new Bylaws, and may prescribe that any Bylaw made
by them may not be altered, amended, or repealed by the Board of Directors.
17
<PAGE> 1
EXHIBIT 10
KNIGHT-RIDDER, INC.
LONG-TERM INCENTIVE PLAN
INTRODUCTION AND OVERVIEW
The Knight-Ridder Long-term Incentive Plan (the "Plan") is intended to motivate
and reward senior executives for creating shareholder value that is equal to or
greater than that created by other leading newspaper companies. Specific Plan
objectives include:
- Focus participants on total shareholder return ("TSR"),
defined as stock appreciation plus dividends (assuming that
dividends are reinvested in Knight-Ridder stock)
- Link rewards to the level of TSR achieved as well as to
Knight-Ridder's TSR relative to that of other companies that
comprise the S&P Publishing/Newspaper Index
- Provide participants the opportunity to earn compensation
commensurate with performance, including superior rewards for
superior performance
The Plan covers a single three-year period, from 1997 through 1999. Early in
the period, participants will receive grants of restricted shares of
Knight-Ridder stock. Vesting of these shares will depend on the TSR for
Knight-Ridder stock from December 1996 through December 1999 compared to the
median TSR for the stock of the other companies in the S&P Publishing/Newspaper
Index during the same period. Depending on the TSR for Knight-Ridder relative
to the median of the comparison companies, anywhere between 0 and 100% of the
restricted shares will vest.
If and when vesting occurs, participants will have the right to sell the
shares. Upon vesting, participants will also receive a payment (in either cash
or stock) equal to the dividends that were paid on the vested shares between
January 1, 1997 and December 31, 1999, as well as any additional value that
would have accrued if each of those dividends had been invested in
Knight-Ridder stock on the last business day of the quarter in which it was
paid. Unvested shares will be forfeited, and no dividend-related payments will
be made on them.
PLAN ADMINISTRATION
The Plan will be administered by the Compensation Committee of the
Knight-Ridder, Inc. Board of Directors (the "Committee"). The Committee has
the authority to interpret the provisions of the Plan and to make any rules and
regulations necessary to administer the Plan. The Committee's decision is
final in all matters of judgment pertaining to the Plan, and the Committee may,
without notice, amend, suspend or revoke the Plan.
1
<PAGE> 2
PARTICIPATION
Participants will include selected officers whose participation is approved by
the Committee based on the Committee's assessment of their ability to have
significant impact on Knight-Ridder's TSR.
Participants can be added up until December 31, 1998 (i.e., as long as there is
at least one year of the performance measurement period remaining) in the event
of promotions or new hires who meet the participation criteria.
GRANT SIZE
The value of the shares granted to each initial participant will equal 75% of
the individual's salary as of January 1, 1997 for each year of the Plan. The
number of shares granted will equal this value divided by the average daily
closing price of Knight-Ridder's stock during December 1996.
If a participant is added to the Plan after the initial grant is made, the
value of the shares at grant will be reduced from three times 75% of salary on
a pro rata basis to reflect the number of full calendar months in the period of
participation. The salary to be used for this purpose shall be the annual rate
of salary in effect for the participant as of the first day of the month in
which the award is made. The stock price for computing the number of shares
shall be the average daily closing price of KRI stock during the last completed
calendar month prior to the making of the award.
VESTING
As long as Knight-Ridder's TSR is positive, the percentage of restricted shares
that vest will be determined based on the relationship between Knight-Ridder's
TSR and the median TSR of the five companies (other than Knight-Ridder) in the
S&P Publishing/Newspaper Index. If Knight-Ridder's TSR is not positive, then
no shares will vest, regardless of relative positioning.
The five other companies in the S&P Publishing/Newspaper Index are Dow Jones &
Company, Inc., Gannett Co., Inc., The New York Times Company, The Times Mirror
Company, and Tribune Company. The median will equal the middle-ranked TSR of
the five companies. If any of the five Companies in the S&P Publishing
Newspaper Index changes substantially or is no longer part of the Index at the
end of the performance period, then the median comparison shall be with the
five Companies that then make up the S&P Publishing Index.
If one or more of these companies changes substantially or no longer exists by
the end of the performance measurement period, the Committee will decide on the
companies that will be used for the relative TSR comparison.
2
<PAGE> 3
TSR for each company will equal compound annual price appreciation plus
dividends, assuming the dividends were reinvested in the company's stock at the
end of each quarter in which a dividend is paid. The beginning stock price for
each company will equal the average daily closing price for December 1996, and
the ending stock price will equal the average daily closing price for December
1999. The attached document entitled "Calculation of Total Shareholder Return"
describes the procedure for calculating compound annual TSR and illustrates the
approach with examples.
If Knight-Ridder's TSR is positive, then the relationship between vesting and
TSR relative to the peer median will be as follows:
- No shares vest if TSR is below the peer median
- 15% of the shares vest if TSR is equal to the peer median
- 20% of the shares vest if TSR is equal to 1% above the
peer median
- 100% of the shares vest if TSR is equal to 5% above the
peer median
- Interpolation will be used to determine the number of shares
that vest for TSR between median and 1% above median and
between 1% and 5% above median
All TSR calculations for purposes of the Plan will be rounded to one decimal
point.
Once shares have vested, participants are free to either continue to hold them
or to sell them. Participants may not assign their awards under the Plan
before the awards have vested.
OTHER PLAN FEATURES
TERMINATION
Plan participation will end and vesting rights will be forfeited if a
participant dies, becomes disabled, or retires on or before the end of the
first year of the performance measurement period (i.e., December 31, 1997). If
death, disability or retirement occurs on or after January 1, 1998, then
vesting will occur on the same date as for participants who continue to be
employed through the end of the performance measurement period, but on a pro
rata basis to reflect the percentage of the three-year period that was worked.
Participants will receive a form to complete designating a beneficiary in the
event of death on or after January 1, 1998.
Termination for reasons other than death, disability, or retirement will result
in immediate forfeiture of vesting rights and termination of participation in
the Plan.
3
<PAGE> 4
DIVIDEND-RELATED PAYMENTS
In January 2000, the vesting percentage for the shares will be calculated. If
shares have vested, the payments due to participants associated with the
dividends will be paid. The amount of these payments will be determined by
calculating the number of shares that would result from the reinvestment of
dividends on one share of KRI stock (as described in the attached document
under the heading "Calculating the Impact of the Reinvestment of Dividends")
and multiplying this amount by the number of shares which have vested. The
Committee, in its discretion, shall determine whether the amount so calculated
will be paid in cash or shares of KRI stock. If payment is to be made in
stock, Knight-Ridder will deliver to the participant the number of shares of
KRI stock resulting from the above calculation, plus cash in lieu of any
fractional share. If payment is to be made in cash, or to determine the cash
equivalent of a fractional share, the KRI shares will be valued using the
average daily closing price of the KRI stock during December 1999. Required
tax amounts will be withheld.
EMPLOYMENT RIGHTS
The Plan does not constitute a contract of employment, nor does participation
in this Plan guarantee participation in any other plan.
EFFECTIVE DATE
The Plan is subject to approval by shareholders at the Knight-Ridder 1997
annual meeting of shareholders. The Plan can be amended and extended by the
Committee without shareholder approval.
ANTI-DILUTION PROVISION
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, rights offer, merger, consolidation, spin-off,
sale of assets, payment of an extraordinary dividend, or any other change in or
affecting the corporate structure or capitalization of Knight-Ridder, each
restricted share then subject to an award under the Plan shall be converted
into, exchanged for, or credited with the number and kind of securities or
property into which each outstanding share of Knight-Ridder common stock shall
be deemed to be converted or exchanged or which shall be deliverable with
respect to each outstanding share of Knight-Ridder common stock as a result of
such event, and the provisions of this Plan shall continue to apply to such
substituted securities or property.
4
<PAGE> 5
CALCULATION OF TOTAL SHAREHOLDER RETURN
KNIGHT-RIDDER LONG-TERM INCENTIVE PLAN
This memo outlines the methodology for calculating total shareholder return
(TSR), which is defined as annualized stock price appreciation plus reinvested
dividends. For the purposes of the Long-term Incentive Plan, TSR will be
calculated over a three year performance period. The calculation is described
below, and reference is made to the attached exhibits.
CALCULATING TSR: SIMPLIFIED EXAMPLE
To calculate TSR, one must first determine the total return (stock appreciation
plus dividends paid) at the end of the period analyzed. A simplified example
of this calculation is illustrated in Exhibit 1, assuming that the period
analyzed is only one year.
- The stock price at the beginning of the period is $40.00
- The stock price at the end of the period is $43.30
- An $0.80 dividend is paid on the last day of the year
- When the $0.80 dividend is added to the ending stock price,
the total value to the shareholder equals $44.10
- This results in a total dollar return of $4.10, or $44.10 minus
$40.00
- The TSR for the one year period analyzed equals $4.10/$40.00,
or 10.2% per year
CALCULATING THE IMPACT OF THE REINVESTMENT OF DIVIDENDS
Because we are calculating TSR over a three-year period, and because dividends
are typically paid on a quarterly basis, we assume that dividends paid are
reinvested in the company's stock on a quarterly basis. It is standard
practice to assume that dividends are reinvested in the company's stock when
calculating TSR. For the Long-term Incentive Plan, we will be calculating each
peer company's TSR assuming that the dividends it pays are reinvested in that
company's own stock.
The calculation of the reinvestment of dividends is as follows (see Exhibit 2):
- We start the beginning of the period (December 31, 1996) with
1.000 share worth $40.00
5
<PAGE> 6
- Dividends equal to $0.200 per share are paid quarterly at the
end of each quarter
- At the end of the first quarter (March 31, 1997), the dividend
paid is used to purchase additional shares. This is the
method by which the dividend reinvestment is calculated
- Quarterly dividend per share of $0.200 on 1.000
shares means that dividend of $0.200 is paid
- Dividend of $0.200 is reinvested in the company's
stock at the closing stock price at the end of that
quarter. Since the stock price at that time is
$40.80, this dividend is used to purchase an
additional .005 shares ($0.200/$40.80), bringing
the total number of shares to 1.005
- This process of assuming that dividends are reinvested in the
company's stock is repeated at the end of the following
quarter, beginning with 1.005 shares
- Quarterly dividend per share of $0.200 on 1.005 shares
equals total dividends of $0.201
- Dividends of $0.201 are reinvested in company stock
at the closing stock price at the end of that
quarter. Since the stock price at that time is
$41.62, this dividend is used to purchase an
additional .005 shares ($0.201/$41.62), bringing the
total number of shares to 1.010
- This process is repeated until the end of the period analyzed
CALCULATING TSR: ACTUAL EXAMPLE
Once the total number of shares at the end of period is determined, the TSR can
be calculated (Exhibit 3).
- The beginning value is equal to the closing stock price on the
first day of the period (shown here as $40.00)
- The ending value is equal to the closing stock price on the
last day of the period times the ending number of shares
(shown here as $50.73 X 1.067 = $54.15)
6
<PAGE> 7
- The total gain is therefore $14.15 ($54.15 - $40.00). This
equals a return of 35.4% on the $40.00 starting price,
calculated on a point-to-point basis. However, TSR is
calculated on a compound annual growth basis, and so the
return must be annualized
- A 35.4% point-to-point return over a three-year period is
equal to a 10.6% compound annual return per year:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Beginning
Value Year 1 Year 2 Year 3
of Shares 11.1% Return 11.1% Return 11.1% Return
- --------- ------------ ------------ ------------
$40.00 $44.25 $48.95 $54.15
($40.00 X 1.106) ($44.25 X 1.106) ($48.95 X 1.106)
</TABLE>
With a financial calculator, the 10.6% compound annual growth rate can be
derived by inputting $40.00 as the beginning value, $54.15 as the ending value,
and 3 as the number of periods. Mathematically, this is equivalent of
calculating the cube root of the point-to-point return of 35.4%: 1.354 (1/3) =
1.106.
7
<PAGE> 8
EXHIBIT 1
ILLUSTRATIVE
CALCULATION OF ONE-YEAR TOTAL
SHAREHOLDER RETURN
<TABLE>
<CAPTION>
Total
Stock Dividend Value of
Date Price Per Share Shares
<S> <C> <C> <C>
Dec. 31, 1996 $40.00 -- $40.00
Dec. 31, 1997 $43.30 $0.80 $44.10
Total Return $ $4.10
TSR 10.2%
($4.10/$40.00)
</TABLE>
8
<PAGE> 9
EXHIBIT 2
ILLUSTRATIVE
CALCULATION OF DIVIDEND REINVESTMENT
<TABLE>
<CAPTION>
Shares at Additional Shares at
Beginning Stock Dividend Total Number of End of
Date of Quarter Price Per Share Dividends Shares Quarter
<S> <C> <C> <C> <C> <C> <C>
Dec. 31, 1996 -- $40.00 -- -- -- 1.000
Mar. 31, 1997 1.000 $40.80 $0.200 $0.200 0.005 1.005
Jun. 30, 1997 1.005 $41.62 $0.200 $0.201 0.005 1.010
Sep. 30, 1997 1.010 $42.45 $0.200 $0.202 0.005 1.014
Dec. 31, 1997 1.014 $43.30 $0.200 $0.203 0.005 1.019
</TABLE>
9
<PAGE> 10
EXHIBIT 3
ILLUSTRATIVE
CALCULATION OF TOTAL SHAREHOLDER RETURN
<TABLE>
<CAPTION>
Shares at Additional Shares at Total
Beginning Stock Dividend Total Number of End of Value of
Date of Quarter Price Per Share Dividends Shares Quarter Shares
<S> <C> <C> <C> <C> <C> <C> <C>
Dec. 31, 1996 1.000 $40.00 -- -- -- 1.000 $40.00
Mar. 31, 1997 1.000 $40.80 $0.20 $0.20 0.005 1.005 $41.00
Jun. 30, 1997 1.005 $41.62 $0.20 $0.20 0.005 1.010 $42.02
Sep. 30, 1997 1.010 $42.45 $0.20 $0.20 0.005 1.014 $43.06
Dec. 31, 1997 1.014 $43.30 $0.20 $0.20 0.005 1.019 $44.13
Mar. 31, 1998 1.019 $44.16 $0.25 $0.25 0.006 1.025 $45.26
Jun. 30, 1998 1.025 $45.05 $0.25 $0.26 0.006 1.031 $46.43
Sep. 30, 1998 1.031 $45.95 $0.25 $0.26 0.006 1.036 $47.61
Dec. 31, 1998 1.036 $46.87 $0.25 $0.26 0.006 1.042 $48.82
Mar. 31, 1999 1.042 $47.80 $0.30 $0.31 0.007 1.048 $50.11
Jun. 30, 1999 1.048 $48.76 $0.30 $0.31 0.006 1.055 $51.43
Sep. 30, 1999 1.055 $49.73 $0.30 $0.32 0.006 1.061 $52.77
Dec. 31, 1999 1.061 $50.73 $0.30 $0.32 0.006 1.067 $54.15
Return $ $14.15
Point-to-Point Return 35.4%
TSR 10.6%
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME, THE CONSOLIDATED BALANCE SHEET, AND THE NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> MAR-30-1997
<EXCHANGE-RATE> 1
<CASH> 24,552
<SECURITIES> 0
<RECEIVABLES> 352,474
<ALLOWANCES> 13,714
<INVENTORY> 48,313
<CURRENT-ASSETS> 490,900
<PP&E> 1,692,977
<DEPRECIATION> 778,794
<TOTAL-ASSETS> 2,922,351
<CURRENT-LIABILITIES> 514,354
<BONDS> 456,628
0
0
<COMMON> 1,944
<OTHER-SE> 1,262,098
<TOTAL-LIABILITY-AND-EQUITY> 2,922,351
<SALES> 679,322
<TOTAL-REVENUES> 679,322
<CGS> 93,464<F1>
<TOTAL-COSTS> 581,822
<OTHER-EXPENSES> (204,069)<F2>
<LOSS-PROVISION> 5,009
<INTEREST-EXPENSE> 14,935
<INCOME-PRETAX> 301,569
<INCOME-TAX> 126,838
<INCOME-CONTINUING> 174,731
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 174,731
<EPS-PRIMARY> 1.85
<EPS-DILUTED> 1.85
<FN>
<F1>COST OF GOODS SOLD CONSIST OF NEWSPRINT INK & SUPPLEMENTS.
<F2>OTHER EXPENSES REPRESENTS NET NON-OPERATING INCOME AND EXPENSE, EXCLUDING
INCOME TAXES. AMOUNT INCLUDES INTEREST EXPENSE, NET OF INTEREST INCOME AND
CAPITALIZED INTEREST, AND OTHER NON-OPERATING INCOME NET OF NON-OPERATING
EXPENSE.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99
KNIGHT-RIDDER, INC. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
(In thousands of dollars)
<TABLE>
<CAPTION>
Quarter Ended Four Quarters Ended
--------------------------- -----------------------------
Mar. 30 Mar. 31 Mar. 30 Mar. 31
1997 1996 1997 1996
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUE
Newspapers $ 600,830 $570,756 $2,404,298 $2,283,805
Business Information Services 78,492 126,905 352,206 491,091
--------- -------- ---------- ----------
$ 679,322 $697,661 $2,756,504 $2,774,896
========= ======== ========== ==========
OPERATING INCOME
Newspapers $ 110,315 $ 61,246 $ 428,654 $ 264,663
Business Information Services (669) 973 143 6,311
Corporate (12,146) (11,607) (46,991) (51,085)
--------- -------- ---------- ----------
$ 97,500 $ 50,612 $ 381,806 $ 219,889
========= ======== ========== ==========
DEPRECIATION AND
AMORTIZATION
Newspapers $ 28,818 28,276 $ 118,154 $ 100,662
Business Information Services 7,747 13,664 39,487 53,120
Corporate 1,343 937 3,441 3,095
--------- -------- ---------- ----------
$ 37,908 $ 42,877 $ 161,082 $ 156,877
========= ======== ========== ==========
</TABLE>
